<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 2000
REGISTRATION NO. 333-95761
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SABA SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-3267638
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2400 BRIDGE PARKWAY
REDWOOD SHORES, CALIFORNIA 94065
(650) 696-3840
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BOBBY YAZDANI
CHIEF EXECUTIVE OFFICER AND PRESIDENT
SABA SOFTWARE, INC.
2400 BRIDGE PARKWAY
REDWOOD SHORES, CALIFORNIA 94065
(650) 696-3840
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PAUL "CHIP" L. LION III, ESQ. ALAN F. DENENBERG, ESQ.
CORI M. ALLEN, ESQ. SHEARMAN & STERLING
HEIKE E. FISCHER, ESQ. 1550 EL CAMINO REAL
TIMOTHY J. HARRIS, ESQ. SUITE 100
MORRISON & FOERSTER LLP MENLO PARK, CA 94025
755 PAGE MILL ROAD (650) 330-2200
PALO ALTO, CA 94304
(650) 813-5600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered in this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES
IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED MARCH 16, 2000.
4,000,000 Shares
[SABA LOGO]
Common Stock
----------------------
This is an initial public offering of shares of common stock of Saba
Software, Inc. All of the 4,000,000 shares of common stock are being sold by
Saba.
Prior to this offering, there has been no public market for the common
stock. Saba anticipates that the initial public offering price per share will be
between $12.00 and $14.00. Saba has applied for quotation of the common stock on
the Nasdaq National Market under the symbol "SABA".
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Saba.......................... $ $
</TABLE>
To the extent that the underwriters sell more than 4,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
600,000 shares from Saba at the initial public offering price, less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares on , 2000.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
BANC OF AMERICA SECURITIES LLC
----------------------
Prospectus dated , 2000.
<PAGE> 3
[Description of graphics:
Set forth on the inside front cover are graphics depicting the following: Across
the top is a bar labeled "Saba Learning Networks." Below, there are two columns.
Above the left-hand column is the sentence "Over 2,000,000 people are licensed
to learn on Saba." The left-hand column includes the sentence "Saba customers
include a wide spectrum of large, global organizations that represent a number
of industries, including:" above the following list: Automotive, Consumer,
Financial Services, Food and Beverage, Government, High Technology, Insurance,
Internet, Manufacturing, Professional Services, Telecommunications,
Telecommunications Equipment, Training Providers, Transportation and Utilities.
The column in the middle is entitled "Saba Learning Exchange." Above the
right-hand column is the sentence "Over 20,000 learning offerings are available
from Saba learning providers. The right-hand column includes the sentence "Saba
learning providers from around the world publish their learning offerings in a
number of categories, including:" above the following list: Management, Core
Competencies, Technology, Sales, Marketing, Finance, Internet, Human Resources,
Media, Services and Support, Education and Learning, Natural Resources, Quality
Assurance and Health and Safety.
The left-hand side of the gate fold depicts the words "What can Saba do for
you?" super imposed on a picture of a world globe. The right-hand side of the
gate fold has, from top to bottom, the heading "Automotive" above the following
paragraph: "A leading automotive manufacturer has licensed the Saba Learning
Network Solution for more than 375,000 dealership personnel throughout its
worldwide dealership network. This company plans to use the products to align
dealer learning with the business goals that support its vision to become the
world's leading consumer company for automotive products and services. This
automotive manufacturer intends to implement certification standards for all
dealership personnel and transition to a competency-driven and
individual-specific model for learning throughout its worldwide dealership
network."; the heading "Telecommunications Equipment" above the following
paragraph: "A leading telecommunications equipment manufacturer has licensed the
Saba Learning Network Solution to deliver and track training for 25,000
employees globally. The company chose Saba to help speed the deployment of
training and information modules relating to its rapidly changing products,
services, and technologies around the world. Using the Saba products, this
company will provide learning to employees anytime, anywhere, over the
Internet."; and the heading "Air Transportation" above the following paragraph:
"An international association chose the Saba Learning Network Solution to help
meet its vision of becoming the leading provider of aviation training and
development in the world. This association intends to connect more than 30,000
people to learning annually. This association plans to use the Saba products to
support training of employees of more than 600 airlines, as well as civilian
aviation and airport organizations in more than 185 countries, and employees of
travel agencies and air cargo organizations around the world." The bottom of the
page has the Saba logo with "connecting people to learning" beneath it.]
<PAGE> 4
PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our consolidated financial statements and
accompanying notes appearing elsewhere in this prospectus. Unless otherwise
indicated, all information contained in this prospectus relating to our
outstanding shares of common stock or options or warrants to purchase our common
stock is based upon information as of February 29, 2000 and assumes (1) the
conversion of each outstanding share of preferred stock into one share of our
common stock, (2) an amendment to our Certificate of Incorporation authorizing
5,000,000 shares of preferred stock and 200,000,000 shares of common stock and
(3) no exercise of the underwriters' over-allotment option.
SABA
We are a provider of software and services that enable businesses and
governments to create and deploy global networks over the Internet that connect
people to learning. Our Internet-based software platform and related services
enable organizations to procure and deliver learning and systematically close
knowledge and competency gaps across their base of employees, customers,
partners and suppliers, known as the "extended enterprise." In addition, we
offer learning providers an Internet-based global marketing and distribution
channel. We recently launched the Saba Learning Exchange, an Internet-based
business-to-business learning marketplace. The Saba Learning Exchange is
designed to enable businesses, governments and learning providers to buy and
sell learning offerings, such as on-line and off-line courses and related
materials, as well as collaborate within learning communities.
As of December 31, 1999, our software was licensed for use by over two
million people and more than 20,000 third-party learning offerings were
accessible on Saba learning networks. Our significant customers include 3Com,
Agilent, Anheuser-Busch, Cisco Systems, Continental Airlines, DaimlerChrysler,
Ford, General Electric, Hyundai, Lucent Technologies, Procter & Gamble and Qwest
Communications. Our learning offerings are available from over 50 third-party
learning providers, including DigitalThink, ExecuTrain, IBM Catapult,
International Air Transport Association, NETg, PROVANT, SkillSoft and the
Sun-Netscape Alliance.
To remain competitive in today's rapidly changing business environment,
organizations must continually strive to improve the knowledge and competencies
of their extended enterprises. A more knowledgeable and competent extended
enterprise leads to improved performance through, among other things, increased
productivity, reduced time and expense associated with bringing new products and
services to market, and improved customer satisfaction and loyalty. Because of
these benefits, many organizations make significant learning investments.
However, they are unable to realize the full potential of these investments
because traditional learning management solutions typically fail to address the
full spectrum of an organization's learning management needs. Additionally,
learning providers have faced significant limitations on their ability to
develop, market, sell, distribute and improve their content offerings.
The rapid adoption of the Internet has created an opportunity to solve many
of the shortcomings of the business learning market. The Internet has the
potential to significantly improve the procurement, deployment and management of
learning offerings. However, existing offerings did not take full advantage of
the Internet and usually were not designed to serve as an integrated solution
capable of improving the manner in which learning is managed across the extended
enterprise. As a result, we believe there is a significant opportunity for a
software and services solution that is designed to leverage the benefits of the
Internet to create learning networks to meet the needs of businesses, their
employees, customers, partners and suppliers, as well as the needs of
third-party learning providers.
3
<PAGE> 5
Our integrated software platform consists of the Saba Learning Network and
Saba Learning Provider Network software applications, as well as Saba Learning
Exchange. Saba Learning Network is an Internet-based software application that
allows enterprises to assess the learning needs of individuals and
organizations, select and purchase on-line and off-line learning materials and
programs, track individual learners' progress, and manage enterprise-wide
learning initiatives. Saba Learning Provider Network is an Internet-based
software application that enables learning providers to develop, market, sell
and distribute on-line and off-line learning materials to organizations
worldwide. Saba Learning Exchange is a business-to-business learning marketplace
that is designed to serve as a single point of access for the highly fragmented
learning market. We also provide a full range of strategic consulting, business
process reengineering, and technical implementation and support services for our
customers.
We have generated most of our revenues to date from license fees for our
Saba Learning Network and Saba Learning Provider Network software products and
related services, including implementation, consulting, support and education
services. We intend to pursue transaction-based revenues, as well as other forms
of revenues, from our recently introduced Saba Learning Exchange.
We intend to increase the number of learners and providers using our
Internet-based platform in order to create the leading global exchange that
connects people to learning. Key elements of our strategy include:
- Increasing the number of our Global 2000 and government customers;
- Extending penetration within our existing customer base and their
affiliates;
- Increasing the number of learning offerings in our network;
- Expanding Saba Learning Exchange;
- Expanding our international presence; and
- Developing new uses and markets for the Saba platform.
We were incorporated in Delaware in April 1997. Our headquarters are
located at 2400 Bridge Parkway, Redwood Shores, California 94065, and our
telephone number at this location is (650) 696-3840. We maintain a World Wide
Web site at www.saba.com. The reference to this World Wide Web site address does
not constitute incorporation by reference of the information contained therein.
Saba, the Saba logo, Saba Software, saba.com, Saba Learning Exchange, the
phrase "Connecting People to Learning", the phrase "Connect People to Learning",
Saba Learning Network Solution, Saba Learning Network, Saba Learning Provider
Network, Saba Learning e-Store and the marks relating to other Saba products and
services referenced are our trademarks and service marks. All other trademarks
appearing in this prospectus are the property of their respective owners.
4
<PAGE> 6
THE OFFERING
Common stock offered.................... 4,000,000 shares
Common stock to be outstanding after the
offering................................ 42,173,702 shares
Use of proceeds......................... For general corporate purposes,
including working capital and
capital expenditures. See "Use of
Proceeds".
Proposed Nasdaq National Market
symbol.................................. "SABA"
The number of shares of our common stock to be outstanding after the
offering excludes:
- 6,287,771 shares of our common stock subject to outstanding options and
warrants as of February 29, 2000; and
- 9,156,188 additional shares of our common stock available for future
grant or purchase under our stock plans as of February 29, 2000.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997 SIX MONTHS ENDED
(INCEPTION) NOVEMBER 30,
THROUGH YEAR ENDED -------------------
MAY 31, 1998 MAY 31, 1999 1998 1999
--------------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues................................ $ 40 $ 1,939 $ 483 $ 5,204
Gross profit (loss)..................... (32) 675 195 2,476
Total operating expenses................ 1,531 11,572 2,807 20,309
Loss from operations.................... (1,563) (10,897) (2,612) (17,833)
Net loss................................ (1,571) (10,852) (2,601) (17,677)
Basic and diluted net loss per
share(1).............................. (0.17) (0.84) (0.20) (1.26)
Shares used in computing basic and
diluted net loss per share(1)......... 9,439 12,987 12,896 13,996
Pro forma basic and diluted net loss per
share (unaudited)..................... $ (0.52) $ (0.62)
Shares used in computing pro forma basic
and diluted net loss per share
(unaudited)........................... 20,881 28,557
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1999
------------------------
AS
ACTUAL ADJUSTED(2)
-------- -------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $29,390 $76,750
Working capital............................................. 23,955 71,315
Total assets................................................ 40,188 87,548
Long-term obligations, less current portion................. 2,615 2,615
Total stockholders' equity.................................. 24,961 72,321
</TABLE>
- ---------------
(1) See note 2 of notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing
per share amounts.
(2) The as adjusted consolidated balance sheet data gives effect to the sale of
our shares of common stock in this offering, at an assumed initial public
offering price of $13.00 per share, and after deducting the estimated
underwriting discounts and commissions and the estimated offering expenses.
See "Capitalization".
6
<PAGE> 8
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock.
The occurrence of any of the following risks could materially and adversely
affect our business, financial condition and operating results. In this case,
the trading price of our common stock could decline and you might lose all or
part of your investment.
WE HAVE A LIMITED OPERATING HISTORY AND ARE SUBJECT TO THE RISKS ENCOUNTERED BY
EARLY-STAGE COMPANIES
We were founded in April 1997, shipped our first products in April 1998 and
began to operate Saba Learning Exchange in December 1999. Because we have a
limited operating history, you should consider and evaluate our operating
prospects in light of the risks and uncertainties frequently encountered by
early stage companies in rapidly evolving markets. For us, these risks include:
- risks that our revenue forecasts may be incorrect because of our limited
sales to date and our long sales process;
- risks associated with our dependence on Saba Learning Network and Saba
Learning Provider Network, and related services, for substantially all of
our revenues for the foreseeable future;
- risks that our strategy of establishing Saba Learning Exchange may not be
successful; and
- risks that fluctuations in our quarterly operating results will be
significant relative to our revenues.
These risks are described in more detail below. Our future growth will depend
substantially on our ability to address these and the other risks described in
this section. If we do not successfully address these risks, our business would
be significantly harmed.
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND CANNOT ASSURE YOU THAT WE
WILL ACHIEVE PROFITABILITY
We have incurred significant net losses and negative cash flow from
operations since our inception. We incurred net losses of $1.6 million in fiscal
1998, $10.9 million in fiscal 1999 and $17.7 million in the first six months of
fiscal 2000. As of November 30, 1999, we had an accumulated deficit of $30.1
million. Although our revenues have increased continuously on a quarterly basis
since inception, we have not achieved profitability and cannot be certain that
we will be able to sustain these growth rates or realize sufficient revenues to
achieve profitability. We expect to derive substantially all of our revenues for
the foreseeable future from the licensing of our Saba Learning Network and Saba
Learning Provider Network, and providing related services. Over the longer term,
we expect to derive revenues from Saba Learning Exchange, which is based on an
evolving and unproven business model. Moreover, we also expect to continue to
incur significantly greater sales and marketing, research and development, and
general and administrative expenses. In the future, we expect to incur
substantial non-cash expenses relating to the amortization of deferred
compensation that will contribute to our net losses. As of February 29, 2000, we
had an aggregate of $22.8 million of deferred compensation to be amortized. As a
result of all of the foregoing, we expect to incur significant losses for the
foreseeable future and will need to generate significantly higher revenues in
order to achieve profitability. If we achieve profitability, we may not be able
to sustain it.
7
<PAGE> 9
FLUCTUATIONS OF OUR QUARTERLY RESULTS COULD CAUSE OUR STOCK PRICE TO EXPERIENCE
SIGNIFICANT FLUCTUATIONS OR DECLINES
Our quarterly operating results have varied significantly in the past and
will likely fluctuate significantly in the future. We believe that
quarter-to-quarter comparisons of our revenues and operating results are not
necessarily meaningful and should not be relied on as indicators of future
performance. Our operating expenses are based on our expectations of future
revenues and are relatively fixed in the short term. We plan to increase our
operating expenses to expand our sales and marketing operations, fund greater
levels of research and development, develop new alliances, increase our services
and support capabilities and improve our operational and financial systems. If
our revenues do not increase along with these expenses, our business would be
seriously harmed and net losses in a given quarter would be even larger than
expected. It is possible that in some future quarter our operating results may
be below the expectations of public market analysts or investors, which could
cause the market price of our common stock to fall.
Our quarterly revenues are especially subject to fluctuation because they
depend on the sale of a small number of relatively large orders, principally
orders for Saba Learning Network and Saba Learning Provider Network, and related
services. As a result, our quarterly operating results may fluctuate
significantly if we are unable to complete one or more substantial sales in any
given quarter. We generally recognize revenues derived from sales of product
licenses and annual support over a twelve-month period and from sales of
services as the services are provided. Therefore, if we do not book a sufficient
number of large orders in a particular quarter, our revenues in future periods
could be lower than expected. We have not fully developed our business model for
Saba Learning Exchange, including the structure and amount of the fees we intend
to charge. As this business model evolves, the potential for fluctuations in our
quarterly results could increase. Furthermore, our quarterly revenues may be
affected significantly by other revenue recognition policies and procedures.
These policies and procedures may evolve or change over time based on applicable
accounting standards and how these standards are interpreted. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
OUR LENGTHY SALES CYCLE COULD CAUSE DELAYS IN REVENUE GROWTH
The period between our initial contact with a potential customer and the
purchase of our products and services is often long. A customer's decision to
purchase our products and services requires the commitment to improve learning,
involves a significant allocation of resources, and is influenced by a
customer's budgetary cycles. To successfully sell our products and services, we
generally must educate our potential customers regarding the use and benefits of
our products and services, which can require significant time and resources.
Many of our potential customers are large enterprises that generally take longer
to make significant business decisions. Our typical sales cycle has been
approximately six to 12 months. The delay or failure to complete sales in a
particular quarter could reduce our revenues in that quarter, as well as
subsequent quarters over which revenues for the sale would likely be recognized.
If our sales cycle unexpectedly lengthens in general or for one or more large
orders, it would adversely affect the timing of our revenues and our revenue
growth. If we were to experience a delay of several weeks on a large order, it
could harm our ability to meet our forecasts for a given quarter.
A DECLINE IN THE PRICE OF, OR DEMAND FOR, EITHER OF OUR MAIN PRODUCTS, SABA
LEARNING NETWORK OR SABA LEARNING PROVIDER NETWORK OR OUR RELATED SERVICE
OFFERINGS, WOULD SERIOUSLY HARM OUR REVENUES AND OPERATING MARGINS
Saba Learning Network and Saba Learning Provider Network, and related
services, accounted for substantially all of our revenues in fiscal 1999 and for
the six months ended November 30, 1999. We anticipate that revenues from our
Saba Learning Network and Saba Learning Provider Network, and
8
<PAGE> 10
related services, will continue to constitute substantially all of our revenues
for the foreseeable future. Consequently, a decline in the price of, or demand
for, Saba Learning Network or Saba Learning Provider Network, or their
respective failure to achieve broad market acceptance, would seriously harm our
business.
OUR STRATEGY OF ESTABLISHING SABA LEARNING EXCHANGE IS UNPROVEN AND MAY NOT BE
SUCCESSFUL
We need to more fully establish and enhance Saba Learning Exchange, where
organizations and learning providers can transact business and collaborate. Our
success depends on a significant number of organizations implementing Saba
Learning Network and Saba Learning Provider Network, and conducting business
with learning providers over the Internet through Saba Learning Exchange. If
this business strategy is flawed, or if we are unable to execute it effectively,
our revenues will be seriously harmed. We began operating Saba Learning Exchange
in December 1999. Accordingly, we have limited experience developing and
operating Saba Learning Exchange. To date, only a limited number of learning
providers and organizations are connected to Saba Learning Exchange. It is
possible that we, together with the organizations and learning providers who
comprise this exchange, will not be able to effectively operate this exchange,
both in terms of technical performance as well as commercial viability. It is
possible that an insufficient number of organizations and/or learning providers
will join and remain in Saba Learning Exchange, and that we will be unable to
generate significant revenues from Saba Learning Exchange. Unless a critical
mass of organizations and learning providers join Saba Learning Exchange, our
solutions may not achieve widespread market acceptance and our business would be
seriously harmed. To date, we have not generated significant revenues from Saba
Learning Exchange.
THE FAILURE TO MAINTAIN OUR RELATIONSHIP WITH CURRENT AND FUTURE CUSTOMERS COULD
REDUCE THE VIABILITY OF OUR SABA LEARNING EXCHANGE
Because many of our Saba Learning Network customers are Global 2000
organizations, a relatively small number of these organizations account for a
substantial portion of the learners on the Saba platform. In addition, the
quantity of learning offerings made available by our learning providers through
Saba Learning Exchange varies significantly. The concentration of learners
within these organizations and learning offerings offered by these key learning
providers exposes us to the risk that the loss of even a small number of
organizations or learning providers could reduce the viability of Saba Learning
Exchange. This would substantially hinder our ability to generate revenues from
Saba Learning Exchange as well as our other products.
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
QUALIFIED PERSONNEL WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS AND
ACHIEVE OUR OBJECTIVES
We believe our future success will depend upon our ability to retain our
key management personnel including Bobby Yazdani, our President and Chief
Executive Officer. These employees are not subject to employment contracts. We
may not be successful in attracting, assimilating and retaining our key
employees in the future.
Our future success and our ability to expand our operations will also
depend in large part on our ability to attract and retain additional qualified
technical, sales and marketing personnel. Competition for these types of
employees is intense due to the limited number of qualified professionals and
the high demand for them, particularly in the San Francisco Bay Area, where our
headquarters is located. We have in the past experienced difficulty in
recruiting qualified personnel. Failure to attract, assimilate and retain
personnel, particularly technical, sales and marketing personnel, would have a
material adverse effect on our business and potential growth.
9
<PAGE> 11
DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS
We have experienced a period of rapid and substantial growth that has
placed, and if such growth continues, will continue to place a strain on our
administrative infrastructure. We have increased the number of our employees
from approximately 40 employees at May 31, 1998 to approximately 140 employees
at May 31, 1999 and 357 employees at February 29, 2000. In addition, we intend
to hire a significant number of employees in the future. This expansion is
placing a significant strain on our managerial and financial resources. To
manage the expected growth of our operations and personnel, we will be required
to:
- improve existing and implement new operational, financial and management
controls, reporting systems and procedures;
- install enhanced management information systems; and
- hire, train, retain, motivate and manage our employees.
We may not be able to install adequate management information and control
systems in an efficient and timely manner, and our current or planned personnel,
systems, procedures and controls may not be adequate to support our future
operations. If we are unable to manage growth effectively, our business would be
seriously harmed.
OUR REVENUES DEPEND ON A SMALL NUMBER OF LARGE SALES, AND IF WE FAIL TO COMPLETE
ONE OR MORE LARGE SALES OR TO COLLECT ACCOUNTS RECEIVABLE FROM THESE LARGE
SALES, OUR OPERATING RESULTS WILL BE HARMED
To date, we have received a significant portion of our revenues from large
sales to a small number of customers. During the six months ended November 30,
1999, our two largest customers, Ford and US West, each accounted for more than
10% of our total revenues and collectively comprised 25% of our total revenues.
During fiscal 1999, Baan, Documentum and Wells Fargo each accounted for more
than 10% of our total revenues and collectively comprised approximately 66% of
our total revenues. In addition, at November 30, 1999, two customers accounted
for a total of 41% of our accounts receivable and at May 31, 1999, five
customers accounted for a total of 80% of our accounts receivable. Our operating
results may be harmed if we are not able to complete one or more substantial
sales to any large customers or we are unable to collect accounts receivable
from any of our large customers in any future period.
INTENSE COMPETITION IN OUR TARGET MARKET COULD IMPAIR OUR ABILITY TO GROW AND TO
ACHIEVE PROFITABILITY
The market for our products and services is intensely competitive, dynamic
and subject to rapid technological change. The intensity of the competition and
the pace of change are expected to increase in the future. Increased competition
is likely to result in price reductions, reduced gross margins and loss of
market share, any one of which could seriously harm our business. Competitors
vary in size and in the scope and breadth of the products and services offered.
We encounter competition with respect to different aspects of our solution from
a variety of sources including:
- companies that operate Internet-based marketplaces for the sale of
on-line learning;
- companies that operate Internet-based marketplaces for the sale of goods
and services that may decide to evolve their marketplaces to include
learning offerings;
- Internet portals that offer learning content;
- companies that market and license training management systems;
10
<PAGE> 12
- enterprise software vendors that offer human resources information
systems training modules; and
- potential customers' internal development efforts.
Because there are relatively low barriers to entry in the electronic commerce
market, which comprises a portion of our business model, we expect competition
from a variety of established and emerging companies.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements.
Competition could seriously impede our ability to sell additional products and
services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future products
and services obsolete, unmarketable or less competitive. Our current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with other learning solution providers,
thereby increasing the availability of their services to address the needs of
our current and prospective customers. We may not be able to compete
successfully against our current and future competitors, and competitive
pressures that we encounter may seriously harm our business.
IF WE ARE UNABLE TO MANAGE THE COMPLEXITY OF CONDUCTING BUSINESS GLOBALLY, OUR
INTERNATIONAL REVENUES MAY SUFFER
International revenues accounted for 4% of our revenues in each of fiscal
1999 and the first six months of fiscal 2000. We intend to expand our
international presence in the future. Conducting business outside of the United
States is subject to certain risks, including:
- changes in regulatory requirements and tariffs;
- language barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles and greater difficulty in collecting accounts
receivable;
- reduced protection of intellectual property rights;
- potentially harmful tax consequences;
- fluctuating exchange rates;
- price controls and other restrictions on foreign currency;
- difficulties in obtaining import and export licenses;
- the burden of complying with a variety of foreign laws; and
- political or economic constraints on international trade or instability.
We might not successfully market, sell or distribute our products and
services in foreign markets and we cannot be certain that one or more of such
factors will not materially adversely affect our future international
operations, and consequently, our business and future growth.
11
<PAGE> 13
OUR REVENUES MAY DECREASE IF USE OF THE INTERNET IN THE MARKETS WE TARGET DOES
NOT GROW AS PROJECTED
The use of the Internet as a means to interconnect organizations and
learning providers and to create Saba Leaning Exchange is integral to our
business model. Our business strategy is, in part, to create a global,
business-to-business learning marketplace for organizations and learning
providers to transact business and collaborate. However, the use of the Internet
as a means of transacting business is relatively new and has not been accepted
by all customers in the markets we have targeted. The failure of the Internet to
continue to develop as a commercial or business medium or of significant numbers
of organizations and learning providers to transact business and collaborate on
the Internet would harm our revenues and earnings. The acceptance and use of the
Internet to transact business and collaborate is dependent upon a number of
factors, such as the growth and use of the Internet in general, the relative
ease of conducting business on the Internet, the efficiencies and improvements
that conducting commerce on the Internet provides, the resolution of concerns
about transaction security and taxation of transactions on the Internet.
A FAILURE TO EXPAND AND IMPROVE THE INFRASTRUCTURE OF THE INTERNET COULD
CONSTRAIN THE FUNCTIONALITY OF OUR PRODUCTS AND SERVICES AND THUS LIMIT OUR
REVENUES
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, the
Internet infrastructure may not be able to support this growth and reliability
may decline. If outages or delays on the Internet occur frequently or increase
in frequency, overall Internet usage including usage of our products and
services could grow more slowly or decline. Our ability to increase the speed
and scope of our services to customers is ultimately limited by, and depends
upon, the speed and reliability of both the Internet and our customers' internal
networks. Consequently, the emergence and growth of the market for our products
and services depends upon improvements being made to the entire Internet as well
as to our individual customers' networking infrastructures to alleviate
overloading and congestion. If these improvements are not made, the ability of
our customers to use our products and services will be hindered, and our
business may suffer.
A BREACH OF INTERNET COMMERCE SECURITY MEASURES COULD REDUCE DEMAND FOR OUR
PRODUCTS AND SERVICES
A requirement of the continued growth of Internet-based,
business-to-business electronic commerce is the secure transmission of
confidential information over public networks. Failure to prevent security
breaches of Saba Learning Exchange or our customers' networks, or well
publicized security breaches affecting the Internet in general, could
significantly harm our growth and revenues. We cannot be certain that advances
in computer capabilities, new discoveries in the field of cryptography, or other
developments will not result in a compromise or breach of the algorithms we use
to protect content and transactions on Saba Learning Exchange or within our
customers' networks or proprietary information in our databases. Anyone who is
able to circumvent our security measures could misappropriate proprietary and
confidential information or could cause interruptions in our operations. We may
be required to expend significant capital and other resources to protect against
such security breaches or to address problems caused by such breaches. Concerns
over the security of the Internet and other on-line transactions and the privacy
of users may also deter people from using the Internet to conduct transactions
that involve transmitting confidential information.
12
<PAGE> 14
WE MAY BECOME SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES THAT
COULD REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES OR INCREASE THE COST OF DOING
BUSINESS, THEREBY ADVERSELY AFFECTING OUR FINANCIAL RESULTS
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, export control laws and laws or regulations directly applicable to
Internet commerce. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may become
applicable to us or may be adopted in the future with respect to the Internet
covering issues such as:
- user privacy;
- taxation;
- content;
- right to access personal data;
- copyrights;
- distribution; and
- characteristics and quality of services.
The applicability of existing laws governing issues such as property
ownership, copyrights, and other intellectual property issues, encryption,
taxation, libel, export or import matters and personal privacy to the Internet
is uncertain. The vast majority of these laws were adopted prior to the broad
commercial use of the Internet and related technologies. As a result, they do
not contemplate or address the unique issues of the Internet and related
technologies. Changes to these laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the Internet
marketplace. Such uncertainty could reduce demand for our services or increase
the cost of doing business due to increased costs of litigation or increased
service delivery costs.
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND TO COMPETE, WE MUST
CONTINUALLY ENHANCE OUR PRODUCTS AND SERVICES
We must continue to enhance and improve the performance, functionality and
reliability of our products and services. The software and electronic commerce
industries are characterized by rapid technological change, changes in user
requirements and preferences, frequent new product and services introductions
embodying new technologies and the emergence of new industry standards and
practices that could render our products and services obsolete. In the past, we
have discovered that some of our customers desire additional performance and
functionality not currently offered by our products. Our success will depend, in
part, on our ability to both internally develop and license leading technologies
to enhance our existing products and services, develop new products and services
that address the increasingly sophisticated and varied needs of our customers,
and respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis. The development of our
technology and other proprietary technology involves significant technical and
business risks. We may fail to use new technologies effectively or to adapt our
proprietary technology and systems to customer requirements or emerging industry
standards. If we are unable to adapt to changing market conditions, customer
requirements or emerging industry standards, we may not be able to increase our
revenues and expand our business.
13
<PAGE> 15
DELAYS IN RELEASING ENHANCED VERSIONS OF OUR PRODUCTS COULD ADVERSELY AFFECT OUR
COMPETITIVE POSITION
As part of our strategy, we expect to regularly release new versions of our
Saba Learning Network, Saba Learning Provider Network and Saba Learning
Exchange. Even if our new versions contain the features and functionality our
customers want, in the event we are unable to timely introduce these new product
releases, our competitive position may be harmed. We cannot assure you that we
will be able to successfully complete the development of currently planned or
future products in a timely and efficient manner. Due to the complexity of these
products, internal quality assurance testing and customer testing of
pre-commercial releases may reveal product performance issues or desirable
feature enhancements that could lead us to postpone the release of these new
versions. In addition, the reallocation of resources associated with any
postponement would likely cause delays in the development and release of other
future products or enhancements to our currently available products. Any delay
in releasing other future products or enhancements of our products could cause
our stock price to decline.
IF WE RELEASE PRODUCTS CONTAINING DEFECTS, WE MAY NEED TO HALT FURTHER SHIPMENTS
AND OUR BUSINESS AND REPUTATION WOULD BE HARMED
Products as complex as ours often contain unknown and undetected errors or
performance problems. Many serious defects are frequently found during the
period immediately following introduction and initial shipment of new products
or enhancements to existing products. Although we attempt to resolve all errors
that we believe would be considered serious by our customers before shipment to
them, our products are not error-free. These errors or performance problems
could result in lost revenues or delays in customer acceptance and would be
detrimental to our business and reputation. As is typical in the software
industry, with each release we have discovered errors in our products after
introduction. We may not be able to detect and correct errors before releasing
our product commercially. We cannot assure you that undetected errors or
performance problems in our existing or future products will not be discovered
in the future or that known errors considered minor by us will not be considered
serious by our customers, resulting in a decrease in our revenues.
IF THIRD PARTIES CLAIM THAT WE INFRINGE THEIR PATENTS, IT MAY RESULT IN COSTLY
LITIGATION
We cannot assure you that third parties will not claim our current or
future products or services infringe their rights. Any such claims, with or
without merit, could cause costly litigation that could consume significant
management time. As the number of product and services offerings in our market
increases and functionalities increasingly overlap, companies such as ours may
become increasingly subject to infringement claims. Such claims also might
require us to enter into royalty or license agreements. If required, we may not
be able to obtain such royalty or license agreements, or obtain them on terms
acceptable to us.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY, AND OUR
COMPETITORS MAY BE ABLE TO OFFER SIMILAR PRODUCTS AND SERVICES WHICH WOULD HARM
OUR COMPETITIVE POSITION
Our success depends upon our proprietary technology. We rely primarily on
copyright, trademark and trade secret laws, confidentiality procedures and
contractual provisions to establish and protect our proprietary rights. As part
of our confidentiality procedures, we enter into non-disclosure agreements with
our employees. Despite these precautions, third parties could copy or otherwise
obtain and use our technology without authorization, or develop similar
technology independently. In addition, we have filed six provisional patent
applications in the U.S. We cannot assure you that any formal or approved patent
applications will result from these provisional applications, that any patents
that may issue will protect our intellectual property or that any issued patents
will not be challenged by third parties. Furthermore, effective protection of
intellectual property rights is unavailable or limited
14
<PAGE> 16
in certain foreign countries. We cannot assure you that the protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology, duplicate our products and services or
design around any patents or other intellectual property rights we hold. For
more detailed information regarding the protection of our proprietary rights see
"Business -- Proprietary Rights".
WE DO NOT HAVE A DISASTER RECOVERY PLAN OR BACK-UP SYSTEM, AND A DISASTER COULD
SEVERELY DAMAGE OUR OPERATIONS
We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our services at an alternate site. A disaster could
severely harm our business because our services could be interrupted for an
indeterminate length of time. Our operations depend upon our ability to maintain
and protect our computer systems in our principal facilities in Redwood Shores,
California, which are located on or near known earthquake fault zones. Although
these systems are designed to be fault tolerant, they are vulnerable to damage
from fire, floods, earthquakes, power loss, telecommunications failures and
other events. Additionally, we do not carry sufficient business insurance to
compensate us for our losses that could occur.
WE MUST OUTSOURCE THE MANAGEMENT AND MAINTENANCE OF SABA LEARNING EXCHANGE TO
THIRD PARTIES AND WILL DEPEND UPON THEM TO PROVIDE ADEQUATE MANAGEMENT AND
MAINTENANCE SERVICES
We are currently negotiating with third parties to expand, manage and
maintain the computer and communications equipment and software needed for the
day-to-day operations of Saba Learning Exchange. Services provided by any of
these third parties will likely include managing the Saba Learning Exchange web
server, maintaining communications lines and managing network data centers,
which are the locations on our network where data is stored. If we are unable to
successfully contract with one or more third parties for these services, we
would have to perform these functions ourselves. We may not successfully obtain
or perform these services on a timely and cost-effective basis. If the
installation of the computer and communications equipment and software needed
for the day-to-day operations of Saba Learning Exchange is successfully
completed by one or more third parties, we will be entirely dependent on that
party or parties to manage, maintain and provide security for Saba Learning
Exchange.
WE MAY NOT BE ABLE TO SECURE NECESSARY FUNDING IN THE FUTURE
We require substantial working capital to fund our business. We have had
significant operating losses and negative cash flow from operations since
inception and expect this to continue for the foreseeable future. We expect to
use the net proceeds of this offering primarily to expand sales and marketing
activities, fund research and development, fund continued operations, and
possibly make future acquisitions. We believe that these proceeds, together with
our existing capital resources, will be sufficient to meet our capital
requirements for the next twelve months. However, if our capital requirements
increase materially from those currently planned, we may require additional
financing sooner than anticipated. If additional funds are raised through the
issuance of equity securities, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution, or such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. Additional financing may not be available when
needed on terms favorable to us or at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to develop or enhance
our products and services, take advantage of future opportunities or respond to
competitive pressures.
15
<PAGE> 17
WE INTEND TO PURSUE ACQUISITIONS, AND OUR BUSINESS COULD BE MATERIALLY ADVERSELY
AFFECTED IF WE FAIL TO ADEQUATELY INTEGRATE ACQUIRED BUSINESSES
As part of our overall business strategy, we intend to pursue acquisitions
of complementary businesses or technologies that would provide additional
product or service offerings, additional industry expertise or an expanded
geographic presence. Any future acquisition could result in the use of
significant amounts of cash, potentially dilutive issuances of equity
securities, or the incurrence of debt or amortization of expenses related to
goodwill and other intangible assets, any of which could materially adversely
affect our business. In addition, acquisitions involve numerous risks,
including:
- difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
- the diversion of management's attention from other business concerns;
- risks of entering markets in which we have no or limited prior
experience; and
- the potential loss of key employees of the acquired company.
OUR STOCK PRICE MAY FLUCTUATE SUBSTANTIALLY
Prior to this offering, there has been no public market for shares of our
common stock. An active public trading market may not develop following
completion of this offering or, if developed, may not be sustained. The initial
public offering price of the shares of our common stock will be determined by
negotiation between us and representatives of the underwriters. This price will
not necessarily reflect the market price of our common stock following this
offering. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The market price for our common stock following this offering will be
affected by a number of factors, including those described above and the
following:
- the announcement of new products and services or product and service
enhancements by us or our competitors;
- quarterly variations in our results of operations or those of our
competitors;
- changes in earnings estimates or recommendations by securities analysts
that may follow our stock;
- developments in our industry; and
- general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.
In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been unrelated
to the operating performance of such companies. Such factors and fluctuations,
as well as general economic, political and market conditions, may materially
adversely affect the market price of our common stock.
CERTAIN EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER SABA TO THE DETRIMENT OF
MINORITY STOCKHOLDERS
After this offering, our executive officers, directors and principal
stockholders (i.e., greater than 5% stockholders) will together beneficially own
approximately 60.3% of our outstanding common stock. As a result, these
stockholders, if they act together, will be able to control our management and
affairs and all matters requiring stockholder approval, including the election
of directors and
16
<PAGE> 18
approval of significant corporate transactions. This concentration of ownership
may have the effect of delaying or preventing our change in control and might
affect the market price of our common stock.
OUR BUSINESS MIGHT BE HARMED IF THE SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT
OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR PURCHASING PATTERNS AS A
RESULT OF THE YEAR 2000 PROBLEM
Although January 1, 2000 has occurred, our information technology systems
could be impaired or cease to operate due to the year 2000 problem.
Additionally, we rely on technology supplied by third parties. These third
parties may experience year 2000 related problems. Any year 2000 problems
experienced by us or any of these third parties could harm our business.
Additionally, the Internet could face serious disruption arising from the year
2000 problem.
Further, any year 2000 problems with respect to our products could lead to
claims from our customers asserting liability, including liability for breach of
warranties related to our products, which could result in large settlements or
judgments against us. We have not suffered any material consequences as a result
of a year 2000 problem.
SALES OF SHARES ELIGIBLE FOR FUTURE SALE AFTER THIS OFFERING COULD CAUSE OUR
STOCK PRICE TO DECLINE
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our common stock
could fall. Such 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. Upon completion of this offering, we will have outstanding
42,173,702 shares of common stock, assuming no exercise of outstanding options
or warrants after February 29, 2000. Of these shares, the 4,000,000 shares sold
in this offering will be freely tradable. The remaining shares of common stock
outstanding after this offering will be available for sale in the public market
as follows:
<TABLE>
<CAPTION>
NUMBER OF
DATE OF AVAILABILITY FOR SALE SHARES
----------------------------- ----------
<S> <C>
At the date of this prospectus.............................. 0
181 days after the date of this prospectus.................. 31,669,593
Periodically thereafter..................................... 6,504,109
</TABLE>
THE ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS COULD ADVERSELY AFFECT THE
RIGHTS OF THE HOLDERS OF OUR COMMON STOCK
Upon the closing of this offering, our Certificate of Incorporation and
Bylaws will contain provisions which could make it harder for a third party to
acquire us without the consent of our board of directors. For example, if a
potential acquiror were to make a hostile bid for us, the acquiror would not be
able to call a special meeting of stockholders to remove our board of directors
or act by written consent without a meeting. In addition, our board of directors
will have staggered terms that makes it difficult to remove them all at once.
The acquiror would also be required to provide advance notice of its proposal to
remove directors at an annual meeting. The acquiror also will not be able to
cumulate votes at a meeting, which will require the acquiror to hold more shares
to gain representation on the board of directors than if cumulative voting were
permitted.
Our board of directors also has the ability to issue preferred stock which
would significantly dilute the ownership of a hostile acquiror. In addition,
Section 203 of the Delaware General Corporation Law limits business combination
transactions with 15% stockholders that have not been approved by the board of
directors. These provisions and other similar provisions make it more difficult
for a third party to acquire us without negotiation. These provisions may apply
even if the offer may be considered beneficial by some stockholders.
17
<PAGE> 19
Our board of directors could choose not to negotiate with an acquiror that
it did not feel was in the strategic interests of Saba. If the acquiror was
discouraged from offering to acquire us or prevented from successfully
completing a hostile acquisition by the anti-takeover measures, you could lose
the opportunity to sell your shares at a favorable price.
WE HAVE BROAD DISCRETION TO US THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE, OR ANY, RETURN FOR US AND YOU MAY LOSE THE
ENTIRE AMOUNT OF YOUR INVESTMENT
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Thus, our management has
broad discretion over how these proceeds are used and could spend the proceeds
in ways with which you may not agree. We cannot assure you that the proceeds
will be invested in a way that yields a favorable, or any, return for us.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $11.23, at an assumed initial public
offering price of $13.00 per share, in the book value per share of our common
stock from the price you pay for our common stock. For additional information on
dilution of the book value of your shares, see "Dilution".
18
<PAGE> 20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on current
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks" and "estimates", and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control and
difficult to predict, and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks and
uncertainties include those described in "Risk Factors" and elsewhere in this
prospectus. Except as required by law, we undertake no obligation to update any
forward-looking statement, whether as a result of new information, future events
or otherwise.
19
<PAGE> 21
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock that we are offering will be approximately $47.4 million, at an
assumed initial public offering price of $13.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be approximately $54.6 million.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock, to enhance our ability to
acquire other businesses, products or technologies and to facilitate future
access to public equity markets. We intend to use the net proceeds for general
corporate purposes, including working capital, capital expenditures and
investments in product development, expansion of sales and marketing activities,
and other corporate expenses. We may also use a portion of the net proceeds from
this offering to acquire or invest in businesses, products or technologies that
are complementary to our business. We currently have no commitments or
agreements with respect to any acquisitions or investments. We have not
determined the amounts we plan to spend on any of the uses described above or
the timing of these expenditures. Pending our use of the net proceeds of this
offering, we intend to invest them in short-term, investment grade,
interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of November 30, 1999:
- on an actual basis; and
- on an as adjusted basis to give effect to the sale of our common stock in
this offering at an assumed initial public offering price of $13.00 per
share and the receipt of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
NOVEMBER 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations net of current portion................ $ 2,615 $ 2,615
Stockholders' equity:
Preferred Stock, $0.001 par value, 23,000,000 shares
authorized, 19,648,857 shares designated as convertible
preferred stock, 19,568,540 shares issued and
outstanding -- actual; 5,000,000 shares authorized, no
shares designated, issued or outstanding -- as
adjusted............................................... 20 --
Common stock, $0.001 par value; 50,000,000 shares
authorized, 17,213,448 shares issued and
outstanding -- actual; 200,000,000 shares authorized,
40,781,988 shares issued and outstanding -- as
adjusted............................................... 17 41
Additional paid-in capital................................ 66,260 113,616
Deferred stock compensation............................... (10,743) (10,743)
Notes receivable from stockholders........................ (493) (493)
Accumulated deficit....................................... (30,100) (30,100)
-------- --------
Total stockholders' equity................................ 24,961 72,321
-------- --------
Total capitalization.............................. $ 27,576 $ 74,936
======== ========
</TABLE>
- ---------------
The share numbers above exclude:
- 5,640,425 shares of our common stock subject to outstanding options under
our 1997 Stock Incentive Plan, at a weighted-average exercise price of
$0.13 per share, and 1,158,000 shares of our common stock available for
future grant under our 1997 Stock Incentive Plan, as of November 30,
1999;
- 6,000,000 shares of our common stock available for future grant under our
2000 Stock Incentive Plan and 2,000,000 shares of our common stock
available for future issuance under our 2000 Employee Stock Purchase
Plan; and
- 262,341 shares issuable upon exercise of outstanding warrants, at a
weighted-average exercise price of $1.34 per share.
Subsequent to November 30,1999 and through February 29, 2000, we granted
options to purchase 1,428,750 shares of our common stock under our 1997 Stock
Incentive Plan at a weighted average exercise price of $3.14 per share, issued a
warrant to purchase 23,930 shares of our common stock at a per share exercise
price equal to 80% or 90% (subject to certain events) of the initial price to
the public of the shares offered in this offering, and issued 550,789 shares of
our common stock at a weighted average purchase price of $1.78 per share.
You should read this table together with "Management -- Employee Benefit
Plans", "Description of Capital Stock", "Related Party Transactions" and note 8
of the notes to our consolidated financial statements.
21
<PAGE> 23
DILUTION
Our pro forma net tangible book value as of November 30,1999 was
approximately $25.0 million, or $0.68 per share, assuming the conversion of all
outstanding shares of our preferred stock into shares of our common stock. Pro
forma net tangible book value per share is determined by dividing the pro forma
number of outstanding shares of our common stock into our net tangible book
value, which is our total tangible assets less total liabilities. After giving
effect to the receipt of the estimated net proceeds from this offering, based on
an assumed initial public offering price of $13.00 per share and after deducting
estimated underwriting discounts and commissions and our estimated offering
expenses, our pro forma net tangible book value as of November 30, 1999 would
have been approximately $72.3 million, or $1.77 per share. This represents an
immediate increase in pro forma net tangible book value of $1.09 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $11.23 per share to new investors purchasing shares at the initial
public offering price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 13.00
Pro forma net tangible book value per share as of November
30, 1999............................................... $ 0.68
Increase per share attributable to new investors.......... 1.09
-------
Pro forma net tangible book value per share after this
offering.................................................. 1.77
-------
Dilution per share to new investors......................... $ 11.23
=======
</TABLE>
The following table sets forth as of November 30, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by investors purchasing shares of common stock in this
offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 36,781,988 90.2% $ 51,784,000 49.9% $ 1.41
New investors............... 4,000,000 9.8 52,000,000 50.1 $ 13.00
----------- ----- ------------ -----
Total............. 40,781,988 100.0% $103,784,000 100.0%
=========== ===== ============ =====
</TABLE>
The above computations assume no exercise of options after November 30,
1999. As of November 30, 1999, there were options outstanding under our 1997
Stock Incentive Plan to purchase a total of 5,640,425 shares of our common stock
at a weighted-average exercise price of $0.13 per share. Subsequent to November
30,1999 and through February 29, 2000, we granted options to purchase 1,428,750
shares of our common stock under our 1997 Stock Incentive Plan at a weighted
average exercise price of $3.14 per share and issued 550,789 shares of our
common stock at a weighted average purchase price of $1.78 per share. The above
computations assume no exercise of warrants outstanding to purchase 190,987
shares, at a weighted-average exercise price of $1.69 per share, and 23,930
shares, at an exercise price equal to 80% or 90% (subject to certain events) of
the initial public offering price. To the extent that any options or warrants
are exercised, there will be further dilution to new public investors. See
"Capitalization", "Management -- Stock Plans", "-- Executive Compensation",
"Related Party Transactions" and note 8 of the notes to our consolidated
financial statements.
22
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated financial
statements and related notes to our consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The consolidated statement of operations data for the period from
April 16, 1997 (inception) through May 31, 1998, and for the year ended May 31,
1999 and the consolidated balance sheet data as of May 31, 1998 and 1999 are
derived from, and are qualified by reference to, our audited consolidated
financial statements included elsewhere in this prospectus, which have been
audited by Ernst & Young LLP, independent auditors. The consolidated financial
data as of November 30, 1999 and for the six months ended November 30, 1998 and
1999 were derived from unaudited financial statements included elsewhere in this
prospectus. We have prepared the unaudited information on the same basis as the
audited consolidated financial statements and have included all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for these
periods.
The historical results are not necessarily indicative of results to be
expected in any future period and results for the six months ended November 30,
1999 are not necessarily indicative of results to be expected for the full
fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997 SIX MONTHS ENDED
(INCEPTION) YEAR ENDED NOVEMBER 30,
THROUGH MAY 31, --------------------
MAY 31, 1998 1999 1998 1999
-------------- ---------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
License...................................... $ 7 $ 612 $ 119 $ 1,920
Service...................................... 33 1,327 364 3,284
------- -------- -------- --------
40 1,939 483 5,204
------- -------- -------- --------
Cost of revenues............................... 72 1,264 288 2,728
------- -------- -------- --------
Gross profit (loss)............................ (32) 675 195 2,476
Operating expenses:
Research and development..................... 694 3,627 934 6,246
Sales and marketing.......................... 535 6,319 1,467 8,560
General and administrative................... 302 1,437 406 1,992
Amortization of deferred compensation........ -- 189 -- 3,511
------- -------- -------- --------
Total operating expense........................ 1,531 11,572 2,807 20,309
------- -------- -------- --------
Loss from operations........................... (1,563) (10,897) (2,612) (17,833)
Interest income (expense), net................. (8) 45 11 156
------- -------- -------- --------
Net loss....................................... $(1,571) $(10,852) $ (2,601) $(17,677)
======= ======== ======== ========
Net loss per share(1).......................... $ (0.17) $ (0.84) $ (0.20) $ (1.26)
======= ======== ======== ========
Shares used in computing basic and diluted net
loss per share(1)............................ 9,439 12,987 12,896 13,996
======= ======== ======== ========
Pro forma basic and diluted net loss per share
(unaudited).................................. $ (0.52) $ (0.62)
======== ========
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)....... 20,881 28,557
======== ========
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
MAY 31,
---------------- NOVEMBER 30,
1998 1999 1999
----- ------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 41 $10,384 $29,390
Working capital (deficiency)................................ (481) 7,807 23,955
Total assets................................................ 239 14,068 40,188
Long-term obligations, less current portion................. 578 1,010 2,615
Total stockholders' equity (deficit)........................ (974) 8,429 24,961
</TABLE>
- ---------------
(1) See note 2 of notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing
per share amounts.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following Management's Discussion and Analysis of
Financial Condition and Results of Operations together with the consolidated
financial statements and related notes included elsewhere in this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
General
We are a provider of software and services that enable businesses and
governments to create and deploy global networks over the Internet that connect
people to learning. We provide an Internet-based software platform and related
services that enable organizations to procure and deliver learning and
systematically close knowledge and competency gaps across their extended
enterprises. At the same time, we offer learning providers a global marketing
and distribution channel. We recently launched the Saba Learning Exchange, an
Internet-based business-to-business learning marketplace.
We commenced operations in April 1997 and, through March 1998, focused
substantially all of our efforts on research activities, developing our products
and building our business infrastructure. We shipped our first Saba Learning
Network and Saba Learning Provider Network products and began to generate
revenues from software license fees, implementation and consulting services fees
and support fees in April 1998. We began to operate Saba Learning Exchange in
December 1999. To date, we have not generated significant revenues from the Saba
Learning Exchange.
Sources of Revenues and Revenue Recognition
To date, we have generated revenues primarily from licensing Saba Learning
Network and Saba Learning Provider Network and providing related services,
including implementation, consulting, support and education. In the future, in
addition to such license and services revenues, we intend to pursue
transaction-based and other forms of revenues from Saba Learning Exchange.
Our license agreements generally provide that our customers pay a license
fee based on a specified number of learners and the type of software modules
licensed. Customers can subsequently pay additional license fees to allow
additional learners to use previously licensed modules or to license additional
modules. Customers that license Saba Learning Network and Saba Learning Provider
Network generally enter into one year support agreements pursuant to which they
are entitled to receive software upgrades, error corrections and telephone and
web-based assistance, generally for a fixed fee.
Customers may also purchase implementation, consulting, and education
services from us. Although we generally provide implementation and consulting
services on a time and materials basis, a significant portion of these services
have been provided on a fixed fee basis. Our education services are offered for
a fixed fee. In the future, we expect to rely in significant part on third-party
consulting organizations to perform implementation, consulting and education
services.
We recognize license revenues in accordance with the provisions of American
Institute of Certified Public Accountants, or AICPA, Statement of Position 97-2,
"Software Revenue Recognition", as amended by Statement of Position 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2." We recognize
revenue in accordance with the Statement of Position 97-2, as amended. To date,
we have sold license and support together as components of multiple element
arrangements. Our agreements provide for support, which consists of software
upgrades, error corrections and
25
<PAGE> 27
telephone and web-based assistance, for which we have not established vendor
specific objective evidence of fair value. Until such evidence of fair value is
determinable, we recognize license revenues monthly over the initial support
period, generally one year, if all of the following conditions are met:
- There is persuasive evidence of an arrangement;
- We have delivered the product to the customer;
- Collection of the license fees is probable; and
- The amount of the fee to be paid by the customer is fixed or
determinable.
If an agreement with a customer provides that the customer has the right,
during a specified period, to accept or reject our products, subject to the
foregoing conditions, license revenues are recognized ratably over the remainder
of the support period beginning upon the earlier of customer acceptance or the
expiration of the acceptance period. License and services revenues deferred to
future periods are reflected as deferred revenues on our balance sheet. As of
November 30, 1999, deferred revenues included approximately $4.6 million of
amounts recorded in accounts receivable and software license and support fees
collected from customers in advance of revenue recognition. We invoice customers
for license and support fees in accordance with individual contract terms.
Payment terms for license fees and first year support fees generally require
payment from the customer within 30 days of the effective date of the contract.
The AICPA has also issued Statement of Position 98-9 which is effective for
us for transactions entered into beginning January 1, 2000. However, full
implementation guidelines for this standard have not yet been issued. Once
available, such implementation guidelines could lead to unanticipated changes in
our current revenue recognition policies, which changes could significantly
affect our operating results.
Software support revenues are recognized monthly over the term of the
support contract, typically one year. Revenues from other professional services
are recognized as the services are provided.
Cost of Revenues
Our cost of revenues includes cost of our license revenues and cost of our
services revenues. Our cost of license revenues include the cost of manuals and
product documentation, production media and shipping costs. Our cost of services
revenues include salaries and related expenses for our professional services
organization. Because our cost of services revenues is greater than cost of
license revenues, cost of revenues may fluctuate based on the mix of products
and services sold.
Operating Expenses
Our operating expenses are classified into three general operational
categories: sales and marketing, research and development and general and
administrative. In addition, our operating expenses include amortization of
deferred stock compensation.
We classify all charges to the research and development, sales and
marketing and general and administrative expense categories based on the nature
of the expenditures. Each of these three categories include commonly recurring
expenditures such as salaries, employee benefits, travel and entertainment
costs, and allocated communication, rent and depreciation costs. We allocate
these expenses to each of the functional areas that derive a benefit from such
expenses based upon their respective headcount. The research and development
category of operating expense also includes purchased technology. The sales and
marketing category of operating expenses also includes sales commissions, and
expenditures related to public relations and advertising, trade shows and
marketing collateral materials. The general and administrative category of
operating expenses also includes administrative and professional services fees.
26
<PAGE> 28
In connection with the granting of stock options to, and restricted stock
purchases by, our employees, we recorded deferred stock compensation totaling
approximately $14.4 million as of November 30, 1999. This amount represents the
difference between the exercise or purchase price, as applicable, and the deemed
fair value of our common stock for financial accounting purposes on the date
these stock options were granted or purchase agreements for restricted stock
were signed. This amount is included as a component of stockholders' equity and
is being amortized by charges to operations over the vesting period of the
options or restricted stock. As of December 31, 1999, we expect to record an
additional $9.3 million of deferred stock compensation for stock options granted
subsequent to November 30, 1999. The amortization of the remaining deferred
stock compensation will result in additional charges to operations through
fiscal 2005.
History of Losses
We have incurred significant net losses and negative cash flows from
operations since our inception. As of November 30, 1999, we had an accumulated
deficit of $30.1 million. Although our revenues have increased on a quarterly
basis since May 31, 1998, we have not achieved profitability and cannot be
certain that we will be able to sustain these growth rates or realize sufficient
revenues to achieve profitability. We expect to continue to incur significantly
greater operating expenses. We also expect to incur substantial non-cash
expenses relating to stock based compensation. As a result, we expect to incur
significant losses for the foreseeable future and will need to generate
significantly higher revenues in order to achieve profitability. If we achieve
profitability, we may not be able to sustain it.
We had 357 full-time employees as of February 29, 2000. We intend to hire a
significant number of employees in the future. This expansion places significant
demands on our management and operational resources. To manage this rapid
growth, we must invest in scalable operational systems, procedures and controls.
We must also be able to recruit qualified candidates to manage our expanding
operations. We expect future expansion to continue to challenge our ability to
hire, train, manage and retain our employees. Additional personnel will increase
our operating expenses in the foreseeable future.
Limited Operating History
We have a limited operating history that makes it difficult to forecast our
future operating results. We believe that period-to-period comparisons of our
operating results should not be relied upon as predictive of future performance.
Our prospects must be considered in light of the risks, expenses and
difficulties encountered by companies at an early state of development,
particularly companies in new and rapidly evolving markets, such as electronic
commerce and Internet software. We may not be successful in addressing these
risks and difficulties. Although we have experienced significant growth in
revenues in recent periods, we do not believe that prior growth rates are
sustainable or indicative of our future operating results.
RESULTS OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
Revenues
Total revenues increased to $5.2 million for the six months ended November
30, 1999, from $483,000 for the six months ended November 30, 1998. This rapid
growth in revenues reflects our relatively early stage of development, and we do
not expect revenues to increase at the same rate in the future. During the six
months ended November 30, 1999, Ford and US West each accounted for more than
10% of our revenues and collectively comprised approximately 25% of our
revenues.
27
<PAGE> 29
License revenues increased to $1.9 million, or 37% of total revenues, for
the six months ended November 30, 1999, from $119,000, or 25% of total revenues,
for the six months ended November 30, 1998. The increase in the amount of
license revenues is primarily attributable to an increase in sales of licenses
to new customers resulting from increased headcount in our sales force.
Services revenues increased to $3.3 million, or 63% of total revenues, for
the six months ended November 30, 1999, from $364,000 or 75% of total revenues,
for the six months ended November 30, 1998. The increase in dollar amount of
service revenues is primarily attributable to increased implementation and
consulting services performed in connection with increased license sales and to
support services sold to our new customers.
Deferred license and services revenues reflected on our balance sheet were
$7.5 million at November 30, 1999.
The mix of license and services revenues as a percentage of total revenues
has varied significantly due to our relatively early stage of development.
Cost of Revenues
Total cost of revenues increased to $2.7 million for the six months ended
November 30, 1999, from $288,000 for the six months ended November 30, 1998. To
date, our cost of product license revenues has been insignificant. The increase
in the amount of cost of revenues is primarily attributable to the hiring of
additional employees to support increased customer demand for our implementation
and consulting services. Cost of services revenues represented 83% of services
revenues for the six months ended November 30, 1999 and 79% of services revenues
for the six months ended November 30, 1998. The increase in the cost of services
as a percentage of services revenues is primarily attributable to the inability
to fully utilize these new employees prior to their completion of required Saba
learning.
Operating Expenses
Research and development. Research and development expenses increased to
$6.2 million for the six months ended November 30, 1999, from $934,000 for the
six months ended November 30, 1998. This increase is primarily attributable to
an increase in the number of employees engaged in research and development and a
$1.3 million cash payment to a third party related to the purchase of an early
stage product framework which had not yet reached technological feasibility. We
refer to the product framework as the intellectual property obtained from a
third party, which includes technical and design documents, flow charts, and
diagrams. We intend to develop the product framework for integration into our
Saba Learning Network and Saba Learning Provider Network.
Research and development expenses exclude $572,000 of amortization of
deferred stock compensation for the six months ended November 30, 1999. To date,
all software development costs have been expensed in the period incurred. We
believe that continued investment in research and development is critical to
attaining our strategic objectives, and we anticipate that research and
development expenses will continue to increase in absolute dollars due to our
internal product development.
Sales and marketing. Sales and marketing expenses increased to $8.6 million
for the six months ended November 30, 1999, from $1.5 million for the six months
ended November 30, 1998. This increase is primarily attributable to an increase
in the number of employees in our sales and marketing organizations, and related
costs, such as increased sales commissions and costs associated with the
establishment of sales offices in additional domestic and international
locations. Sales and marketing expenses exclude $1,308,000 of amortization of
deferred stock compensation for the six months ended November 30, 1999. We
anticipate that the amount of sales and marketing expenses will
28
<PAGE> 30
continue to increase due to the planned growth of our sales force and to
expected additional increases in advertising and marketing programs and other
promotional activities.
General and administrative. General and administrative expenses increased
to $2.0 million for the six months ended November 30, 1999, from $406,000 for
the six months ended November 30, 1998. This increase is primarily attributable
to an increase in the number of executive, finance and administrative employees
from five at November 30, 1998 to 24 at November 30, 1999, resulting in a
$637,000 increase in salary expense for the six months ended November 30, 1999
from the six months ended November 30, 1998. The increase was also attributable
to an increase in the amount of administrative and professional services fees,
including temporary staffing, legal and accounting fees. General and
administrative expenses exclude $1,382,000 of amortization of deferred stock
compensation for the six months ended November 30, 1999. We expect that the
amount of general and administrative expenses will continue to increase in
future periods as we add personnel to support the expansion of our operations,
incur additional expenses related to the anticipated growth of our business both
domestically and internationally, and assume the responsibilities of a public
company.
Amortization of deferred stock compensation. During the six month period
ended November 30, 1999, we recorded deferred stock compensation of $13.2
million and amortization of $3.5 million.
Interest income, net
Interest income, net consists of interest income, interest expense and
other non-operating expenses. Interest income, net increased to $156,000 for the
six months ended November 30, 1999, from $11,000 for the six months ended
November 30, 1998. This increase is attributable primarily to interest income
from average invested cash proceeds from financing activities, partially offset
by interest expense related to equipment loans, the proceeds of which were used
to purchase computer equipment and office furniture and equipment.
YEARS ENDED MAY 31, 1999 AND 1998
The following discussion includes, with respect to fiscal 1998 data, data
from the period commencing on April 16, 1997 (inception) through May 31, 1997.
Revenues
Total revenues increased to $1.9 million in fiscal 1999, from $40,000 in
fiscal 1998. In fiscal 1999, Baan, Norwest and Documentum each accounted for
more than 10% of our revenues and collectively comprised approximately 66% of
our revenues.
License revenues increased to $612,000, or 32% of total revenues, in fiscal
1999, from $7,000, or 18% of total revenues, in fiscal 1998. The increase in the
amount of license revenues is attributable to a full year of sales of licenses
for our products in fiscal 1999 after their commercial release in late fiscal
1998.
Services revenues increased to $1.3 million, or 68% of total revenues, in
fiscal 1999, from $33,000 or 83% of total revenues, in fiscal 1998. The increase
in dollar amount of service revenues is primarily attributable to increased
implementation and consulting services performed in connection with increased
license sales and to support services sold to our new customers.
Deferred license and services revenues reflected on our balance sheet were
$1.8 million at May 31, 1999.
29
<PAGE> 31
Cost of Revenues
Total cost of revenues increased to $1.3 million in fiscal 1999, from
$72,000 in fiscal 1998. This increase is primarily attributable to the hiring of
additional employees to support increased customer demand for our implementation
and consulting.
Operating Expenses
Research and development. Research and development expenses increased to
$3.6 million in fiscal 1999, from $694,000 in fiscal 1998. This increase is
primarily attributable to the hiring of additional employees to support the
development of new products.
Sales and marketing. Sales and marketing expenses increased to $6.3 million
in fiscal 1999, from $535,000 in fiscal 1998. This increase resulted primarily
from building a direct sales force and investing in sales and marketing
infrastructure, including personnel-related expense, travel expenses and related
facility and equipment costs, as well as increased marketing activities.
General and administrative. General and administrative expenses increased
to $1.4 million in fiscal 1999, from $302,000 in fiscal 1998. This increase is
primarily attributable to an increase in the number of executive, finance and
administrative employees to support the growth of our business.
Amortization of deferred stock compensation. We recorded deferred stock
compensation of $1.3 million in fiscal 1999. Of this deferred stock
compensation, $189,000 was amortized in fiscal 1999.
Interest income, net
Interest income, net consists of interest income, interest expense and
other non-operating expenses. Interest income, net increased to $45,000 in
fiscal 1999, from an expense of $8,000 in fiscal 1998. This change from expense
to income is attributable primarily to interest income on higher average cash
balances relating to financing activities which offset higher capital costs.
Provision for Income Taxes
From inception through May 31, 1999, we incurred net losses for federal and
state tax purposes and have not recognized any tax provision or benefit. As of
May 31, 1999, we had approximately $9.0 million of federal and state net
operating loss carryforwards to offset future taxable income. The federal and
state tax net operating loss carryforwards are available to reduce future
taxable income and expire at various dates into fiscal 2019. Given our limited
operating history, our losses incurred to date and the difficulty in accurately
forecasting our future results, management does not believe that the realization
of the related deferred income tax asset meets the criteria required by
generally accepted accounting principles. Therefore, we have recorded a 100%
valuation allowance against the deferred income tax asset. See note 9 of the
notes to our consolidated financial statements.
30
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth consolidated statement of operations data
for each of the six quarters in the period ended November 30, 1999. This
information has been derived from our unaudited consolidated financial
statements that, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of this information. You should read this information in
conjunction with our audited consolidated financial statements and related notes
appearing elsewhere in this prospectus. We have experienced and expect to
continue to experience fluctuations in operating results from quarter to
quarter. We incurred net losses in each quarter since inception and expect to
continue to incur losses in the foreseeable future. You should not draw any
conclusions about our future results from the results of operations for any
quarter, as quarterly results are not indicative of the results for a full
fiscal year or any other period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31, NOV. 30,
1998 1998 1999 1999 1999 1999
-------- -------- -------- ------- -------- --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License........................ $ 15 $ 104 $ 179 $ 314 $ 668 $ 1,252
Services....................... 141 223 375 588 1,039 2,245
----- ------- ------- ------- ------- -------
Total revenues......... 156 327 554 902 1,707 3,497
----- ------- ------- ------- ------- -------
Cost of revenues................. 98 190 347 629 956 1,772
----- ------- ------- ------- ------- -------
Gross profit..................... 58 137 207 273 751 1,725
Operating expenses:
Research and development....... 225 709 980 1,713 3,522 2,724
Sales and marketing............ 234 1,233 1,325 3,527 3,427 5,133
General and administrative..... 146 260 385 646 901 1,091
Amortization of deferred stock
compensation................ -- -- -- 189 1,385 2,126
----- ------- ------- ------- ------- -------
Total operating
expenses............. 605 2,202 2,690 6,075 9,235 11,074
----- ------- ------- ------- ------- -------
Loss from operations............. (547) (2,065) (2,483) (5,802) (8,484) (9,349)
Interest income (expense), net... 17 (6) 18 16 48 108
----- ------- ------- ------- ------- -------
Net loss......................... $(530) $(2,071) $(2,465) $(5,786) $(8,436) $(9,241)
===== ======= ======= ======= ======= =======
</TABLE>
Our results of operations could vary significantly from quarter to quarter.
We expect to incur significant sale and marketing expenses to promote our
products and services. Therefore, our quarterly operating results are likely to
be particularly affected by the number of customers licensing our products
during any quarter as well as sales and marketing, research and development and
other expenses for a particular period. If revenues fall below our expectations,
we will not be able to reduce our spending rapidly in response to the shortfall.
We anticipate that our sales will continue to have long sales cycles. Therefore,
the timing of future customer contracts could be difficult to predict, making it
very difficult to predict revenues between quarters, and our operating results
may vary significantly.
Other factors that could affect our quarterly operating results include
those described below and elsewhere in this prospectus:
- dependence of our revenues on a small number of larger orders;
- our ability to attract new customers;
- any changes in revenue recognition policies and provisions and
interpretations of these provisions;
31
<PAGE> 33
- our ability to license additional products to current customers;
- the announcement or introduction of new products or services by us or our
competitors;
- changes in the pricing of our products and services or those of our
competitors;
- variability in the mix of our products and services revenues in any
quarter;
- technical difficulties or service interruptions of our computer network
systems or the Internet generally; and
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through the sale
of equity securities, through which we have raised net proceeds of $51.2 million
through November 30, 1999, equipment leases and other debt. As of November 30,
1999, we had outstanding equipment leases and notes payable of $1.4 million. As
of November 30, 1999, we had approximately $29.4 million of cash and cash
equivalents.
Cash used in operating activities was $10.1 million during the six months
ended November 30, 1999, $7.8 million in fiscal 1999 and $1.0 million in fiscal
1998. The cash used during these periods was primarily attributable to net
losses of $17.7 million during the six months ended November 30, 1999, $10.9
million in fiscal 1999 and $1.6 million in fiscal 1998.
Investments in property and equipment, excluding equipment acquired under
capital leases, were $1.4 million during the six months ended November 30, 1999,
$1.1 million in fiscal 1999 and $70,000 in fiscal 1998.
Cash provided by financing activities was $30.5 million during the six
months ended November 30, 1999, $19.4 million in fiscal 1999 and $1.1 million in
fiscal 1998 resulting primarily from net proceeds from the sale of preferred
stock and, to a lesser extent, from bank borrowings. These amounts were
partially offset by payments on capital lease obligations and notes payable.
As of November 30, 1999, we did not have any material commitments for
capital expenditures. Our principal commitments consisted of obligations of
$33.3 million under operating leases and $1.1 million under capital leases.
We currently anticipate that the net proceeds from our offering, together
with our available cash resources and credit facilities, will be sufficient to
meet our presently anticipated working capital, capital expenditure and business
expansion requirements for at least the next 12 months. However, we may need to
raise additional funds within the next 12 months to support expansion, develop
new or enhanced applications and services, respond to competitive pressures,
acquire complementary businesses or technologies or take advantage of
unanticipated opportunities. Our future liquidity and capital requirements will
depend upon numerous factors, including the success of our existing and new
product and service offerings and competing technological and market
developments. We may be required to raise additional funds through public or
private financing, strategic relationships or other arrangements. There can be
no assurance that additional funding, if needed, will be available on terms
acceptable to us, or at all.
YEAR 2000
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on 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 telecommunications, may have produced erroneous results or
32
<PAGE> 34
failed unless they had been modified or upgraded to process date information
correctly. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the Year 2000
phenomenon even after January 1, 2000. This failure may involve significant time
and expense, and uncorrected problems could seriously harm our business. In
addition, the potential failure of our customers to ensure that their operations
are Year 2000 compliant could have an adverse effect on them, which in turn
could limit their ability to use our products and services or process our
invoices in a timely manner. Furthermore, customers or potential customers may
delay purchasing our products and services to the extent such customers or
potential customers are required to devote resources to resolving the Year 2000
problem.
MARKET AND CURRENCY RISK
We develop and market our products in North America, Europe and the
Asia-Pacific region. As a result, our financial results could be affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. To date, a substantial majority of our sales have
been made in U.S. dollars, a strengthening of the dollar could make our products
less competitive in foreign markets. Our interest income is sensitive to changes
in the general level of U.S. interest rates. However, due to the short-term
nature of our investments, we believe that there is no material risk exposure.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". We are required to adopt SFAS No. 133, as amended, for
the year ending May 31, 2001. SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because we currently hold no
derivative financial instruments and do not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material impact on
our financial condition or results of operations. In December 1999, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 101
regarding recognition, presentation and disclosure of revenues. We believe that
SAB No. 101 does not have any material effect on our accounting practices or
financial results.
33
<PAGE> 35
BUSINESS
OVERVIEW
We are a provider of software and services that enable businesses and
governments to create and deploy global networks over the Internet that connect
people to learning. Organizations face a rapidly changing environment in which a
principal source of competitive advantage is the depth and breadth of the
knowledge and competencies possessed by their "extended enterprise" of
employees, customers, partners and suppliers. We provide an Internet-based
software platform and related services that enable businesses to procure and
deliver learning and systematically close knowledge and competency gaps across
their extended enterprises. At the same time, we offer learning providers an
Internet-based global marketing and distribution channel. Building upon our
growing base of learners and learning offerings, we recently launched the Saba
Learning Exchange, an Internet-based business-to-business learning marketplace.
The Saba Learning Exchange is designed to enable businesses, governments and
learning providers to buy and sell learning offerings, such as on-line and
off-line courses and related materials, as well as collaborate within learning
communities.
Our offerings are designed to cost-effectively meet the needs of both
organizations and learning providers. Organizations implementing our solutions
can establish knowledge and competency goals, assess gaps relative to these
goals, source and distribute learning needed to close these gaps, and
continuously track and measure progress. Our solutions also enable learning
providers to develop, market, sell, deliver and improve their learning
offerings. Learning offerings supported by our solution can be from internal or
external providers, and offered in many languages, off-line or on-line, and over
private or public networks. This breadth of functionality allows organizations
that use our solutions to:
- Accelerate responsiveness to changing business needs. An organization's
employees, customers, partners and suppliers can be quickly educated
through the distribution of targeted learning to speed responsiveness to
changing business objectives.
- Enhance customer satisfaction and loyalty. Organizations can provide
relevant and updated product and usage knowledge to customers leading to
improved satisfaction and loyalty.
- Improve recruitment and retention. Learning can be used as a tool to
recruit and retain employees, by offering learners an opportunity to
improve their performance and enhance their knowledge.
- Align disparate business units. Learning can be used to align disparate
workforces, for example, recently acquired or merged businesses and
geographically-dispersed business units.
- Ensure regulatory compliance. Targeted knowledge and competencies can be
deployed to ensure compliance with applicable laws, such as those
governing the health care, financial services, transportation, chemical
and energy industries.
As of December 31, 1999, our software was licensed for use by over two
million people and more than 20,000 third-party learning offerings were
accessible on Saba learning networks. To increase this base of learners and
learning offerings quickly, we intend to continue to target large organizations,
including Global 2000 and government organizations, and their learning
providers. Our significant customers include 3Com, Agilent, Anheuser-Busch,
Cisco Systems, Continental Airlines, DaimlerChrysler, Ford, General Electric,
Hyundai, Lucent Technologies, Procter & Gamble and Qwest Communications. Our
content offerings are available from over 50 learning providers, including
DigitalThink, ExecuTrain, IBM Catapult, International Air Transport Association,
NETg, PROVANT, SkillSoft and the Sun-Netscape Alliance. Some of our customers,
such as Cisco Systems, act as learning content providers and also license
learners for their extended enterprise.
34
<PAGE> 36
INDUSTRY BACKGROUND
Traditional Learning Solutions
Organizations face an increasingly competitive environment driven by rapid
and constant change, globalization and technological advancements. To remain
competitive, organizations must continually work on improving the knowledge and
competencies not only of their employees, but also of their customers, partners
and suppliers. By educating their extended enterprise, organizations can improve
performance by, among other things, increasing productivity, reducing the time
and expense associated with bringing new products and services to market, and
improving customer satisfaction and loyalty.
TRAINING Magazine estimates that the training budget of U.S. enterprises
was approximately $63 billion in 1999. We believe that the worldwide education
budget for businesses, as well as for federal and state governments, is
significantly higher. Despite the focus and spending on learning, many
businesses struggle to realize significant strategic benefits from learning
investments due to the significant shortcomings of traditional learning
management solutions. Most of the learning management solutions offered today,
which include systems developed in-house and third party systems intended for
back-office support of employee training, have a number of shortcomings. These
solutions typically:
- Are unable to identify and systematically close knowledge and competency
gaps. Most organizations today lack the systems to identify and assess
knowledge and competency gaps across their extended enterprise. They have
limited ability to identify and offer appropriate learning to address
each individual's needs, track performance improvement at the individual
level or across a department or organization, and generate associated
management reports that effectively measure the return on their learning
investment.
- Are unable to personalize learning. Traditional learning management
systems do not provide the breadth of relevant learning offerings
required to meet the learning needs, language requirements and learning
style of each individual in the extended enterprise. Consequently,
learners are typically limited to "one-size-fits-all" learning offerings.
- Are limited in their ability to source offerings. The learning industry
is highly fragmented with a multitude of content providers and a large
number of buyers within organizations. The lack of a learning marketplace
results in significant time and resources spent on locating relevant
content.
- Are difficult to update. The lack of enterprise-wide learning management
systems makes it difficult for both organizations and learning providers
to disseminate time-sensitive information, such as schedules and updated
learning offerings.
- Are costly and inefficient to deploy and manage across the extended
enterprise. Traditional learning management systems are often costly and
inefficient. They rely on a combination of manual and automated
processes, and are difficult to deploy across geographically dispersed
extended enterprises.
As a result of these shortcomings, individuals within the extended enterprise do
not receive required knowledge or attain necessary competencies in a timely
fashion. Consequently, organizations suffer numerous inefficiencies, such as
delays in time to market, reduced sales force productivity and violations of
safety and other regulations.
The providers of learning offerings have faced significant limitations on
their ability to develop, market, distribute, sell and improve their offerings.
Most learning providers have had limited marketing and distribution channels,
making it difficult to cost-effectively reach new customers and markets. They
have also been unable to estimate and aggregate demand for their content, as
demand within
35
<PAGE> 37
enterprises is highly fragmented, with a multitude of decision-makers and
learning buyers. Therefore, many of these providers have no choice but to
deliver solutions that are typically in the form of "one-size-fits-all,
just-in-case" learning offerings that are not tailored to the knowledge needs
and learning style of the individual learner.
The Need for an Internet-Based Solution
The rapid adoption of the Internet has created an opportunity to solve many
of the shortcomings in the business learning market. The Internet is one of the
fastest-growing global communications mediums in history and is dramatically
changing the way businesses and individuals communicate and share information.
International Data Corporation, or IDC, estimates that the number of Internet
users worldwide will grow from 142 million in 1998 to 502 million in 2003. In
addition, according to Forrester Research, business-to-business electronic
commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003,
underscoring the significance of this marketing and procurement channel.
This rapid growth and deployment of the Internet as a business platform for
worldwide communication and commerce is fundamentally transforming the way
businesses interact with their employees, customers, partners and suppliers,
creating the opportunity to streamline complex processes, lower costs and
improve productivity. The Internet has the potential to significantly improve
the procurement, deployment and management of learning. However, existing
offerings did not take full advantage of the Internet and were not designed to
serve as an integrated solution capable of improving the manner in which
learning is managed across the extended enterprise. As a result, we believe
there is a significant opportunity for a software and services solution that is
designed to leverage the benefits of the Internet to create learning networks to
meet the needs of businesses, their employees, customers, partners and
suppliers, as well as the needs of third party learning providers.
THE SABA SOLUTION
We are a provider of software and services that enable businesses and
governments to create and deploy global networks over the Internet that connect
people to learning. Our integrated solutions consist of the Saba Learning
Network and Saba Learning Provider Network software applications, as well as the
Saba Learning Exchange, an Internet-based business-to-business learning
marketplace. Our software platform is standards-based, content-neutral and
designed to enable the procurement, deployment and management of on-line or
off-line learning in many languages across the extended enterprise.
Saba Learning Network is an Internet-based software application that allows
enterprises to assess the learning needs of individuals and organizations,
select and purchase on-line and off-line learning materials and programs, track
individual learners' progress and manage enterprise-wide learning initiatives
and processes. Saba Learning Provider Network is an Internet-based software
application that enables learning providers to develop, market, sell and
distribute on-line and off-line learning materials to organizations worldwide.
We also provide a full range of strategic consulting, business process
reengineering, and technical implementation and support services for our
business customers and learning providers.
Our established base of organizations and learning providers will form the
basis of Saba Learning Exchange. We believe that the efficiencies created by
this exchange will attract a growing number of organizations and learning
providers. As more organizations use the Saba Learning Exchange to procure,
deploy and manage their learning programs, we believe they will attract more
learning providers to our exchange. As we attract additional learning providers,
we believe that even more organizations will be encouraged to use our services,
resulting in a network effect, where the value of our services to each
participant increases with the addition of new participants.
36
<PAGE> 38
Benefits to Organizations
Our offerings are designed to meet the learning needs of extended
enterprises. They enable organizations to offer a diverse array of on-line or
off-line learning to achieve a variety of objectives. Examples include quickly
educating a worldwide sales force in conjunction with new product introductions,
disseminating information to ensure compliance with new government regulations,
integrating geographically dispersed or recently-acquired business units and
enabling customers to achieve higher utility from products and services about
which they are now more knowledgeable.
With our products, organizations can systematically identify and
cost-effectively close knowledge and competency gaps across their extended
enterprises. Our extensive network of learning providers allows organizations to
select and deliver the breadth of learning content required to meet the learning
needs of individuals. Additionally, our solutions include standardized tracking
and measurement tools as well as consulting services to better monitor the
progress of individuals and the effectiveness of different learning offerings.
This centralization and automation of the procurement and management of learning
enables organizations to realize a higher return on learning investments through
reduced learning provider search and selection costs, improved distribution of
learning content across the extended enterprise and improved productivity and
performance.
Benefits to Learning Providers
We offer learning providers a powerful marketing and distribution channel
to sell their content and other offerings to organizations worldwide, extending
their reach to new customers and across existing business customers'
enterprises. We provide a range of options to serve the diverse needs of our
learning providers, including: placing simple hyper-links on Saba Learning
Exchange to their own websites, incorporating electronic versions of their
paper-based catalogs on Saba Learning Exchange, delivering their content
electronically to learning organizations and creating fully hosted, commerce-
enabled electronic storefronts within Saba Learning Exchange. Moreover, by
providing channels for end-user feedback, our learning providers are able to
continuously improve their offerings and reduce their time to market for new
content and services. In addition, our learning providers are able to take
advantage of our management tools that assist them with expanding their
offerings, aggregating demand for their offerings, budgeting, managing customer
profiles, conducting electronic commerce, invoicing, tracking inventory and
measuring and improving resource utilization.
Benefits to Learners
Learners on our software platform are able to improve performance and
increase the value of their intellectual capital by accessing relevant on-line
and off-line learning offerings. Our platform also allows learners to better
understand knowledge requirements and provides them with the means to assess and
close their knowledge gaps. The "around-the-clock" availability of our
Internet-based platform provides learners with the convenience and flexibility
to choose offerings that fit their personal schedules. In addition, customized
learning reduces the wasted time and effort resulting from "one-size-fits-all,
just-in-case" programs.
37
<PAGE> 39
STRATEGY
We intend to increase the number of learners and providers using our
Internet-based platform in order to create the leading global exchange that
connects people to learning. Key elements of our strategy include:
Increasing the number of our Global 2000 and government customers
Global 2000 and government organizations have large budgets dedicated to
the education and development of their employees, customers, suppliers and
partners. We believe that continuing to add these "anchor tenants" to our
customer base will strengthen our leadership position, provide significant
follow-on revenue opportunities and enhance the attractiveness of the Saba
Learning Exchange for learning providers. We intend to continue to add these
large organizations by establishing strategic relationships, adding to our
direct sales force and enhancing the value of our offerings to these customers.
Extending penetration within our existing customer base and their affiliates
Our existing customers have broad extended enterprises that include
customers, suppliers and partners that are directly or indirectly experiencing
the benefits of our products and services. We believe that this exposure, which
allows potential customers to benefit first hand from our products and services,
creates demand, generates recognition within a customer's industry and
accelerates adoption of our products. We intend to capitalize on this exposure
to expand our customer base. Additionally, we intend to increase penetration
within our existing customer base by cross-selling our products and services to
other divisions and geographic regions within these customers.
Increasing the number of learning offerings in our network
In order to increase the number of learning offerings on Saba Learning
Exchange, we intend to increase the number of learning providers in our network.
We believe that the expansion of our learning provider base will strengthen our
market position, provide us with a significant source of competitive advantage
and increase the value that we provide to our customer base. We intend to target
providers of diverse and high quality content, including high technology
companies, independent training providers and colleges and universities.
Expanding Saba Learning Exchange
We intend to expand Saba Learning Exchange to become the leading global
business-to-business learning marketplace. Saba Learning Exchange is designed to
be an open-architecture, flexible, scalable, global, Internet-based learning
platform supporting multiple languages, currencies and data formats. Through the
expansion of Saba Learning Exchange, learning providers will have access to a
large number of buyers, buyers will have access to a wide selection of learning
offerings and both buyers and sellers will have the ability to collaborate. We
believe Saba Learning Exchange will allow us to attract additional learning
providers and that even more organizations will be encouraged to use our
services, resulting in a network effect, where the value of our services to each
participant increases with the addition of new participants.
Expanding our international presence
We plan to capitalize on international opportunities by establishing
additional international sales offices, expanding our network of international
learning content providers and, where appropriate, establishing strategic
alliances to enter new geographic markets. We currently have international sales
offices in Australia, Canada, Germany, India and the United Kingdom. Many of our
customers are large
38
<PAGE> 40
multinational organizations which are deploying our solution globally, and we
are creating both regional and international exchanges to benefit them.
Currently, our platform enables learning in English, French, German and Spanish,
and we intend to adapt it for other languages. We also plan to leverage our
existing customer base and the benefits of our solutions to further our
international expansion.
Developing new uses and markets for the Saba platform
We intend to utilize our open, scalable, standards-based architecture to
develop new applications and address new markets for our learning platform. Our
architecture will allow us to take advantage of emerging technologies to further
extend the reach of our platform. For instance, our architecture allows for the
possible distribution of learning content through the growing number of emerging
Internet-enabled appliances such as personal digital assistants, cellular
telephones, pagers, television set-top boxes and on-line kiosks. We also intend
to continue to develop our products to enable us to address markets beyond
learning.
PRODUCTS AND SERVICES
Our Saba Learning Network Solution consists of two product families: Saba
Learning Network and Saba Learning Provider Network. In addition, we offer Saba
Learning Exchange and provide associated services to our customers. The
functionality of these products and the scope of our service offerings are
described more fully below.
Saba Learning Network
Saba Learning Network enables businesses to cost-effectively close critical
knowledge and competency gaps. Anyone within an organization who oversees the
learning of others inside or outside the organization can use this product to
establish knowledge and competency goals, assess gaps relative to these goals,
source and distribute learning needed to close these gaps and continuously track
and measure progress. The underlying business objectives may include speed to
market, regulatory compliance, recruitment and retention of employees, and
management of change. Examples of specific initiatives include:
- sales executives using Saba Learning Network to set product knowledge
certification requirements for the direct sales force and resellers;
- maintenance executives setting and updating knowledge requirements for
technicians as products change; and
- supply chain executives setting and managing supplier training
requirements on design guidelines and quality.
Saba Learning Network provides management with broad reporting and
procurement capabilities and pre- and post-learning competency assessment. Saba
Learning Network leads managers through a simple process to help them set
knowledge targets and close knowledge gaps across the extended enterprise. Using
a standard Internet-browser, a manager can establish knowledge targets by role
and by competency for any group of learners. The manager can then select and
make available a range of offerings to learners by subscribing to them, while
simultaneously forecasting the costs associated with such learning. Learners can
use Saba Learning Network to assess their knowledge relative to targets and
identify knowledge gaps. They can select from, register for and participate in
on-line or off-line offerings and keep track of their progress and test results.
Concurrently, the manager can track and report on each individual's progress.
Finally, management can use Saba Learning Network to compare actual versus
budgeted learning expenditures and to assess the return on learning investments.
39
<PAGE> 41
Saba Learning Provider Network
Saba Learning Provider Network enables both internal and third-party
learning providers to cost-effectively develop, market, sell, and distribute
consistent learning on a worldwide basis. Third-party content providers can use
our product to gain access to a large number of customers and manage their
offerings. Learning providers within organizations, such as corporate
universities, can distribute offerings across their extended enterprises.
Additionally, they may market and sell learning outside of their extended
enterprises, if they choose to do so, thereby converting what has traditionally
been viewed as a cost center into a source of revenue.
Saba Learning Provider Network categorizes each offering in the learning
provider's catalog in several ways: by competency, certification, role,
industry, language, geography and delivery method. Additionally, providers can
control the distribution of their offerings by limiting access to authorized
learners. For example, distribution of information and training for new products
can be limited to the sales force. Learning providers can assess demand, market
to organizations using our platform, transact with electronic commerce
capability, manage assets and inventory such as classrooms and supplies to meet
demand for off-line learning, deliver on-line learning, and take advantage of
multiple reporting capabilities to better manage their business. Our products
can also be used by independent learning providers to establish electronic
storefronts which can be accessed through their websites or through Saba
Learning Exchange.
Saba Learning Exchange
Saba Learning Exchange is our recently launched global business-to-business
learning marketplace that is designed to meet the learning needs of learning
providers and learning organizations. Saba Learning Exchange has broad
functionality, including:
- search capability for the thousands of publicly available offerings by
competency, certification, role, industry, geography, language, provider
and delivery method;
- access to private learning networks and offerings via secure pass codes;
- community features such as chat rooms and discussion groups for buyers,
users and providers of learning solutions; and
- electronic commerce capabilities.
Managers within organizations can use Saba Learning Exchange to find
offerings that close knowledge and competency gaps in the groups of people they
manage. Learning providers can use Saba Learning Exchange to market learning. We
believe that we will attract additional learning providers to Saba Learning
Exchange as we add to our base of over two million licensed learners. As we
attract additional learning providers and they bring more offerings to Saba
Learning Exchange, we believe that even more organizations will be encouraged to
use Saba Learning Exchange, resulting in a network effect, where the value of
our services to each participant increases with the addition of each new
participant.
Services
We offer comprehensive services to assist in the successful implementation
of our products. As of February 29, 2000, we employed 95 people worldwide in
services-related activities.
Our global services organization supports multiple consulting functions,
including:
- Strategic consulting. We assist in the definition of areas where learning
has the greatest impact on business results and in the establishment of
strategies to optimize learning investments.
40
<PAGE> 42
- Implementation consulting. Our implementation services include the
definition of learning objectives, the design of phased plans for
achieving these objectives, technical solution specifications,
establishment of implementation timelines and resource requirements,
installation of Saba solutions, systems configuration, data loading,
custom report and notification design, website development, enterprise
system integration and post-implementation assessment.
- Customer support. We provide several support options so that customers
may utilize their own resources to the degree desired and leverage their
existing investments in customer support. Options include enterprise
support, an end-user help desk and on-site support.
- Education solutions. We provide product training and learning content
conversion to prepare project team members, administrators, and learners
for managing and using Saba products.
We are in the process of establishing relationships with systems
integrators.
CUSTOMERS
Our customers include a wide spectrum of large, global organizations.
Customers that have licensed at least 1,000 learners as of February 29, 2000
include:
<TABLE>
<S> <C> <C>
Automotive High Technology Professional Services
DaimlerChrysler Adobe PricewaterhouseCoopers
Ford Agilent Scient
Hyundai Baan Whittman-Hart
BMC Software
Consumer Ceridian Telecommunications
Procter & Gamble Documentum Qwest Communications
Informix Software
Financial Services SGI Telecommunications
PaineWebber Sun-Netscape Alliance Equipment
Strong Capital VERITAS Software 3Com
Wells Fargo Cisco Systems
Insurance Lucent Technologies
Food and Beverage Safeco Insurance
Anheuser-Busch Training Providers
Internet DigitalThink
Government Amazon.com ExecuTrain
U.S. Department of i2 Technologies TECH Connect
Veterans Affairs Techies.com
Transportation
Manufacturing Continental Airlines
Caterpillar International Air Transport
General Electric Association
Hillenbrand Industries
York International Utilities
Texas Utilities -- Europe
</TABLE>
41
<PAGE> 43
ALLIANCES
We have entered into alliance agreements with content providers, custom
content developers, and learning delivery tool providers in order to increase
the range of content offerings available to licensed learners. There are over 40
Learning Content Alliance members with numerous content offerings available
through Saba Learning Exchange. Over 20 Custom Content Alliance developers are
available to develop customized content to meet a particular user's needs. Our
recently formed Learning Delivery Tool Alliance currently has five members who
provide delivery tools such as on-line classrooms or satellite delivery to
content developers and providers. Many companies are members of more than one
alliance. Selected members of these alliances include the following:
Achieve Global
Allen Communication
Aptech Worldwide
Bell Canada Enterprises Media
Caliber Learning Network
Centra
Competence Software
Corporate University Xchange
Crisp Publications
DigitalThink
Eloquent
headlight.com
IBM Catapult
General Physics
InterWise
LearningByte International
LearnLinc
NETg
ONE TOUCH Systems
PRIMEDIA Healthcare
PROVANT
SkillSoft
TECH Connect
Thomson Learning Course Technology
TrainingNet
VCampus
Wilson Learning
Xebec McGraw-Hill
SALES AND MARKETING
We license our products to organizations primarily through a worldwide
direct sales force. Our direct sales efforts target large organizations
including Global 2000 businesses and government organizations. As of February
29, 2000, we had 104 sales and marketing professionals located in 17 sales
offices, 10 of which offices are in the United States.
Our sales process includes pre-sales lead qualification, identification of
key buyers and influencers, working with prospective clients to help shape their
vision of a learning solution and educating them on Saba products and services.
Our sales professionals continue to work with clients after they have selected
Saba products and services, and advise them on the entire procurement and
implementation process from due diligence and funding approval through
implementation and post-implementation services.
We focus our marketing efforts on sales lead generation, sales support,
creating market awareness of our solutions and establishing strategic
relationships. Our marketing activities include seminar programs, speaking
engagements, industry trade-shows, website programs, e-mail programs, public
relation events and direct mailings. We have also established an Advisory Board
of 14 industry leaders. Members include senior executives from Global 2000 and
government organizations, consulting firm principals, and academics. We believe
our Advisory Board will assist us in gaining broad marketplace acceptance and
will enhance our marketing capabilities.
TECHNOLOGY
Our product architecture facilitates the rapid development, deployment, and
customization of Internet-based solutions for organizational learning. Our
products share a common core foundation, based on widely-adopted standard
Internet technology that leverages thin client computing and electronic commerce
capabilities over the Internet.
42
<PAGE> 44
The Core Foundation
Our core foundation consists of a scalable application server and a
database server, and uses standard web-browser clients. The core foundation
accelerates application development by providing transaction management,
persistence management, and resource pooling services so application developers
can focus on building business logic and user interfaces. Key features of this
core foundation include:
- Open interfaces. Published Java application programming interfaces, or
APIs, enable developers to build custom Saba application extensions, and
public database views allow analysts to design custom reports using
standard reporting tools.
- Scalability. Scalability is accomplished using load-balancing techniques,
allowing multiple servers to be deployed to handle peak periods when the
largest number of concurrent users are expected on the system.
- Standard relational database server. We use standard relational database
servers. To enhance performance and ensure that users are served
efficiently, the core foundation executes database-stored procedures to
optimize intense database processing. The core foundation currently
supports Oracle, Microsoft SQL Server and Informix Dynamic Server
databases.
- Java-based application server. The business and application logic reside
on a Java application server. This Java-based architecture allows us to
deploy a site across a farm of servers with diverse operating
environments, such as Microsoft Windows NT, Sun Solaris or HP UX.
- Electronic commerce enabled. The core foundation includes interfaces to
external electronic payment services, enabling real-time electronic
commerce.
- Multiple language support. The core foundation is designed to support
multiple languages. Currently supported languages include English,
French, German, and Spanish.
- Workflow monitoring of learning object changes. A workflow component
applies business rules when learning objects change. For example, e-mail
can automatically be sent to students when details about their class
change.
- Integration with legacy enterprise applications. The core foundation is
capable of exchanging data with external legacy systems. We provide
connectors to popular human resources and financial systems.
Research and Development
Our research and development operations are divided into two departments:
one focusing on our software platform and applications, and one focusing on Saba
Learning Exchange. These two departments share resources and collaborate on
design and development. These departments are further divided into teams that
are responsible for platform and infrastructure development, application
development, user interface and application design, enterprise connectivity,
Internet applications and design, quality assurance, documentation, and release
management. As of February 29, 2000, we had 116 research and development
employees.
Our development methodology provides guidelines for planning, controlling
and implementing projects. To continue to address market requirements, we
involve our consulting, support, and sales teams, as well as our customers, in
the product development cycle. We conduct our development efforts at multiple
sites in the United States and India, which enables development 24 hours per
day.
43
<PAGE> 45
COMPETITION
The market for our products and services is intensely competitive, dynamic
and subject to rapid technological change. The intensity of competition and the
pace of change are expected to increase in the future. Competitors vary in size
and in the scope and breadth of the products and services they offer. Although
we believe that we offer the most comprehensive Internet-based learning
platform, we encounter competition with respect to different aspects of our
solution from a variety of sources including:
- companies that operate Internet-based marketplaces for the sale of
on-line learning;
- companies that operate Internet-based marketplaces for the sale of goods
and services and could potentially decide to evolve their marketplaces to
include content offerings;
- Internet portals that offer learning content;
- companies that market and license training management systems;
- enterprise software vendors that offer human resources information
systems training modules; and
- potential customers' internal development efforts.
We expect additional competition from other established and emerging
companies as the market for Internet-based, business-to-business learning
solutions continues to evolve. Increased competition is likely to result in
price reductions, reduced gross margins and loss of market share, any one of
which could seriously harm our business.
We believe the principal competitive features affecting our market include:
- breadth and depth of the solution;
- a significant installed base of Global 2000 and government customers;
- the ability to support on-line as well as traditional content offerings;
- product quality and performance;
- product features and functions;
- customer service and support;
- ease of implementation;
- core technology; and
- price/performance.
Although we believe that our solutions currently compete favorably with
respect to these factors, our market is relatively new and is changing rapidly.
We may not be able to maintain our competitive position against current and
potential competitors, especially those with significantly greater financial,
technical, service, support, marketing and other resources.
PROPRIETARY RIGHTS
Proprietary rights are important to our success and our competitive
position. To protect our proprietary rights, we rely on copyright, trademark,
and trade secret laws, confidentiality procedures and contractual provisions.
44
<PAGE> 46
We license rather than sell our software products and require our customers
to enter into written license agreements, which impose restrictions on the use
of the software. Our Internet edition products are licensed pursuant to
Internet-based agreements, rather than by a means of a formal, written contract.
Users of these products "click" on a dialog box and are deemed to agree to
electronically displayed terms and conditions. Because these agreements are not
signed, there is a possibility that a court, arbitrator or regulatory body could
deem this type of agreement to be unenforceable or determine that the terms and
conditions governing the agreement do not fully protect our intellectual
property rights. Therefore, we cannot assure you that this user agreement will
afford us adequate protection. In addition, we seek to avoid disclosure of our
trade secrets through a number of means, including but not limited to, requiring
those persons with access to our proprietary information to execute
confidentiality agreements with us and restricting access to our source code. We
seek to protect our software, documentation and other written materials under
trade secret and copyright laws, which afford only limited protection.
In addition, we have filed six provisional patent applications in the U.S.
We cannot assure you that any formal or approved patent applications will result
from these provisional applications, that any patents that may issue will
protect our intellectual property or that any issued patents will not be
challenged by third parties. Furthermore, other parties may independently
develop similar or competing technologies or design around any patents that may
be issued to us. It is possible that any patent issued to us may not provide any
competitive advantages, that we may not develop future proprietary products or
technologies that are patentable, and that the patents of others may seriously
limit our ability to do business. In this regard, we have not performed any
comprehensive analysis of patents of others that may limit our ability to do
business.
We have applied for registration of several trademarks, including "Saba",
in the United States and in various foreign countries and will seek to register
additional trademarks as appropriate. There can be no assurance that we will be
successful in obtaining the trademarks for which we have applied. Even if these
applications are approved, the trademarks may be successfully challenged by
others or invalidated. If the applications are not approved because third
parties own the trademarks, the use of the trademarks will be restricted unless
we enter into arrangements with the third parties which may be unavailable on
commercially reasonable terms.
We cannot assure you that any of our proprietary rights with respect to our
products or services will be viable or of value in the future since the
validity, enforceability and type of protection of proprietary rights in
Internet-related industries are uncertain and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States,
and effective copyright, trademark and trade secret protection may not be
available in those jurisdictions. Our means of protecting our proprietary rights
may not be adequate to protect us from the infringement or misappropriation of
such rights by others.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, particularly in the
software and Internet-related industries. We could become subject to
intellectual property infringement claims as the number of our competitors grows
and our products and services overlap with competitive offerings. These claims,
even if not meritorious, could be expensive to defend and could divert
management's attention from operating our company. If we become liable to third
parties for infringing their intellectual property rights, we could be required
to pay a substantial award of damages and to develop noninfringing technology,
obtain a license or cease selling the products that contain the infringing
intellectual property. We may be unable to develop noninfringing technology or
obtain a license on commercially reasonable terms, if at all.
45
<PAGE> 47
EMPLOYEES
As of February 29, 2000, we had a total of 357 employees, including 116 in
research and development, 104 in sales and marketing, 95 in services and 42 in
administration and finance. Of these employees, 288 were located in North
America and 69 were located outside of North America. None of our employees is
represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We consider our relations with our employees to be good. Our
future success depends on our continuing ability to attract and retain highly
qualified technical, sales and senior management personnel.
FACILITIES
Our principal executive offices occupy approximately 48,000 square feet in
Redwood Shores, California under a lease that expires in April 2014. We have
additional facilities in the Atlanta, Boston, Chicago, Columbus, Dallas, Denver,
Detroit, Houston, Irvine, Los Angeles, Minneapolis, New York City, and
Washington D.C. metropolitan areas and in Australia, Canada, Germany, India and
the United Kingdom. We believe that our facilities are adequate to meet our
needs for the foreseeable future.
46
<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages and positions as of
February 29, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Bobby Yazdani............................ 36 Chief Executive Officer, President and
Chairman of the Board of Directors
Terry Carlitz............................ 48 Chief Financial Officer and Director
Chris Helgeson........................... 43 Vice President, Research and Development
Stuart Jacobson.......................... 42 Vice President, Sales and Alliances
Brook Manville........................... 49 Chief Learning Officer and Chief Customer
Evangelist
David Martin............................. 35 Vice President, Marketing
Michael Toepel........................... 38 Vice President, Services
Peter Williams........................... 38 Vice President, Corporate Development,
General Counsel and Secretary
Nicholas Zaldastani...................... 42 Vice President, Internet Services
Douglas Allred........................... 49 Director
Robert Cohn(1)........................... 50 Director
Joseph Costello(1)(2).................... 46 Director
Joe Kiani(2)............................. 35 Director
Michael Moritz(2)........................ 45 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Bobby Yazdani founded Saba and has been our President and Chief Executive
Officer since our inception in April 1997. From 1988 until founding Saba, Mr.
Yazdani served in various positions at Oracle, most recently as Senior Director.
Mr. Yazdani holds a B.A. from the University of California, Berkeley.
Terry Carlitz has served as our Chief Financial Officer and a director
since joining us in July 1999. From May 1998 until July 1999, Ms. Carlitz served
as Senior Vice President Finance and Operations and Chief Financial Officer of
SPL WorldGroup, a provider of information technology consulting and enterprise
solutions. From February 1995 until May 1998, Ms. Carlitz served as Vice
President Finance and Chief Financial Officer of Infinity Financial Technology,
a developer of trading and financial risk management software, throughout its
initial public offering and subsequent merger with SunGard Data Systems. From
February 1993 until February 1995, Ms. Carlitz served as Director, Business
Development and Strategic Investments of Apple. Ms. Carlitz holds a B.S. from
San Jose State University and an M.B.A. from Stanford University.
Chris Helgeson has served as our Vice President, Research and Development
since joining us in June 1999. From September 1998 until May 1999, Mr. Helgeson
served as Chief Technical Officer of Business Projects, a provider of
Internet-based collaboration software. From October 1996 until August 1998, Mr.
Helgeson served as Vice President, Engineering and Vice President, Technology of
Carnelian, a provider of Internet-based publishing and delivery software. From
June 1995 until September 1996, Mr. Helgeson served as Vice President,
Engineering of Verity, a provider of knowledge retrieval software. Mr. Helgeson
holds a B.S. and B.A. from the University of California, Berkeley.
Stuart Jacobson has served as our Vice President, Sales and Alliances since
joining us in January 1999. From May 1998 until December 1999, Mr. Jacobson
served as a consultant to various software
47
<PAGE> 49
companies. From August 1994 until April 1998, Mr. Jacobson served as Executive
Vice President of Novadigm, a provider of automated software management
solutions. Mr. Jacobson holds a B.A. from Lewis & Clark College.
Brook Manville has served as our Chief Learning Officer and Chief Customer
Evangelist since joining us in August 1999. From January 1988 until July 1999,
Mr. Manville was employed by McKinsey & Company, a management consulting firm,
where he was a partner from July 1994 until July 1999. Mr. Manville holds a B.A.
from Yale University, an M.A. from Oxford University, and a Ph.D. from Yale
University.
David Martin has served as our Vice President, Marketing since joining us
in November 1997. From November 1995 until October 1997, Mr. Martin served as a
Vice President of SuccessFactors.com, a provider of enterprise competency
management software. From October 1990 until November 1995, Mr. Martin served as
a Vice President of Oracle. Mr. Martin holds a B.S. from the Massachusetts
Institute of Technology.
Michael Toepel has served as our Vice President, Services since joining us
in August 1999. From January 1998 until June 1999, Mr. Toepel served as
President and Chief Executive Officer of Bay Logics, a provider of
infrastructure asset management software. From February 1994 until January 1998,
Mr. Toepel served as Vice President, Sales and Marketing at SMG, a provider of
real estate asset management software. Mr. Toepel holds a B.A. from the
University of Texas at Austin and an M.B.A. from the University of Texas at
Austin Graduate School of Business.
Peter Williams has served as Vice President, Corporate Development and
General Counsel of Saba since joining us in October 1999 and has served as our
Secretary since our inception in April 1997. Mr. Williams has been a partner at
Morrison & Foerster LLP, an international law firm, since January 1995. Mr.
Williams holds B.A. degrees from the University of California, Los Angeles and a
J.D. from Santa Clara University.
Nicholas Zaldastani has served as our Vice President, Internet Services
since joining us in June 1999. From August 1997 until May 1999, Mr. Zaldastani
served as principal of Zaldastani.com, a strategic consulting firm which advised
growth-stage software companies, including Saba. From July 1994 until July 1997,
Mr. Zaldastani served as President and Chief Executive Officer of Open Horizon,
a provider of Internet and enterprise connectivity software. From July 1988
until June 1994, Mr. Zaldastani served in various positions at Oracle, most
recently as a Director in the Applications Division. Mr. Zaldastani holds a B.S.
from Duke University and an M.B.A. from the Harvard Business School.
Douglas Allred has been a director of Saba since January 2000. Mr. Allred
has served as Senior Vice President, Customer Advocacy of Cisco Systems since
July 1991. Mr. Allred holds a B.S. from Washington State University.
Robert Cohn has been a director of Saba since December 1998. From September
1997 until May 1999, Mr. Cohn served as Executive Vice President of Lucent
Technologies. From June 1982 until September 1997, Mr. Cohn served as founder,
Chief Executive Officer and Chairman of the Board of Octel Communications, a
provider of voice messaging systems. Mr. Cohn presently serves as a director of
Chapters Online Inc. Mr. Cohn holds a B.S. from the University of Florida and an
M.B.A. from Stanford University.
Joseph Costello has been a director of Saba since October 1999. Mr.
Costello has served as founder, Chairman of the Board and Chief Executive
Officer of think3, a provider of mechanical computer aided design software,
since February 1998. From March 1987 until October 1997, Mr. Costello served as
President and Chief Executive Officer of Cadence Design Systems, a provider of
product development services and technology to electronics companies. Mr.
Costello presently serves as a director of Zamba, a consulting and systems
integration company focused on the customer care market, Calico Commerce, a
provider of seller-focused electronic commerce software
48
<PAGE> 50
and services, and Clarify, a provider of front-office sales and service
software. Mr. Costello holds a B.S. from Harvey Mudd College, M.S. from Yale
University and M.S. from the University of California, Berkeley.
Joe Kiani has been a director of Saba since July 1997. Mr. Kiani has served
as co-founder, Chairman of the Board and President and Chief Executive Officer
of Masimo, a provider of signal processing and sensor technology to the medical
device industry, since February 1989. Mr. Kiani holds a B.S. and M.S. from San
Diego State University.
Michael Moritz has been a director of Saba since August 1998. Mr. Moritz
has been a general partner of Sequoia Capital, a venture capital firm, since
1986. Mr. Moritz serves as a director of Agile Software, a provider of product
content management software, eToys, Flextronics, a provider of electronics
products manufacturing and logistical services, PlanetRX.com, an online
healthcare destination, Webvan Group and Yahoo! Mr. Moritz holds an M.A. from
Christ Church, Oxford.
BOARD COMPOSITION
We currently have authorized seven directors. Our Certificate of
Incorporation provides for a classified board of directors consisting of three
classes of directors, each serving staggered three-year terms. As a result, a
portion of our board of directors will be elected each year. To implement the
classified structure, two of the nominees to the board have been elected to
one-year terms, two have been elected to two-year terms and three of the
nominees to the board have been elected to three year terms. Messrs. Cohn and
Kiani have been designated Class I directors whose term expires at the 2001
annual meeting of stockholders. Ms. Carlitz and Mr. Costello have been
designated Class II directors whose term expires at the 2002 annual meeting of
stockholders. Messrs. Allred, Moritz and Yazdani have been designated Class III
directors whose term expires at the 2003 annual meeting of stockholders. For
more information on our classified board, see "Description of Capital
Stock -- Anti-takeover Effects of Provisions of our Certificate of Incorporation
and Bylaws, and Delaware Law".
Our executive officers are appointed by, and serve at the discretion of,
our board of directors. Each of our officers and directors, excluding
non-employee directors, devotes substantially full time to our affairs. Our
non-employee directors devote such time to our affairs as is necessary to
discharge their duties. There are no familial relationships among any of our
directors, officers or key employees.
BOARD COMMITTEES
Our Audit Committee reviews, acts on and reports to our board of directors
with respect to various auditing and accounting matters, including the selection
of our independent accountants, the scope of the annual audits, fees to be paid
to the independent accountants, the performance of our independent accountants
and our accounting practices. Messrs. Costello, Kiani and Moritz are the members
of our Audit Committee.
Our Compensation Committee establishes salaries, incentives and other forms
of compensation for executive officers and other key employees. This Committee
also administers our incentive compensation and benefit plans. Messrs. Cohn and
Costello are the members of our Compensation Committee.
COMPENSATION COMMITTEE, INSIDER PARTICIPATION AND INTERLOCKS
None of the members of our Compensation Committee is an officer or employee
of Saba. No interlocking relationship exists between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has such an interlocking relationship existed in the
past.
49
<PAGE> 51
DIRECTOR COMPENSATION
We do not pay directors cash compensation for their services as directors
or members of committees of the board of directors. We do reimburse them for
their reasonable expenses incurred in attending meetings of the board of
directors. In addition, each new non-employee director receives an option to
purchase 20,000 shares of our common stock upon joining the board of directors.
These options vest in two equal installments on the first and second annual
stockholder meetings following the date of joining the board of directors. Each
incumbent non-employee director is granted an option to purchase an additional
10,000 shares of our common stock at each annual meeting of stockholders
thereafter. These options vest at the next annual meeting of stockholders. No
options will be granted to any non-employee director who serves on our board of
directors at the effective time of this offering until all shares of common
stock held by the director have fully vested. See "Stock Plans -- 2000 Stock
Incentive Plan".
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of our Chief Executive Officer and each of our executive officers whose
aggregate cash compensation exceeded $100,000 during fiscal 1999 (collectively,
our "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) OPTIONS
--------------------------- --------- ----------- ------------
<S> <C> <C> <C>
Bobby Yazdani................................. 140,000(2) -- --
President and Chief Executive Officer
David Martin.................................. 84,163 90,000 --
Vice President, Marketing
Stuart Jacobson............................... 53,923(3) 21,591 280,000
Vice President, Sales and Alliances
</TABLE>
- ---------------
(1) Includes bonus amounts earned in fiscal 1998 and paid in fiscal 1999.
(2) Does not include $136,075 in deferred compensation earned by Mr. Yazdani in
fiscal 1998 and paid in fiscal 1999.
(3) Reflects a partial year of service as an employee. Mr. Jacobson's annual
target compensation is $240,000. Does not include $53,000 paid to Mr.
Jacobson in fiscal 1999 for consulting services performed prior to joining
us as a full-time employee.
50
<PAGE> 52
OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth certain information for each of our Named
Executive Officers concerning stock options granted to them during fiscal 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS EXERCISE OPTION TERM(5)
OPTIONS GRANTED TO PRICE EXPIRATION --------------------
GRANTED(1) EMPLOYEES(2) PER SHARE(3) DATE(4) 5%($) 10%($)
---------- ---------------- ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Bobby Yazdani..................... -- -- -- -- -- --
David Martin...................... -- -- -- -- -- --
Stuart Jacobson(6)................ 280,000 9.15% $0.07 01/08/2009 $12,326 $31,237
</TABLE>
- ---------------
(1) Options granted pursuant to our 1997 Stock Incentive Plan. 25% of the
options granted vest one year from the date of grant. Thereafter the
remaining 75% of the options granted vest quarterly over the next three
years.
(2) In fiscal 1999, we granted options to employees to purchase an aggregate of
3,060,500 shares.
(3) In determining the fair market value of our common stock, our board of
directors considered various factors, including our financial condition and
business prospects, our operating results, the absence of a market for our
common stock and the risks normally associated with high technology
companies. The exercise price may be paid in cash, check, promissory note,
shares of our common stock, through a cashless exercise procedure involving
same-day sale of the purchased shares or any combination of such methods.
(4) Options may terminate before their expiration dates if the optionee's status
as an employee or consultant is terminated or upon the optionee's death or
disability.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
(6) Does not include 360,000 shares of common stock issued subsequent to fiscal
1999 and subject to a right of repurchase in favor of Saba which lapses over
time.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning exercises of
stock options during fiscal 1999 by each of our Named Executive Officers and the
number and value of unexercised options held by each of our Named Executive
Officers on May 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT MAY 31,
SHARES AT MAY 31, 1999(#) 1999($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bobby Yazdani................ -- -- -- -- -- --
David Martin................. -- -- 225,000 375,000 $56,250 $93,750
Stuart Jacobson.............. -- -- -- 280,000 -- 64,400
</TABLE>
- ---------------
(1) The value of "in-the-money" stock options represents the positive spread
between the exercise price of stock options and the fair market value for
our common stock of $0.30 per share as of May 31, 1999, as determined by our
Board of Directors.
51
<PAGE> 53
STOCK PLANS
We have adopted a 1997 Stock Incentive Plan, a 2000 Stock Incentive Plan
and a 2000 Employee Stock Purchase Plan. The purpose of each plan is to enhance
our long-term stockholder value by offering our employees, directors, officers,
consultants, agents, advisors and independent contractors the opportunity to
promote and participate in our growth and success, and to encourage these people
to remain in our service and acquire and maintain stock ownership in us. Our
board of directors or a committee appointed by the board may administer the
plans.
1997 Stock Incentive Plan. In July 1997, we adopted our 1997 Stock
Incentive Plan. As of February 29, 2000, we had reserved 9,815,550 shares of
common stock for the grant of stock options and other equity incentive awards
under the 1997 Incentive Plan. As of February 29, 2000, there were options to
purchase 6,155,354 shares of common stock outstanding under the 1997 Incentive
Plan with exercise prices ranging from $0.05 to $5.36 per share, 2,479,008
shares had been issued pursuant to the exercise of options or equity incentive
awards under the 1997 Incentive Plan, and 1,144,188 shares of common stock were
available for the grant of stock options and other equity incentive awards under
the 1997 Incentive Plan. Our board of directors determined that no further stock
options or other equity incentive awards will be granted under the 1997
Incentive Plan after the initial public offering.
2000 Stock Incentive Plan. In January 2000, we adopted our 2000 Stock
Incentive Plan. We have reserved 6,000,000 shares of common stock for the grant
of stock options and other equity incentive awards under the 2000 Incentive
Plan. Annual increases will be added to the 2000 Incentive Plan equal to the
lesser of: (A) 3,000,000 shares, (B) 5% of all outstanding shares of our common
stock or (C) a lesser amount determined by our board of directors. As of the
date of this prospectus, no options or other equity incentive awards have been
granted under the 2000 Incentive Plan.
The administrator has the authority to select individuals who are to
receive options or other equity incentive awards under the 2000 Incentive Plan
and to specify the terms and conditions of options or other equity incentive
awards granted (including whether or not such options are incentive or
nonstatutory stock options), the vesting provisions, the term and the exercise
price. The 2000 Incentive Plan provides that we may grant incentive stock
options within the meaning of Section 422 of the Internal Revenue Code to
employees, including our officers and employee directors, and we may grant
nonstatutory stock options to employees and consultants, including non-employee
directors.
The exercise price of incentive stock options granted under the 2000
Incentive Plan shall equal the fair market value of our common stock on the date
of grant (except in the case of grants to any person holding more than 10% of
the total combined voting power of all classes of our, or any of our parent's or
subsidiaries', stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant). The exercise price of nonqualified
stock options shall not be less than 85% of the fair market value on the date of
grant (except in the case of grants to any person holding more than 10% of the
total combined voting power of all classes of our, or any of our parent's or
subsidiaries', stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant). Option holders may pay for an exercise
in cash or other consideration, including a promissory note, as approved by the
administrator.
Generally, options granted under the 2000 Incentive Plan (other than those
granted to non-employee directors) will vest at a rate of 25% of the shares
underlying the option after one year and the remaining shares vest in equal
portions over the following 12 quarters, such that all shares are vested after
four years. Unless otherwise provided by the administrator, an option granted
under the 2000 Stock Plan generally expires 6 years from the date of grant (five
years in the case of an incentive stock option granted to any person holding
more than 10% of the total combined voting power of all classes of our, or any
of our parent's or subsidiary's, stock). Upon the optionee's termination of
employment or service with us or any of our affiliates without cause, the option
will
52
<PAGE> 54
terminate in three months. Upon the optionee's termination of employment or
service with us or any of our affiliates for cause, the option may be terminated
immediately. Upon the optionee's death or disability, the option will terminate
12 months after the optionee's death or disability. In addition, options granted
under our 2000 Stock Plan are not generally transferable by the optionee except
by will or the laws of descent and distribution and generally are exercisable
during the lifetime of the optionee only by such optionee.
In the event we merge with or into another corporation or dispose of all or
substantially all of our assets, or in the event of other transactions in which
our stockholders before the transaction own less than 50% of the total combined
voting power of all our outstanding securities after the transaction, all
outstanding awards under the 2000 Incentive Plan will terminate unless they are
assumed or equivalent awards are substituted by the successor corporation or any
of its parents or subsidiaries.
The 2000 Incentive Plan also provides for automatic grants to non-employee
directors. Each new non-employee director receives an option to purchase 20,000
shares of our common stock upon joining the board of directors. These options
vest in two equal installments on the first and second annual stockholder
meetings following the date of joining the board of directors. Each incumbent
non-employee director is granted an option to purchase an additional 10,000
shares of our common stock at each annual meeting of stockholders following such
director's election of reelection. These options vest at the next annual meeting
of stockholders. No options will be granted to any non-employee director who
serves on our board of directors at the effective time of this offering until
all shares of common stock held by the director have fully vested. Options
granted to non-employee directors pursuant to the automatic grant provisions of
the 2000 Incentive Plan will be nonqualified stock options with an exercise
price equal to the fair market value of our common stock as of the date of
grant. Grants to non-employee directors are subject to the general requirements
of the 2000 Incentive Plan.
2000 Employee Stock Purchase Plan. In January 2000, we also adopted our
2000 Employee Stock Purchase Plan. We have reserved 2,000,000 shares of common
stock for issuance under the 2000 Purchase Plan. Annual increases will be added
to the 2000 Purchase Plan equal to the lesser of: (A) 2,000,000 shares, (B) 2%
of all outstanding shares of our common stock or (C) a lesser amount determined
by our board of directors. Our 2000 Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code in
order to provide our employees with an opportunity to purchase common stock
through payroll deductions. All of our employees (and employees of our
"subsidiary corporation" and "parent corporation" (as defined by the Internal
Revenue Code) designated by the administrator, if any) whose customary
employment is for more than five months in any calendar year and more than 20
hours per week are eligible to participate in the 2000 Purchase Plan. In
addition, employees must have been employed for three business days or more to
participate in the 2000 Purchase Plan. Non-employee directors, consultants, and
employees subject to the rules or laws of a foreign jurisdiction that prohibit
or make impractical the participation of such persons in the 2000 Purchase Plan
are not eligible to participate in the 2000 Purchase Plan.
The 2000 Purchase Plan designates offer periods, purchase periods and
exercise dates. The 2000 Purchase Plan provides for overlapping or consecutive
24-month offer periods. Each offer period includes four six-month purchase
periods commencing each January 1 and July 1 (except that the initial purchase
period commenced on the effective date of this offering and will end on December
31, 2000). Exercise dates are the last date of each purchase period, that is
June 30 and December 31. In the event we merge with or into another corporation
or dispose of all or substantially all of our assets, or in the event of other
transactions in which our stockholders before the transaction own less than 50%
of the total combined voting power of all our outstanding securities after the
transaction, the administrator may elect to shorten the offer period then in
progress.
53
<PAGE> 55
On the first day of each offer period, a participating employee is granted
a purchase right, which is a form of option to be automatically exercised on the
next exercise date. Deductions are to be made from the salary of participants
(in accordance with their authorizations) and credited to their accounts under
the 2000 Purchase Plan. When the purchase right is exercised, the participant's
withheld salary is used to purchase shares of common stock. The price per share
at which shares of common stock are to be purchased under the 2000 Purchase Plan
for any six month period is the lesser of (A) 85% of the fair market value of
the common stock on the date of the grant of the option (the commencement of the
offer period) or (B) 85% of the fair market value of the common stock on the
exercise date (the last day of the offer period).
Payroll deductions may range from 1% to 15% (in whole-percentage
increments) of a participant's regular base pay, bonuses and commissions,
exclusive of overtime, shift premiums, and reimbursements or other expense
allowances. Participants may not make direct cash payments to their accounts.
For any six-month period the employee may purchase up to 500 shares, and for any
calendar year, the employee may purchase up to $25,000 worth of stock. The
Internal Revenue Code imposes certain additional limitations on the amount of
common stock that may be purchased during any calendar year.
54
<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of February 29, 2000 as adjusted
to reflect the sale of shares offered hereby, by
- each person known by us to own beneficially more than 5% of the
outstanding shares of common stock,
- each of our directors,
- each Named Executive Officer (see "Management -- Executive
Compensation"), and
- all current executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of February 29, 2000 are deemed
outstanding. Percentage of beneficial ownership as of February 29, 2000 is based
upon 38,173,702 shares of common stock outstanding prior to this offering and
42,173,702 shares of common stock outstanding after this offering. To our
knowledge, except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has sole
voting and investment power with respect to the shares set forth opposite such
person's name. Except as otherwise indicated, the address of each of the persons
in this table is: c/o Saba Software, Inc., 2400 Bridge Parkway, Redwood Shores,
California 94065.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE PERCENTAGE
NUMBER OF SUBJECT TO RIGHT PRIOR TO AFTER THIS
NAME OF BENEFICIAL OWNER SHARES OF REPURCHASE(1) THIS OFFERING OFFERING
------------------------ ---------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Entities affiliated with Sequoia
Capital(2)............................... 8,672,710 0 22.7% 20.6%
3000 Sand Hill Road, Building 4, Suite
280
Menlo Park, CA 94025
Michael Moritz(3).......................... 8,672,710 0 22.7 20.6
c/o Sequoia Capital
3000 Sand Hill Road, Building 4, Suite
280
Menlo Park, CA 94025
Bobby Yazdani(4)........................... 7,500,000 0 19.6 17.8
London Pacific Life & Annuity Company...... 2,631,284 0 6.9 6.2
3109 Poplarwood Court, Suite 108
Raleigh, NC 27604(5)
Entities affiliated with Crosslink Capital,
Inc.(6).................................. 2,605,613 0 6.8 6.2
555 California Street, Suite 2350
San Francisco, CA 94104
Kamyar Kaviani............................. 2,042,250 0 5.3 4.8
5301 Water Wheel Court
Rockville, MD 20855
Terry Carlitz.............................. 690,000 655,000 1.8 1.6
Stuart Jacobson(7)......................... 513,047 360,000 1.3 1.2
David Martin(8)............................ 494,611 0 1.3 1.2
Joe Kiani(9)............................... 303,333 0 * *
Joseph Costello............................ 232,012 185,358 * *
Robert Cohn(10)............................ 412,608 121,500 1.1 1.0
Douglas Allred............................. 245,789 185,358 * *
All executive officers and directors as a
group (14 persons)(11)................... 20,232,504 2,541,074 52.9 47.9
</TABLE>
- ---------------
* Less than 1% of the outstanding common stock.
(1) Represents shares of common stock subject to a right of repurchase in favor
of Saba which lapses over time.
55
<PAGE> 57
(2) Includes 6,371,375 shares held by Sequoia Capital VIII, 80,837 shares held
by Sequoia International Technology Partners VIII, 421,760 shares held by
Sequoia International Technology Partners VIII(Q), 140,586 shares held by
CMS Partners LLC, 14,781 shares held by Sequoia 1997, 1,468,453 shares held
by Sequoia Capital Franchise Fund and 174,918 shares held by Sequoia
Capital Franchise Partners.
(3) Includes 8,672,710 shares held by the entities affiliated with Sequoia
Capital. Mr. Moritz disclaims beneficial ownership of shares held by these
entities except to the extent of his pecuniary interest in these entities,
if any.
(4) Includes 66,666 shares of common stock held in trust for the benefit of Mr.
Yazdani's children. Mr. Yazdani disclaims beneficial ownership of these
shares.
(5) London Pacific Life & Annuity Company has advised us that the members of
the board of directors are the natural persons with voting and investment
control over our common stock.
(6) Includes 882,279 shares held by Crosslink Omega Ventures III, L.L.C.,
1,375,823 shares held by Crosslink Offshore Omega Ventures III, 121,638
shares held by Omega Bayview, L.L.C., 182,195 shares held by Crossover Fund
III, L.P., 43,678 shares held by Crosslink Crossover Fund III, L.P. The
entities affiliated with Crosslink Capital, Inc. have supplied to us the
name of Vladmir Jacimovic as the natural person with voting and investment
control over our common stock.
(7) Includes 8,000 shares held by Mr. Jacobson's minor children and options to
purchase 17,500 shares of common stock exercisable within 60 days of
February 29, 2000 .
(8) Includes warrants to purchase 14,283 shares of common stock exercisable
within 60 days of February 29, 2000.
(9) Includes options to purchase 83,333 shares of common stock exercisable
within 60 days of February 29, 2000.
(10) Includes 222,753 shares held in trust for the benefit of certain members of
Mr. Cohn's family. Mr. Cohn disclaims beneficial ownership as to the
222,753 shares.
(11) Includes options to purchase 102,500 shares of common stock exercisable
within 60 days of February 29, 2000 held by all executive officers and
directors of Saba. Includes 14,283 shares of common stock issuable upon
exercise of warrants within 60 days of February 29, 2000 held by all
executive officers and directors of Saba. As to disclaimers of beneficial
ownership, see footnotes 3, 4 and 9 above.
56
<PAGE> 58
RELATED PARTY TRANSACTIONS
PREFERRED STOCK ISSUANCES
In July 1997, we issued shares of Series A preferred stock in private
placements to investors at a purchase price of $0.48 per share. In August 1998,
we issued shares of Series B preferred stock in private placements to investors
at a purchase price of $0.70014 per share. In April 1999, we issued shares of
Series C preferred stock in private placements to investors at a purchase price
of $3.0512 per share. In November 1999, we issued shares of Series D preferred
stock in private placements to investors at a purchase price of $5.3586 per
share. Upon the closing of our initial public offering, each share of Series A,
Series B, Series C and Series D preferred stock will convert into one share of
common stock. Pursuant to such private placements, we sold shares of preferred
stock to the following officers, directors or beneficial owners of more than 5%
of our outstanding common stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PREFERRED STOCK
------------------------------------------------
PURCHASER SERIES A SERIES B SERIES C SERIES D
--------- -------- --------- --------- --------
<S> <C> <C> <C> <C>
Entities affiliated with Sequoia
Capital(1).............................. -- 5,713,143(2) 1,769,795(3) 839,772(4)
Entities affiliates with Crosslink
Capital, Inc.(5)........................ -- -- 2,001,750(6) 503,863(7)
Kamyar Kaviani(8)......................... 156,250 -- -- --
David Martin.............................. -- 142,828 49,160 --
Robert Cohn............................... -- -- 49,160(9) 23,495(10)
Joseph Costello........................... -- -- -- 46,654
Stuart Jacobson........................... -- -- 65,547 --
</TABLE>
- ---------------
(1) Mr. Moritz is a General Partner of Sequoia Capital and funds affiliated
with Sequoia Capital own beneficially more than 5% of the outstanding
shares of our common stock. For a description of this affiliation and
disclaimers of beneficial ownership, see "Principal Stockholders".
(2) Includes 5,177,822 shares purchased by Sequoia Capital VIII, 65,701 shares
purchased by Sequoia International Technology Partners VIII, 342,788 shares
purchased by Sequoia International Technology Partners VIII (Q), 114,263
shares purchased by CMS Partners and 12,569 shares purchased by Sequoia
1997.
(3) Includes 594,062 shares purchased by Sequoia Capital VIII, 7,538 shares
purchased by Sequoia International Technology Partners VIII, 39,329 shares
purchased by Sequoia International Technology Partners VIII (Q), 1,442
shares purchased by Sequoia 1997, 947,168 shares purchased by Sequoia
Capital Franchise Fund and 167,147 shares purchased by Sequoia Capital
Franchise Partners.
(4) Includes 282,286 shares purchased by Sequoia Capital VIII, 3,573 shares
purchased by Sequoia International Technology Partners VIII, 18,643 shares
purchased by Sequoia International Technology Partners VIII (Q), 6,214
shares purchased by CMS Partners, 465,569 shares purchased by Sequoia
Capital Franchise Fund and 63,487 shares purchased by Sequoia Capital
Franchise Partners.
(5) Funds affiliated with Crosslink Capital, Inc. own beneficially more than 5%
of the outstanding shares of our common stock.
(6) Includes 677,806 shares purchased by Omega Ventures III, L.L.C., 1,056,970
shares purchased by RS & Co. Offshore Omega Ventures III, 93,448 shares
purchased by Omega Bayview, L.L.C. and 173,526 shares purchased by
Crossover Fund II, L.P.
57
<PAGE> 59
(7) Includes 23,522 shares purchased by Omega Bayview, L.L.C., 170,612 shares
purchased by Crosslink Omega Ventures III, L.L.C., 266,051 shares purchased
by Crosslink Offshore Omega Ventures III and 43,678 shares purchased by
Crosslink Crossover Fund III, L.P.
(8) At the time of Mr. Kaviani's purchase, he was a director of Saba. Mr.
Kaviani also owns beneficially more than 5% of the outstanding shares of
our common stock.
(9) Includes 49,160 shares of common stock held by Robert or Martha A. Cohn,
TTEES, The Wellington Trust U/A/D 1-30-86.
(10) Includes 23,495 shares of common stock held by Robert or Martha A. Cohn,
TTEES, The Wellington Trust U/A/D 1-30-86.
We believe that the shares sold in transactions described above were sold
at fair market value and the terms of the other arrangements described above
were no less favorable to us than we could have obtained from unaffiliated third
parties.
COMMON STOCK ISSUANCES
In November 1997, we sold 2,570,000 shares of common stock to Mr. Kaviani
for an aggregate consideration of $128,500 pursuant to a stock purchase
agreement. In connection with such sale, Mr. Kaviani gave us a promissory note
in the principal amount of $43,500.
In September 1999, we sold 695,000 shares of common stock to Ms. Carlitz,
our Chief Financial Officer and one of our directors, for an aggregate
consideration of $208,500 pursuant to a restricted stock purchase agreement. In
connection with such sale, Ms. Carlitz gave us a secured, full-recourse
promissory note in the principal amount of $144,375 secured by the pledge of
481,250 shares of common stock pursuant to a stock pledge agreement.
In September 1999, we sold 360,000 shares of common stock to Mr. Jacobson,
our Vice President, Sales and Alliances, for an aggregate consideration of
$108,000 pursuant to a restricted stock purchase agreement. In connection with
such sale, Mr. Jacobson gave us a secured, full-recourse promissory note in the
principal amount of $81,000 secured by the pledge of 270,000 shares of common
stock pursuant to a stock pledge agreement.
In September 1999, we sold 200,000 shares of common stock to Mr. Toepel,
our Vice President, Services, for an aggregate consideration of $60,000 pursuant
to a restricted stock purchase agreement. In connection with such sale, Mr.
Toepel gave us a secured, full-recourse promissory note in the principal amount
of $45,000 secured by the pledge of 150,000 shares of common stock pursuant to a
stock pledge agreement.
In September 1999, we sold 630,000 shares of common stock to Mr. Williams,
our Vice President, Corporate Development, General Counsel and Secretary, for an
aggregate consideration of $189,000 pursuant to a restricted stock purchase
agreement. In connection with such sale, Mr. Williams gave us a secured,
full-recourse promissory note in the principal amount of $141,750 secured by the
pledge of 472,500 shares of common stock pursuant to a stock pledge agreement.
In January 2000, we sold to Mr. Allred, one of our directors, 185,358
shares of common stock for an aggregate consideration of $176,090 pursuant to a
restricted stock purchase agreement and 60,431 shares of common stock for an
aggregate consideration of $323,910 pursuant to a stock purchase agreement.
In January 2000, we sold 140,000 shares of common stock to Mr. Helgeson,
our Vice President, Research and Development, for an aggregate consideration of
$133,000 pursuant to a restricted stock purchase agreement. In connection with
such sale, Mr. Helgeson gave us a secured, full-recourse promissory note in the
principal amount of $95,000 secured by the pledge of 100,000 shares of common
stock pursuant to a stock pledge agreement.
58
<PAGE> 60
In January 2000, we sold 20,000 shares of common stock to Mr. Kiani, one of
our directors, for an aggregate consideration of $107,200 pursuant to a stock
purchase agreement.
In January 2000, we sold an aggregate of 20,000 shares of common stock to
trusts designated by Mr. Cohn, one of our directors, for an aggregate
consideration of $107,200 pursuant to stock purchase agreements. Mr. Cohn
disclaims beneficial ownership as to 10,000 of these shares that were sold to
and are held in trust for the benefit of certain members of Mr. Cohn's family.
We believe that the shares sold in transactions described above were sold
at fair market value and the terms of the other arrangements described above
were no less favorable than we could have obtained from unaffiliated third
parties.
WARRANT ISSUANCES
In December 1997 in connection with our Series B preferred stock financing,
at which time Mr. Martin was a director of Saba, we entered into a Note and
Warrant Purchase Agreement with Mr. Martin pursuant to which we issued to Mr.
Martin a Convertible Promissory Note in the principal amount of $100,000 and
warrants to purchase up to 14,283 shares of common stock at a price of $0.70014
per share.
In January 2000, we issued to entities affiliated with Crosslink Capital,
Inc. warrants to purchase up to 100,000 shares of common stock at an exercise
price of $0.01 per share. The warrant was exercised in January 2000.
OPTION GRANTS TO EXECUTIVE OFFICERS
We granted options to the following executive officers to purchase shares
of common stock on the date, for the number of shares, with an exercise price as
indicated opposite each person's name:
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
NAME OPTION DATE OPTIONS EXERCISE PRICE
---- ----------- ---------- --------------
<S> <C> <C> <C>
Chris Helgeson......................... 07/09/1999 140,000 $0.30
Stuart Jacobson........................ 01/08/1999 280,000 0.07
Joe Kiani.............................. 08/16/1997 100,000 0.05
David Martin........................... 11/22/1997 600,000 0.05
</TABLE>
For a description of compensation arrangements we have with our executive
officers and officers, see "Management".
OTHER TRANSACTIONS
In August 1997, we issued 5,876,016 shares of common stock to HTR, Inc. in
exchange for intellectual property. In connection with the acquisition of HTR,
Inc. by a third party in October 1997, we repurchased all 5,876,016 shares using
a promissory note in the principal amount of $150,000, which was secured by a
pledge of 7,500 shares of our common stock held by Mr. Yazdani, our President
and Chief Executive Officer. At the time of the initial issuance to HTR, Inc.,
Mr. Kaviani was a director of Saba and an affiliate of HTR, Inc. During the
period from our inception through May 31, 1998, we recorded $16,000 in services
revenues from HTR, Inc.
59
<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
We are authorized to issue up to 200,000,000 shares of common stock and
5,000,000 shares of preferred stock. The following describes the material terms
of our capital stock. For more detailed information, see our Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws, both of
which will be effective as of the completion of this offering and which were
included as exhibits to the registration statement of which this prospectus
forms a part, and the provisions of applicable Delaware law.
COMMON STOCK
As of February 29, 2000, there were 38,173,702 shares of common stock
outstanding held of record by approximately 144 stockholders. The holders of
common stock are entitled to one vote per share on all matters to be voted upon
by the stockholders. The board of directors may declare a dividend out of funds
legally available therefor and, subject to preferences applicable to any
outstanding preferred stock, the holders of common stock are entitled to receive
ratably any such dividends. In the event of our liquidation, dissolution or
winding up, holders of our common stock are entitled to share ratably in all of
our assets. Holders of our common stock have no preemptive rights or other
subscription rights to convert their shares into any other securities. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of our preferred
stock will be converted into an aggregate of 19,568,540 shares of common stock.
The board of directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock in one or more
series and to fix the privileges and rights of each series. These privileges and
rights may be greater than those of the common stock. The board of directors,
without stockholder approval, can issue preferred stock with voting, conversion
or other rights that could adversely affect the voting power and other rights of
the holders of common stock. Therefore, we could issue preferred stock quickly
with terms calculated to delay or prevent a change in control of Saba or make
removal of management more difficult. Additionally, if we issue preferred stock,
then the market price of common stock may decrease, and voting and other rights
may decrease. We have no plans to issue any preferred stock.
WARRANTS
As of February 29, 2000 there were warrants outstanding to purchase up to
193,380 shares, with per share exercise prices ranging from $0.10 to 80% or 90%
(subject to certain events) of the initial price to the public of the shares
offered in this offering. All of these warrants, except for warrants to purchase
up to 104,226 shares, will terminate if not exercised prior to the closing of
this offering.
REGISTRATION RIGHTS
After the SEC declares this registration statement effective, and assuming
we comply with various other requirements, the holders of approximately
26,692,470 shares of common stock will hold registration rights. These rights
are held under the terms of an agreement between us and various stockholders.
Under the terms of this agreement, if we propose to register any of our
securities under the Securities Act, either for our own account or for other
security holders, we must give the holders of registration rights notice of such
registration and include a portion of their shares of common stock
60
<PAGE> 62
in such registration if they so choose at our expense. In addition, some holders
of registration rights may require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock. We
are required to use our commercially reasonable efforts to effect such
registration. All of these registration rights are subject to specific
conditions and limitations, among them the right of the underwriters of any
offering to limit the number of shares included in such registration and our
right not to effect a registration in specific situations. Under this agreement,
we have agreed to bear all registration expenses (other than underwriting
discounts and commissions and fees, and specific fees and disbursements of
counsel of the holders of registration rights). We have agreed to indemnify the
holders of registration rights against specific liabilities under the Securities
Act.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BYLAWS, AND DELAWARE LAW
Upon the closing of this offering, some provisions of Delaware law and our
Certificate of Incorporation and Bylaws could make the following more difficult:
- acquisition of Saba by means of a tender offer,
- acquisition of Saba by means of a proxy contest or otherwise, or
- removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board of directors. We believe that the benefits of increased
protection of our ability to negotiate with the proponent of an unfriendly or
unsolicited acquisition proposal outweigh the disadvantages of discouraging such
proposals because negotiation of such proposals could result in an improvement
of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term, one
class being elected each year by our stockholders. For more information on the
classified board, see the section entitled "Management -- Board Composition".
This system of electing and removing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of us
because it generally makes it more difficult for stockholders to replace a
majority of the directors.
Stockholder Meetings. Under our Bylaws, only the board of directors, the
Chairman of the Board and the Chief Executive Officer may call special meetings
of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our Bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board of directors.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless 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 interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions
61
<PAGE> 63
not approved in advance by the board of directors, including discouraging
attempts that might result in a premium over the market price for the shares of
common stock held by stockholders.
Elimination of Stockholder Action By Written Consent. Our Certificate of
Incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Elimination of Cumulative Voting. Our Certificate of Incorporation and
Bylaws do not provide for cumulative voting in the election of directors.
Cumulative voting provides for a minority stockholder to vote a portion or all
of its shares for one or more candidates for seats on the board of directors.
Without cumulative voting, a minority stockholder will not be able to gain as
many seats on our board of directors based on the number of shares of our stock
that such stockholder holds than if cumulative voting were permitted. The
elimination of cumulative voting makes it more difficult for a minority
stockholder to gain a seat on our board of directors to influence the board of
directors' decision regarding a takeover.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of Saba. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of Saba.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding stock.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION
Our Certificate of Incorporation includes provisions that limit the
personal liability of our officers and directors for monetary damages for breach
of their fiduciary duties as directors, except for liability that cannot be
eliminated under the Delaware General Corporation Law. The Delaware General
Corporation Law does not permit a provision in a corporation's Certificate of
Incorporation that would eliminate such liability (i) for any breach of their
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for any unlawful payment of a dividend or unlawful stock
repurchase or redemption, as provided in Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of such corporation and
is acting in his or her capacity as director, and do not apply to the officers
of the corporation who are not directors.
Our Bylaws provide that, to the fullest extent permitted by the Delaware
General Corporation Law, we may indemnify our directors, officers and employees
and agents. In addition, we anticipate that each director will enter into an
indemnification agreement pursuant to which we will indemnify such director to
the fullest extent permitted by the Delaware General Corporation Law. At
present, there is no pending litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
We have entered into indemnification agreements with each of our executive
officers and directors, in addition to the indemnification provided in our
Bylaws. These agreements, among other things, provide for indemnification of our
executive officers and directors for expenses, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding arising out of
62
<PAGE> 64
such person's services as an executive officer or director at our request. We
believe these provisions and agreements are necessary to attract and retain
qualified persons as executive officers and directors.
LISTING
Application has been made for quotation of our common stock on the Nasdaq
National Market under the symbol "SABA".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services. Its address is 235 Montgomery Street, 23rd Floor, San
Francisco, California 94104, and its telephone number is (415) 743-1444.
63
<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 42,173,702 shares of common
stock outstanding based on shares outstanding as of February 29, 2000. Of these
shares, the 4,000,000 shares sold in this offering will be freely transferable
without restriction under the Securities Act, unless they are held by our
"affiliates" as that term is used under the Securities Act and the Regulations
promulgated thereunder.
The remaining 38,173,702 outstanding shares were sold by us in reliance on
exemptions from the registration requirements of the Securities Act and are
restricted securities within the meaning of Rule 144 under the Securities Act.
Beginning 181 days after the date of this prospectus, approximately 31,669,593
shares will become eligible for sale subject to the provisions of Rule 144, Rule
144(k) or Rule 701 upon the expiration of agreements not to sell these shares
entered into between the underwriters and stockholders of Saba. Beginning 181
days after the date of this prospectus, approximately 2,018,420 additional
shares will become eligible for sale subject to vested options as of the
Effective Date in compliance with Rule 701 and upon the expiration of agreements
not to sell these shares entered into between the underwriters and optionholders
of Saba. Any shares subject to lock-up agreements may be released at any time,
without notice, by the underwriters. See "Risk Factors -- Shares Eligible for
Future Sale".
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the effectiveness of the
registration statement of which this prospectus is a part, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of common
stock (approximately 221,712 shares immediately after this offering) or the
average weekly trading volume in the common stock during the four calendar weeks
preceding this sale, subject to the filing of a Form 144 with respect to this
sale and other limitations and restrictions. In addition, a person who is not
deemed to have been an affiliate of Saba 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, would be entitled to sell their shares under Rule 144(k)
without regard to the requirements described above.
Any employee, officer or director of or consultant to Saba who purchased
his or her shares prior to the effectiveness of the registration statement of
which this prospectus is a part or who holds vested options as of that date
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits non-affiliates to sell their Rule
701 shares without having to comply with the public-information, holding-period,
volume-limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with Rule 144's
holding-period restrictions, in each case commencing 90 days after the
effectiveness of the registration statement of which this prospectus is a part.
However, we and some of our officers, directors and other stockholders have
agreed not to sell or otherwise dispose of any shares of common stock for the
180-day period after the date of this prospectus without the prior written
consent of the underwriters. See "Underwriting".
As soon as practicable after the effectiveness of the registration
statement of which this prospectus is a part, we intend to file a registration
statement on Form S-8 under the Securities Act to register shares of common
stock reserved for issuance under the 1997 Stock Incentive Plan, the 2000 Stock
Incentive Plan and the 2000 Employee Stock Purchase Plan, thus permitting the
resale of such shares by non-affiliates in the public market without restriction
under the Securities Act. These registration statements will become effective
immediately upon filing.
Prior to this offering, there has been no public market for our common
stock, and any sale of substantial amounts in the open market may adversely
affect the market price of our common stock offered in this offering.
64
<PAGE> 66
UNDERWRITING
Saba and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, FleetBoston Robertson Stephens Inc. and
Banc of America Securities LLC are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
FleetBoston Robertson Stephens Inc..........................
Banc of America Securities LLC..............................
--------
Total........................................
========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 600,000
shares from Saba to cover such sales. They may exercise that option for 30 days.
If any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Saba. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase 600,000 additional shares.
Paid by Saba
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share............................................... $ $
Total......................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and the
other selling terms.
Saba and its directors, officers, employees and other stockholders have
agreed with the underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of Goldman, Sachs & Co. This agreement does not apply to any issuance
under any existing employee benefit plans or, with respect to individuals,
transfers by gift, will or intestate succession, or with respect to
partnerships, transfers to partners, provided that in each case the transferee
agrees to be bound by the restriction for any remaining period. See "Shares
Eligible for Future Sale" for a discussion of transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price for the common stock will be negotiated among Saba
and the representatives. Among the factors to be considered in determining the
initial public offering price of the shares, in addition to
65
<PAGE> 67
prevailing market conditions, will be Saba's historical performance, estimates
of the business potential and earnings prospects of Saba, an assessment of
Saba's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
Saba has applied for quotation of its common stock on the Nasdaq National
Market under the symbol "SABA".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At the request of Saba, the underwriters are reserving up to 400,000 shares
of common stock for sale at the initial public offering price to parties that
have a pre-existing relationship with Saba through a directed share program. The
number of shares of common stock available for sale to the general public in the
public offering will be reduced to the extent these persons purchase these
reserved shares. Any shares not so purchased will be offered by the underwriters
to the general public on the same basis as other shares offered hereby.
In November 1999, an entity affiliated with Goldman, Sachs & Co. purchased
an aggregate of 839,772 shares of our Series D preferred stock for an aggregate
purchase price of approximately $4.5 million. In January 2000, these shares were
transferred to an affiliated investment entity. In November 1999, an individual
affiliated with Banc of America Securities LLC purchased an aggregate of 18,195
shares of our Series D preferred stock for an aggregate purchase price of
approximately $100,000. In August 1998, an individual affiliated with Banc of
America Securities LLC purchased an aggregate of 71,414 shares of our Series B
preferred stock for approximately $50,000, and in April 1999 purchased an
aggregate of 10,712 shares of our common stock for approximately $7,500. In
August 1998, an individual affiliated with FleetBoston Robertson Stephens Inc.
purchased an aggregate of 35,707 shares of our Series B preferred for
approximately $25,000, and in November 1999 purchased 5,458 shares of our Series
C preferred stock for approximately $16,650.
Saba estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately $1.0
million.
Saba has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
66
<PAGE> 68
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Morrison & Foerster LLP, Palo Alto, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Shearman & Sterling, Menlo Park, California. Peter Williams, a partner with
Morrison & Foerster LLP, counsel to the Company, also serves as our Vice
President, Corporate Development, General Counsel and Secretary. Mr. Williams
holds 668,000 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Saba Software, Inc.'s
consolidated financial statements at May 31, 1998 and 1999, and for the period
from April 16, 1997 (inception) through May 31, 1998 and for the year ended May
31, 1999, as set forth in their report. We have included Saba Software, Inc.'s
consolidated financial statements in this prospectus and registration statement
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
CHANGE IN ACCOUNTANTS
In August 1999, we engaged Ernst & Young LLP to audit our financial
statements and dismissed Deloitte & Touche LLP as our principal accountant. The
board of directors has approved the appointment of Ernst & Young LLP as our
principal accountant. No report issued by Deloitte & Touche LLP on any of our
financial statements contained any adverse opinion, a disclaimer of opinion, or
any qualifications or modifications related to uncertainty, limitation of audit
scope, or application of accounting principles. In connection with the services
conducted by Deloitte & Touche LLP for any period, including the periods from
April 16, 1997 (inception) through May 31, 1998, the year ended May 31, 1999,
and the six months ended November 30, 1999, there were no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which, if not
resolved to Deloitte & Touche LLP's satisfaction, would have caused them to
reference the subject matter of the disagreement in their opinion.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Some items are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to Saba and our
common stock offered in this offering, we refer you to the registration
statement and the attached exhibits and schedules. Statements made in this
prospectus as to the contents of any document referred to in this prospectus are
not necessarily complete. With respect to each document filed as an exhibit to
the registration statement, we refer you to the exhibit for a more complete
description of the matter involved. The registration statement, including
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at the North
Western Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and Seven World Trade Center, 13th Floor, New York, NY 10048. Copies of
these materials may be obtained from these offices after payment of fees
prescribed by the SEC. The SEC maintains a web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
67
<PAGE> 69
SABA SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 70
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Saba Software, Inc.
We have audited the accompanying consolidated balance sheets of Saba
Software, Inc. as of May 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
period from April 16, 1997 (inception) through May 31, 1998 and the year ended
May 31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Saba Software,
Inc. at May 31, 1998 and 1999, and the consolidated results of its operations
and its cash flows for the period from April 16, 1997 (inception) through May
31, 1998 and year ended May 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
December 16, 1999,
except for Note 12, as to which the date is
January 28, 2000.
F-2
<PAGE> 71
SABA SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MAY 31, EQUITY
----------------- NOVEMBER 30, NOVEMBER 30,
1998 1999 1999 1999
------- ------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 41 $10,384 $29,390
Accounts receivable (net of allowance of none at May 31,
1998, $124 at May 31, 1999, and $214 at November 30,
1999)................................................... 84 1,930 6,872
Prepaid expenses and other current assets................. 29 122 305
------- ------- -------
Total current assets................................ 154 12,436 36,567
Property and equipment, net................................. 85 1,122 3,111
Other assets................................................ -- 510 510
------- ------- -------
Total assets........................................ $ 239 $14,068 $40,188
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 201 $ 1,667 $ 2,988
Accrued compensation and related expenses................. 195 1,132 1,404
Accrued expenses.......................................... 26 600 1,958
Deferred revenue.......................................... 81 1,197 6,081
Note payable to related party............................. 120 -- --
Current portion of capital lease obligations.............. 12 33 181
------- ------- -------
Total current liabilities........................... 635 4,629 12,612
Deferred revenue............................................ -- 626 1,417
Notes payable............................................... -- 329 329
Convertible debt............................................ 565 -- --
Capital lease obligations, less current portion............. 13 55 869
------- ------- -------
Total liabilities................................... 1,213 5,639 15,227
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, issuable in series: $0.001
par value; authorized: 5,000,000 shares at May 31, 1998,
14,700,000 shares at May 31, 1999 and 23,000,000 shares
at November 30, 1999; issued and outstanding: 749,996
shares at May 31, 1998, 13,942,771 shares at May 31,
1999 and 19,568,540 shares at November 30, 1999 (none
pro forma); Aggregate liquidation preference of $20,432
at May 31, 1999......................................... 1 14 20 $ --
Common stock, $0.001 par value; authorized: 50,000,000
shares; issued: 15,799,174 shares at May 31, 1998;
16,326,168 shares at May 31, 1999 and 17,213,448 shares
at November 30, 1999 (36,781,988 shares pro forma)...... 16 16 17 37
Additional paid-in capital................................ 627 21,925 66,260 66,260
Deferred stock compensation............................... -- (1,092) (10,743) (10,743)
Notes receivable from stockholders........................ (10) -- (493) (493)
Treasury stock; 3,609,174 shares at May 31, 1998,
3,112,456 shares at May 31, 1999 and none at November
30, 1999 (none pro forma), at cost...................... (37) (11) -- --
Accumulated deficit....................................... (1,571) (12,423) (30,100) (30,100)
------- ------- ------- --------
Total stockholders' equity (deficit)................ (974) 8,429 24,961 $ 24,961
------- ------- ------- ========
Total liabilities and stockholders' equity
(deficit)......................................... $ 239 $14,068 $40,188
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 72
SABA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED NOVEMBER 30,
MAY 31, MAY 31, ------------------
1998 1999 1998 1999
-------------- ---------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License........................................ $ 7 $ 612 $ 119 $ 1,920
Services....................................... 33 1,327 364 3,284
------- -------- ------- --------
Total revenues......................... 40 1,939 483 5,204
------- -------- ------- --------
Cost of revenues:
Cost of license................................ -- -- -- --
Cost of services............................... 72 1,264 288 2,728
------- -------- ------- --------
72 1,264 288 2,728
------- -------- ------- --------
Gross profit (loss).............................. (32) 675 195 2,476
Operating expenses:
Research and development....................... 694 3,627 934 6,246
Sales and marketing............................ 535 6,319 1,467 8,560
General and administrative..................... 302 1,437 406 1,992
Amortization of deferred stock compensation.... -- 189 -- 3,511
------- -------- ------- --------
Total operating expenses............... 1,531 11,572 2,807 20,309
------- -------- ------- --------
Loss from operations............................. (1,563) (10,897) (2,612) (17,833)
Interest and other income, net................... 7 93 58 229
Interest expense................................. (15) (48) (47) (73)
------- -------- ------- --------
Net loss......................................... $(1,571) $(10,852) $(2,601) $(17,677)
======= ======== ======= ========
Basic and diluted net loss per share............. $ (0.17) $ (0.84) $ (0.20) $ (1.26)
======= ======== ======= ========
Shares used in computing basic and diluted net
loss per share................................. 9,439 12,987 12,896 13,996
======= ======== ======= ========
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (0.52) $ (0.62)
======== ========
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)......... 20,881 28,557
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 73
SABA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE
------------------- ------------------- PAID-IN STOCK FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS
---------- ------ ---------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders.......................... -- $-- 7,500,000 $ 8 $ 7 $ -- $ --
Issuance of common stock for
in-process research and
development....................... -- -- 5,876,016 6 144 -- --
Purchase of treasury stock......... -- -- -- -- -- -- --
Issuance of common stock for cash
and notes receivable.............. -- -- 2,163,158 2 106 -- (32)
Issuance of convertible preferred
stock for cash and notes, net of
issuance costs.................... 749,996 1 -- -- 352 -- (25)
Collections under notes
receivable........................ -- -- -- -- -- -- 47
Issuance of common stock in
connection with exercise of stock
options........................... -- -- 260,000 -- 13 -- --
Issuance of common stock options
for services...................... -- -- -- -- 5 -- --
Net loss and comprehensive loss.... -- -- -- -- -- -- --
---------- --- ---------- --- ------- -------- -----
Balances at May 31, 1998........... 749,996 1 15,799,174 16 627 -- (10)
Issuance of common stock for cash
and notes......................... -- -- 526,994 -- 35 -- (54)
Collections under notes
receivable........................ -- -- -- -- -- -- 64
Issuance of convertible preferred
stock for cash, net of issuance
costs............................. 5,713,143 6 -- -- 3,953 -- --
Conversion of convertible debt into
convertible preferred stock....... 2,870,854 3 -- -- 2,007 -- --
Issuance of convertible preferred
stock for cash, net of issuance
costs............................. 4,608,778 4 -- -- 14,014 -- --
Issuance of common stock options
and warrants for services......... -- -- -- -- 8 -- --
Deferred stock compensation........ -- -- -- -- 1,281 (1,281) --
Amortization of deferred stock
compensation...................... -- -- -- -- -- 189 --
Net loss and comprehensive loss.... -- -- -- -- -- -- --
---------- --- ---------- --- ------- -------- -----
Balances at May 31, 1999........... 13,942,771 14 16,326,168 16 21,925 (1,092) --
Issuance of common stock for cash
and notes (unaudited)............. -- -- 592,339 1 656 -- (493)
Issuance of common stock in
connection with exercise of stock
options (unaudited)............... -- -- -- -- 76 -- --
Issuance of common stock in
connection with warrant exercise
(unaudited)....................... -- -- 294,941 -- 206 -- --
Issuance of convertible preferred
stock for cash (unaudited)........ 5,625,769 6 -- -- 30,075 -- --
Issuance of warrant for convertible
preferred stock (unaudited)....... -- -- -- -- 160 -- --
Deferred stock compensation
(unaudited)....................... -- -- -- -- 13,162 (13,162) --
Amortization of deferred stock
compensation (unaudited).......... -- -- -- -- -- 3,511 --
Net loss and comprehensive loss
(unaudited)....................... -- -- -- -- -- -- --
---------- --- ---------- --- ------- -------- -----
Balances at November 30, 1999
(unaudited)....................... 19,568,540 $20 17,213,448 $17 $66,260 $(10,743) $(493)
========== === ========== === ======= ======== =====
<CAPTION>
TOTAL
TREASURY STOCK STOCKHOLDERS'
------------------- ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
---------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock to
founders.......................... -- $ -- $ -- $ 15
Issuance of common stock for
in-process research and
development....................... -- -- -- 150
Purchase of treasury stock......... (5,876,016) (150) -- (150)
Issuance of common stock for cash
and notes receivable.............. 2,266,842 113 -- 189
Issuance of convertible preferred
stock for cash and notes, net of
issuance costs.................... -- -- -- 328
Collections under notes
receivable........................ -- -- -- 47
Issuance of common stock in
connection with exercise of stock
options........................... -- -- -- 13
Issuance of common stock options
for services...................... -- -- -- 5
Net loss and comprehensive loss.... -- -- (1,571) (1,571)
---------- ----- -------- --------
Balances at May 31, 1998........... (3,609,174) (37) (1,571) (974)
Issuance of common stock for cash
and notes......................... 496,718 26 -- 7
Collections under notes
receivable........................ -- -- -- 64
Issuance of convertible preferred
stock for cash, net of issuance
costs............................. -- -- -- 3,959
Conversion of convertible debt into
convertible preferred stock....... -- -- -- 2,010
Issuance of convertible preferred
stock for cash, net of issuance
costs............................. -- -- -- 14,018
Issuance of common stock options
and warrants for services......... -- -- -- 8
Deferred stock compensation........ -- -- -- --
Amortization of deferred stock
compensation...................... -- -- -- 189
Net loss and comprehensive loss.... -- -- (10,852) (10,852)
---------- ----- -------- --------
Balances at May 31, 1999........... (3,112,456) (11) (12,423) 8,429
Issuance of common stock for cash
and notes (unaudited)............. 1,618,019 6 -- 170
Issuance of common stock in
connection with exercise of stock
options (unaudited)............... 1,494,437 5 -- 81
Issuance of common stock in
connection with warrant exercise
(unaudited)....................... -- -- -- 206
Issuance of convertible preferred
stock for cash (unaudited)........ -- -- -- 30,081
Issuance of warrant for convertible
preferred stock (unaudited)....... -- -- -- 160
Deferred stock compensation
(unaudited)....................... -- -- -- --
Amortization of deferred stock
compensation (unaudited).......... -- -- -- 3,511
Net loss and comprehensive loss
(unaudited)....................... -- -- (17,677) (17,677)
---------- ----- -------- --------
Balances at November 30, 1999
(unaudited)....................... -- $ -- $(30,100) $ 24,961
========== ===== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 74
SABA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED NOVEMBER 30,
MAY 31, MAY 31, ------------------
1998 1999 1998 1999
-------------- ---------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(1,571) $(10,852) $(2,601) $(17,677)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 10 106 22 494
Amortization of deferred stock compensation............... -- 189 -- 3,511
Issuance of common stock for services..................... 5 8 -- --
Write-off of in-process research and development.......... 150 -- -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... (84) (1,846) (581) (4,942)
Prepaid expenses and other current assets............... (29) (93) (61) (38)
Accounts payable........................................ 201 1,466 163 1,321
Accrued compensation and related expenses............... 195 937 (77) 272
Accrued expenses........................................ 26 574 249 1,283
Deferred revenue........................................ 81 1,742 385 5,675
------- -------- ------- --------
Net cash used in operating activities....................... (1,016) (7,769) (2,501) (10,101)
------- -------- ------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment, net.................... (70) (1,069) (366) (1,379)
Increase in other assets.................................... -- (181) (168) --
------- -------- ------- --------
Net cash used in investing activities....................... (70) (1,250) (534) (1,379)
------- -------- ------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of convertible preferred stock... 328 17,977 3,936 30,081
Proceeds from issuance of common stock...................... 217 7 -- 457
Borrowings under line of credit agreement................... -- 542 -- --
Repayments of borrowings under line of credit agreement..... -- (542) -- --
Proceeds from issuance of convertible debt.................. 565 1,445 1,445 --
Principal payments under capital lease obligations.......... -- (11) (6) (52)
Collections on notes receivable from stockholders........... 47 64 64 --
Repayments of note payable to related party................. (30) (120) (120) --
------- -------- ------- --------
Net cash provided by financing activities................... 1,127 19,362 5,319 30,486
------- -------- ------- --------
Increase in cash and equivalents............................ 41 10,343 2,284 19,006
Cash and equivalents, beginning of period................... -- 41 41 10,384
------- -------- ------- --------
Cash and equivalents, end of period......................... $ 41 $ 10,384 $ 2,325 $ 29,390
======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Equipment purchased under capital lease obligations......... $ 25 $ 75 $ -- $ 1,014
======= ======== ======= ========
Common stock issued for notes receivable from
stockholders.............................................. $ 57 $ 54 $ 54 $ 493
======= ======== ======= ========
Common stock issued for in-process research and
development............................................... $ 150 $ -- $ -- $ --
======= ======== ======= ========
Warrant issued for purchase of Series C convertible
preferred stock for financing............................. $ -- $ -- $ -- $ 160
======= ======== ======= ========
Note payable issued in connection with the purchase of
treasury stock............................................ $ 150 $ -- $ -- $ --
======= ======== ======= ========
Conversion of convertible debt into convertible preferred
stock..................................................... $ -- $ 2,010 $ 2,010 $ --
======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:
Cash paid for interest...................................... $ -- $ 17 $ 12 $ 51
======= ======== ======= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 75
]SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY
Saba Software, Inc. ("Saba") provides software and services that enable
businesses and governments to create and deploy global networks over the
Internet that connect people to learning. Saba provides an Internet-based
software platform and related services that deliver a comprehensive learning
solution to organizations and their "extended enterprise" of employees,
customers, partners and suppliers. Saba's solutions enable organizations to
procure and deliver learning and systematically close knowledge and competency
gaps across their extended enterprises. In addition, Saba offers learning
providers a global marketing and distribution channel. Saba recently launched
the Saba Learning Exchange, an Internet-based business-to-business learning
marketplace.
Saba was incorporated in the state of Delaware in April 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Saba and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated financial
statements for fiscal 1998 include the results of operations of Saba from
inception on April 16, 1997. Operations for the period from April 16, 1997
(inception) through May 31, 1997 were not significant.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information as of November 30, 1999 and for the six
months ended November 30, 1998 and 1999 is unaudited but includes all
adjustments, consisting only of normal recurring adjustments that management
considers necessary for a fair presentation of Saba's consolidated financial
position at that date and its consolidated results of operations and cash flows
for those periods. Operating results for the six months ended November 30, 1999
are not necessarily indicative of results that may be expected for any future
periods.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ materially
from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid short-term investments
with insignificant interest rate risk and original maturities from date of
purchase of three months or less. Cash and cash equivalents are stated at cost,
which approximates fair value.
F-7
<PAGE> 76
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Saba to concentrations of
risk include cash and cash equivalents and accounts receivable. Cash and cash
equivalents consist principally of demand deposit and money market accounts held
with domestic financial institutions with high credit standing. Management
believes the financial risks associated with these financial instruments are
minimal.
Saba conducts business with companies in various industries primarily in
the United States. Saba generally does not require collateral. Saba Learning
Network, Saba Learning Provider Network and related services accounted for
substantially all of Saba's revenues in fiscal 1999 and for the six months ended
November 30, 1999. An allowance is maintained for potential credit issues, and
to date, such losses have been within management's expectations. Saba recorded
charges to operations, which increased its allowance for uncollectible accounts
by $18,000 in fiscal 1998, $133,000 in fiscal 1999 and $96,000 in the six months
ended November 30, 1999. Amounts written-off as reductions to the allowance
totaled $18,000 fiscal 1998, $9,000 in fiscal 1999 and $6,000 in the six months
ended November 30, 1999.
At May 31, 1998, one customer accounted for 94% of accounts receivable. At
May 31, 1999, five customers accounted for a total of 80% of accounts receivable
and at November 30, 1999, two customers accounted for a total of 41% of accounts
receivable.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful life of the related assets,
generally three to five years. Assets acquired under capital lease obligations
are amortized over the assets' estimated useful lives. Leasehold improvements
are amortized over the shorter of the estimated useful life of the asset or the
life of the lease.
SOFTWARE DEVELOPMENT COSTS
Saba accounts for software development costs in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, whereby costs for
the development of new software products and substantial enhancements to
existing software products are expensed as incurred until technological
feasibility has been established, at which time any additional costs are
capitalized. Technological feasibility is established upon completion of a
working model. Through November 30, 1999, software development costs incurred
subsequent to the establishment of technological feasibility have not been
significant, and all software development costs have been charged to research
and development expense in the accompanying consolidated statements of
operations.
INCOME TAXES
Saba accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes, which requires the use of the liability method. Under this
method, deferred tax assets and liabilities are measured based on differences
between financial reporting and tax bases of assets and liabilities measured
using enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse.
F-8
<PAGE> 77
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTIONS AND EQUITY INSTRUMENTS EXCHANGED FOR SERVICES
Saba accounts for employee stock options using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees and has adopted the disclosure-only
alternative of SFAS No. 123, Accounting for Stock Based Compensation ("SFAS
123"). The value of options, warrants and restricted stock exchanged for
services rendered by non-employees or assets acquired are valued using the
Black-Scholes option pricing model. To calculate the expense or asset value,
Saba uses either the fair value of the consideration received or the fair value
of the equity instruments issued, whichever is more reliably measurable.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirements of SFAS No. 128, Earnings per Share. Basic net
loss per share is computed by dividing net loss by the weighted-average number
of common shares outstanding for the period, less shares subject to repurchase.
Diluted net loss per share reflects the potential dilution of securities by
adding other common stock equivalents, including stock options, shares subject
to repurchase, warrants and convertible preferred stock, in the weighted-average
number of common shares outstanding for a period, if dilutive. All potentially
dilutive securities have been excluded from the computation, as their effect is
anti-dilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, to the conversion of preferred shares not included above that will
automatically convert upon completion of Saba's initial public offering of
common stock, using the if-converted method.
F-9
<PAGE> 78
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The calculation of historical and pro forma basic and diluted net loss per
share is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997 SIX MONTHS ENDED
(INCEPTION) NOVEMBER 30,
THROUGH YEAR ENDED -------------------
MAY 31, 1998 MAY 31, 1999 1998 1999
-------------- ------------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C>
HISTORICAL
Net loss.......................... $(1,571) $(10,852) $(2,601) $(17,677)
======= ======== ======= ========
Weighted-average shares of common
stock outstanding.............. 9,439 13,051 12,896 14,802
Weighted-average shares of common
stock subject to repurchase.... -- (64) -- (806)
------- -------- ------- --------
Weighted-average shares of common
stock outstanding used in
computing basic and diluted net
loss per share................. 9,439 12,987 12,896 13,996
======= ======== ======= ========
Basic and diluted net loss per
share.......................... $ (0.17) $ (0.84) $ (0.20) $ (1.26)
======= ======== ======= ========
PRO FORMA
Net loss.......................... $(10,852) $(17,677)
======== ========
Weighted-average shares of common
stock outstanding used in
computing basic and diluted net
loss per share (from above).... 12,987 13,996
Adjustment to reflect the effect
of the assumed conversion of
convertible preferred stock
from the date of issuance...... 7,894 14,561
-------- --------
Weighted-average shares
outstanding used in computing
pro forma basic and diluted net
loss per share................. 20,881 28,557
======== ========
Pro forma basic and diluted net
loss per share................. $ (0.52) $ (0.62)
======== ========
</TABLE>
REVENUE RECOGNITION
License agreements generally provide that customers pay a license fee based
on a specified number of learners and the type of software modules licensed.
Customers can subsequently pay additional license fees to allow additional
learners to use previously licensed modules or to license additional modules.
Customers that license Saba Learning Network and Saba Learning Provider Network
generally enter into one year support agreements pursuant to which they are
entitled to receive software upgrades, error corrections and telephone and
web-based assistance, generally for a fixed fee.
Although Saba generally provides implementation and consulting services on
a time and materials basis, a significant portion of these services have been
provided on a fixed fee basis. For fixed-price
F-10
<PAGE> 79
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
contracts involving significant professional services, revenues are recognized
using the percentage of completion method using the ratio of labor hours
incurred to total expected labor hours as the measure of progress towards
completion. Saba also provides professional services on a time and materials
basis. Saba recognizes revenues on time and materials contracts as the services
are provided.
Saba recognizes license revenues in accordance with the provisions of
American Institute of Certified Public Accountants, or AICPA, Statement of
Position ("SOP") 97-2 "Software Revenue Recognition" as amended by SOP 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2." Saba has not
established vendor specific objective evidence for support and therefore,
recognizes revenues from license agreements ratably over the support period if
there is persuasive evidence of an arrangement, the software is delivered,
collection is probable, and the fee is fixed or determinable. If an acceptance
period is required, license revenues are recognized ratably over the term of the
contract beginning upon the earlier of customer acceptance or the expiration of
the acceptance period. Contract terms range from one to four years. Saba
invoices customers for license and support fees in accordance with individual
contract terms. Payment terms generally require payment of the license fees and
first year support fees from the customer 30 days from the effective date of the
contract.
If an agreement includes both license and service elements, the license fee
is recognized beginning on delivery of the software, provided services do not
include significant customization or modification of the base product, and the
payment terms for licenses are not subject to additional acceptance criteria. In
cases where license fee payments are contingent on the acceptance of services,
recognition of revenues is deferred for both the license and the service
elements until the acceptance criteria are met. Support revenues are recognized
ratably over the term of the support contract, typically one year.
Saba believes its current revenue recognition policies and practices are
consistent with SOP 97-2 and SOP 98-4. Additionally, the AICPA issued SOP 98-9
in December 1998, which amends portions of SOP 97-2 and is effective for
transactions entered into beginning June 1, 2000. Full implementation guidelines
for this standard have not yet been issued. Once available, the implementation
guidelines could lead to unanticipated changes in Saba's current revenue
recognition policies and changes could affect the timing of its future revenues.
Accounts receivable includes amounts earned but unbilled as of May 31, 1999
and November 30, 1999 of $14,000 and $103,000, respectively. Deferred revenue
consists of license fees to be recognized in future periods, prepaid fees for
services and support agreements.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Saba incurred $14,000 in
advertising costs in fiscal 1998 and $110,000 in fiscal 1999.
OTHER COMPREHENSIVE INCOME
Saba has no material components of other comprehensive income (loss) and,
accordingly, net loss is equal to comprehensive loss in all periods.
F-11
<PAGE> 80
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INTERNAL-USE SOFTWARE
In March 1998, the American Institute of Certified Public Accountants
issues SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 requires that entities capitalize certain
costs related to internal use software once certain criteria have been met. Saba
adopted SOP 98-1 in the beginning of fiscal 2000.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133, as recently amended, is
effective for fiscal years beginning after June 15, 2000. Management believes
the adoption of SFAS 133 will not have a material effect on Saba's consolidated
financial position or results of operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31,
--------------
1998 1999
---- ------
<S> <C> <C>
Computer equipment.......................................... $ 89 $ 805
Office furniture and fixtures............................... 1 334
Leasehold improvements...................................... 5 99
---- ------
95 1,238
Less accumulated depreciation and amortization.............. (10) (116)
---- ------
$ 85 $1,122
==== ======
</TABLE>
4. RELATED PARTY TRANSACTIONS
In August 1997, Saba issued 5,876,016 shares of common stock to HTR, Inc.
in exchange for intellectual property. In connection with the acquisition of
HTR, Inc. by a third party in October 1997, Saba repurchased all 5,876,016
shares using a promissory note in the principal amount of $150,000, which was
secured by a pledge of 7,500 shares of Saba's common stock held by Saba's
President. At the time of the initial issuance to HTR, Inc., a director of Saba
was also an affiliate of HTR, Inc. During the period from inception through May
31, 1998, $16,000 in services revenues were recognized from HTR, Inc.
5. CONVERTIBLE DEBT
Saba issued 6% convertible debt to third-parties for cash proceeds totaling
$565,000 in fiscal 1998 and $1,445,000 in fiscal 1999. The convertible debt
converted into 2,870,854 shares of Series B convertible preferred stock in
August 1998 at a conversion price of $0.70 per share.
6. NOTES PAYABLE
In November 1998, Saba entered into an equipment line of credit with a
bank, which provided for borrowings of up to $750,000. The note executed under
the agreement accrued interest at 7.75% per
F-12
<PAGE> 81
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
annum and was to be repaid in monthly installments of principal and interest
over 36 months. In April 1999, all amounts outstanding under the line of credit
were repaid.
In March 1999, Saba entered into an operating lease agreement for office
space beginning in May 1999 and executed non-interest bearing notes payable to
the lessor totaling $329,000 under this agreement for the deposit on the
building. Principal under the notes is due on December 1, 2000 and May 1, 2001.
7. LEASE COMMITMENTS
Saba leases its office facilities under various noncancelable operating
leases that expire at various dates through 2014. During fiscal 1999, Saba also
financed the acquisition of furniture and equipment under capital leases. At May
31, 1999, the original cost of the assets under capital leases was $75,000 and
the accumulated depreciation was $15,000. Future minimum lease payments under
these leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
YEAR ENDING MAY 31:
2000........................................................ $ 40 $ 1,125
2001........................................................ 25 1,541
2002........................................................ 25 2,213
2003........................................................ 12 2,233
2004........................................................ -- 2,097
Thereafter.................................................. -- 24,071
---- -------
102 $33,280
=======
Less amounts representing interest.......................... (14)
----
Present value of minimum lease payments..................... 88
Less current portion of minimum lease payments.............. (33)
----
$ 55
====
</TABLE>
Rent expense was $59,000 in fiscal 1998 and $473,000 in fiscal 1999.
In April 1999, Saba entered into an additional lease line of credit
agreement with a financing institution which provides for borrowings of up to
$1.5 million to finance equipment and software purchases through October 2000.
Borrowings are due in monthly installments through April 2004 plus interest at
8.3% and are secured by the underlying assets. There were no amounts outstanding
under this agreement at May 31, 1999.
F-13
<PAGE> 82
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock consists of the following at May 31, 1999:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED AGGREGATE LIQUIDATION
SERIES DESIGNATED AND OUTSTANDING PREFERENCE
------ ---------- --------------- ---------------------
<S> <C> <C> <C>
A 749,996 749,996 $ 359,998
B 8,583,997 8,583,997 6,010,000
C 4,716,364 4,608,778 14,062,351
---------- ---------- -----------
14,050,357 13,942,771 $20,432,349
========== ========== ===========
</TABLE>
Significant terms of the convertible preferred stock are as follows:
Each share of Series A, B and C convertible preferred stock is convertible,
subject to antidilution provisions, at the option of the holder, into the number
of shares of common stock determined by dividing the original issue price by the
conversion price applicable to each share on the conversion date. As of May 31,
1999, the per share conversion price of Series A, B, and C convertible preferred
stock is $0.48, $0.70014, and $3.0512, respectively.
Each share will automatically convert into shares of common stock at the
conversion price upon the earlier of the sale of common stock in a qualified
initial public offering, with an offering price of at least $5.25 per share and
$10,000,000 in aggregate or the date specified by written consent or agreement
of the holders of a majority of the outstanding shares of Series A, B and C
convertible preferred stock and two-thirds of the outstanding shares of Series C
convertible preferred stock, voting as a separate class.
Each share of Series A, B and C convertible preferred stock has voting
rights equivalent to the number of shares of common stock into which it is
convertible.
Each share of Series A, B and C convertible preferred stock is entitled to
a non-cumulative dividend of $0.0384 per share, $0.056 per share and $0.2441 per
share, respectively, when and if declared by the Board of Directors.
In the event of Saba's voluntary or involuntary liquidation, dissolution or
winding up, the holders of Series B and C convertible preferred stock are
entitled to receive, prior and in preference to any distribution of any of
Saba's assets to the holders of Series A convertible preferred stock or common
stock an amount equal to $0.70014 for each outstanding share of Series B
convertible preferred stock and $3.0512 for each outstanding share of Series C
convertible preferred stock and any declared but unpaid dividends. Upon the
completion of the distribution, the Series A convertible preferred stockholders
shall be entitled to receive, prior and in preference to any distribution of any
of Saba's remaining assets to the holders of Saba's common stock an amount equal
to $0.48 for each outstanding share of Series A plus any declared but unpaid
dividends. If upon occurrence of such event, the assets and funds distributed
among the holders of the Series A convertible preferred stock are insufficient
to permit the payment to holders the full preferential amounts, the entire
assets and funds of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series A convertible preferred
stock in proportion to the amounts of stock owned by each holder.
F-14
<PAGE> 83
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SERIES C CONVERTIBLE PREFERRED STOCK WARRANTS
In June 1999, Saba issued warrants to purchase 80,296 shares of series C
convertible preferred stock at $3.05 per share to a lessor in connection with
obtaining a lease line of credit. The warrants expire on the earlier of five
years from the date of issuance or three years from the closing date of Saba's
initial public offering. The warrants were immediately exercisable and remain
outstanding at November 30, 1999. The value attributable to these warrants was
calculated using the Black-Scholes valuation model with the following
weighted-average assumptions: risk free interest rate of 5.5%, expected useful
life of 5 years, 75% volatility, fair market value of $3.05, and no expected
dividends. The fair value of the warrants, approximately $160,000, will be
amortized as additional interest expense over the forty-two month term of the
lease agreement.
SERIES D CONVERTIBLE PREFERRED STOCK
In November 1999, Saba issued 5,598,479 shares of Series D convertible
preferred stock in exchange for cash proceeds totaling $30 million. In
connection with the sale of Series D convertible preferred stock, the
liquidation preferences of the Series B and C convertible preferred stock were
changed from a form of participating preferred to non-participating preferred.
COMMON STOCK WARRANTS
In connection with the issuance of convertible debt, Saba issued warrants
to purchase 87,125 shares of common stock in fiscal 1998 and 349,573 shares of
common stock in fiscal 1999 at an exercise price of $0.70 per share to
individuals and firms who participated in the debt financing. The warrants were
immediately exercisable and expire on the earlier of five years from the date of
issuance or the closing date of Saba's initial public offering. The fair value
of these warrants was insignificant at the issuance date.
During fiscal 1999, Saba issued warrants to purchase 35,000 shares of
common stock at an exercise price of $0.10 per share and 16,000 shares at an
exercise price of $0.70 per share for services rendered. The warrants were
immediately exercisable and expire on the earlier of two years from the date of
issuance or the closing date of Saba's initial public offering. The fair value
of these warrants was insignificant at the issuance date.
At May 31, 1999, warrants to purchase 487,698 shares of common stock
remained outstanding.
STOCK OPTION PLAN
Under the 1997 Stock Option Plan (the "Plan"), Saba may grant options to
purchase up to 7,500,000 shares of common stock to employees, directors and
consultants at prices not less than the fair market value, as determined by the
Board of Directors, at date of grant for incentive stock options and not less
than 85% of fair market value for non-statutory stock options (110% in certain
circumstances). Options generally expire ten years from the date of grant.
Options generally vest over four years. Some options are exercisable upon grant
and are subject to repurchase in the case of termination of employment prior to
vesting. Shares subject to repurchase totaled 143,000 at May 31, 1999 and
2,353,358 at November 30, 1999.
Saba has granted options to non-employees for services performed and to be
performed after the date of the grant. In connection with these option grants,
Saba recognized expense of $5,000 in fiscal
F-15
<PAGE> 84
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1998 and $8,000 in fiscal 1999, based on the options' fair value, determined
using the Black-Scholes option-pricing model.
Details of activity under the Plan are as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
---------- ----------------
<S> <C> <C>
Granted..................................................... 3,225,000 $0.05
Exercised................................................... (260,000) 0.05
----------
Balance, May 31, 1998....................................... 2,965,000 0.05
Granted..................................................... 3,060,500 0.07
Canceled.................................................... (286,000) 0.06
----------
Balance, May 31, 1999....................................... 5,739,500 0.06
----------
Granted (unaudited)......................................... 1,714,300 0.30
Exercised (unaudited)....................................... (1,507,125) 0.05
Canceled (unaudited)........................................ (306,250) 0.10
----------
Balance, November 30, 1999 (unaudited)...................... 5,640,425 0.13
==========
</TABLE>
Additional information regarding options outstanding as of May 31, 1999 is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED-AVERAGE OPTIONS EXERCISABLE
REMAINING ----------------------------
EXERCISE NUMBER CONTRACTUAL LIFE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
PRICES OUTSTANDING (YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
- -------- ----------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.05 4,068,000 8.56 $0.05 1,239,583 $0.05
0.07 1,538,000 9.58 0.07 -- --
0.30 133,500 9.91 0.30 -- --
--------- ---------
5,739,500 1,239,583
========= =========
</TABLE>
At May 31, 1999, 1,500,500 shares were available for future grants under
the Plan.
Saba recorded deferred stock compensation of approximately $1.3 million
during fiscal 1999 and $13.2 million during the six months ended November 30,
1999 representing the difference between the exercise price and the deemed fair
value for financial accounting purposes of Saba's common stock on the grant date
for certain stock options granted to employees. In the absence of a public
market for Saba's common stock, the deemed fair value was based on the price per
share of recent convertible preferred stock financings, less a discount to give
effect to the superior rights of the convertible preferred stock. These amounts
are being amortized by charges to operations over the vesting periods of the
individual stock options using a graded vesting method. The graded vesting
method is an accelerated method of amortization provided under Financial
Accounting Standards Board Interpretation No. 28. Amortization of deferred stock
compensation amounted to approximately $189,000 for fiscal 1999 and
approximately $3.5 million for the six months ended November 30, 1999.
PRO FORMA DISCLOSURES OF THE EFFECT OF DEFERRED STOCK COMPENSATION
Pro forma information regarding net loss and net loss per share, which is
required by SFAS 123, has been determined as if Saba had accounted for its
employee stock options under the fair value
F-16
<PAGE> 85
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
method of SFAS 123. The fair value of these options was estimated at the date of
grant using the Black-Scholes option pricing model, with the following
assumptions for fiscal 1998 and 1999: expected life of 60 months, volatility of
0% and 75%, respectively, risk-free interest rate of 5.5% and dividend yield of
zero. The weighted-average fair value of options granted for fiscal 1998 and
1999 was $0.02 and $0.44, respectively.
Had compensation cost for Saba's stock compensation plans been determined
using the fair value at the grant dates for awards under these plans calculated
using the Black-Scholes method of SFAS 123, the Company's historical net loss
and basic and diluted net loss per share would have been increased to the pro
forma amounts indicated below (in thousands except per share amounts):
<TABLE>
<CAPTION>
PERIODS FROM
APRIL 16, 1997
(INCEPTION) YEAR ENDED
THROUGH MAY 31,
MAY 31, 1998 1999
-------------- ----------
<S> <C> <C>
Net loss -- pro forma............................... $ (1,577) $ (10,857)
======== =========
Net loss per share -- pro forma..................... $ (0.17) $ (0.84)
======== =========
</TABLE>
The pro forma impact of options on the net loss for fiscal 1998 and 1999 is
not representative of the effects on net income (loss) for future years, as
future years will include the effects of additional years of stock option
grants.
SHARES OF COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Saba has reserved shares of common stock for issuance as follows at May 31,
1999:
<TABLE>
<S> <C>
Conversion of convertible preferred stock................... 14,050,357
Stock options outstanding................................... 5,739,500
Stock options available for future grant.................... 1,500,500
Warrants to purchase preferred and common stock............. 557,282
----------
21,847,639
==========
</TABLE>
In October 1999, the Board of Directors reserved an additional 1,115,000
shares of common stock for issuance under the 1997 Option Plan.
RESTRICTED COMMON STOCK
In September 1999, certain company executives executed full-recourse
promissory notes for purchases of 2,025,000 shares of restricted common stock.
The notes bear interest at 5.5% per annum, are payable over terms that range
from three to four years and are secured by the shares of common stock
underlying the notes as well as the assets owned by the officers.
9. INCOME TAXES
There has been no provision for U.S. federal, state, or foreign income
taxes for any period because Saba has incurred operating losses in all periods
and for all jurisdictions.
F-17
<PAGE> 86
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets are as follows:
<TABLE>
<CAPTION>
MAY 31,
----------------
1998 1999
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 434 $ 3,610
Deferred revenue....................................... 25 676
Other reserves and accruals............................ 88 569
----- -------
547 4,855
Valuation allowance...................................... (547) (4,855)
----- -------
Net deferred tax assets.................................. $ -- $ --
===== =======
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $547,000 in fiscal 1998 and $4.3 million in fiscal 1999.
A reconciliation of income tax expense at the statutory federal income tax
rate to net income tax expense included in the accompanying consolidated
statements of operations is as follows:
<TABLE>
<CAPTION>
MAY 31,
----------------
1998 1999
----- -------
<S> <C> <C>
U.S. federal taxes (benefit) at statutory rate:.......... $(534) $(3,690)
Unbenefitted net operating losses........................ 470 3,671
Other.................................................... 64 19
----- -------
Effective tax rate....................................... $ -- $ --
===== =======
</TABLE>
As of May 31, 1999, Saba had net operating loss carryforwards for federal
income tax purposes of approximately $9.0 million, which expire in fiscal 2012
to 2019. Saba also had net operating loss carryforwards for state income tax
purposes of approximately $9.0 million expiring in fiscal 2006. Utilization of
the net operating loss may be subject to substantial annual limitation due to
the ownership change limitations provided by the Internal Revenue Code and
similar state provisions. The annual limitation could result in the expiration
of the net operating loss before utilization.
10. RETIREMENT PLAN
Saba has established the Saba Software 401(k) Plan (the "401(k) Plan")
under section 401(k) of the Internal Revenue Code covering substantially all of
its employees. Under the 401(k) Plan, participating employees may defer a
portion of their pretax earnings subject to an annual contribution limit. Saba
may also make matching contributions equal to a discretionary percentage of the
employees' deferral. To date, no matching contributions have been made.
11. SEGMENT INFORMATION
Saba operates primarily in a single operating segment, providing software
and services that connect people to learning over the Internet.
F-18
<PAGE> 87
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Geographic Information
Saba operates in the United States, Europe and Asia-Pacific. Less than 10%
of revenues were derived from outside the United States in all periods. At May
31, 1998 and 1999 and November 30, 1999, less than 10% of Saba's assets were
located outside the United States.
Major Customers
For fiscal 1998, three customers accounted for 39%, 28% and 20% of revenues
and for fiscal 1999, three customers accounted for 35%, 20% and 11% of revenues.
For the six months ended November 30, 1998, two customers accounted for 28% and
23% of revenues and for the six months ended November 30,1999, two customers
accounted for 15% and 10% of revenues.
12. SUBSEQUENT EVENTS
In January 2000, the Board of Directors adopted the 2000 Stock Incentive
Plan (the "2000 Plan") and reserved 6,000,000 shares for grant under the 2000
Plan. The terms of the 2000 Plan are substantially similar to the 1997 Option
Plan. The 2000 Plan also provides for automatic grants to non-employee
directors.
PROPOSED PUBLIC OFFERING OF COMMON STOCK
In January 2000, the Board of Directors authorized Saba to proceed with an
initial public offering of its common stock. If the offering is consummated as
presently anticipated, all shares of outstanding convertible preferred stock
will automatically convert to common stock. The unaudited pro forma
stockholders' equity (deficit) at November 30, 1999 gives effect to the
conversion of all outstanding shares of convertible preferred stock at that date
into 19,568,540 shares of common stock upon the completion of the initial public
offering.
In January 2000, Saba's Board of Directors approved an amendment to Saba's
Certificate of Incorporation to change the authorized capital stock to 5,000,000
shares of preferred stock and 100,000,000 shares of common stock. This amendment
is effective as of the closing of Saba's initial public offering. Saba also
increased the number of options available for grant under its 1997 Stock
Incentive Plan by 1,200,000 shares.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted the 2000 Employee Stock Purchase Plan in
January 2000, pending stockholder approval, to be effective upon the completion
of Saba's initial public offering of its common stock. A total of 2,000,000
shares of common stock will be reserved for issuance under the plan. Eligible
employees may purchase common stock at 85% of the lesser of the fair market
value of Saba's common stock on the first day of the applicable two-year
offering period or the last day of the applicable six-month purchase period.
GRANT OF STOCK OPTIONS AND RESTRICTED STOCK
In December 1999, Saba granted to employees options to purchase a total of
706,800 shares of common stock and the Board of Directors approved the issuance
of 325,358 shares of restricted common stock at $0.95 per share, which resulted
in additional deferred stock compensation of approximately $10.6 million.
F-19
<PAGE> 88
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMON STOCK WARRANTS
In December 1999, Saba issued a warrant to a customer to purchase 23,930
shares of common stock. The warrant is exercisable at the earlier of December
31, 2000 or filing of a qualified registration statement with the Securities and
Exchange Commission and has a term of three years and an exercise price of 80%
or 90%, subject to certain events, of Saba's initial public offering price.
Measurement of the warrant's value will be fixed upon the initial public
offering.
In January 2000, Saba issued a warrant to an existing investor to purchase
100,000 shares of common stock at an exercise price of $0.01 per share. The
warrant was issued as a financing cost of the Series D convertible preferred
stock and was immediately exercisable. The $1.2 million value of the warrant,
determined using the Black-Scholes option pricing model, has been accounted for
as an increase and immediate reduction of additional paid-in capital. The
warrant expires on January 31, 2000.
F-20
<PAGE> 89
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 3
Risk Factors.......................... 7
Special Note Regarding Forward-
Looking Statements.................. 19
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 34
Management............................ 47
Principal Stockholders................ 55
Related Party Transactions............ 57
Description of Capital Stock.......... 60
Shares Eligible for Future Sale....... 64
Underwriting.......................... 65
Legal Matters......................... 67
Experts............................... 67
Change in Accountants................. 67
Additional Information................ 67
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
----------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,000,000 Shares
SABA SOFTWARE, INC.
Common Stock
----------------------
[SABA LOGO]
----------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
BANC OF AMERICA SECURITIES LLC
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
----------
<S> <C>
Securities and Exchange Commission Filing Fee............... $ 26,400
NASD Filing Fee............................................. 10,500
Nasdaq National Market Listing Fee.......................... 95,000
Accounting Fees and Expenses................................ 300,000
Blue Sky Fees and Expenses.................................. 10,000
Legal Fees and Expenses..................................... 300,000
Transfer Agent and Registrar Fees and Expenses.............. 15,000
Printing Expenses........................................... 200,000
Miscellaneous Expenses...................................... 43,100
----------
Total............................................. $1,000,000
==========
</TABLE>
- ---------------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of Delaware,
the Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Bylaws (Exhibit 3.3 hereto) also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation
(Exhibits 3.1 and 3.2 hereto) provides that the liability of its directors for
monetary damages shall be eliminated to the fullest extent permissible under
Delaware law. Pursuant to Delaware law, this includes elimination of liability
for monetary damages for breach of the directors' fiduciary duty of care to the
Registrant and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for any transaction from which the director derived
an improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a director's responsibilities under any other laws, such as
the federal securities laws or state or federal environmental laws.
Prior to the effective date of the Registration Statement, the Registrant
will have entered into agreements with its directors and certain of its
executive officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason
II-1
<PAGE> 91
of the fact that such person is or was a director or officer of the Registrant
or any of its affiliated enterprises, provided such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the Registrant and, with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures our directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
For the period from April 16, 1997 to February 29, 2000, the Registrant has
issued and sold the following unregistered securities:
1. During the period, the Registrant granted stock options to
employees, directors and consultants under its 1997 Stock Incentive Plan
(the "Stock Plan") covering an aggregate of 9,443,550 shares of the
Registrant's common stock, at exercise prices ranging from $0.05 to $5.36
with a weighted average exercise price of $0.58 per share.
2. During the period, the Registrant issued and sold an aggregate of
2,536,508 shares of its common stock to 56 employees, directors and
consultants for an aggregate amount of $149,885.16 upon exercise of stock
options granted pursuant to the Registrant's Stock Plan.
3. In addition, during the period, the Registrant issued and sold an
aggregate of 2,854,147 shares of its common stock to 11 employees and
directors (including trusts affiliated with directors) for an aggregate
amount of $1,657,017.66.
4. During the period, the Registrant issued and sold an aggregate of
749,996 shares of its Series A Preferred Stock, convertible into 749,996
shares of its common stock, for an aggregate purchase price of $360,000.
5. During the period, the Registrant issued and sold an aggregate of
8,583,997 shares of its Series B Preferred Stock, convertible into
8,583,997 shares of its common stock, for an aggregate purchase price of
$6,009,999.66.
6. During the period, the Registrant issued an aggregate of 4,636,068
shares of its Series C Preferred Stock, convertible into 4,636,068 shares
of its common stock, for an aggregate purchase price of $14,145,570.68.
7. During the period, the Registrant issued and sold an aggregate of
5,598,479 shares of its Series D Preferred Stock, convertible into
5,598,479 shares of its common stock, for an aggregate purchase price of
$30,000,009.57.
8. During the period, the Registrant issued warrants for a total of
587,698 shares of its Common Stock, for an aggregate exercise price of
$684,913.76.
9. During the period, the Registrant issued warrants for a total of
80,296 shares of its Series C Preferred Stock, for an aggregate exercise
price of $244,999.
II-2
<PAGE> 92
10. During the period, the Registrant issued and sold an aggregate of
477,007 shares of its Common Stock for an aggregate amount of $243,952.78
upon exercise of warrants to purchase Common Stock.
The sale and issuance of securities in the transactions described in
paragraphs 1 through 10 above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule 701
or were deemed to be exempt from registration under the Securities Act by virtue
of Section 4(2) thereof.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No underwriters were employed in any of
the above transactions.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Consolidated Financial Statement Schedules
All schedules have been omitted since they are not required or are not
applicable or the required information is shown in the consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide 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
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 Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time the Commission declared it effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Redwood Shores,
State of California on March 16, 2000.
SABA SOFTWARE, INC.
By: /s/ BOBBY YAZDANI
------------------------------------
Bobby Yazdani
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BOBBY YAZDANI Chairman of the Board of March 16, 2000
- ----------------------------------------------------- Directors, President and
Bobby Yazdani Chief Executive Officer
(Principal Executive
Officer)
/s/ TERRY CARLITZ Chief Financial Officer March 16, 2000
- ----------------------------------------------------- and Director (Principal
Terry Carlitz Financial and Accounting
Officer)
/s/ DOUGLAS ALLRED* Director March 16, 2000
- -----------------------------------------------------
Douglas Allred
/s/ ROBERT COHN* Director March 16, 2000
- -----------------------------------------------------
Robert Cohn
/s/ JOSEPH COSTELLO* Director March 16, 2000
- -----------------------------------------------------
Joseph Costello
/s/ JOSEPH KIANI* Director March 16, 2000
- -----------------------------------------------------
Joseph Kiani
/s/ MICHAEL MORITZ* Director March 16, 2000
- -----------------------------------------------------
Michael Moritz
By: /s/ BOBBY YAZDANI
-------------------------------------------------
Bobby Yazdani
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed effective as of the closing of
the offering.
3.3* Bylaws of Registrant.
3.4* Form of Amended and Restated Bylaws of Registrant to be
effective as of the closing of the offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
5.1* Opinion of Morrison & Foerster LLP.
10.1* Form of Indemnification Agreement between the Registrant and
each of its officers and directors.
10.2 1997 Stock Incentive Plan.
10.3 Form of 2000 Stock Incentive Plan.
10.4 Form of 2000 Employee Stock Purchase Plan.
10.5 Third Amended and Restated Investors' Rights Agreement.
10.6* Forms of Restricted Stock Purchase Agreements.
10.7 Lease Agreement dated March 16, 1999 between the Registrant
and Westport Joint Venture for the Registrant's Redwood
Shores, California headquarters.
16.1* Letter from Deloitte & Touche LLP.
23.1 Consent of Morrison & Foerster LLP. Reference is made to
Exhibit 5.1.
23.2 Consent of Ernst & Young LLP Independent Auditors.
24.1* Powers of Attorney. Reference is made to Page II-4.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 3.1
SABA SOFTWARE, INC.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
SABA SOFTWARE, INC., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Saba Software, Inc., the original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on April 16, 1997, under the name of Saba Software, Inc.
2. Pursuant to Section 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
restates and amends the provisions of this corporation's Certificate of
Incorporation.
3. The terms and provisions of this Amended and Restated Certificate of
Incorporation have been duly approved by vote of the required number of shares
of each outstanding class of stock of this corporation pursuant to Subsection
242 of the General Corporation Law of the State of Delaware.
4. The text of the Amended and Restated Certificate of Incorporation is
hereby restated and amended to read in its entirety as set forth in Exhibit A
attached hereto.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed this 5th day of November 1999.
SABA SOFTWARE, INC.
/s/ BABAK YAZDANI
----------------------------------------
Babak Yazdani, President and
Chief Executive Officer
ATTEST:
/s/ PETER E. WILLIAMS III
----------------------------------------
Peter E. Williams III, Secretary
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF SABA SOFTWARE, INC.,
A DELAWARE CORPORATION
I
The name of this corporation is Saba Software, Inc.
II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
19805. The name of its registered agent at such address is Corporation Service
Company.
III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
IV
A. Classes of Stock. This corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is Seventy
Three Million (73,000,000) shares, Fifty Million (50,000,000) shares of which
shall be Common Stock (the "Common Stock") and Twenty Three Million (23,000,000)
shares of which shall be Preferred Stock (the "Preferred Stock"). The Common
Stock shall have a par value of $0.001 per share and the Preferred Stock shall
have a par value of $0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The Preferred
Stock authorized by this Certificate of Incorporation may be issued from time to
time in one or more series. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock, which
series shall consist of Seven Hundred Forty Nine Thousand Nine Hundred Ninety
Six (749,996) shares, the Series B Preferred Stock, which series shall consist
of Eight Million Five Hundred Eighty Three Thousand Nine Hundred Ninety Seven
(8,583,997) shares, the Series C Preferred Stock, which series shall consist of
Four Million Seven Hundred Sixteen Thousand Three Hundred Sixty Four (4,716,364)
shares and the Series D Preferred
<PAGE> 3
Stock, which series shall consist of Five Million Five Hundred Ninety Eight
Thousand Five Hundred (5,598,500) shares, are as set forth below in this Article
IV(B). Subject to compliance with applicable protective voting rights which have
been or may be granted to the Preferred Stock or series thereof in Certificates
of Designation or this corporation's Certificate of Incorporation ("Protective
Provisions"), the Board of Directors is hereby authorized to fix or alter the
rights, preferences, privileges and restrictions granted to or imposed upon
additional series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or of any of them. Subject to
compliance with applicable Protective Provisions, but notwithstanding any other
rights of the Preferred Stock or any series thereof, the rights, privileges,
preferences and restrictions of any such additional series may be subordinated
to, pari passu with (including, without limitation, inclusion in provisions with
respect to liquidation and acquisition preferences, redemption and/or approval
of matters by vote or written consent), or senior to any of those of any present
or future class or series of Preferred Stock or Common Stock. Subject to
compliance with applicable Protective Provisions, the Board of Directors is also
authorized to increase or decrease the number of shares of any series, prior or
subsequent to the issue of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
1. Dividend Provisions. Subject to the rights of series of Preferred Stock
which may from time to time come into existence, the holders of shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of this corporation) on the
Common Stock of this corporation, at the rate of $0.0384 per share
(appropriately adjusted for any stock split, stock dividend, combination or
other recapitalization (collectively, a "Recapitalization") of the Series A
Preferred Stock) of Series A Preferred Stock per annum, $0.056 per share
(appropriately adjusted for any Recapitalization of the Series B Preferred
Stock) of Series B Preferred Stock per annum, $0.2441 per share (appropriately
adjusted for any Recapitalization of the Series C Preferred Stock) of Series C
Preferred Stock per annum and $0.4287 per share (appropriately adjusted for any
Recapitalization of the Series D Preferred Stock) of Series D Preferred Stock
per annum, when, as and if declared by the Board of Directors of this
corporation. Such dividends shall not be cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, subject to the rights of series of
Preferred Stock which may from time to time come into existence, the holders of
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of this corporation to the holders of Series A Preferred Stock or
Common Stock by reason of their ownership thereof, an amount per share equal to
the sum of (i) $0.70014 for each outstanding share of Series B Preferred Stock
2
<PAGE> 4
(the "Original Series B Issue Price") plus any declared and unpaid dividends
with respect to the Series B Preferred Stock, (ii) $3.0512 for each outstanding
share of Series C Preferred Stock (the "Original Series C Issue Price") plus any
declared and unpaid dividends with respect to the Series C Preferred Stock and
(iii) $5.3586 for each outstanding share of Series D Preferred Stock (the
"Original Series D Issue Price") plus any declared and unpaid dividends with
respect to the Series D Preferred Stock . If upon the occurrence of such event,
the assets and funds thus distributed among the holders of the Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of series of Preferred Stock
which may from time to time come into existence, the entire assets and funds of
the corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required in subparagraph
(a) of this Section 2 and any other distribution that may be required with
respect to series of Preferred Stock that may from time to time come into
existence, the holders of Series A Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets of this
corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to the sum of (i) $0.48 for each outstanding share of
Series A Preferred Stock (the "Original Series A Issue Price") and (ii) any
declared and unpaid dividends with respect to the Series A Preferred Stock. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock which may from time to time
come into existence, the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the amount of such stock owned by each
such holder.
(c) Upon the completion of the distributions required in subparagraphs
(a) and (b) of this Section 2 and any other distribution that may be required
with respect to series of Preferred Stock that may from time to time come into
existence, the remaining assets of the corporation available for distribution to
stockholders shall be distributed among the holders of Common Stock pro rata
based on the number of shares of Common Stock held by each.
(d)
(i) For purposes of this Section 2, a liquidation, dissolution or
winding up of this corporation shall be deemed to be occasioned by, or to
include, (A) the acquisition of the corporation by another entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but, excluding any
merger effected exclusively for the purpose of changing the domicile of the
corporation); or (B) a sale of all or substantially all of the assets of the
corporation; unless the corporation's stockholders of record as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for
3
<PAGE> 5
the corporation's acquisition or sale or otherwise) hold at least 50% of the
voting power of the surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other similar
restrictions on free marketability:
(1) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as determined in good faith by the Board of
Directors of the corporation.
(B) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as determined in good faith by the Board of Directors of
the corporation.
(iii) In the event the requirements of this subsection 2(d) are
not complied with, this corporation shall forthwith either cause such closing to
be postponed until such time as the requirements of this Section 2 have been
complied with; or cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 2(d)(iv) hereof.
(iv) The corporation shall give each holder of record of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the corporation has given the first notice
provided for herein or sooner than ten (10) days after the corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened
4
<PAGE> 6
upon the written consent of the holders of Preferred Stock that are entitled to
such notice rights or similar notice rights and that represent at least a
majority of the voting power of all then outstanding shares of Preferred Stock.
3. Conversion. The holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of this corporation or any
transfer agent for such Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series A Issue Price, Original Series B Issue Price, Original Series C Issue
Price or Original Series D Issue Price, respectively, by the Conversion Price
applicable to such share, determined as hereinafter provided, in effect on the
date that the certificate is surrendered for conversion. The initial Conversion
Price per share for shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock shall be the
Original Series A Issue Price, Original Series B Issue Price, Original Series C
Issue Price and Original Series D Issue Price, respectively; provided, however,
that the Conversion Prices for the Preferred Stock shall be subject to
adjustment as set forth in subsection (d) of this Section 3.
(b) Automatic Conversion. Each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such share immediately upon the earlier of (i)
the corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement under the Securities Act of
1933, as amended, the public offering price of which is not less than $7.50 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and $10,000,000 in the aggregate or (ii) the date specified by
written consent or agreement of the holders of a majority of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock voting together as a single class
and two-thirds of the then outstanding shares of Series C Preferred Stock voting
as a separate class.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into shares of Common Stock, such holder
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for the Preferred Stock, and
shall give written notice to this corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons
5
<PAGE> 7
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. If the conversion is in connection with an
underwritten public offering of securities registered pursuant to the Securities
Act of 1933, as amended, the conversion may, at the option of any holder
tendering Preferred Stock for conversion, be conditioned upon the closing with
the underwriters of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Preferred Stock. The
Conversion Price of each series of Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) (A) If the corporation shall issue, after the date on
which any shares of Series D Preferred Stock were first issued (the "Series D
Purchase Date"), any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Conversion Price for the
applicable series of Preferred Stock in effect immediately prior to the issuance
of such Additional Stock, the Conversion Price for such series of Preferred
Stock in effect immediately prior to each such issuance shall forthwith (except
as otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying the Conversion Price for such series of Preferred Stock by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of shares of
Common Stock that the aggregate consideration received by the corporation for
such issuance would purchase at the Conversion Price for such series of
Preferred Stock; and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be made by reason of
this sentence shall be carried forward and shall be either taken into account in
any subsequent adjustment made prior to 3 years from the date of the event
giving rise to the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for in subsections (E)(3)
and (E)(4), no adjustment of such Conversion Price pursuant to this subsection
3(d)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by this corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
6
<PAGE> 8
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after
the Series D Purchase Date) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 3(d)(i) and subsection 3(d)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 3(d)(i)(C) and
(d)(i)(D)), if any, received by the corporation upon the issuance
of such options or rights plus the minimum exercise price
provided in such options or rights for the Common Stock covered
thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for
any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion
or exchange thereof shall be deemed to have been issued at the
time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if
any, received by the corporation for any such securities and
related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the
corporation upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in
subsections 3(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration
payable to this corporation upon exercise of such options or
rights or upon conversion of or in exchange for such convertible
or exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof, the
Conversion Price of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect
such change, but no further adjustment shall be made for the
actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or
the conversion or exchange of such securities.
7
<PAGE> 9
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange
or the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Price of
the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock to the extent in any
way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall
be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the options
or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to
subsections 3(d)(i)(E)(1) and (2) shall be appropriately adjusted
to reflect any change, termination or expiration of the type
described in either subsection 3(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 3(d)(i)(E))
by this corporation after the Series D Purchase Date other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 3(d)(iii) hereof,
(B) shares of Common Stock issuable or issued to
employees, consultants or directors of this corporation directly
or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of this corporation
("Incentive Equity"),
(C) shares of Common Stock issued or issuable to
vendors (if in transactions with primarily non-financing
purposes) of this corporation directly or pursuant to options or
warrants approved by the Board of Directors of this corporation,
or
(D) shares of Common Stock issued or issuable (I)
in a public offering before or in connection with which all
outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock will be converted to Common Stock or (II) upon exercise of
warrants or rights granted to underwriters in connection with
such a public offering.
8
<PAGE> 10
(iii) In the event the corporation should at any time or
from time to time after the Series D Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the Conversion Prices of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase of
the aggregate number of shares of Common Stock outstanding and those issuable
with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at
any time after the Series D Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Prices for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion to such
decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 3(d)(iii), then,
in each such case for the purpose of this subsection 3(e), the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
are convertible as of the record date fixed for the determination of the holders
of Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
Section 2 or this Section 3) provision shall be made so that the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 3 with respect to the rights of
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D
9
<PAGE> 11
Preferred Stock after the recapitalization to the end that the provisions of
this Section 3 (including adjustment of the Conversion Prices then in effect and
the number of shares purchasable upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(g) No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of
any share or shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock the holder is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock pursuant to this Section 3,
this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for such series of Preferred Stock at the
time in effect, and (C) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of a share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
10
<PAGE> 12
class or any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, this corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite stockholder approval of any necessary
amendment to this Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this
Section 3 to be given to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
this corporation.
4. Voting Rights.
(a) General. Except as otherwise expressly provided herein, the
holder of each share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock shall have the right to
one vote for each share of Common Stock into which such Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock could then be converted and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the Bylaws of
this corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock held by each holder
could be converted) shall be rounded to be nearest whole number (with one-half
being rounded upward).
11
<PAGE> 13
(b) Voting for Election of Directors. So long as a majority of
the shares of Series B Preferred Stock issued and outstanding as of the Series D
Purchase Date shall remain outstanding, (i) the holders of shares of Series B
Preferred Stock shall be entitled, voting separately as a single class, to elect
one (1) director of the corporation at or pursuant to each meeting or consent of
the corporation's stockholders for the election of directors, and to remove from
office such director and to fill any vacancy caused by the resignation, death or
removal of such director, (ii) the holders of shares of Common Stock and Series
A Preferred Stock shall be entitled, voting together as a single class, to elect
two (2) directors of the corporation at or pursuant to each meeting or consent
of the corporation's stockholders for the election of directors, and to remove
from office such directors and to fill any vacancy caused by the resignation,
death or removal of such directors, and (iii) the holders of shares of Common
Stock and Preferred Stock shall be entitled, voting together in accordance with
Section 4(a) hereof, to elect the remaining directors of the corporation at or
pursuant to each meeting or consent of the corporation's stockholders for the
election of directors, and to remove from office such directors and to fill any
vacancy caused by the resignation, death or removal of such directors.
5. Protective Provisions.
(a) Series A Preferred Stock. So long as shares of Series A
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, voting as a separate class, take any action to:
(1) alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock so as to affect materially and adversely
the shares;
(2) increase or decrease (other than by conversion) the
total number of authorized shares of Series A Preferred Stock; or
(3) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series A Preferred Stock upon liquidation.
(b) Series B Preferred Stock. So long as shares of Series B
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series B
Preferred Stock, voting as a separate class, take any action to:
(1) alter or change the rights, preferences or privileges of
the shares of Series B Preferred Stock so as to affect materially and adversely
the shares;
(2) increase or decrease (other than by conversion) the
total number of authorized shares of Series B Preferred Stock; or
(3) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security
12
<PAGE> 14
having a preference over, or being on a parity with, the Series B Preferred
Stock upon liquidation.
(c) Series C Preferred Stock. So long as shares of Series C
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least two-thirds (2/3) of the then outstanding shares of Series C
Preferred Stock, voting as a separate class, take any action to:
(1) alter or change the rights, preferences or privileges of
the shares of Series C Preferred Stock so as to affect materially and adversely
the shares;
(2) increase or decrease (other than by conversion) the
total number of authorized shares of Series C Preferred Stock; or
(3) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series C Preferred Stock upon liquidation.
(d) Series D Preferred Stock. So long as shares of Series D
Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series D
Preferred Stock, voting as a separate class, take any action to:
(1) alter or change the rights, preferences or privileges of
the shares of Series D Preferred Stock so as to affect materially and adversely
the shares;
(2) increase or decrease (other than by conversion) the
total number of authorized shares of Series D Preferred Stock; or
(3) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series D Preferred Stock upon liquidation.
(e) Series A Stock, Series B Stock, Series C Stock and Series D
Stock. So long as shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock are outstanding, this
corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock, voting together as a single
class:
(1) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of the corporation is disposed of; or
13
<PAGE> 15
(2) declare or pay any dividend or otherwise make a
distribution on any shares of Common Stock or Preferred Stock or redeem,
purchase or otherwise acquire (or pay into or set aside for a sinking fund for
such purpose) any share or shares or Preferred Stock or Common Stock; provided,
however, that this restriction shall not apply to (i) the repurchase of shares
of Common Stock from employees, officers, directors, consultants or any other
persons or entities performing services for this corporation or any subsidiary
pursuant to agreements under which this corporation has the option to repurchase
such shares at cost or at cost upon certain events, such as the termination of
employment, or (ii) the repurchase of shares of Common Stock or Preferred Stock
pursuant to the right of first refusal set forth in the corporation's Bylaws.
6. Status of Converted Stock. In the event any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock shall be converted pursuant to Section 3 hereof, the shares so
converted shall be canceled and shall not be issuable by the corporation. The
Certificate of Incorporation of this corporation shall be appropriately amended
to effect the corresponding reduction in the corporation's authorized capital
stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
V
The corporation is to have perpetual existence.
14
<PAGE> 16
VI
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the same compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
VII
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation, and regulation of the
powers of the corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed by,
or in the manner provided in, the Bylaws. The phrase "whole Board" and the
phrase "total number of directors" shall be deemed to have the same meaning, to
wit, the total number of directors which the corporation would have if there
were no vacancies. No election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the Bylaws of the corporation may be
exercised by the Board of Directors of the corporation; provided, however, that
any provision for the classification of directors of the corporation for
staggered terms pursuant to the provision of subsection (d) of Section 141 of
the General Corporation Law of the State of Delaware shall be set forth in an
initial Bylaw or in a Bylaw adopted by the stockholders of the corporation
entitled to vote unless provisions for such classification shall be set forth in
this certificate of incorporation.
15
<PAGE> 17
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under the
provisions of the Certificate of Incorporation shall entitle the holder thereof
to the right to vote at any meeting of stockholders except as the provisions of
paragraph (2) of subsection (b) of Section 242 of the General Corporation Law of
the State of Delaware shall otherwise require; provided, that no share of any
such class which is otherwise denied voting power shall entitle the holder
thereof to vote upon the increase or decrease in the number of authorized shares
of said class.
VIII
The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provision of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
IX
The corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such person.
X
From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article X.
XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
16
<PAGE> 1
EXHIBIT 3.2
SABA SOFTWARE, INC.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
SABA SOFTWARE, INC., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Saba Software, Inc., the original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on April 16, 1997, under the name of Saba Software, Inc.
2. Pursuant to Section 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
restates and amends the provisions of this corporation's Certificate of
Incorporation.
3. The terms and provisions of this Amended and Restated Certificate of
Incorporation have been duly approved by vote of the required number of shares
of each outstanding class of stock of this corporation pursuant to Subsection
242 of the General Corporation Law of the State of Delaware.
4. The text of the Amended and Restated Certificate of Incorporation is
hereby restated and amended to read in its entirety as set forth in Exhibit A
attached hereto.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed this ____ day of ____________ 2000.
SABA SOFTWARE, INC.
------------------------------------
Babak Yazdani, President and
Chief Executive Officer
ATTEST:
------------------------------------
Peter E. Williams III, Secretary
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF SABA SOFTWARE, INC.,
A DELAWARE CORPORATION
I
The name of this corporation is Saba Software, Inc.
II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
19805. The name of its registered agent at such address is Corporation Service
Company.
III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
IV
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Two Hundred Five
Million (205,000,000) shares, Two Hundred Million (200,000,000) shares of which
shall be Common Stock (the "Common Stock") and Five Million (5,000,000) shares
of which shall be Preferred Stock (the "Preferred Stock"). The Common Stock
shall have a par value of $0.001 per share and the Preferred Stock shall have a
par value of $0.001 per share.
The Preferred Stock authorized by this Amended and Restated Certificate
of Incorporation may be issued from time to time in one or more series. Subject
to applicable protective voting rights which have been or may be granted to the
Preferred Stock, the Board of Directors is authorized to determine or alter any
or all of the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and to fix, alter or
reduce the number of shares comprising any such series (but not below the number
of such shares outstanding for any such series) and the designation thereof, or
any of them, and to provide for rights and terms of redemption or conversion of
the shares of any such series.
1
<PAGE> 3
V
The corporation is to have perpetual existence.
VI
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the same compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
VII
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation, and regulation of the
powers of the corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the corporation would have if there were no vacancies.
No election of directors need be by written ballot, unless the Bylaws of the
corporation shall so provide.
2. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized to
adopt, alter, amend or repeal the Bylaws of the corporation.
3. Whenever the corporation shall be authorized to issue only one class
of stock, each outstanding share shall entitle the holder thereof to notice of,
and the right to vote at,
2
<PAGE> 4
any meeting of stockholders. Whenever the corporation shall be authorized to
issue more than one class of stock, no outstanding share of any class of stock
which is denied voting power under the provisions of the Certificate of
Incorporation shall entitle the holder thereof to the right to vote at any
meeting of stockholders except as the provisions of paragraph (2) of subsection
(b) of Section 242 of the General Corporation Law of the State of Delaware shall
otherwise require; provided, that no share of any such class which is otherwise
denied voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
VIII
At the election of directors of the corporation, each holder of stock of
any class or series shall be entitled to one vote for each share held. No
stockholder will be permitted to cumulate votes at any election of directors.
The number of directors which constitute the whole Board of Directors of
the corporation shall be fixed exclusively by one or more resolutions adopted
from time to time by the Board of Directors. The Board of Directors shall be
divided into three classes designated as Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the date hereof, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
date hereof, the term of office of the Class II directors shall expire and Class
II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the date hereof, the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Vacancies created by newly created directorships, created in accordance
with the Bylaws of this Corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
IX
The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provision of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
The corporation shall, to the fullest extent permitted by the provisions
of Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw,
3
<PAGE> 5
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such person.
Neither any amendment nor repeal of this Article IX, nor the adoption of
any provision of this Amended and Restated Certificate of Incorporation
inconsistent with this Article IX, shall eliminate or reduce the effect of this
Article IX in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article IX, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
The stockholders of the corporation may not take any action by written
consent in lieu of a meeting, and must take any actions at a duly called annual
or special meeting of stockholders and the power of stockholders to consent in
writing without a meeting is specifically denied.
XI
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
XII
Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of the capital stock required by law or this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
two-thirds (2/3) or the combined voting power of all the then-outstanding shares
of the corporation entitled to vote shall be required to alter, amend or repeal
Articles VIII, IX, X or XI hereof, or this Article XII, or any provision hereof
or thereof.
XIII
From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed
4
<PAGE> 6
by said laws, and all rights at any time conferred upon the stockholders of the
corporation by this certificate of incorporation are granted subject to the
provisions of this Article XIII.
* * *
<PAGE> 1
EXHIBIT 10.2
SABA SOFTWARE, INC.
AMENDED AND RESTATED 1997 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, California corporate and securities laws, the Code,
the rules of any applicable stock exchange or national market system, and the
rules of any foreign jurisdiction applicable to Awards granted to residents
therein.
(c) "Award" means the grant of an Option, Restricted Stock, or
other right or benefit under the Plan.
(d) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means any committee appointed by the Board to
administer the Plan.
(h) "Common Stock" means the common stock of the Company.
(i) "Company" means Saba Software, Inc., a Delaware corporation.
(j) "Consultant" means any person who is engaged by the Company
or Related Entity to render consulting or advisory services as an independent
contractor and is compensated for such services.
(k) "Continuous Status as an Employee, Director or Consultant"
means that the provision of services to the Company or a Related Entity in any
capacity of Employee, Director or Consultant, is not interrupted or terminated.
Continuous Status as an Employee, Director or Consultant shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change
1
<PAGE> 2
in status as long as the individual remains in the service of the Company or a
Related Entity in any capacity of Employee, Director or Consultant (except as
otherwise provided in the Award Agreement). For purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.
(l) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger.
(m) "Director" means a member of the Board.
(n) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) Where there exists a public market for the Common
Stock, the Fair Market Value shall be (A) the closing price for a Share for the
last market trading day prior to the time of the determination (or, if no
closing price was reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock or the Nasdaq
National Market, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the average of the
closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the
day prior to the time of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or
(ii) In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market Value thereof
shall be determined by the Administrator in good faith and in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
2
<PAGE> 3
(q) "Grantee" means an Employee, Director or Consultant who
receives an Award under the Plan.
(r) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code
(s) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(t) "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.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this Amended and Restated 1997 Stock Incentive
Plan.
(x) "Registration Date" means the closing of the first sale of
Common Stock to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(y) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds an ownership interest,
directly or indirectly.
(z) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(aa) "Share" means a share of the Common Stock.
(bb) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 11(a) below, the
maximum aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is 6,000,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.
(b) If an Award expires or becomes unexercisable without having
been exercised in full, or if any unissued Shares are retained by the Company
upon exercise of an
3
<PAGE> 4
Award in order to satisfy the exercise price for such Award or any withholding
taxes due with respect to such Award, such unissued or retained Shares shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to an
Award shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator. With respect to grants of Awards to
Employees, Directors, Officers or Consultants, the Plan shall be administered by
(A) the Board or (B) a Committee (or a subcommittee of the Committee) designated
by the Board, which Committee shall be constituted in such a manner as to
satisfy Applicable Laws. Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board.
(b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants
to whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are
granted hereunder;
(iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under
the Plan;
(v) to determine the terms and conditions of any Award
granted hereunder;
(vi) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
(vii) to amend the terms of any outstanding Award
granted under the Plan, including a reduction in the exercise price of any Award
to reflect a reduction in the Fair Market Value of the Common Stock since the
grant date of the Award, provided that any amendment that would adversely affect
the Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent;
4
<PAGE> 5
(viii) to construe and interpret the terms of the Plan
and Awards granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, or similar
right with an exercise or conversion privilege at a fixed or variable price
related to the Common Stock and/or the passage of time, the occurrence of one or
more events, or the satisfaction of performance criteria or other conditions, or
(iii) any other security with the value derived from the value of the Common
Stock or securities issued by a Related Entity. Such awards include, without
limitation, Options, and sales or bonuses of Restricted Stock. An Award may
consist of one such security or benefit, or two or more of them in any
combination or alternative.
(b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the grant date of the relevant Option.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price,
5
<PAGE> 6
earnings per share, total stockholder return, return on equity, return on
assets, return on investment, net operating income, cash flow, revenue, economic
value added, personal management objectives, or other measure of performance
selected by the Administrator. Partial achievement of the specified criteria may
result in a payment or vesting corresponding to the degree of achievement as
specified in the Award Agreement.
(d) Early Exercise. The Award may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or to any other restriction the
Administrator determines to be appropriate.
(e) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term shall be no more
than ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to a Grantee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter term as may be provided in the Award Agreement.
(f) Non-Transferability of Awards. Awards may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Grantee, only by the Grantee.
(g) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.
(a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of
the grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
(B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
6
<PAGE> 7
(ii) In the case of a Non-Qualified Stock Option:
(A) granted to a person who, at the time of the
grant of such Option, Iowns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a person
described in the preceding paragraph, the per Share exercise price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of grant.
(iii) In the case of the sale of Shares:
(A) granted to a person who, at the time of the
grant of such Award, or at the time the purchase is consummated, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share purchase price
shall be not less than one hundred percent (100%) of the Fair Market Value per
share on the date of grant.
(B) granted to any person other than a person
described in the preceding paragraph, the per Share purchase price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of grant.
(b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;
(iv) if the exercise occurs on or after the Registration
Date, surrender of Shares or delivery of a properly executed form of attestation
of ownership of Shares as the Administrator may require (including withholding
of Shares otherwise deliverable upon exercise of the Award) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
exercise price of the Shares as to which said Award shall be exercised (but only
to the extent that such exercise of the Award would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price
unless otherwise determined by the Administrator);
7
<PAGE> 8
(v) if the exercise occurs on or after the Registration
Date, delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Award and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of
payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with terms identical to the Award
Agreement under which the Option was exercised, but at an exercise price as
determined by the Administrator in accordance with the Plan.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be exercisable at
such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement but in the case of an
Option, in no case at a rate of less than 20% per year over five (5) years from
the date the Option is granted, subject to reasonable conditions such as
continued employment. However, in the case of an Option granted to an Officer,
Director or Consultant, the Award Agreement may provide that the Option may
become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established in the Award Agreement.
(ii) An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised has been
received by the Company. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to Shares subject to an Award, notwithstanding the exercise of an Option or
other Award. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Award Agreement or Section 11(a), below.
8
<PAGE> 9
(b) Exercise of Award Following Termination of Employment,
Director or Consulting Relationship. In the event of termination of an Grantee's
Continuous Status as an Employee, Director or Consultant for any reason other
than disability or death (but not in the event of an Grantee's change of status
from Employee to Consultant or from Consultant to Employee), such Grantee may,
but only within three (3) months after the date of such termination (but in no
event later than the expiration date of the term of such Award as set forth in
the Award Agreement), exercise his or her Award to the extent that the Grantee
was entitled to exercise it at the date of such termination or to such other
extent as may be determined by the Administrator. The Grantee's Award Agreement
may provide that upon the termination of the Grantee's Continuous Status as an
Employee, Director or Consultant for "Cause," the Grantee's right to exercise
the Award shall terminate concurrently with the termination of Grantee's
Continuous Status as an Employee, Director or Consultant. The term "Cause" shall
be as defined in the Award Agreement. If the Grantee should die within three (3)
months after the date of such termination, the Grantee's estate or the person
who acquired the right to exercise the Award by bequest or inheritance may
exercise the Award to the extent that the Grantee was entitled to exercise it at
the date of such termination within twelve (12) months of the Grantee's date of
death, but in no event later than the expiration date of the term of such Award
as set forth in the Award Agreement. In the event of an Grantee's change of
status from Employee to Consultant, an Employee's Incentive Stock Option shall
convert automatically to a Non-Qualified Stock Option on the day three (3)
months and one day following such change of status. To the extent that the
Grantee is not entitled to exercise the Award at the date of termination, or if
the Grantee does not exercise such Award to the extent so entitled within the
time specified herein, the Award shall terminate.
(c) Disability of Grantee. In the event of termination of an
Grantee's Continuous Status as an Employee, Director or Consultant as a result
of his or her disability, Grantee may, but only within twelve (12) months from
the date of such termination (and in no event later than the expiration date of
the term of such Award as set forth in the Award Agreement), exercise the Award
to the extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a
Non-Qualified Stock Option on the day three (3) months and one day following
such termination. To the extent that the Grantee is not entitled to exercise the
Award at the date of termination, or if Grantee does not exercise such Award to
the extent so entitled within the time specified herein, the Award shall
terminate.
(d) Death of Grantee. In the event of the death of an Grantee,
the Award may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Award as set forth in the Award Agreement), by the Grantee's estate or by a
person who acquired the right to exercise the Award by bequest or inheritance,
but only to the extent that the Grantee was entitled to exercise the Award at
the date of death. If, at the time of death, the Grantee was not entitled to
exercise his or her entire Award, the Shares covered by the unexercisable
portion of the Award shall immediately revert to the Plan. If, after death, the
Grantee's estate or a person who acquired the right to exercise the Award by
bequest or inheritance does not exercise the Award within the time specified
herein, the Award shall terminate.
9
<PAGE> 10
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Award previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Repurchase Rights. If the provisions of an Award Agreement grant to
the Company the right to repurchase Shares upon termination of the Grantee's
Continuous Status as an Employee, Director or Consultant, the Award Agreement
shall provide that the repurchase price will be either:
(a) Not less than the Fair Market Value of the Shares to be
repurchased on the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of the termination of the Grantee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Awards after the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, within ninety (90) days after the date of the
Award exercise), and the right terminates when the Company's securities become
publicly traded; or
(b) The original purchase price, provided that the right to
repurchase at the original purchase price lapses at the rate of at least twenty
percent (20%) of the Shares subject to the Award per year over five (5) years
from the date the Award is granted (without respect to the date the Award was
exercised or became exercisable), and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Awards after the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, within ninety (90) days after the date of the
Award exercise).
(c) In addition to the restrictions set forth in (a) and (b)
above, the Shares held by an Officer, Director or Consultant may be subject to
additional or greater restrictions.
10
<PAGE> 11
11. Adjustments Upon Changes in Capitalization or Corporate Transaction.
(a) Adjustments upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of Shares covered
by each outstanding Award, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Award, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.
(b) Corporate Transaction. Except as provided otherwise in an
individual Award Agreement, in the event of any Corporate Transaction, each
outstanding Award will terminate immediately prior to the specified effective
date of such Corporate Transaction, unless the Award is assumed or an equivalent
Award is substituted by the successor corporation or a Parent or Subsidiary of
such successor corporation. For the purposes of this subsection, the Award shall
be considered assumed or substituted for an equivalent Award if, following the
Corporate Transaction, the Award confers, for each Share subject to the Award
immediately prior to the Corporate Transaction, (i) the consideration (whether
stock, cash, or other securities or property) received in the Corporate
Transaction by holders of Common Stock for each Share subject to the Award held
on the effective date of the Corporate Transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares), or (ii) the right to purchase such
consideration in the case of an Option or similar Award; provided, however, that
if such consideration received in the Corporate Transaction was not solely
common stock of the successor corporation or its Parent or a Subsidiary, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise or exchange of the Award for
each Share subject to the Award to be solely common stock of the successor
corporation or its Parent or a Subsidiary equal in fair market value to the per
share consideration received by holders of Common Stock in the Corporate
Transaction.
12. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
11
<PAGE> 12
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall
not affect Awards already granted, and such Awards shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Grantee and the Administrator, which
agreement must be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment/Consulting. The Plan shall not
confer upon any Grantee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
his or her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
16. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under Applicable Laws. Any Award exercised
before stockholder approval is obtained shall be rescinded if stockholder
approval is not obtained within the time prescribed, and Shares issued on the
exercise of any such Award shall not be counted in determining whether
stockholder approval is obtained.
17. Information to Grantees. The Company shall provide to each Grantee,
during the period for which such Grantee has one or more Awards outstanding,
copies of financial statements at least annually.
12
<PAGE> 13
SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address: NAME
ADDRESS
ADDRESS
You have been granted an option to purchase shares of Common Stock of
the Company, subject to the terms and conditions of the Plan and the Option
Agreement, as follows:
<TABLE>
<S> <C>
Grant Number 000XXX
Date of Grant DATE
Vesting Commencement Date DATE OF HIRE
Exercise Price per Share $0.XX
Total Number of Shares Granted XX,XXX
Total Exercise Price $X,XXX
Type of Option: X________Incentive Stock Option
_________Non-Qualified Stock Option
Term/Expiration Date: DATE (10 YEARS)
</TABLE>
Vesting Schedule:
Subject to other limitations set forth in the Option Agreement, the
Option may be exercised, in whole or in part, in accordance with the following
schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 3/48 of the Shares subject to the Option
shall vest on each quarterly anniversary of the Vesting Commencement Date
thereafter.
During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Optionee's termination of the leave of absence and return to service with the
Company.
In the event of the Optionee's change in status from Employee to
Consultant, vesting of the Option shall continue only to the extent determined
by the Administrator as of such change in status.
1
<PAGE> 14
Termination Period:
Except in the event of termination of the Optionee's Continuous Status
as an Employee, Director or Consultant for "Cause" (as defined below), the
Option may be exercised within three (3) months from termination of the
Optionee's Continuous Status as an Employee, Director or Consultant or such
longer period as may be applicable upon death or disability of the Optionee as
provided in the Option Agreement. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, the Option shall
remain in effect; provided, however, that in the event of a change in status
from Employee to Consultant, the Optionee's Incentive Stock Option shall cease
to be treated as an Incentive Stock Option and shall be treated as a
Non-Qualified Stock Option on the day three (3) months and one day following
such change in status. In no event shall the Option be exercised later than the
Term/Expiration Date as provided above.
In the event of termination of the Optionee's Continuous Status as an
Employee, Director or Consultant for "Cause," the Optionee's right to exercise
the Option shall terminate concurrently with the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant.
Definition of "Cause":
For purposes of the Option, termination of the Optionee's Continuous
Status as an Employee, Director or Consultant shall be for "Cause" as such term
is defined in the Optionee's employment agreement, or in the absence of such
definition, then as in the opinion of the Company, the Optionee: (i) acts in bad
faith and to the detriment of the Company; (ii) refuses or fails to act in
accordance with any specific direction or order of the Company; (iii) exhibits
in regard to his employment unfitness or unavailability for service,
unsatisfactory performance, misconduct, but not disability; (iv) exhibits
dishonesty, habitual neglect, or incompetence, but not disability; or (v) is
convicted of a crime involving dishonesty, breach of trust, or physical or
emotional harm to any person. At least 30 days prior to terminating the
Optionee's Continuous Status as an Employee, Director or Consultant pursuant to
(ii) or (iii) above, the Company shall provide the Optionee with notice of the
Company's intent to terminate, the Company's reason therefor, and an opportunity
for the Optionee to cure such defects in his service to the Company's
satisfaction. During this 30 day (or longer) period, the Optionee shall not be
entitled to exercise the Option, but the Option shall continue to vest in
accordance with the Vesting Schedule.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Notice of Stock Option Grant and agree that the Option is to be governed by the
terms and conditions of this Notice of Stock Option Grant, the Plan, and the
Option Agreement.
Saba Software, Inc.,
a Delaware corporation
By:
-------------------------------
Its: President & CEO
-------------------------------
2
<PAGE> 15
THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS NOTICE OF STOCK OPTION GRANT, THE OPTION AGREEMENT, NOR IN THE
COMPANY'S 1997 STOCK INCENTIVE PLAN, SHALL CONFER UPON THE OPTIONEE ANY RIGHT
WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR
SHALL IT INTERFERE IN ANY WAY WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE THE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR
WITHOUT CAUSE.
The Optionee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee has reviewed this Notice of Stock Option Grant,
the Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing the Notice of Stock Option Grant
and fully understands all provisions of this Notice of Stock Option Grant, the
Plan, and the Option Agreement. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board or
Administrator upon any questions arising under this Notice of Stock Option
Grant, the Plan, and the Option Agreement. The Optionee further agrees to notify
the Company upon any change in the residence address indicated in this Notice of
Stock Option Grant.
Dated: Signed:
----------------------- ---------------------------------
Optionee
3
<PAGE> 16
SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
1. Grant of Option. Saba Software, Inc., a Delaware corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Stock Option
Grant (the "Optionee"), an option (the "Option") to purchase the total number of
shares of Common Stock (the "Shares") set forth in the Notice of Stock Option
Grant, at the exercise price per share set forth in the Notice of Stock Option
Grant (the "Exercise Price") subject to the terms, definitions and provisions of
the Notice of Stock Option Grant and the Company's 1997 Stock Incentive Plan
(the "Plan") adopted by the Company, which are incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
If designated in the Notice of Stock Option Grant as an Incentive Stock
Option, the Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Section 422(d) of the Code, the Option shall be treated as
a Non-Qualified Stock Option.
2. Exercise of Option.
(a) Right to Exercise. The Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and with the applicable provisions of the Plan and this Option
Agreement. The Option shall be subject to the provisions of Section 11(b) of the
Plan relating to the exercisability or termination of the Option in the event of
a Corporate Transaction. No partial exercise of the Option may be for less than
the lessor of five percent (5%) of the total number of Shares subject to the
Option or the remaining number of Shares subject to the Option. In no event
shall the Company issue fractional Shares.
(b) Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, and such other provisions as may be required by
the Administrator. Such Exercise Notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the Company of such written notice accompanied
by the Exercise Price.
No Shares will be issued pursuant to the exercise of the Option
unless such issuance and such exercise shall comply with all Applicable Laws.
Assuming such compliance, for income tax purposes, the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(c) Taxes. No Shares will be issued to the Optionee or other
person pursuant to the exercise of the Option until the Optionee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
foreign, federal, state and local income and employment tax withholding
obligations.
3. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of the Option have not been registered under the
Securities Act of 1933, as amended, at the time the Option is exercised, the
Optionee shall, if required by the Company, concurrently with the exercise of
all
4
<PAGE> 17
or any portion the Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.
4. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee;
provided, however, that such exercise method does not then violate an Applicable
Law:
(a) cash;
(b) check;
(c) if the exercise occurs on or after the Registration Date,
surrender of Shares or delivery of a properly executed form of attestation of
ownership of Shares as the Administrator may require (including withholding of
Shares otherwise deliverable upon exercise of the Option) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
Exercise Price of the Shares as to which the Option is being exercised (but only
to the extent that such exercise of the Option would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price);
or
(d) if the exercise occurs on or after the Registration Date,
delivery of a properly executed Exercise Notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the Exercise Price.
5. Restrictions on Exercise. The Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company. In
addition, the Option may not be exercised if the issuance of the Shares subject
to the Option upon such exercise would constitute a violation of any Applicable
Laws.
6. Termination of Relationship. In the event the Optionee's Continuous
Status as an Employee, Director or Consultant terminates, the Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise the Option during the Termination Period set out
in the Notice of Stock Option Grant. Except as provided in Sections 7 and 8,
below, to the extent that the Optionee was not entitled to exercise the Option
on the Termination Date, or if the Optionee does not exercise the Option within
the Termination Period, the Option shall terminate.
7. Disability of Optionee. In the event the Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the
Termination Date (and in no event later than the Term/Expiration Date), exercise
the Option to the extent otherwise entitled to exercise it on the Termination
Date; provided, however, that if such disability is not a "disability" as such
term is defined in Section 22(e)(3) of the Code and the Option is an Incentive
Stock Option, such Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on
the day three (3) months and one day following the Termination Date. To the
extent that the Optionee was not entitled to exercise the Option on the
Termination Date, or if the Optionee does not exercise the Option to the extent
so entitled within the time specified herein, the Option shall terminate.
8. Death of Optionee. In the event of the Optionee's death, the Option
may be exercised at any time within twelve (12) months following the date of
death (and in no event later than the Term/Expiration Date), by the Optionee's
estate or by a person who acquired the right to exercise the
5
<PAGE> 18
Option by bequest or inheritance, but only to the extent the Optionee could
exercise the Option at the date of death. To the extent that the Optionee was
not entitled to exercise the Option on the date of death, or the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.
9. Non-Transferability of Option. The Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of the Optionee only by the Optionee. The
terms of the Option shall be binding upon the executors, administrators, heirs
and successors of the Optionee.
10. Term of Option. The Option may be exercised only within the term set
out in the Notice of Stock Option Grant.
11. Company's Right of First Refusal.
(a) Transfer Notice. Neither the Optionee nor a transferee
(either being sometimes referred to herein as the "Holder") shall sell,
hypothecate, encumber or otherwise transfer any Shares or any right or interest
therein without first obtaining the prior written consent of the Company. In the
event the Holder desires to accept a bona fide third-party offer for any or all
of the Shares the Holder shall provide the Company with written notice (the
"Transfer Notice") of:
(i) The Holder's intention to transfer;
(ii) The name of the proposed transferee;
(iii) The number of Shares to be transferred; and
(iv) The proposed transfer price or value and terms
thereof.
(b) First Refusal Exercise Notice. Within 45 days after receipt
of the Transfer Notice (the "Option Period") the Company and/or its assigns
shall have the right to purchase (the "Right of First Refusal") all, but not
less than all of the Shares which are described in the Transfer Notice (the
"Offered Shares") at the per share price or value and in accordance with the
terms stated in the Transfer Notice, which Right of First Refusal shall be
exercised by written notice (the "First Refusal Exercise Notice") to the Holder
setting forth the number of Offered Shares the Company and/or its assigns elects
to purchase, provided that the number equals all of the Offered Shares.
(c) Payment Terms. The Company shall consummate the purchase of
the Offered Shares on the terms set forth in the Transfer Notice within 15 days
after delivery of the First Refusal Exercise Notice; provided, however, that in
the event the Transfer Notice provides for the payment for the Offered Shares
other than in cash, the Company and/or its assigns shall have the right to pay
for the Offered Shares by the discounted cash equivalent of the consideration
described in the Transfer Notice as reasonably determined by the Administrator.
Upon payment for the Offered Shares to the Holder or into escrow for the benefit
of the Holder, the Company or its assigns shall become the legal and beneficial
owner of the Offered Shares and all rights and interest therein or related
thereto, and the Company shall have the right to transfer the Offered Shares to
its own name or its assigns without the further action by the Holder.
(d) Assignment. Whenever the Company shall have the right to
purchase Shares under this Right of First Refusal, the Company may designate and
assign one or more employees,
6
<PAGE> 19
officers, directors or shareholders of the Company or other persons or
organizations, to exercise all or a part of the Company's Right of First
Refusal.
(e) Non-Exercise. If the Company and/or its assigns do not
collectively elect to exercise the Right of First Refusal within the specified
45-day period or such earlier time if the Company and/or its assigns notifies
the Holder that it will not exercise the Right of First Refusal, then the Holder
may transfer the Shares upon the terms and conditions stated in the Transfer
Notice, provided that:
(i) The transfer is made within 120 days of the date of
the Transfer Notice; and
(ii) The transferee agrees in writing that such Shares
shall be held subject to the provisions of this Right of First Refusal.
(f) Expiration of Transfer Period. Following such 120-day
period, no transfer of the Offered Shares and no change in the terms of the
transfer as stated in the Transfer Notice (including the name of the proposed
transferee) shall be permitted without a new written Transfer Notice prepared
and submitted in accordance with the requirements of this Right of First
Refusal.
(g) Exception for Certain Family Transfers. Anything to the
contrary contained in this section notwithstanding, the transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's Immediate Family or a trust for the benefit of
the Optionee or the Optionee's Immediate Family shall be exempt from the
provisions of this Right of First Refusal. "Immediate Family" as used herein
shall mean spouse, domestic partner (as determined by the Administrator), child,
lineal descendant or antecedent, father, mother, brother or sister and the
lineal descendants of such individuals. In such case, the transferee or other
recipient shall receive and hold the Shares so transferred subject to the
provisions of this Right of First Refusal, and there shall be no further
transfer of such Shares except in accordance with the terms of this Right of
First Refusal.
(h) Termination of Right of First Refusal. The provisions of
this Right of First Refusal shall terminate as to all Shares upon the
Registration Date.
(i) Additional Shares or Substituted Securities. In the event of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class effected without the Company's receipt of consideration, any new,
substituted or additional securities or other property which is by reason of any
such transaction distributed with respect to the Shares shall be immediately
subject to the Right of First Refusal, but only to the extent the Shares are at
the time covered by such right.
(j) Corporate Transaction. Immediately prior to the consummation
of a Corporate Transaction, the Right of First Refusal shall automatically lapse
in its entirety, except to the extent the Right of First Refusal is to be
assigned to the successor corporation (or its parent company) in connection with
such Corporate Transaction, the right shall apply to the new capital stock or
other property received in exchange for the Shares in consummation of the
Corporate Transaction, but only to the extent the Shares are at the time covered
by such right.
12. Company's Repurchase Right.
(a) Grant of Repurchase Right. The Company is hereby granted the
right (the "Repurchase Right"), exercisable at any time (i) during the sixty
(60) day period following the Termination Date, (ii) during the sixty (60) day
period following an exercise of the Option that occurs
7
<PAGE> 20
after the Termination Date, or (iii) during the sixty (60) day period
immediately prior to a Corporate Transaction, or the merger of the Company into
or with a corporation that is a member of a "controlled group" (within the
meaning of Section 267(f) of the Code) of which the Company is a member, to
repurchase all or (at the discretion of the Company and with the consent of the
Optionee) any portion of the Shares.
(b) Exercise of the Repurchase Right. The Repurchase Right shall
be exercisable by written notice delivered to each Holder of the Shares prior to
the expiration of the applicable sixty (60) day period specified above. The
notice shall indicate the number of Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of notice. On the date on which the repurchase is to be
effected, the Company and/or its assigns shall pay to the Holder in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness) an
amount equal to the Fair Market Value on the Termination Date, if any, and if
none, on the date immediately prior to the day on which the repurchase is to be
effected, of the Shares which are to be repurchased from the Holder. Upon such
payment or into escrow for the benefit of the Holder, the Company and/or its
assigns shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interest thereon or related thereto, and the
Company shall have the right to transfer to its own name or its assigns the
number of Shares being repurchased, without further action by the Holder.
(c) Assignment. Whenever the Company shall have the right to
purchase Shares under this Repurchase Right, the Company may designate and
assign one or more employees, officers, directors or shareholders of the Company
or other persons or organizations, to exercise all or a part of the Company's
Repurchase Right.
(d) Termination of the Repurchase Right. The Repurchase Right
shall terminate with respect to any Shares for which it is not timely exercised.
In addition, the Repurchase Right shall terminate, and cease to be exercisable,
with respect to all Shares upon the Registration Date.
(e) Additional Shares or Substituted Securities. In the event of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class effected without the Company's receipt of consideration, any new,
substituted or additional securities or other property (including money paid
other than as a regular cash dividend) which is by reason of any such
transaction distributed with respect to the Shares shall be immediately subject
to the Repurchase Right, but only to the extent the Shares are at the time
covered by such right. Appropriate adjustments to reflect the distribution of
such securities or property shall be made to the price per share to be paid upon
the exercise of the Repurchase Right in order to reflect the effect of any such
transaction upon the Company's capital structure.
(f) Corporate Transaction. Immediately prior to the consummation
of a Corporate Transaction, the Repurchase Right shall automatically lapse in
its entirety, except to the extent the Repurchase Right is to be assigned to the
successor corporation (or its parent company) in connection with such Corporate
Transaction, the right shall apply to the new capital stock or other property
(including cash paid other than as a regular cash dividend) received in exchange
for the Shares in consummation of the Corporate Transaction, but only to the
extent the Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Company's
capital structure.
13. Stop-Transfer Notices. In order to ensure compliance with the
restrictions on transfer referred to in the legends placed upon certificates
evidencing ownership of the Shares, the Company may
8
<PAGE> 21
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
14. Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Option Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
15. Tax Consequences. Set forth below is a brief summary as of the date
of this Option Agreement of some of the federal tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
(a) Exercise of Incentive Stock Option. If the Option qualifies
as an Incentive Stock Option, there will be no regular federal income tax
liability upon the exercise of the Option, although the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject the Optionee to the alternative minimum tax in the year
of exercise.
(b) Exercise of Incentive Stock Option Following Disability. If
the Optionee's Continuous Status as an Employee, Director or Consultant
terminates as a result of disability that is not total and permanent disability
as defined in Section 22(e)(3) of the Code, to the extent permitted on the date
of termination, the Optionee must exercise an Incentive Stock Option within
three (3) months of such termination for the Incentive Stock Option to be
qualified as an Incentive Stock Option.
(c) Exercise of Non-Qualified Stock Option. There may be a
regular federal income tax liability upon the exercise of a Non-Qualified Stock
Option. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Shares on the date of exercise over the Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from the Optionee's compensation or collect from the Optionee and
pay to the applicable taxing authorities an amount in cash equal to a percentage
of this compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(d) Disposition of Shares. In the case of a Non-Qualified Stock
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 28%. For Shares held
more than 18 months, the maximum rate falls to 20%. If the Non-Qualified Stock
Option is exercised after December 31, 2000 and the Shares acquired upon such
exercise are held for more than five years, the maximum rate falls to 18%. In
the case of an Incentive Stock Option, if Shares transferred pursuant to the
Option are held for at least one year after receipt of the Shares and are
disposed of at least two years after the Date of Grant, any gain realized on
disposition of the Shares also will be treated as long-term capital gain for
federal income tax purposes and subject to the same tax rates and holding
periods that apply to Shares acquired upon exercise of a Non-Qualified Stock
Option. If Shares purchased under an Incentive Stock Option are disposed of
within such one-year or two-year periods, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (i) the
Fair Market Value of the Shares on the date of exercise, or (ii) the sale price
of the Shares.
9
<PAGE> 22
16. Lock-Up Agreement.
(a) Agreement. The Optionee, if requested by the Company and the
lead underwriter of any public offering of the Common Stock or other securities
of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in any Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or acquired
on the public market after such offering) during the 180-day period following
the effective date of a registration statement of the Company filed under the
Securities Act of 1933, as amended, or such shorter period of time as the Lead
Underwriter shall specify. The Optionee further agrees to sign such documents as
may be requested by the Lead Underwriter to effect the foregoing and agrees that
the Company may impose stop-transfer instructions with respect to such Common
Stock subject until the end of such period. The Company and the Optionee
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 16.
(b) Permitted Transfers. Notwithstanding the foregoing, Section
16(a) shall not prohibit the Optionee from transferring any shares of Common
Stock or securities convertible into or exchangeable or exercisable for the
Company's Common Stock to the extent such transfer is not otherwise prohibited
by this Option Agreement, either during the Optionee's lifetime or on death by
will or intestacy to the Optionee's immediate family or to a trust the
beneficiaries of which are exclusively the Optionee and/or a member or members
of the Optionee's immediate family; provided, however, that prior to any such
transfer, each transferee shall execute an agreement pursuant to which each
transferee shall agree to receive and hold such securities subject to the
provisions of Section 16 hereof. For the purposes of this subsection, the term
"immediate family" shall mean spouse, domestic partner (as determined by the
Administrator), child, lineal descendant or antecedent, father, mother, brother
or sister and the lineal descendants of such individuals.
(c) No Amendment Without Consent of Underwriter. During the
period from identification as a Lead Underwriter in connection with any public
offering of the Company's Common Stock until the earlier of (i) the expiration
of the lock-up period specified in Section 16(a) in connection with such
offering or (ii) the abandonment of such offering by the Company and the Lead
Underwriter, the provisions of this Section 16 may not be amended or waived
except with the consent of the Lead Underwriter.
17. Entire Agreement: Governing Law. The Notice of Stock Option Grant,
the Plan and this Option Agreement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and the Optionee
with respect to the subject matter hereof, and may not be modified adversely to
the Optionee's interest except by means of a writing signed by the Company and
Optionee. These agreements are governed by California law except for that body
of law pertaining to conflict of laws.
18. Headings. The captions used in the Notice of Stock Option Grant and
this Option Agreement are inserted for convenience and shall not be deemed a
part of the Option for construction or interpretation.
19. Interpretation. Any dispute regarding the interpretation of the
Notice of Stock Option Grant, the Plan, and this Option Agreement shall be
submitted by the Optionee or by the Company forthwith to the Board or the
Administrator that administers the Plan, which shall review such dispute at its
next regular meeting. The resolution of such dispute by the Board or the
Administrator shall be final and binding on all persons.
10
<PAGE> 23
EXHIBIT A
SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN
EXERCISE NOTICE
Saba Software, Inc.
2400 Bridge Parkway
Redwood Shores, CA 94065-1166
Attention: Secretary
1. Exercise of Option. Effective as of today, ____________________,
________, the undersigned (the "Optionee") hereby elects to exercise the
Optionee's option to purchase ___________ shares of the Common Stock (the
"Shares") of Saba Software, Inc. (the "Company") under and pursuant to the
Company's 1997 Stock Incentive Plan (the "Plan") and the [ ] Incentive [ ]
Non-Qualified Stock Option Agreement and Notice of Stock Option Grant dated
______________, ________ (the "Option Agreement").
2. Representations of the Optionee. The Optionee acknowledges that the
Optionee has received, read and understood the Notice of Stock Option Grant, the
Plan and the Option Agreement and agrees to abide by and be bound by their terms
and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11(a) of the Plan.
The Optionee shall enjoy rights as a shareholder until such time as
the Optionee disposes of the Shares or the Company and/or its assignee(s)
exercises the Right of First Refusal or the Repurchase Right. Upon such
exercise, the Optionee shall have no further rights as a holder of the Shares so
purchased except the right to receive payment for the Shares so purchased in
accordance with the provisions of the Option Agreement, and the Optionee shall
forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.
4. Delivery of Payment. The Optionee herewith delivers to the Company
the full Exercise Price for the Shares.
5. Tax Consultation. The Optionee understands that the Optionee may
suffer adverse tax consequences as a result of the Optionee's purchase or
disposition of the Shares. The Optionee represents that the Optionee has
consulted with any tax consultants the Optionee deems
1
<PAGE> 24
advisable in connection with the purchase or disposition of the Shares and that
the Optionee is not relying on the Company for any tax advice.
6. Taxes. The Optionee agrees to satisfy all applicable federal, state
and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations. In the case
of an Incentive Stock Option, the Optionee also agrees, as partial consideration
for the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Grant Date or within one (1) year from the date the Shares were
transferred to the Optionee. If the Company is required to satisfy any federal,
state or local income or employment tax withholding obligations as a result of
such an early disposition, the Optionee agrees to satisfy the amount of such
withholding in a manner that the Administrator prescribes.
7. Restrictive Legends. The Optionee understands and agrees that the
Company shall cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s) evidencing ownership of
the Shares together with any other legends that may be required by the Company
or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE
OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL AND A
REPURCHASE RIGHT HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET
FORTH IN THE OPTION AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER SUCH TRANSFER
RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE RIGHT ARE
BINDING ON TRANSFEREES OF THESE SHARES.
8. Successors and Assigns. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this agreement
shall inure to the benefit of the successors and assigns of the Company. Subject
to the restrictions on transfer herein set forth, this Exercise Notice shall be
binding upon the Optionee and his or her heirs, executors, administrators,
successors and assigns.
2
<PAGE> 25
9. Headings. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation.
10. Interpretation. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by the Optionee or by the Company forthwith
to the Company's Board of Directors or the Administrator that administers the
Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Board or Administrator shall be final and
binding on all persons.
11. Governing Law; Severability. This Exercise Notice shall be governed
by and construed in accordance with the laws of the State of California
excluding that body of law pertaining to conflicts of law. Should any provision
of this Exercise Notice be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
12. Notices. 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 mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
13. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.
14. Entire Agreement. The Notice of Stock Option Grant, the Plan and the
Option Agreement are incorporated herein by reference and together with this
Exercise Notice constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and the Optionee with respect to the subject
matter hereof, and may not be modified adversely to the Optionee's interest
except by means of a writing signed by the Company and the Optionee.
Submitted by: Accepted by:
OPTIONEE: SABA SOFTWARE, INC.
By:
-------------------------------------
Its:
- --------------------------------- ------------------------------------
(Signature)
Address: Address:
- --------------------------------- 2400 Bridge Parkway
- --------------------------------- Redwood Shores, CA 94065-1166
Tel:
-----------------------------
3
<PAGE> 26
EXHIBIT B
SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
----------------------------------------
COMPANY: SABA SOFTWARE, INC.
SECURITY: COMMON STOCK
NUMBER OF SHARES:
----------------------------------------
DATE:
----------------------------------------
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon among other things, the bona fide nature
of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company.
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public
1
<PAGE> 27
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of the grant of the
Option to the Optionee, the exercise will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
----------------------------------------
Date: ,
---------------------- -----------
2
<PAGE> 28
AMENDMENT
TO
AMENDED AND RESTATED
1997 STOCK INCENTIVE PLAN
OF
SABA SOFTWARE, INC.,
A DELAWARE CORPORATION
--------------------------------------
January 28, 2000
The undersigned, Peter E. Williams III, hereby certifies that:
1. He is duly elected and acting Secretary of Saba Software, Inc., a
Delaware corporation (the "Corporation").
2. Section 3(a) of the Corporation's Amended and Restated 1997 Stock
Incentive Plan (the "Plan") is amended to read in its entirety as follows:
"(a) Subject to the provisions of Section 11(a), below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is 9,815,550 Shares. The Shares
may be authorized, but unissued, or reacquired Common Stock."
Dated: January 28, 2000
/s/ PETER E. WILLIAMS
--------------------------------
Peter E. Williams III, Secretary
<PAGE> 1
EXHIBIT 10.3
SABA SOFTWARE, INC.
2000 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel, to provide additional
incentive to Employees, Directors and Consultants and to promote the success of
the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.
(c) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend
Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or
other right or benefit under the Plan.
(e) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(f) "Board" means the Board of Directors of the Company.
(g) "Change in Control" means a change in ownership or control of
the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of the
offeror do not recommend such stockholders accept, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole
1
<PAGE> 2
number) ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who are Continuing Directors.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means any committee appointed by the Board to
administer the Plan.
(j) "Common Stock" means the common stock of the Company.
(k) "Company" means Saba Software, Inc., a Delaware corporation.
(l) "Consultant" means any person (other than an Employee or a
Director, solely with respect to rendering services in such person's capacity as
a Director) who is engaged by the Company or any Related Entity to render
consulting or advisory services to the Company or such Related Entity.
(m) "Continuing Directors" means members of the Board who either
(i) have been Board members continuously for a period of at least thirty-six
(36) months or (ii) have been Board members for less than thirty-six (36) months
and were elected or nominated for election as Board members by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election or nomination was approved by the Board.
(n) "Continuous Service" means that the provision of services to
the Company or a Related Entity in any capacity of Employee, Director or
Consultant, is not interrupted or terminated. Continuous Service shall not be
considered interrupted in the case of (i) any approved leave of absence, (ii)
transfers among the Company, any Related Entity, or any successor, in any
capacity of Employee, Director or Consultant, or (iii) any change in status as
long as the individual remains in the service of the Company or a Related Entity
in any capacity of Employee, Director or Consultant (except as otherwise
provided in the Award Agreement). An approved leave of absence shall include
sick leave, military leave, or any other authorized personal leave. For purposes
of Incentive Stock Options, no such leave may exceed ninety (90) days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
(o) "Corporate Transaction" means any of the following
transactions:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of which is
to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company;
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting
2
<PAGE> 3
power of the Company's outstanding securities are transferred to a person or
persons different from those who held such securities immediately prior to such
merger; or
(iv) acquisition by any person or related group of persons
(other than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities (whether or not in a transaction
also constituting a Change in Control), but excluding any such transaction that
the Administrator determines shall not be a Corporate Transaction.
(p) "Director" means a member of the Board or the board of
directors of any Related Entity.
(q) "Disability" means that a Grantee is permanently unable to
carry out the responsibilities and functions of the position held by the Grantee
by reason of any medically determinable physical or mental impairment. A Grantee
will not be considered to have incurred a Disability unless he or she furnishes
proof of such impairment sufficient to satisfy the Administrator in its
discretion.
(r) "Dividend Equivalent Right" means a right entitling the
Grantee to compensation measured by dividends paid with respect to Common Stock.
(s) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company or a Related Entity shall not be sufficient
to constitute "employment" by the Company.
(t) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(u) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) Where there exists a public market for the Common Stock,
the Fair Market Value shall be (A) the closing price for a Share for the last
market trading day prior to the time of the determination (or, if no closing
price was reported on that date, on the last trading date on which a closing
price was reported) on the stock exchange determined by the Administrator to be
the primary market for the Common Stock or the Nasdaq National Market, whichever
is applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(ii) In the absence of an established market for the Common
Stock of the type described in (i), above, the Fair Market Value thereof shall
be determined by the Administrator in good faith.
3
<PAGE> 4
(v) "Grantee" means an Employee, Director or Consultant who
receives an Award pursuant to an Award Agreement under the Plan.
(w) "Immediate Family" means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which these
persons have more than fifty percent (50%) of the beneficial interest, a
foundation in which these persons (or the Grantee) control the management of
assets, and any other entity in which these persons (or the Grantee) own more
than fifty percent (50%) of the voting interests.
(x) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(y) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(z) "Officer" means a person who is an officer of the Company or
a Related Entity within the meaning of Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder.
(aa) "Option" means an option to purchase Shares pursuant to an
Award Agreement granted under the Plan.
(bb) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(cc) "Performance Shares" means Shares or an Award denominated in
Shares which may be earned in whole or in part upon attainment of performance
criteria established by the Administrator.
(dd) "Performance Units" means an Award which may be earned in
whole or in part upon attainment of performance criteria established by the
Administrator and which may be settled for cash, Shares or other securities or a
combination of cash, Shares or other securities as established by the
Administrator.
(ee) "Plan" means this 2000 Stock Incentive Plan.
(ff) "Registration Date" means the first to occur of (i) the
closing of the first sale to the general public of (A) the Common Stock or (B)
the same class of securities of a successor corporation (or its Parent) issued
pursuant to a Corporate Transaction in exchange for or in substitution of the
Common Stock, pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended; and (ii) in the event of a Corporate Transaction, the date of
the consummation of the Corporate Transaction if the same class of securities of
the successor corporation (or its Parent) issuable in such Corporate Transaction
shall have been sold to the general public pursuant to a
4
<PAGE> 5
registration statement filed with and declared effective by the Securities and
Exchange Commission under the Securities Act of 1933, as amended on or prior to
the date of consummation of such Corporate Transaction.
(gg) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds a substantial ownership
interest, directly or indirectly.
(hh) "Related Entity Disposition" means the sale, distribution or
other disposition by the Company, a Parent or a Subsidiary of all or
substantially all of the interests of the Company, a Parent or a Subsidiary in
any Related Entity effected by a sale, merger or consolidation or other
transaction involving that Related Entity or the sale of all or substantially
all of the assets of that Related Entity, other than any Related Entity
Disposition to the Company, a Parent or a Subsidiary.
(ii) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(jj) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor thereto.
(kk) "SAR" means a stock appreciation right entitling the Grantee
to Shares or cash compensation, as established by the Administrator, measured by
appreciation in the value of Common Stock.
(ll) "Share" means a share of the Common Stock.
(mm) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 10, below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards (including
Incentive Stock Options) is Six Million (6,000,000) Shares, plus an annual
increase to be added on the first day of the Company's fiscal year beginning in
2001 equal to five percent (5%) of the number of Shares outstanding as of such
date or a lesser number of Shares determined by the Administrator.
Notwithstanding the foregoing, subject to the provisions of Section 10, below,
of the number of Shares specified above, the maximum aggregate number of Shares
available for grant of Incentive Stock Options shall be 6,000,000 Shares, plus
an annual increase to be added on the first day of the Company's fiscal year
beginning in 2001 equal to the lesser of (x) 3,000,000 Shares, (y) five percent
(5%) of the number of Shares outstanding as of such date, or (z) a lesser number
of Shares determined by the Administrator. The Shares to be issued pursuant to
Awards may be authorized, but unissued, or reacquired Common Stock.
5
<PAGE> 6
(b) Any Shares covered by an Award (or portion of an Award) which
is forfeited or canceled, expires or is settled in cash, shall be deemed not to
have been issued for purposes of determining the maximum aggregate number of
Shares which may be issued under the Plan. Shares that actually have been issued
under the Plan pursuant to an Award shall not be returned to the Plan and shall
not become available for future issuance under the Plan, except that if unvested
Shares are forfeited, or repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and Officers.
With respect to grants of Awards to Directors or Employees who are also Officers
or Directors of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws and to permit such grants and
related transactions under the Plan to be exempt from Section 16(b) of the
Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board.
(ii) Administration With Respect to Consultants and Other
Employees. With respect to grants of Awards to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws. Once
appointed, such Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. The Board may authorize one or more
Officers to grant such Awards and may limit such authority as the Board
determines from time to time.
(iii) Administration Errors. In the event an Award is
granted in a manner inconsistent with the provisions of this subsection (a),
such Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to
whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are
granted hereunder;
(iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreements for use under the
Plan;
6
<PAGE> 7
(v) to determine the terms and conditions of any Award
granted hereunder;
(vi) to amend the terms of any outstanding Award granted
under the Plan, provided that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent;
(vii) to construe and interpret the terms of the Plan and
Awards granted pursuant to the Plan, including without limitation, any notice of
Award or Award Agreement, granted pursuant to the Plan;
(viii) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan; and
(ix) to take such other action, not inconsistent with the
terms of the Plan, as the Administrator deems appropriate.
5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, a SAR or
similar right with a fixed or variable price related to the Fair Market Value of
the Shares and with an exercise or conversion privilege related to the passage
of time, the occurrence of one or more events, or the satisfaction of
performance criteria or other conditions, or (iii) any other security with the
value derived from the value of the Shares. Such awards include, without
limitation, Options, SARs, sales or bonuses of Restricted Stock, Dividend
Equivalent Rights, Performance Units or Performance Shares, and an Award may
consist of one such security or benefit, or two (2) or more of them in any
combination or alternative.
(b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
7
<PAGE> 8
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Award Agreement.
(d) Acquisitions and Other Transactions. The Administrator may
issue Awards under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Related Entity acquiring another entity, an interest in another
entity or an additional interest in a Related Entity whether by merger, stock
purchase, asset purchase or other form of transaction.
(e) Deferral of Award Payment. The Administrator may establish
one or more programs under the Plan to permit selected Grantees the opportunity
to elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent the election
would entitle the Grantee to payment or receipt of Shares or other consideration
under an Award. The Administrator may establish the election procedures, the
timing of such elections, the mechanisms for payments of, and accrual of
interest or other earnings, if any, on amounts, Shares or other consideration so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.
(f) Award Exchange Programs. The Administrator may establish one
or more programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as determined by the Administrator from time to time.
(g) Separate Programs. The Administrator may establish one or
more separate programs under the Plan for the purpose of issuing particular
forms of Awards to one or more classes of Grantees on such terms and conditions
as determined by the Administrator from time to time.
(h) Early Exercise. The Award Agreement may, but need not,
include a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant
8
<PAGE> 9
to exercise any part or all of the Award prior to full vesting of the Award. Any
unvested Shares received pursuant to such exercise may be subject to a
repurchase right in favor of the Company or a Related Entity or to any other
restriction the Administrator determines to be appropriate.
(i) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term of an Incentive
Stock Option shall be no more than ten (10) years from the date of grant
thereof. However, in the case of an Incentive Stock Option granted to a Grantee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Award Agreement.
(j) Transferability of Awards. Incentive Stock Options may not be
sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee; provided,
however, that the Grantee may designate a beneficiary of the Grantee's Incentive
Stock Option in the event of the Grantee's death on a beneficiary designation
form provided by the Administrator. Other Awards may be transferred by gift or
through a domestic relations order to members of the Grantee's Immediate Family
to the extent provided in the Award Agreement or in the manner and to the extent
determined by the Administrator.
(k) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
7. Award Exercise or Purchase Price, Consideration and Taxes.
(a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant; or
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be not
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant.
9
<PAGE> 10
(ii) In the case of a Non-Qualified Stock Option, the per
Share exercise price shall be not less than eighty-five percent (85%) of the
Fair Market Value per Share on the date of grant unless otherwise determined by
the Administrator.
(iii) In the case of other Awards, such price as is
determined by the Administrator.
(iv) Notwithstanding the foregoing provisions of this
Section 7(a), in the case of an Award issued pursuant to Section 6(d), above,
the exercise or purchase price for the Award shall be determined in accordance
with the principles of Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following; provided that the portion of the
consideration equal to the par value of the Shares must be paid in cash or other
legal consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;
(iv) surrender of Shares or delivery of a properly executed
form of attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of the
Award) which have a Fair Market Value on the date of surrender or attestation
equal to the aggregate exercise price of the Shares as to which said Award shall
be exercised (but only to the extent that such exercise of the Award would not
result in an accounting compensation charge with respect to the Shares used to
pay the exercise price unless otherwise determined by the Administrator);
(v) with respect to Options, payment through a broker-dealer
sale and remittance procedure pursuant to which the Grantee (A) shall provide
written instructions to a Company designated brokerage firm to effect the
immediate sale of some or all of the purchased Shares and remit to the Company,
out of the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased Shares and (B)
shall provide written directives to the Company to deliver the certificates for
the purchased Shares directly to such brokerage firm in order to complete the
sale transaction; or
(vi) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the
10
<PAGE> 11
Administrator for the satisfaction of any foreign, federal, state, or local
income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares or the disqualifying
disposition of Shares received on exercise of an Incentive Stock Option. Upon
exercise of an Award, the Company shall withhold or collect from Grantee an
amount sufficient to satisfy such tax obligations.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Award by the person entitled to exercise the Award and full payment
for the Shares with respect to which the Award is exercised, including, to the
extent selected, use of the broker-dealer sale and remittance procedure to pay
the purchase price as provided in Section 7(b)(v). Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award. The Company shall
issue (or cause to be issued) such stock certificate promptly upon exercise of
the Award. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Award Agreement or Section 10, below.
(b) Exercise of Award Following Termination of Continuous
Service.
(i) An Award may not be exercised after the termination date
of such Award set forth in the Award Agreement and may be exercised following
the termination of a Grantee's Continuous Service only to the extent provided in
the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise
an Award following the termination of the Grantee's Continuous Service for a
specified period, the Award shall terminate to the extent not exercised on the
last day of the specified period or the last day of the original term of the
Award, whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to
the extent not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's Continuous
Service shall convert automatically to a Non-Qualified Stock Option and
thereafter shall be exercisable as such to the extent exercisable by its terms
for the period specified in the Award Agreement.
11
<PAGE> 12
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, the exercise or purchase price of each such
outstanding Award, the maximum number of Shares with respect to which Options
and SARs may be granted to any Employee in any fiscal year of the Company, as
well as any other terms that the Administrator determines require adjustment
shall be proportionately adjusted for (i) any increase or decrease in the number
of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Shares, or similar event
affecting the Shares, (ii) any other increase or decrease in the number of
issued Shares effected without receipt of consideration by the Company, or (iii)
as the Administrator may determine in its discretion, any other transaction with
respect to Common Stock to which Section 424(a) of the Code applies or any
similar transaction; provided, however that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration." Such adjustment shall be made by the Administrator
and its determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.
11. Corporate Transactions/Related Entity Dispositions. Except as may be
provided in an Award Agreement:
(a) Effective upon the consummation of a Corporate Transaction,
all outstanding Awards under the Plan shall terminate. However, all such Awards
shall not terminate if they are, in connection with the Corporate Transaction,
assumed by the successor corporation or Parent thereof.
(b) Effective upon the consummation of a Related Entity
Disposition, for purposes of the Plan and all Awards, the Continuous Service of
each Grantee who is at the time engaged primarily in service to the Related
Entity involved in such Related Entity Disposition shall be deemed to terminate
and each Award of such Grantee which is at the time outstanding under the Plan
shall be exercisable in accordance with the terms of the Award Agreement
12
<PAGE> 13
evidencing such Award. However, such Continuous Service shall be not to deemed
to terminate if such Award is, in connection with the Related Entity
Disposition, assumed by the successor entity or its parent.
12. Effective Date and Term of Plan. The Plan shall become effective
upon the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated. Subject to Section 17, below, and Applicable
Laws, Awards may be granted under the Plan upon its becoming effective.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan
(including termination of the Plan under Section 12, above) shall not affect
Awards already granted, and such Awards shall remain in full force and effect as
if the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement must
be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The Plan
shall not confer upon any Grantee any right with respect to the Grantee's
Continuous Service, nor shall it interfere in any way with his or her right or
the Company's right to terminate the Grantee's Continuous Service at any time,
with or without cause.
16. No Effect on Retirement and Other Benefit Plans. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Related Entity, Awards shall not be deemed compensation for purposes of
computing benefits or contributions under any retirement plan of the Company or
a Related Entity, and shall not affect any benefits under any other benefit plan
of any kind or any benefit plan subsequently instituted under which the
availability or
13
<PAGE> 14
amount of benefits is related to level of compensation. The Plan is not a
"Retirement Plan" or "Welfare Plan" under the Employee Retirement Income
Security Act of 1974, as amended.
17. Stockholder Approval. The grant of Incentive Stock Options under the
Plan shall be subject to approval by the stockholders of the Company within
twelve (12) months before or after the date the Plan is adopted excluding
Incentive Stock Options issued in substitution for outstanding Incentive Stock
Options pursuant to Section 424(a) of the Code. Such stockholder approval shall
be obtained in the degree and manner required under Applicable Laws. The
Administrator may grant Incentive Stock Options under the Plan prior to approval
by the stockholders, but until such approval is obtained, no such Incentive
Stock Option shall be exercisable. In the event that stockholder approval is not
obtained within the twelve (12) month period provided above, all Incentive Stock
Options previously granted under the Plan shall be exercisable as Non-Qualified
Stock Options.
14
<PAGE> 15
SABA SOFTWARE, INC.
2000 NON-EMPLOYEE DIRECTOR OPTION PROGRAM
ARTICLE I
ESTABLISHMENT AND PURPOSE OF THE PROGRAM
1.01 ESTABLISHMENT OF PROGRAM
The Saba Software, Inc. 2000 Non-Employee Director Option Program (the
"Program") is adopted pursuant to the Saba Software, Inc. 2000 Stock Incentive
Plan (the "Plan") and, in addition to the terms and conditions set forth below,
is subject to the provisions of the Plan.
1.02 PURPOSE OF PROGRAM
The purpose of the Program is to enhance the ability of the Company to attract
and retain directors who are not Employees ("Non-Employee Directors") through a
program of automatic Option grants.
1.03 EFFECTIVE DATE OF THE PROGRAM
The Program is effective as of the Registration Date.
ARTICLE II
DEFINITIONS
Capitalized terms in this Program, unless otherwise defined herein, have the
meaning given to them in the Plan.
ARTICLE III
OPTION TERMS
3.01 INITIAL GRANT TO NEW DIRECTORS
A Non-Qualified Stock Option to purchase 20,000 shares of Common Stock shall be
granted ("Initial Grant") to each Non-Employee Director who is first elected to
the Company's Board of Directors after the Registration Date, such Initial Grant
to be made upon the date each such Non-Employee Director first becomes a
Non-Employee Director. Each Initial Grant under the Program shall vest and
become exercisable as to one-half (1/2) of the shares of Common Stock subject to
the Option at the next annual meeting of the Company's stockholders following
the
15
<PAGE> 16
date of grant of such Option, and the remaining one-half (1/2) of the shares of
Common Stock subject to the Option shall vest at the second annual meeting of
the Company's stockholders following the date of grant of such Option, such that
the Option will be fully exercisable at the second annual meeting of the
Company's stockholders.
3.02 RENEWAL GRANTS TO INCUMBENT DIRECTORS
Immediately following each annual meeting of the Company's stockholders, each
Non-Employee Director who continues as a Non-Employee Director following such
annual meeting shall be granted a Non-Qualified Stock Option to purchase 10,000
shares of Common Stock ("Subsequent Grant"); provided that no Subsequent Grant
shall be made to any Non-Employee Director that is serving as a director on the
date of the adoption of the Plan until all options and shares of Common Stock
held by the director have fully vested (not taking into account options and
shares that vest on the day of the annual meeting of the Company's stockholders
at which such Subsequent Grant is to occur). Each such Subsequent Grant shall be
made on the date of the annual stockholders' meeting in question. Each
Subsequent Grant under the Program shall vest and become exercisable as to the
full amount at the subsequent annual meeting of the Company's stockholders.
3.03 EXERCISE PRICE
The exercise price per share of Common Stock of each Initial Grant and
Subsequent Grant shall be one hundred percent (100%) of the Fair Market Value
per Share on the date of grant.
3.04 CORPORATE TRANSACTION
(a) In the event of a Corporate Transaction, each Option which is at the time
outstanding under the Program automatically shall become fully vested and
exercisable immediately prior to the effective date of such Corporate
Transaction. Effective upon the consummation of the Corporate Transaction, all
outstanding Options under the Program shall terminate. However, all such Options
shall not terminate if the Options are, in connection with the Corporate
Transaction, assumed by the successor corporation or Parent thereof.
(b) In the event of a Change in Control (other than a Change in Control which
also is a Corporate Transaction), each Option which is at the time outstanding
under the Program automatically shall become fully vested and exercisable,
immediately prior to the specified effective date of such Change in Control.
Each such Option shall remain so exercisable until the expiration or sooner
termination of the applicable Option term.
3.05 OTHER TERMS
The Administrator shall determine the remaining terms and conditions of the
Options awarded under the Program.
16
<PAGE> 17
SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION AWARD
Grantee's Name and Address: _________________________________________
_________________________________________
_________________________________________
You have been granted an option to purchase shares of Common Stock,
subject to the terms and conditions of this Notice of Stock Option Award (the
"Notice"), the Saba Software, Inc. 2000 Stock Incentive Plan, as amended from
time to time (the "Plan") and the Stock Option Award Agreement (the "Option
Agreement") attached hereto, as follows. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Notice.
Award Number ____________________________________
Date of Award ____________________________________
Vesting Commencement Date ____________________________________
Exercise Price per Share $___________________________________
Total Number of Shares subject
to the Option ____________________________________
Total Exercise Price $___________________________________
Type of Option: _______ Incentive Stock Option
_______ Non-Qualified Stock Option
Expiration Date: ____________________________________
Post-Termination Exercise Period: Three (3) Months
Vesting Schedule:
Subject to Grantee's Continuous Service and other limitations set forth
in this Notice, the Plan and the Option Agreement, the Option may be exercised,
in whole or in part, in accordance with the following schedule:
[25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date. 3/48 of the Shares subject to the Option shall
vest on each quarterly anniversary of the Vesting Commencement Date, beginning
at the 15-month anniversary of the Vesting Commencement Date.]
During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Grantee's termination of the leave of absence and return to service to the
Company or a Related Entity.
17
<PAGE> 18
In the event of the Grantee's change in status from Employee to
Consultant or from an Employee whose customary employment is 20 hours or more
per week to an Employee whose customary employment is fewer than 20 hours per
week, vesting of the Option shall continue only to the extent determined by the
Administrator as of such change in status.
In the event of termination of the Grantee's Continuous Service for
Cause, the Grantee's right to exercise the Option shall terminate concurrently
with the termination of the Grantee's Continuous Service.
IN WITNESS WHEREOF, the Company and the Grantee have executed this
Notice and agree that the Option is to be governed by the terms and conditions
of this Notice, the Plan, and the Option Agreement.
Saba Software, Inc.,
a Delaware corporation
By:______________________________________
Title: __________________________________
THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES
HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY
RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF GRANTEE'S CONTINUOUS
SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE'S RIGHT OR THE RIGHT
OF THE GRANTEE'S EMPLOYER TO TERMINATE GRANTEE'S CONTINUOUS SERVICE, WITH OR
WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS
THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY,
GRANTEE'S STATUS IS AT WILL.
The Grantee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts the Option subject to all of the terms
and provisions hereof and thereof. The Grantee has reviewed this Notice, the
Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Notice, and fully
understands all provisions of this Notice, the Plan and the Option Agreement.
The Grantee hereby agrees that all disputes arising out of or relating to this
Notice, the Plan and the Option Agreement shall be resolved in accordance with
Section 13 of the Option Agreement. The Grantee further agrees to notify the
Company upon any change in the residence address indicated in this Notice.
Dated: ______________________ Signed: ___________________________________
Grantee
18
<PAGE> 19
AWARD NUMBER: ___________
SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN
STOCK OPTION AWARD AGREEMENT
1. Grant of Option. Saba Software, Inc., a Delaware corporation (the
"Company"), hereby grants to the Grantee (the "Grantee") named in the Notice of
Stock Option Award (the "Notice"), an option (the "Option") to purchase the
Total Number of Shares of Common Stock subject to the Option (the "Shares") set
forth in the Notice, at the Exercise Price per Share set forth in the Notice
(the "Exercise Price") subject to the terms and provisions of the Notice, this
Stock Option Award Agreement (the "Option Agreement") and the Company's 2000
Stock Incentive Plan, as amended from time to time (the "Plan"), which are
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option
Agreement.
If designated in the Notice as an Incentive Stock Option, the Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of Shares subject to Options designated as Incentive
Stock Options which become exercisable for the first time by the Grantee during
any calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as Non-Qualified
Stock Options. For this purpose, Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
the Shares shall be determined as of the date the Option with respect to such
Shares is awarded.
2. Exercise of Option.
(a). Right to Exercise. The Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. The Option
shall be subject to the provisions of Section 11 of the Plan relating to
the exercisability or termination of the Option in the event of a
Corporate Transaction, Change in Control or Related Entity Disposition.
No partial exercise of the Option may be for less than the lesser of
five percent (5%) of the total number of Shares subject to the Option or
the remaining number of Shares subject to the Option. In no event shall
the Company issue fractional Shares.
(b). Method of Exercise. The Option shall be exercisable only by delivery of
an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect
of which the Option is being exercised, such other representations and
agreements as to the holder's investment intent with respect to such
Shares and such other provisions as may be required by the
Administrator. The Exercise Notice shall be signed by the Grantee and
shall be delivered in person, by certified mail, or by such other method
as determined from time to time by the Administrator to the
1
<PAGE> 20
Company accompanied by payment of the Exercise Price. The Option shall
be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price, which, to the extent selected,
shall be deemed to be satisfied by use of the broker-dealer sale and
remittance procedure to pay the Exercise Price provided in Section 3(d),
below.
(c). Taxes. No Shares will be delivered to the Grantee or other person
pursuant to the exercise of the Option until the Grantee or other person
has made arrangements acceptable to the Administrator for the
satisfaction of applicable income tax, employment tax, and social
security tax withholding obligations, including, without limitation,
obligations incident to the receipt of Shares or the disqualifying
disposition of Shares received on exercise of an Incentive Stock Option.
Upon exercise of the Option, the Company or the Grantee's employer may
offset or withhold (from any amount owed by the Company or the Grantee's
employer to the Grantee) or collect from the Grantee or other person an
amount sufficient to satisfy such tax obligations and/or the employer's
withholding obligations.
3. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law and, provided further, that the portion of the Exercise Price
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:
(a). cash;
(b). check;
(c). surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require
(including withholding of Shares otherwise deliverable upon exercise of
the Option) which have a Fair Market Value on the date of surrender or
attestation equal to the aggregate Exercise Price of the Shares as to
which the Option is being exercised (but only to the extent that such
exercise of the Option would not result in an accounting compensation
charge with respect to the Shares used to pay the exercise price); or
(d). payment through a broker-dealer sale and remittance procedure pursuant
to which the Grantee (i) shall provide written instructions to a Company
designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased Shares and (ii) shall
provide written directives to the Company to deliver the certificates
for the purchased Shares directly to such brokerage firm in order to
complete the sale transaction.
2
<PAGE> 21
4. Restrictions on Exercise. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. In addition, the Option, if an Incentive
Stock Option, may not be exercised until such time as the Plan has been approved
by the stockholders of the Company.
5. Termination or Change of Continuous Service. In the event the
Grantee's Continuous Service terminates, the Grantee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise the Option during the Post-Termination Exercise Period. In the event of
termination of the Grantee's Continuous Service for Cause, the Grantee's right
to exercise the Option shall, except, as otherwise determined by the
Administrator, terminate concurrently with he termination of the Grantee's
Continuous Service. In no event shall the Option be exercised later than the
Expiration Date set forth in the Notice. In the event of the Grantee's change in
status from Employee, Director or Consultant to any other status of Employee,
Director or Consultant, the Option shall remain in effect and, except to the
extent otherwise determined by the Administrator, continue to vest; provided,
however, that with respect to any Incentive Stock Option that shall remain in
effect after a change in status from Employee to Director or Consultant, such
Incentive Stock Option shall cease to be treated as an Incentive Stock Option
and shall be treated as a Non-Qualified Stock Option on the day three (3) months
and one (1) day following such change in status. Except as provided in Sections
6 and 7 below, to the extent that the Grantee is not entitled to exercise the
Option on the Termination Date, or if the Grantee does not exercise the Option
within the Post-Termination Exercise Period, the Option shall terminate.
6. Disability of Grantee. In the event the Grantee's Continuous Service
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months from the Termination Date (and in no event later than
the Expiration Date), exercise the Option to the extent he or she was otherwise
entitled to exercise it on the Termination Date; provided, however, that if such
Disability is not a "disability" as such term is defined in Section 22(e)(3) of
the Code and the Option is an Incentive Stock Option, such Incentive Stock
Option shall cease to be treated as an Incentive Stock Option and shall be
treated as a Non-Qualified Stock Option on the day three (3) months and one (1)
day following the Termination Date. To the extent that the Grantee is not
entitled to exercise the Option on the Termination Date, or if the Grantee does
not exercise the Option to the extent so entitled within the time specified
herein, the Option shall terminate.
7. Death of Grantee. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the Grantee's estate, or a person who acquired
the right to exercise the Option by bequest or inheritance, may exercise the
Option, but only to the extent the Grantee could exercise the Option at the date
of termination, within twelve (12) months from the date of death (but in no
event later than the Expiration Date). To the extent that the Grantee is not
entitled to exercise the Option on the date of death, or if the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.
8. Transferability of Option. The Option, if an Incentive Stock Option,
may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the Grantee
only by the Grantee; provided, however, that the
3
<PAGE> 22
Grantee may designate a beneficiary of the Grantee's Incentive Stock Option in
the event of the Grantee's death on a beneficiary designation form provided by
the Administrator. The Option, if a Non-Qualified Stock Option may be
transferred to any person by will and by the laws of descent and distribution.
Non-Qualified Stock Options also may be transferred during the lifetime of the
Grantee by gift and pursuant to a domestic relations order to members of the
Grantee's Immediate Family to the extent and in the manner determined by the
Administrator. The terms of the Option shall be binding upon the executors,
administrators, heirs, successors and transferees of the Grantee.
9. Term of Option. The Option may be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein.
10. Tax Consequences. Set forth below is a brief summary as of the date
of this Option Agreement of some of the federal tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
(a). Exercise of Incentive Stock Option. If the Option qualifies as an
Incentive Stock Option, there will be no regular federal income tax
liability upon the exercise of the Option, although the excess, if any,
of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price will be treated as income for purposes of the alternative
minimum tax for federal tax purposes and may subject the Grantee to the
alternative minimum tax in the year of exercise.
(b). Exercise of Incentive Stock Option Following Disability. If the
Grantee's Continuous Service terminates as a result of Disability that
is not total and permanent disability as defined in Section 22(e)(3) of
the Code, to the extent permitted on the date of termination, the
Grantee must exercise an Incentive Stock Option within three (3) months
of such termination for the Incentive Stock Option to be qualified as an
Incentive Stock Option.
(c). Exercise of Non-Qualified Stock Option. On exercise of a Non-Qualified
Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of
exercise over the Exercise Price. If the Grantee is an Employee or a
former Employee, the Company will be required to withhold from the
Grantee's compensation or collect from the Grantee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of
this compensation income at the time of exercise, and may refuse to
honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(d). Disposition of Shares. In the case of a Non-Qualified Stock Option, if
Shares are held for more than one year, any gain realized on disposition
of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum
4
<PAGE> 23
rate of 20%. In the case of an Incentive Stock Option, if Shares
transferred pursuant to the Option are held for more than one year after
receipt of the Shares and are disposed more than two years after the
Date of Award, any gain realized on disposition of the Shares also will
be treated as capital gain for federal income tax purposes and subject
to the same tax rates and holding periods that apply to Shares acquired
upon exercise of a Non-Qualified Stock Option. If Shares purchased under
an Incentive Stock Option are disposed of prior to the expiration of
such one-year or two-year periods, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income
rates) to the extent of the difference between the Exercise Price and
the lesser of (i) the Fair Market Value of the Shares on the date of
exercise, or (ii) the sale price of the Shares.
11. Entire Agreement; Governing Law. The Notice, the Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code, or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties. Should any
provision of the Notice, the Plan or this Option Agreement be determined by a
court of law to be illegal or unenforceable, such provision shall be enforced to
the fullest extent allowed by law and the other provisions shall nevertheless
remain effective and shall remain enforceable.
12. Headings. The captions used in the Notice and this Option Agreement
are inserted for convenience and shall not be deemed a part of the Option for
construction or interpretation.
13. Dispute Resolution. The provisions of this Section 13 shall be the
exclusive means of resolving disputes arising out of or relating to the Notice,
the Plan and this Option Agreement. The Company, the Grantee, and the Grantee's
assignees pursuant to Section 8 (the "parties") shall attempt in good faith to
resolve any disputes arising out of or relating to the Notice, the Plan and this
Option Agreement by negotiation between individuals who have authority to settle
the controversy. Negotiations shall be commenced by either party by notice of a
written statement of the party's position and the name and title of the
individual who will represent the party. Within thirty (30) days of the written
notification, the parties shall meet at a mutually acceptable time and place,
and thereafter as often as they reasonably deem necessary, to resolve the
dispute. If the dispute has not been resolved by negotiation, the parties agree
that any suit, action, or proceeding arising out of or relating to the Notice,
the Plan or this Option Agreement shall be brought in the United States District
Court, Northern District of California (or should such court lack jurisdiction
to hear such action, suit or proceeding, in a California state court in the
County of San Mateo) and that the parties shall submit to the jurisdiction of
5
<PAGE> 24
such court. The parties irrevocably waive, to the fullest extent permitted by
law, any objection the party may have to the laying of venue for any such suit,
action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY
RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR
PROCEEDING. If any one or more provisions of this Section 13 shall for any
reason be held invalid or unenforceable, it is the specific intent of the
parties that such provisions shall be modified to the minimum extent necessary
to make it or its application valid and enforceable.
14. Notices. 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 mail by certified mail (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice), with
postage and fees prepaid, addressed to the other party at its address as shown
beneath its signature in the Notice, or to such other address as such party may
designate in writing from time to time to the other party.
6
<PAGE> 25
EXHIBIT A
SABA SOFTWARE, INC. 2000 STOCK INCENTIVE PLAN
EXERCISE NOTICE
Saba Software, Inc.
2400 Bridge Parkway
Redwood Shores, CA 94065
Attention: Secretary
1. Exercise of Option. Effective as of today, ______________, ___ the
undersigned (the "Grantee") hereby elects to exercise the Grantee's option to
purchase ___________ shares of the Common Stock (the "Shares") of Saba Software,
Inc. (the "Company") under and pursuant to the Company's 2000 Stock Incentive
Plan, as amended from time to time (the "Plan") and the [ ] Incentive [ ]
Non-Qualified Stock Option Award Agreement (the "Option Agreement") and Notice
of Stock Option Award (the "Notice") dated ______________, ________. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Exercise Notice.
2. Representations of the Grantee. The Grantee acknowledges that the
Grantee has received, read and understood the Notice, the Plan, and the Option
Agreement and agrees to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.
4. Delivery of Payment. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares, which, to the extent selected, shall be
deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d) of the Option Agreement.
5. Tax Consultation. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition of
the Shares. The Grantee represents that the Grantee has consulted with any tax
advisors the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company for
any tax advice
7
<PAGE> 26
6. Taxes. The Grantee agrees to satisfy all applicable federal, state
and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations. In the case
of an Incentive Stock Option, the Grantee also agrees, as partial consideration
for the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Date of Award or within one (1) year from the date the Shares
were transferred to the Grantee. If the Company is required to satisfy any
federal, state or local income or employment tax withholding obligations as a
result of such an early disposition, the Grantee agrees to satisfy the amount of
such withholding in a manner that the Administrator prescribes.
7. Successors and Assigns. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this agreement
shall inure to the benefit of the successors and assigns of the Company. This
Exercise Notice shall be binding upon the Grantee and his or her heirs,
executors, administrators, successors and assigns.
8. Headings. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation.
9. Dispute Resolution. The provisions of Section 13 of the Option
Agreement shall be the exclusive means of resolving disputes arising out of or
relating to this Exercise Notice.
10. Governing Law; Severability. This Exercise Notice is to be construed
in accordance with and governed by the internal laws of the State of California
(as permitted by Section 1646.5 of the California Civil Code, or any similar
successor provision) without giving effect to any choice of law rule that would
cause the application of the laws of any jurisdiction other than the internal
laws of the State of California to the rights and duties of the parties. Should
any provision of this Exercise Notice be determined by a court of law to be
illegal or unenforceable, such provision shall be enforced to the fullest extent
allowed by law and the other provisions shall nevertheless remain effective and
shall remain enforceable.
11. Notices. 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 mail by certified mail, (if the parties are within
the United States) or upon deposit for delivery by an internationally recognized
express mail courier service (for international delivery of notice) with postage
and fees prepaid, addressed to the other party at its address as shown below
beneath its signature, or to such other address as such party may designate in
writing from time to time to the other party.
12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.
13. Entire Agreement. The Notice, the Plan, and the Option Agreement are
incorporated herein by reference, and together with this Exercise Notice
constitute the entire
8
<PAGE> 27
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and the
Grantee with respect to the subject matter hereof, and may not be modified
adversely to the Grantee's interest except by means of a writing signed by the
Company and the Grantee. Nothing in the Notice, the Plan, the Option Agreement
and this Exercise Notice (except as expressly provided therein) is intended to
confer any rights or remedies on any persons other than the parties.
Submitted by: Accepted by:
GRANTEE: SABA SOFTWARE, INC.
By:
----------------------------------
Title:
- --------------------------------- -------------------------------
(Signature)
Address: Address:
- ------- -------
2400 Bridge Parkway
- ---------------------------------
Redwood Shores, CA 94065
- ---------------------------------
9
<PAGE> 1
EXHIBIT 10.4
SABA SOFTWARE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee
Stock Purchase Plan of Saba Software, Inc.
1. Purpose. The purpose of the Plan is to provide employees of
the Company and its Designated Parents or Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions. It
is the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Code. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means either the Board or a committee of the
Board that is responsible for the administration of the Plan as is designated
from time to time by resolution of the Board.
(b) "Applicable Laws" means the legal requirements relating to
the administration of employee stock purchase plans, if any, under applicable
provisions of federal securities laws, state corporate and securities laws, the
Code, the rules of any applicable stock exchange or national market system, and
the rules of any foreign jurisdiction applicable to participation in the Plan by
residents therein.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means a change in ownership or control of
the Company effected through the direct or indirect acquisition by any person or
related group of persons (other than an acquisition from or by the Company or by
a Company-sponsored employee benefit plan or by a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Saba Software, Inc., a Delaware corporation.
(h) "Compensation" means an Employee's base salary, bonuses and
commissions from the Company or one or more Designated Parents or Subsidiaries,
including such amounts of base salary as are deferred by the Employee (i) under
a qualified cash or deferred arrangement described in Section 401(k) of the
Code, or (ii) to a plan qualified under Section 125 of the Code. Compensation
does
1
<PAGE> 2
not include overtime, annual awards, other incentive payments (except to the
extent expressly referenced in the first sentence), reimbursements or other
expense allowances, fringe benefits (cash or noncash), moving expenses, deferred
compensation, contributions (other than contributions described in the first
sentence) made on the Employee's behalf by the Company or one or more Designated
Parents or Subsidiaries under any employee benefit or welfare plan now or
hereafter established, and any other payments not specifically referenced in the
first sentence.
(i) "Corporate Transaction" means any of the following
transactions:
(1) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal
purpose of which is to change the state in which the Company is
incorporated;
(2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the
capital stock of the Company's subsidiary corporations) in
connection with complete liquidation or dissolution of the
Company;
(3) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or
persons different from those who held such securities immediately
prior to such merger; or
(4) acquisition by any person or related group of persons
(other than the Company or by a Company-sponsored employee
benefit plan) of beneficial ownership (within the meaning of Rule
13d-3 of the Exchange Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Company's outstanding securities (whether or not in a transaction
also constituting a Change in Control), but excluding any such
transaction that the Administrator determines shall not be a
Corporate Transaction
(j) "Designated Parents or Subsidiaries" means the Parents or
Subsidiaries which have been designated by the Administrator from time to time
as eligible to participate in the Plan.
(k) "Effective Date" means the effective date of the Registration
Statement relating to the Company's initial public offering of its Common Stock.
However, should any Designated Parent or Subsidiary become a participating
company in the Plan after such date, then such entity shall designate a separate
Effective Date with respect to its employee-participants.
(l) "Employee" means any individual, including an officer or
director, who is an employee of the Company or a Designated Parent or Subsidiary
for purposes of Section 423 of the Code. For purposes of the Plan, the
employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the
individual's employer. Where the period of leave exceeds ninety (90) days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will
2
<PAGE> 3
be deemed to have terminated on the ninety-first (91st) day of such leave, for
purposes of determining eligibility to participate in the Plan.
(m) "Enrollment Date" means the first day of each Offer Period.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Exercise Date" means the last day of each Purchase Period.
(p) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(1) Where there exists a public market for the Common
Stock, the Fair Market Value shall be (A) the closing price for a
share of Common Stock for the last market trading day prior to
the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by
the Administrator to be the primary market for the Common Stock
or the Nasdaq National Market, whichever is applicable or (B) if
the Common Stock is not traded on any such exchange or national
market system, the average of the closing bid and asked prices of
a share of Common Stock on the Nasdaq Small Cap Market for the
day prior to the time of the determination (or, if no such prices
were reported on that date, on the last date on which such prices
were reported), in each case, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(2) In the absence of an established market of the type
described in (1), above, for the Common Stock, and subject to
(3), below, the Fair Market Value thereof shall be determined by
the Administrator in good faith; or
(3) On the initial Effective Date of the Plan, the Fair
Market Value shall be the price at which the Board, or if
applicable, the Pricing Committee of the Board, and the
underwriters agree to offer the Common Stock to the public in the
initial public offering of the Common Stock.
(q) "Offer Period" means an Offer Period established pursuant to
Section 4 hereof.
(r) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(s) "Participant" means an Employee of the Company or Designated
Parent or Subsidiary who is actively participating in the Plan.
(t) "Plan" means this Employee Stock Purchase Plan.
(u) "Purchase Period" means a period of approximately six months,
commencing on January 1 and July 1 of each year and terminating on the next
following June 30 or December
3
<PAGE> 4
31, respectively; provided, however, that the first Purchase Period shall
commence on the Effective Date and shall end on December 31, 2000.
(v) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(w) "Reserves" means the sum of the number of shares of Common
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(x) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Eligibility.
(a) General. Any individual who is an Employee on a given
Enrollment Date shall be eligible to participate in the Plan for the Offer
Period commencing with such Enrollment Date.
(b) Limitations on Grant and Accrual. Any provisions of the Plan
to the contrary notwithstanding, no Employee shall be granted an option under
the Plan (i) if, immediately after the grant, such Employee (taking into account
stock owned by any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
Parent or Subsidiary, or (ii) which permits the Employee's rights to purchase
stock under all employee stock purchase plans of the Company and its Parents or
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The determination of the accrual of the right to
purchase stock shall be made in accordance with Section 423(b)(8) of the Code
and the regulations thereunder.
(c) Other Limits on Eligibility. Notwithstanding Subsection (a),
above, the following Employees shall not be eligible to participate in the Plan
for any relevant Offer Period: (i) Employees whose customary employment is 20
hours or less per week; (ii) Employees whose customary employment is for not
more than five months in any calendar year; (iii) Employees who have been
employed for fewer than three business days; and (iv) Employees who are subject
to rules or laws of a foreign jurisdiction that prohibit or make impractical the
participation of such Employees in the Plan.
4. Offer Periods.
(a) The Plan shall be implemented through overlapping or
consecutive Offer Periods until such time as (i) the maximum number of shares of
Common Stock available for issuance under the Plan shall have been purchased or
(ii) the Plan shall have been sooner terminated in accordance with Section 19
hereof. The maximum duration of an Offer Period
4
<PAGE> 5
shall be twenty-seven (27) months. Initially, the Plan shall be implemented
through overlapping Offer Periods of twenty-four (24) months' duration
commencing each January 1 and July 1 following the Effective Date (except that
the initial Offer Period shall commence on the Effective Date and shall end on
June 30, 2002.
(b) A Participant shall be granted a separate option for each
Offer Period in which he or she participates. The option shall be granted on the
Enrollment Date and shall be automatically exercised in successive installments
on the Exercise Dates ending within the Offer Period.
(c) If on the first day of any Purchase Period in an Offer Period
in which a Participant is participating, the Fair Market Value of the Common
Stock is less than the Fair Market Value of the Common Stock on the Enrollment
Date of the Offer Period (after taking into account any adjustment during the
Offer Period pursuant to Section 18(a)), the Offer Period shall be terminated
automatically and the Participant shall be enrolled automatically in the new
Offer Period which has its first Purchase Period commencing on that date,
provided the Participant is eligible to participate in the Plan on that date and
has not elected to terminate participation in the Plan.
(d) Except as specifically provided herein, the acquisition of
Common Stock through participation in the Plan for any Offer Period shall
neither limit nor require the acquisition of Common Stock by a Participant in
any subsequent Offer Period.
5. Participation.
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the designated payroll office of
the Company at least ten (10) business days prior to the Enrollment Date for the
Offer Period in which such participation will commence, unless a later time for
filing the subscription agreement is set by the Administrator for all eligible
Employees with respect to a given Offer Period.
(b) Payroll deductions for a Participant shall commence with the
first partial or full payroll period beginning on the Enrollment Date and shall
end on the last complete payroll period during the Offer Period, unless sooner
terminated by the Participant as provided in Section 10.
6. Payroll Deductions.
(a) At the time a Participant files a subscription agreement, the
Participant shall elect to have payroll deductions made during the Offer Period
in amounts between one percent (1%) and not exceeding fifteen percent (15%) of
the Compensation which the Participant receives during the Offer Period.
(b) All payroll deductions made for a Participant shall be
credited to the Participant's account under the Plan and will be withheld in
whole percentages only. A Participant may not make any additional payments into
such account.
5
<PAGE> 6
(c) A Participant may discontinue participation in the Plan as
provided in Section 10, or may increase or decrease the rate of payroll
deductions during the Offer Period by completing and filing with the Company a
change of status notice in the form of Exhibit B to this Plan authorizing an
increase or decrease in the payroll deduction rate. Any increase or decrease in
the rate of a Participant's payroll deductions shall be effective with the first
full payroll period commencing ten (10) business days after the Company's
receipt of the change of status notice unless the Company elects to process a
given change in participation more quickly. A Participant's subscription
agreement (as modified by any change of status notice) shall remain in effect
for successive Offer Periods unless terminated as provided in Section 10. The
Administrator shall be authorized to limit the number of payroll deduction rate
changes during any Offer Period.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
Participant's payroll deductions may be decreased to 0% at such time during any
Purchase Period which is scheduled to end during the current calendar year (the
"Current Purchase Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such Participant's subscription
agreement, as amended, at the beginning of the first Purchase Period which is
scheduled to end in the following calendar year, unless terminated by the
Participant as provided in Section 10.
7. Grant of Option. On the Enrollment Date, each Participant
shall be granted an option to purchase (at the applicable Purchase Price) two
thousand (2000) shares of the Common Stock, subject to adjustment as provided in
Section 18 hereof; provided (i) that such option shall be subject to the
limitations set forth in Sections 3(b), 6 and 12 hereof, and (ii) the maximum
number of shares of Common Stock a Participant shall be permitted to purchase in
any Purchase Period shall be five hundred (500) shares, subject to adjustment as
provided in Section 18 hereof. Exercise of the option shall occur as provided in
Section 8, unless the Participant has withdrawn pursuant to Section 10, and the
option, to the extent not exercised, shall expire on the last day of the Offer
Period.
8. Exercise of Option. Unless a Participant withdraws from the
Plan as provided in Section 10, below, the Participant's option for the purchase
of shares will be exercised automatically on each Exercise Date, by applying the
accumulated payroll deductions in the Participant's account to purchase the
number of full shares subject to the option by dividing such Participant's
payroll deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase Price.
No fractional shares will be purchased; any payroll deductions accumulated in a
Participant's account which are not sufficient to purchase a full share shall be
carried over to the next Purchase Period or Offer Period, whichever applies, or
returned to the Participant, if the Participant withdraws from the Plan.
Notwithstanding the foregoing, any amount remaining in a Participant's account
following the purchase of shares on the Exercise Date due to the application of
Section 423(b)(8) of the Code or Section 7, above, shall be returned to the
Participant and shall not be carried over
6
<PAGE> 7
to the next Offer Period. During a Participant's lifetime, a Participant's
option to purchase shares hereunder is exercisable only by the Participant.
9. Delivery. Upon receipt of a request from a Participant after
each Exercise Date on which a purchase of shares occurs, the Company shall
arrange the delivery to such Participant, as promptly as practicable, of a
certificate representing the shares purchased upon exercise of the Participant's
option. The Company may require each Participant to maintain an account at a
brokerage firm selected by the Administrator to which the Company shall make
such delivery; provided, however, that the Company shall deliver the
certificate directly to a Participant if such Participant so requests.
10. Withdrawal; Termination of Employment.
(a) A Participant may either (i) withdraw all but not less than
all the payroll deductions credited to the Participant's account and not yet
used to exercise the Participant's option under the Plan or (ii) terminate
future payroll deductions, but allow accumulated payroll deductions to be used
to exercise the Participant's option under the Plan at any time by giving
written notice to the Company in the form of Exhibit B to this Plan. If the
Participant elects withdrawal alternative (i) described above, all of the
Participant's payroll deductions credited to the Participant's account will be
paid to such Participant as promptly as practicable after receipt of notice of
withdrawal, such Participant's option for the Offer Period will be automatically
terminated, and no further payroll deductions for the purchase of shares will be
made during the Offer Period. If the Participant elects withdrawal alternative
(ii) described above, no further payroll deductions for the purchase of shares
will be made during the Offer Period, all of the Participant's payroll
deductions credited to the Participant's account will be applied to the exercise
of the Participant's option on the next Exercise Date, and after such Exercise
Date, such Participant's option for the Offer Period will be automatically
terminated. If a Participant withdraws from an Offer Period, payroll deductions
will not resume at the beginning of the succeeding Offer Period unless the
Participant delivers to the Company a new subscription agreement.
(b) Upon termination of a Participant's employment relationship
(as described in Section 2(k)) at a time more than three (3) months from the
next scheduled Exercise Date, the payroll deductions credited to such
Participant's account during the Offer Period but not yet used to exercise the
option will be returned to such Participant or, in the case of his/her death, to
the person or persons entitled thereto under Section 14, and such Participant's
option will be automatically terminated. Upon termination of a Participant's
employment relationship (as described in Section 2(k)) within three (3) months
of the next scheduled Exercise Date, the payroll deductions credited to such
Participant's account during the Offer Period but not yet used to exercise the
option will be applied to the purchase of Common Stock on the next Exercise
Date, unless the Participant (or in the case of the Participant's death, the
person or persons entitled to the Participant's account balance under Section
14) withdraws from the Plan by submitting a change of status notice in
accordance with subsection (a) of this Section 10. In such a case, no further
payroll deductions will be credited to the Participant's account following the
Participant's termination of employment and the Participant's option under the
Plan will be automatically terminated after the purchase of Common Stock on the
next scheduled Exercise Date.
7
<PAGE> 8
11. Interest. No interest shall accrue on the payroll deductions
credited to a Participant's account under the Plan.
12. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 18, the maximum number of shares of Common Stock
which shall be made available for sale under the Plan shall be two million
(2,000,000) shares, plus an annual increase to be added on the first day of the
Company's fiscal year beginning in 2001 equal to the least of (i) two million
(2,000,000) shares, (ii) two percent (2%) of the outstanding shares on such
date, or (iii) a lesser number of shares determined by the Administrator. If on
a given Exercise Date the number of shares with respect to which options are to
be exercised exceeds the number of shares then available under the Plan, the
Administrator shall make a pro rata allocation of the shares remaining available
for purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) A Participant will have no interest or voting right in shares
covered by the Participant's option until such shares are actually purchased on
the Participant's behalf in accordance with the applicable provisions of the
Plan. No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will
be registered in the name of the Participant or in the name of the Participant
and his or her spouse.
13. Administration. The Plan shall be administered by the
Administrator which shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Administrator shall, to the full extent
permitted by Applicable Law, be final and binding upon all persons.
14. Designation of Beneficiary.
(a) Each Participant will 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.
If a Participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
Participant (and the Participant's spouse, if any) at any time by written
notice. In the event of the death of a Participant and in the absence of a
beneficiary validly designated under the Plan who is living (or in existence) 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 Administrator), the Administrator shall deliver such shares and/or cash to
the spouse (or domestic partner, as determined by the Administrator) of the
Participant, or if no spouse (or domestic partner) is known to the
8
<PAGE> 9
Administrator, then to the issue of the Participant, such distribution to be
made per stirpes (by right of representation), or if no issue are known to the
Administrator, then to the heirs at law of the Participant determined under in
accordance with Section 27.
15. Transferability. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the Participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Administrator may treat such act as an election to
withdraw funds from an Offer Period in accordance with Section 10.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate
Transactions.
(a) Adjustments Upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the Reserves, the Purchase
Price, as well as any other terms that the Administrator determines require
adjustment shall be proportionately adjusted for (i) any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, (ii) any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company, or
(iii) as the Administrator may determine in its discretion, any other
transaction with respect to Common Stock to which Section 424(a) of the Code
applies; provided, however that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator and its
determination shall be final, binding and conclusive. Except as the
Administrator determines, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
Reserves and the Purchase Price.
(b) Corporate Transactions. In the event of a proposed Corporate
Transaction, each option under the Plan shall be assumed by such successor
corporation or a parent or subsidiary of such successor corporation, unless the
Administrator determines, in the exercise of its sole discretion and in lieu of
such assumption, to shorten the Offer Period then in progress by setting a new
Exercise Date (the "New Exercise Date"). If the Administrator shortens the Offer
Period then in progress in lieu of assumption in the event of a Corporate
Transaction, the Administrator shall notify each Participant in writing, at
least ten (10) days prior to the New Exercise Date, that the Exercise Date for
the Participant's option has been changed to the New
9
<PAGE> 10
Exercise Date and that the Participant's option will be exercised automatically
on the New Exercise Date, unless prior to such date the Participant has
withdrawn from the Offer Period as provided in Section 10. For purposes of this
Subsection, an option granted under the Plan shall be deemed to be assumed if,
in connection with the Corporate Transaction, the option is replaced with a
comparable option with respect to shares of capital stock of the successor
corporation or Parent thereof. The determination of option comparability shall
be made by the Administrator prior to the Corporate Transaction and its
determination shall be final, binding and conclusive on all persons.
19. Amendment or Termination.
(a) The Administrator may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 18, no such
termination can affect options previously granted, provided that an Offer Period
may be terminated by the Administrator on any Exercise Date if the Administrator
determines that the termination of the Offer Period is in the best interests of
the Company and its stockholders. Except as provided in Section 18, no amendment
may make any change in any option theretofore granted which adversely affects
the rights of any Participant without the consent of affected Participants. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other Applicable Law), the Company shall obtain
stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the
Administrator shall be entitled to limit the frequency and/or number of changes
in the amount withheld during Offer Periods, change the length of Purchase
Periods within any Offer Period, determine the length of any future Offer
Period, whether future Offer Periods shall be consecutive or overlapping,
establish the exchange ratio applicable to amounts withheld in a currency other
than U.S. dollars, establish additional terms, conditions, rules or procedures
to accommodate the rules or laws of applicable foreign jurisdictions, permit
payroll withholding in excess of the amount designated by a Participant in order
to adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each Participant properly
correspond with amounts withheld from the Participant's Compensation, and
establish such other limitations or procedures as the Administrator determines
in its sole discretion advisable and which are consistent with the Plan.
20. Notices. All notices or other communications by a Participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Administrator at the
location, or by the person, designated by the Administrator for the receipt
thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
Applicable Laws and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
option, the Company may require the Participant to represent and warrant at the
10
<PAGE> 11
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned Applicable Laws. In addition, no options shall be
exercised or shares issued hereunder before the Plan shall have been approved by
stockholders of the Company as provided in Section 23.
22. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19.
23. Stockholder Approval. Continuance of the Plan shall be
subject to approval by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the degree and manner required under Applicable Laws.
24. No Employment Rights. The Plan does not, directly or
indirectly, create any right for the benefit of any employee or class of
employees to purchase any shares under the Plan, or create in any employee or
class of employees any right with respect to continuation of employment by the
Company or a Designated Parent or Subsidiary, and it shall not be deemed to
interfere in any way with such employer's right to terminate, or otherwise
modify, an employee's employment at any time.
25. No Effect on Retirement and Other Benefit Plans. Except as
specifically provided in a retirement or other benefit plan of the Company or a
Designated Parent or Subsidiary, participation in the Plan shall not be deemed
compensation for purposes of computing benefits or contributions under any
retirement plan of the Company or a Designated Parent or Subsidiary, and shall
not affect any benefits under any other benefit plan of any kind or any benefit
plan subsequently instituted under which the availability or amount of benefits
is related to level of compensation. The Plan is not a "Retirement Plan" or
"Welfare Plan" under the Employee Retirement Income Security Act of 1974, as
amended.
26. Effect of Plan. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each Participant, including, without limitation, such
Participant's estate and the executors, administrators or trustees thereof,
heirs and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Participant.
27. Governing Law. The Plan is to be construed in accordance with
and governed by the internal laws of the State of California (as permitted by
Section 1646.5 of the California Civil Code, or any similar successor provision)
without giving effect to any choice of law rule that would cause the application
of the laws of any jurisdiction other than the internal laws of the State of
California to the rights and duties of the parties, except to the extent the
internal laws of the State of California are superseded by the laws of the
United States. Should any provision of the Plan be determined by a court of law
to be illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.
11
<PAGE> 12
EXHIBIT A
Saba Software, Inc. 2000 Employee Stock Purchase Plan
SUBSCRIPTION AGREEMENT
Effective with the Offer Period beginning on:
[ ] ESPP Effective Date [ ] <JANUARY 1, 200__> or [ ] <JULY 1, 200__>
1. PERSONAL INFORMATION <MODIFY DATA REQUESTED AS APPROPRIATE>
<TABLE>
<S> <C>
Legal Name (Please Print) __________________________________________ _______________ ___________
(Last) (First) (MI) Location Department
Street Address______________________________________________________ ___________________________
Daytime Telephone
City, State/Country, Zip____________________________________________ ___________________________
E-Mail Address
Social Security No. __ __ __ - __ __ - __ __ __ __Employee I.D. No. ___________________________
Manager Mgr. Location
</TABLE>
2. ELIGIBILITY Any Employee whose customary employment is more than 20 hours
per week and more than five months per calendar year, who has been an
Employee for more than three business days and who does not hold (directly
or indirectly) five percent (5%) or more of the combined voting power of the
Company, a parent or a subsidiary, whether in stock or options to acquire
stock is eligible to participate in the Saba Software, Inc. 2000 Employee
Stock Purchase Plan (the "ESPP"); provided, however, that Employees who are
subject to the rules or laws of a foreign jurisdiction that prohibit or make
impractical the participation of such Employees in the ESPP are not eligible
to participate.
3. DEFINITIONS Each capitalized term in this Subscription Agreement shall have
the meaning set forth in the ESPP.
4. SUBSCRIPTION I hereby elect to participate in the ESPP and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the ESPP. I have received a complete copy of the
ESPP and a prospectus describing the ESPP and understand that my
participation in the ESPP is in all respects subject to the terms of the
ESPP. The effectiveness of this Subscription Agreement is dependent on my
eligibility to participate in the ESPP.
5. PAYROLL DEDUCTION AUTHORIZATION I hereby authorize payroll deductions from
my Compensation during the Offer Period in the percentage specified below
(payroll reductions may not exceed 15% of Compensation nor $21,250 per
calendar year):
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------------
Percentage to be Deducted (circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
----------------------------------------------------------------------------------------------------------
</TABLE>
6. ESPP ACCOUNTS AND PURCHASE PRICE I understand that all payroll deductions
will be credited to my account under the ESPP. No additional payments may be
made to my account. No interest will be credited on funds held in the
account at any time including any refund of the account caused by withdrawal
from the ESPP. All payroll deductions shall be accumulated for the purchase
of Company Common Stock at the applicable Purchase Price determined in
accordance with the ESPP.
7. WITHDRAWAL AND CHANGES IN PAYROLL DEDUCTION I understand that I may
discontinue my participation in the ESPP at any time prior to an Exercise
Date as provided in Section 10 of the ESPP, but if I do not withdraw from
the ESPP, any accumulated payroll deductions will be applied automatically
to purchase Company Common Stock. I may increase or decrease the rate of my
payroll deductions in whole percentage increments to not less than one
percent (1%) on two occasions in the aggregate during any Purchase Period
by completing and timely filing a Change of Status Notice. Any increase or
decrease will be effective for the full payroll period occurring after ten
(10) business days from the Company's receipt of the Change of Status
Notice.
8. PERPETUAL SUBSCRIPTION I understand that this Subscription Agreement shall
remain in effect for successive Offer Periods until I withdraw from
participation in the ESPP, or termination of the ESPP.
A-1
<PAGE> 13
9. TAXES I have reviewed the ESPP prospectus discussion of the federal tax
consequences of participation in the ESPP and consulted with tax consultants
as I deemed advisable prior to my participation in the ESPP. I hereby agree
to notify the Company in writing within thirty (30) days of any disposition
(transfer or sale) of any shares purchased under the ESPP if such
disposition occurs within two (2) years of the Enrollment Date (the first
day of the Offer Period during which the shares were purchased) or within
one (1) year of the Exercise Date (the date I purchased such shares), and I
will make adequate provision to the Company for foreign, federal, state or
other tax withholding obligations, if any, which arise upon the disposition
of the shares. In addition, the Company may withhold from my Compensation
any amount necessary to meet applicable tax withholding obligations incident
to my participation in the ESPP, including any withholding necessary to make
available to the Company any tax deductions or benefits contingent on such
withholding.
10. DESIGNATION OF BENEFICIARY In the event of my death, I hereby designate the
following person or trust as my beneficiary to receive all payments and
shares due to me under the ESPP: [ ] I am single [ ] I am married
<TABLE>
<S> <C>
Beneficiary (please print) _________________________________________ Relationship to Beneficiary (if any)
(Last) (First) (MI)
Street Address _____________________________________________________ ___________________________
City, State/Country, Zip ___________________________________________
</TABLE>
11. TERMINATION OF ESPP I understand that the Company has the right, exercisable
in its sole discretion, to amend or terminate the ESPP at any time, and a
termination may be effective as early as an Exercise Date (after purchase of
shares on such date) within each outstanding Offer Period.
<TABLE>
<S> <C>
Date: __________________________ Employee Signature:__________________________________________
__________________________________________
spouse's signature (if beneficiary is
other than spouse)
</TABLE>
A-2
<PAGE> 14
EXHIBIT B
Saba Software, Inc. 2000 Employee Stock Purchase Plan
CHANGE OF STATUS NOTICE
__________________________________________
Participant Name (Please Print)
__________________________________________
Social Security Number
WITHDRAWAL FROM ESPP
I hereby withdraw from the Saba Software, Inc. 2000 Employee Stock
Purchase Plan (the "ESPP") and agree that my option under the applicable
Offer Period will be automatically terminated and all accumulated
payroll deductions credited to my account will be refunded to me or
applied to the purchase of Common Stock depending on the alternative
indicated below. No further payroll deductions will be made for the
purchase of shares in the applicable Offer Period and I shall be
eligible to participate in a future Offer Period only by timely delivery
to the Company of a new Subscription Agreement.
[ ] WITHDRAWAL AND PURCHASE OF COMMON STOCK
Payroll deductions will terminate, but your account balance will be
applied to purchase Common Stock on the next Exercise Date. Any
remaining balance will be refunded.
[ ] WITHDRAWAL WITHOUT PURCHASE OF COMMON STOCK
Entire account balance will be refunded to me and no Common Stock will
be purchased on the next Exercise Date provided this notice is submitted
to the Company ten (10) business days prior to the next Exercise Date.
================================================================================
[ ] CHANGE IN PAYROLL DEDUCTION
I hereby elect to change my rate of payroll deduction under the ESPP as
follows (select one):
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------------
Percentage to be Deducted (circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
----------------------------------------------------------------------------------------------------------
</TABLE>
An increase or a decrease in payroll deduction will be effective for the
first full payroll period commencing no fewer than ten (10) business
days following the Company's receipt of this notice, unless this change
is processed more quickly.
================================================================================
<PAGE> 15
[ ] CHANGE OF BENEFICIARY [ ] I am single [ ] I am married
This change of beneficiary shall terminate my previous beneficiary
designation under the ESPP. In the event of my death, I hereby designate
the following person or trust as my beneficiary to receive all payments
and shares due to me under the ESPP:
<TABLE>
<S> <C>
Beneficiary (please print) ______________________________________ Relationship to Beneficiary (if any)
(Last) (First) (MI)
Street Address __________________________________________________ ______________________________
City, State/Country, Zip ________________________________________
Date: __________________________ Employee Signature:__________________________________________
__________________________________________
spouse's signature (if beneficiary is
other than spouse)
</TABLE>
B-1
<PAGE> 1
EXHIBIT 10.5
SABA SOFTWARE, INC.
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
---------------------------------------------------------
THIS THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
(this "Agreement") is made as of November 10, 1999, by and between Saba
Software, Inc., a Delaware corporation (the "Company"), each of the investors
listed on Schedule A hereto (each an "Investor" and collectively the
"Investors"), and Babak Yazdani (the "Founder").
R E C I T A L S
WHEREAS, certain of the Investors (the "Existing Investors")
hold shares of the Company's Series A Preferred Stock (the "Series A Preferred
Stock"), the Company's Series B Preferred Stock (the "Series B Preferred
Stock"), the Company's Series C Preferred Stock (the "Series C Preferred Stock")
and/or shares of Common Stock issuable upon the conversion thereof and possess
registration rights and other rights pursuant to a Second Amended and Restated
Investors' Rights Agreement, dated as of April 14, 1999, by and among the
Company, the Founder and the Existing Investors (the "Prior Agreement");
WHEREAS, the Founder and the Existing Investors are holders of
at least that number of Registrable Securities (as defined in the Prior
Agreement) required to amend each section of the Prior Agreement pursuant to
Section 3.7 thereof;
WHEREAS, the Company and certain Investors have entered into, as
of the date hereof, a Series D Preferred Stock Purchase Agreement (the "Series D
Agreement") pursuant to which the Company will issue and sell shares of the
Series D Preferred Stock of the Company (the "Series D Preferred Stock");
WHEREAS, certain of the Company's and such Investors'
obligations under the Series D Agreement are conditioned upon the execution and
delivery of this Agreement by such Investors, the holders of a majority of the
outstanding shares of Series B Preferred Stock, the holders of two-thirds (2/3)
of the outstanding shares of Series C Preferred Stock, and the holders of a
majority of the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock voting together as a single class,
the Founder and the Company.
NOW, THEREFORE, in consideration of the mutual premises and covenants
set forth herein, the Company, the Existing Investors and the Founder hereby
agree that the Prior Agreement shall be amended and restated as set forth
herein, and the parties hereto further agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1. DEFINITIONS. For purposes of this Agreement:
1
<PAGE> 2
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Founder's Shares" means the 7,000,000
shares of Common Stock (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations (collectively, a
"Recapitalization")) issued to the Founder.
(c) The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(d) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof.
(e) The term "1934 Act" shall mean the Securities
Exchange Act of 1934, as amended.
(f) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
(g) The term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
(ii) the Founder's Shares and (iii) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of the shares referenced in (i) or (ii)
above, excluding in all cases, however, any Registrable Securities that have
been sold by a person in a transaction in which his or her rights under this
Section 1 are not assigned or that have been sold by a person pursuant to a
registration statement under the Act covering such Registrable Securities that
has been declared effective by the SEC or in an open market transaction under
Rule 144 of the Act. Notwithstanding anything to the contrary set forth in this
Section 1.1(g), neither the Common Stock issuable or issued upon conversion of
the Series A Preferred Stock or the Founder's Shares (or any shares of Common
Stock otherwise deemed "Registrable Securities" with respect thereto pursuant to
clause (iii) of this Section 1.1(g)) shall be deemed Registrable Securities and
the holders thereof shall not be deemed Holders for the purposes of Section 1.2,
1.6, 1.12, and 1.14.
(h) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(i) The term "SEC" shall mean the Securities and
Exchange Commission.
2
<PAGE> 3
1.2. REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the
earlier of the five-year anniversary of the date hereof or six (6) months after
the effective date of the first registration statement for a public offering of
securities of the Company (other than a registration statement relating either
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or an SEC Rule 145 transaction), a
written request from the Holders of a majority of the Registrable Securities
then outstanding that the Company file a registration statement under the Act
covering the registration of at least twenty-five percent (25%) of the
Registrable Securities then outstanding (or a lesser percent if the anticipated
aggregate offering price, net of underwriting discounts and commissions, would
exceed $7,500,000), then the Company shall:
(i) within ten (10) days of the receipt thereof,
give written notice of such request to all Holders; and
(ii) as soon as practicable, use commercially
reasonable efforts to effect the registration under the Act of all Registrable
Securities which the Holders request to be registered, together with all or such
portion of the Registrable Securities of any Holder or Holders joining in such
request as are specified in a written request received by the Company, within
twenty (20) days of the mailing of such notice by the Company in accordance with
Section 3.5, subject to the limitations of subsection 1.2(b).
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
3
<PAGE> 4
(c) Not withstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2, a certificate signed by the Chief Executive Officer of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
taking action with respect to such filing for a period of not more than 120 days
after receipt of the request of the Initiating Holders; provided, however, that
the Company may not utilize this right more than once in any twelve-month
period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two (2)
registrations requested by the Holders of Registrable Securities pursuant to
this Section 1.2 and such registrations have been declared or ordered effective;
(ii) During the period starting with the date
sixty (60) days prior to the Company's good faith estimate of the date of filing
of, and ending on a date one hundred eighty (180) days after the effective date
of, a registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section 1.12 below.
1.3. COMPANY REGISTRATION. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.5, the Company shall, subject to the provisions of
Section 1.8, use its reasonable efforts to cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
1.4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
4
<PAGE> 5
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use commercially
reasonable efforts to cause such registration statement to become effective;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement;
(c) Furnish to each Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
from time to time in order to facilitate the disposition of Registrable
Securities owned by it;
(d) Use commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already required to qualify to do business
or subject to service in such jurisdiction and except as may be required by the
Act;
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed; and
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.
1.5. FURNISH INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of
5
<PAGE> 6
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.6. EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder; if Company counsel does not make
itself available for this purpose, the Company will pay the reasonable fees and
disbursements of one counsel for the selling Holders) shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.
1.7. EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the fees and disbursements of counsel for
the Company in its capacity as counsel to the selling Holders thereunder (if
Company counsel does not make itself available for this purpose, the Company
will pay the reasonable fees and disbursements of one counsel for the selling
Holders selected by them), but excluding underwriting discounts and commissions
relating to Registrable Securities.
1.8. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it and then
only in such quantity as the underwriters determine in their sole discretion
will not, jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the number of
shares of Holders' securities to be included in such offering shall be reduced
in such manner as the Company and the underwriters determine to permit the
success of such offering (the securities so included to be apportioned pro rata
among the selling stockholders according to the total amount of securities
entitled to be included therein owned by each selling stockholder or in such
other proportions as shall mutually be agreed to by such selling stockholders)
but in no event shall (i) the amount of securities of the selling Holders of
Registrable Securities included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities in which
case the selling stockholders may be excluded if the underwriters make the
determination described above and no other stockholders' securities are
included, (ii) notwithstanding (i) above, any shares
6
<PAGE> 7
being sold by a stockholder exercising a demand registration right similar to
that granted in Section 1.2 be excluded from such offering, or (iii) the number
of shares of Registrable Securities to be included in such underwriting
(excluding any Founder's Shares) be reduced unless the Founder's Shares are
first entirely excluded from such underwriting. For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
stockholder," and any pro-rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
1.9. DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10. INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act or the 1934 Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, or any rule or regulation promulgated under
the Act or the 1934 Act; and the Company will pay to each such Holder,
underwriter or controlling person any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(a) shall not apply to (1) amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), or (2) any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the
7
<PAGE> 8
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any underwriter, any other stockholder of the Company that
is selling securities in such registration statement and any controlling person
of any such underwriter or such other stockholder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act or the 1934 Act, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 1.10(b), in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.10(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, that, in no event shall any
indemnity under this subsection 1.10(b) exceed the gross proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement
8
<PAGE> 9
of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12. FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders a written request or requests that the Company effect
a registration on Form S-
9
<PAGE> 10
3 and any related qualification or compliance with respect to all or a part of
the Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, use commercially reasonable
efforts to effect such registration and all such qualifications and compliances
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Holder's or Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within 15 days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this section 1.12: (1) if Form S-3 is not available for
such offering by the Holders; (2) if the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $5,000,000; (3) if the Company shall furnish to the
Holders a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than 60 days after receipt of the request of
the Holder or Holders under this Section 1.12; provided, however, that the
Company shall not utilize this right more than once in any twelve (12) month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company shall use
commercially reasonable efforts to file a registration statement covering the
Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders. All
expenses other than underwriting discounts and commissions incurred in
connection with the first three (3) registrations requested pursuant to Section
1.12, including (without limitation) all registration, filing and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company (including fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder; if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements of one counsel for the selling Holders) shall be borne by
the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 1.12
if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses), unless the Holders of
a majority of the Registrable Securities agree to forfeit their right to have
the Company bear the expenses of one (1) Form S-3 registration pursuant to this
Section 1.12.
10
<PAGE> 11
Except as provided in the immediately preceding sentence, all expenses incurred
in connection with a registration requested pursuant to this Section 1.12,
including (without limitation) all registration, filing, qualification,
printer's and accounting fees and the reasonable fees and disbursements of
counsel for the selling Holder or Holders and counsel for the Company, shall be
borne pro rata by the Holder or Holders participating in the Form S-3
Registration. Registrations effected pursuant to this Section 1.12 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.13. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least Eight Hundred Thousand (800,000) shares of Registrable Securities (subject
to appropriate adjustment for Recapitalizations), provided: (a) the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of this Agreement, including without limitation the provisions of
Section 1.15 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act. For the purposes of
determining the number of shares of Registrable Securities held by a transferee
or assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Registrable Securities by gift, will or intestate succession) shall be
aggregated together and with the partnership; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under this Section 1.
1.14. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2.
1.15. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that, during the period of duration specified by the Company and an underwriter
of Common Stock or other securities of the Company, following the effective date
of a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to
11
<PAGE> 12
donees who agree to be similarly bound) any securities of the Company held by it
at any time during such period except Common Stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) such market stand-off time period shall not exceed
180 days; and
(c) all officers and directors of the Company, all
holders of one percent (1%) or more of the outstanding equity securities of the
Company, and all other persons with registration rights enter into similar
agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
1.16. TERMINATION OF REGISTRATION RIGHTS.
(a) No Holder shall be entitled to exercise any right
provided for in this Section 1 after three (3) years following the consummation
of the sale of securities pursuant to a registration statement filed by the
Company under the Act in connection with the initial firm commitment
underwritten offering of its Common Stock to the general public.
(b) In addition, the right of any Holder to request
registration or inclusion in any registration pursuant to Section 1.3 shall
terminate on the closing of the first Company-initiated registered public
offering of Common Stock of the Company if all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period, or on such date after the closing
of the first Company-initiated registered public offering of Common Stock of the
Company as all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any
90-day period.
2. COVENANTS OF THE COMPANY.
2.1. DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver
to each Investor holding at least Eight Hundred Thousand (800,000) shares of
Registrable Securities (subject to appropriate adjustment for any
Recapitalization):
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a
12
<PAGE> 13
balance sheet of the Company and statement of stockholder's equity as of the end
of such year, and a schedule as to the sources and applications of funds for
such year, such year-end financial reports to be in reasonable detail, prepared
in accordance with generally accepted accounting principles ("GAAP"), and
audited and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, schedule
as to the sources and application of funds for such fiscal quarter and an
unaudited balance sheet as of the end of such fiscal quarter.
(c) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail;
(d) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget for the next fiscal year,
including balance sheets and sources and applications of funds statements and,
as soon as prepared, any other budgets or revised budgets prepared by the
Company;
(e) with respect to the financial statements called for
in subsections 2.1(b) and 2.1(c), an instrument executed by the Chief Financial
Officer or President of the Company and certifying that such financials were
prepared in accordance with GAAP consistently applied with prior practice for
earlier periods (with the exception of footnotes that may be required by GAAP)
and fairly present the financial condition of the Company and its results of
operation for the period specified, subject to year-end audit adjustment; and
(f) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time reasonably
request, provided, however, that the Company shall not be obligated under this
subsection 2.1(f) or any other subsection of Section 2.1 to provide information
which could adversely affect the attorney-client privilege between the Company
and its counsel or which it deems in good faith to be a trade secret or similar
confidential information, and provided further that the Company may require the
Investor to execute a nondisclosure agreement prior to disclosure of any such
information.
2.2. INSPECTION. The Company shall permit Investors holding at
least Eight Hundred Thousand (800,000) shares of Registrable Securities (subject
to appropriate adjustment for any Recapitalization) to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor; provided, however, that
the Company shall not be obligated pursuant to this Section 2.2 to provide
access to any information which the Company reasonably considers to be a trade
secret or similar confidential information.
2.3. TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The
covenants set forth in Sections 2.1 and 2.2 shall terminate and be of no further
force or effect when the sale
13
<PAGE> 14
of securities pursuant to a registration statement filed by the Company under
the Act in connection with the firm commitment underwritten offering of its
securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
2.4. RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.4, the Company hereby grants to each Major Investor
(as hereinafter defined) a right of first offer with respect to future sales by
the Company of its Shares (as hereinafter defined). For purposes of this Section
2.4, a Major Investor shall mean any Investor that holds at least Eight Hundred
Thousand (800,000) shares (subject to appropriate adjustment for any
Recapitalization) of Series B Preferred Stock, Series C Preferred Stock, Series
D Preferred Stock or Common Stock issued upon conversion thereof and any person
who acquires at least Eight Hundred Thousand (800,000) shares (subject to
appropriate adjustment for any Recapitalization) of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Common Stock issued upon
conversion thereof. For purposes of this Section 2.4, Investor includes any
general partners and affiliates of an Investor. An Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of,
or securities convertible into or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a written notice
("Notice") to the Major Investors stating (i) its bona fide intention to offer
such shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company,
within 20 calendar days after the giving of the Notice, the Major Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series B Preferred Stock Series C Preferred Stock and Series D Preferred
Stock then held by such Major Investor bears to the total number of shares of
Common Stock of the Company then outstanding (assuming full conversion and
exercise of all convertible or exercisable securities).
(c) If all Shares referred to in the Notice are not
elected to be obtained as provided in subsection 2.4(b) hereof, the Company may,
during the 60-day period following the expiration of the period provided in
subsection 2.4(b) hereof, offer the remaining unsubscribed portion of such
Shares to any person or persons at a price not less than, and upon terms no more
favorable to the offeree than those specified in the Notice. If the Company does
not enter into an agreement for the sale of the Shares within such period, or if
such agreement is not consummated within 60 days of the execution thereof, the
right provided hereunder shall be deemed to be revived and such Shares shall not
be offered unless first reoffered to the Major Investors in accordance herewith.
14
<PAGE> 15
(d) The right of first offer in this Section 2.4 shall
not be applicable to (i) the issuance or sale of Common Stock to officers,
directors, employees or consultants for the primary purpose of soliciting or
retaining their employment or services if such issuance is approved by the Board
of Directors, (ii) to or after consummation of a firm commitment underwritten
public offering of shares of Common Stock registered under the Act, (iii) the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities, (iv) the issuance of securities in connection with a
bona fide business acquisition by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise, or (v) the issuance or
sale of Common Stock, or securities convertible into or exchangeable for Common
Stock (A) in connection with any borrowings, direct or indirect, from financial
institutions by the Company, whether or not presently authorized, including any
type of loan or payment evidenced by any type of debt instrument, (B) to vendors
or customers or to other persons in similar commercial situations with the
Company if such issuance is approved by the Board of Directors or (C) in
connection with obtaining lease financing, whether issued to a lessor, guarantor
or other person.
(e) The right of first refusal set forth in this Section
2.4 may not be assigned or transferred, except, other than with respect to a
direct competitor of the Company, as reasonably determined by the Company, that
(i) such right is assignable by each Major Investor to any wholly owned
subsidiary or parent of, or to any corporation or entity that is, within the
meaning of the Act, controlling, controlled by or under common control with, any
such Major Investor, and (ii) such right is assignable to a transferee or
assignee who holds after such transfer at least Eight Hundred Thousand (800,000)
shares of Registrable Securities (subject to appropriate adjustment for any
Recapitalization).
3. MISCELLANEOUS.
3.1. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2. GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
15
<PAGE> 16
3.5. NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified; or
(ii) by deposit with an overnight delivery service or with the United States
Post Office, by certified mail, postage prepaid, and addressed to the party to
be notified at the address indicated for such party on the signature page
hereof, or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties.
3.6. EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7. AMENDMENTS AND WAIVERS. Any term of Section 1 of this
Agreement may be amended and the observance of any term of Section 1 of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company,
the holders of a majority of the then-outstanding Registrable Securities subject
to or enjoying the rights under the provisions being amended or waived, and the
holders of at least two-thirds (2/3) of the then-outstanding shares of Common
Stock issued or issuable upon conversion of the Series C Preferred Stock subject
to or enjoying the rights under the provisions being amended or waived. Any term
of Section 2 of this Agreement may be amended and the observance of any term of
Section 2 of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company, the holders of a majority of the then-outstanding shares
of Common Stock issued or issuable upon conversion of the Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, and the holders of
at least two-thirds (2/3) of the then-outstanding shares of Common Stock issued
or issuable upon conversion of the Series C Preferred Stock. Any term of Section
3 of this Agreement may be amended and the observance of any term of Section 3
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company, the holders of a majority of the Registrable Securities then
outstanding, and the holders of at least two-thirds (2/3) of the
then-outstanding shares of Common Stock issued or issuable upon conversion of
the Series C Preferred Stock. Any amendment or waiver effected in accordance
with this Section 3.7 shall be binding upon each holder of any Registrable
Securities then outstanding, each future holder of all such Registrable
Securities, and the Company.
3.8. SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9. AGGREGATION OF STOCK. All shares of Registrable Securities
held or acquired by affiliated or associated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
16
<PAGE> 17
3.10. AMENDMENT OF PRIOR AGREEMENT AND WAIVER OF RIGHT OF FIRST
REFUSAL. Effective upon the later of (i) the Closing (as defined in the Series D
Agreement) and (ii) the execution and delivery of this Agreement by the Company,
the Founder and Existing Investors holding at least that number of Registrable
Securities (as defined in the Prior Agreement) required to amend the Prior
Agreement pursuant to Section 3.7 thereof, the Prior Agreement shall be amended
and restated in its entirety as set forth herein. Effective upon the execution
and delivery of this Agreement by the Company and Existing Investors holding at
least that number of Registrable Securities (as defined in the Prior Agreement)
required to waive the provisions of Section 2.4 of the Prior Agreement pursuant
to Section 3.7 thereof, the Major Investors hereby waive any right to receive
notice of, and to participate in, the sale by the Company of (i) any shares of
Series D Preferred Stock pursuant to the Series D Agreement and (ii) any other
securities of the Company sold prior to the Closing (as defined in the Series D
Agreement).
3.11. ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
17
<PAGE> 18
Third Amended and Restated
Investors' Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
SABA SOFTWARE, INC.
By: /s/ BABAK YAZDANI
----------------------------------
Babak Yazdani, President
Address: 2400 Bridge Parkway
Redwood Shores, CA 94065
FOUNDER:
By: /s/ BABAK YAZDANI
----------------------------------
Babak Yazdani
INVESTORS:
By:
----------------------------------
Name:
--------------------------------
Address:
-----------------------------
-----------------------------
-----------------------------
[signed by the following:
Crosslink Omega Ventures III, L.L.C.
Crosslink Offshore Omega Ventures III
Omega Bayview, L.L.C.
Crosslink Crossover Fund III, L.P.
Sequoia Capital VIII
Sequoia International Technology Partners VIII
Sequoia International Technology Partners VIII(Q)
CMS Partners LLC
Sequoia Capital Franchise Fund
Sequoia Capital Franchise Partners
Comdisco, Inc.
Robert or Martha A. Cohn, TTEES, The Wellington Trust U/A/D 1-30-86
Stuart L. Rudick
Delaware Charter Guarantee & Trust Company TTEE FBO Stuart Rudick GTC IRA
Rollover
Stuart Rudick Cust. Tmima Rudick CAUTMA Until Age 18
Mindful Partners, L.P.
The Hollis Trust, Nathaniel de Rothschild Trustee
Nathaniel de Rothschild
London Pacific Life & Annuity Company
Goldman Sachs Group
State Street Bank and Trust Company as Trustee for Northrup Grumman Corporation
Master Trust
Upstart Communications, Inc.
Howard Marc Block
Tim Crossely
Philip Brook Manville
Jeffrey S. Milum
Daniel H. Case, III
Joseph B. Costello]
<PAGE> 19
Third Amended and Restated
Investors' Rights Agreement
Schedule A
Schedule of Investors
Kamyar Kaviani
Mohammad J. Kaviani
Farzin Arsanjani
Patrick Bischoff
Gaurav Mehra
Brett Newbold
Abraham Kleinfeld
Kaveh Chehrehsa
Wayne A. Merrick
Atri Chatterjee
Richard Beard
Sequoia Capital VIII
Sequoia International Technology Partners VIII
Sequoia International Technology Partners VIII (Q)
CMS Partners LLC
Sequoia 1997
Klaus Murko
Axel Doehner
Clark Callander
Nick Zaldastani
Benigna Kirsten
Joachim R. Kirsten
Larry Solomon
Baum Family Trust
Broadview Associates
David Lamond
Stuart Rudick
Nina Bischoff
Ludwig Schloesser
Hans Christoph von Mitschke-Collande
Dieter Bischoff
Marc Benioff
John Martin
Christopher von Mitschke-Collande
Uwe Fischer
David C. Martin
David C. and Kim S. Martin
Grant Ricketts
Mark Hoefig
Andrew Loveless
Mindful Partners L.P.
Stuart Rudick cust Tmima Rudick
Martin Rudick
<PAGE> 20
Marie Codling
Ed Ott
Omega Ventures III, L.L.C.
RS & Co. Offshore Omega Ventures III
Omega Bayview, L.L.C.
Crossover Fund II, L.P.
Tullius Partners, LLC
Sequoia Capital Franchise Fund
Sequoia Capital Franchise Partners
Comdisco, Inc.
Robert or Martha A. Cohn, TTEES, The Wellington Trust U/A/D 1-30-86
Stuart Jacobson
David Lamond
Patrick Bischoff
David C. Martin
Carola Stroehlein
John Martin
Christopher von Mitschke-Collande
Mindful Partners L.P.
Stuart Rudick
The Hollis Trust, Nathaniel de Rothschild Trustee
Nathaniel de Rothschild
Amitabh Shukla
Janet McCabe
Clark Callander
Peter J. Mooney as nominee for the Broadview Partners Group
Crosslink Omega Ventures III, L.L.C.
Crosslink Offshore Omega Ventures III
Omega Bayview, L.L.C.
Crosslink Crossover Fund III, L.P.
Sequoia Capital VIII
Sequoia International Technology Partners VIII
Sequoia International Technology Partners VIII(Q)
CMS Partners LLC
Sequoia Capital Franchise Fund
Sequoia Capital Franchise Partners
Comdisco, Inc.
Robert or Martha A. Cohn, TTEES, The Wellington Trust U/A/D 1-30-86
Stuart L. Rudick
Delaware Charter Guarantee & Trust Company TTEE FBO Stuart Rudick GTC IRA
Rollover
Stuart Rudick Cust. Tmima Rudick CAUTMA Until Age 18
Mindful Partners, L.P.
The Hollis Trust, Nathaniel de Rothschild Trustee
Nathaniel de Rothschild
London Pacific Life & Annuity Company
<PAGE> 21
Third Amended and Restated
Investors' Rights Agreement
Goldman Sachs Group
State Street Bank and Trust Company as Trustee for Northrup Grumman Corporation
Master Trust
Upstart Communications, Inc.
Howard Marc Block
Tim Crossely
Philip Brook Manville
Jeffrey S. Milum
Daniel H. Case, III
Joseph B. Costello
<PAGE> 22
SABA SOFTWARE, INC.
AMENDMENT NO. 1 TO
THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED INVESTORS'
RIGHTS AGREEMENT (the "Amendment") is made as of _______________, 2000, by and
between Saba Software, Inc., a Delaware corporation (the "Company"), certain
holders of capital stock of the Company (the "Existing Investors") and General
Electric Company, a New York corporation acting through its Power Systems
business unit (the "Warrantholder").
RECITALS
WHEREAS, each of the Existing Investors holds that number of
shares of Common Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock of the Company and/or shares of Common Stock issued
upon conversion thereof set forth beneath such Existing Investor's name on the
signature page hereto, and possesses registration rights, information rights,
rights of first refusal, and other rights pursuant to the Third Amended and
Restated Investors' Rights Agreement, dated as of November 10, 1999 (the
"Investors' Rights Agreement");
WHEREAS, the Warrantholder has been issued a warrant (the
"Warrant") to purchase a certain number of shares of Common Stock of the Company
(the "Warrant Shares") pursuant to that certain Warrant to Purchase Shares of
Common Stock of Saba Software, Inc. dated as of December 30, 1999 (the "Warrant
Agreement");
WHEREAS, the Existing Investors are holders of a majority of the
outstanding Registrable Securities (as defined in the Investors' Rights
Agreement) and the Existing Investors are the holders of at least two-thirds of
the outstanding shares of Common Stock issued or issuable upon conversion of the
Series C Preferred Stock of the Company currently outstanding;
WHEREAS, the Company and such Existing Investors desire to amend
the Investors' Rights Agreement as provided herein; and
NOW, THEREFORE, in consideration of the mutual premises and
covenants set forth herein, the Existing Investors and the Company hereby agree
that the Investors' Rights Agreement shall be amended as set forth herein, and
the parties hereto further agree as follows:
1. Amendment of Definition of "Registrable Securities". Section 1.1(g) of the
Investors' Rights Agreement is hereby amended to read as follows:
<PAGE> 23
(g) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock, (ii) the Founder's Shares, (iii) solely for purposes of Sections
1 and 3 of the Agreement, the Common Stock issued upon exercise of that
certain Warrant to Purchase Shares of Common Stock of Saba Software,
Inc., by and between the Company and General Electric Company acting
through its Power Systems business unit and dated as of December 30,
1999 (the "Warrant Shares") and (iv) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of
the shares referenced in (i), (ii) or (iii) above, excluding in all
cases, however, any Registrable Securities that have been sold by a
person in a transaction in which his or her rights under this Section 1
are not assigned or that have been sold by a person pursuant to a
registration statement under the Act covering such Registrable
Securities that has been declared effective by the SEC or in an open
market transaction under Rule 144 of the Act. Notwithstanding anything
to the contrary set forth in this Section 1.1(g), neither the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock
or the Founder's Shares (or any shares of Common Stock otherwise deemed
"Registrable Securities" with respect thereto pursuant to clause (iv) of
this Section 1.1(g)) shall be deemed Registrable Securities and the
holders thereof shall not be deemed Holders for the purposes of Section
1.2, 1.6, 1.12, and 1.14. Notwithstanding anything to the contrary set
forth in this Section 1.1(g), neither the Warrant Shares nor any shares
of Common Stock otherwise deemed "Registrable Securities" with respect
thereto pursuant to clause (iv) of this Section 1.1(g) shall be deemed
Registrable Securities and the holders thereof shall not be deemed
Holders for the purposes of (i) Section 1.14, and (ii) determining
whether the Company is required to effect a registration or file a
registration statement pursuant to Section 1.2 or Section 1.12.
2. Amendment of Underwriting Requirements for "Demand" Registrations. The
penultimate sentence of Section 1.2(b) of the Investors' Rights Agreement is
hereby amended to read as follows:
Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten,
then the Initiating Holders shall so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and
the number of shares of Registrable Securities that may be included in
the underwriting shall be allocated among all Holders thereof, including
the Initiating Holders, in proportion (as nearly as practicable) to the
amount of Registrable Securities of the Company owned by each Holder;
provided, however, that the number of shares of Registrable Securities
to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting;
provided, further, that the number of shares of Registrable Securities
to be included in such underwriting (excluding any Warrant Shares or
other securities issuable upon the exercise of warrants or options
granted to vendors or customers of the Company ("Vendor/Customer
Shares") which are entitled to be included in such underwriting) shall
not be reduced unless the Warrant Shares and Vendor/Customer Shares are
first entirely excluded from such underwriting.
3. Amendment of Underwriting Requirements for "Piggy-Back" Registration. Section
1.8 of the Investors' Rights Agreement is hereby amended to read as follows:
1.8. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the
Company shall not be required
2
<PAGE> 24
under Section 1.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it and then
only in such quantity as the underwriters determine in their sole
discretion will not, jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering
exceeds the amount of securities sold other than by the Company that the
underwriters determine in their sole discretion is compatible with the
success of the offering, then the number of shares of Holders'
securities to be included in such offering shall be reduced in such
manner as the Company and the underwriters determine to permit the
success of such offering (the securities so included to be apportioned
pro rata among the selling stockholders according to the total amount of
securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders) but in no event shall (i) the amount of
securities of the selling Holders of Registrable Securities included in
the offering be reduced below thirty percent (30%) of the total amount
of securities included in such offering, unless such offering is the
initial public offering of the Company's securities in which case the
selling stockholders may be excluded if the underwriters make the
determination described above and no other stockholders' securities are
included, (ii) notwithstanding clause (i) above and except as provided
in clause (iii) below, any shares being sold by a stockholder exercising
a demand registration right similar to that granted in Section 1.2 be
excluded from such offering, (iii) the number of shares of Registrable
Securities to be included in such underwriting (excluding any Warrant
Shares or Vendor/Customer Shares which are entitled to be included in
such underwriting), be reduced unless the Warrant Shares and
Vendor/Customer Shares are first entirely excluded from such
underwriting, and (iv) the number of shares of Registrable Securities to
be included in such underwriting (excluding any Founder's Shares,
Warrant Shares and Vendor/Customer Shares) be reduced unless the
Founder's Shares are first entirely excluded from such underwriting. For
purposes of the preceding parenthetical concerning apportionment, for
any selling stockholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners
and stockholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of
any of the foregoing persons shall be deemed to be a single "selling
stockholder," and any pro-rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in
such "selling stockholder," as defined in this sentence.
4. Amendment of Underwriting Requirements for "Form S-3" Registrations. Section
1.12(b) of the Investors' Rights Agreement is hereby amended by adding the
following sentence to the end of such Section 1.12(b):
Notwithstanding any other provision of this Section 1.12, if the
underwriter of shares to be registered and sold pursuant to this Section
1.12 advises, in writing, the Holders desiring to participate in such
registration that marketing factors require a limitation of the number
of shares to be underwritten, then the number of shares of Registrable
Securities that may be included in the underwriting shall be allocated
among all Holders thereof, including the Holders initiating the
registration request hereunder, in proportion (as nearly as practicable)
to the amount of Registrable Securities of the Company owned by each
Holder; provided, however, that the number of shares of Registrable
Securities to be included in such underwriting (excluding any Warrant
Shares or Vendor/Customer Shares which are entitled to be included in
such underwriting) shall not be reduced unless the Warrant Shares and
Vendor/Customer Shares are first entirely excluded from such
underwriting.
3
<PAGE> 25
5. Agreement to be Bound. Upon execution of this Amendment, the Warrantholder
shall be deemed to be a party to the Investors' Rights Agreement and
Warrantholder agrees to be subject to the terms and conditions thereof.
6. Interpretation of Amendment. This Amendment shall be considered a part of and
construed in conjunction with the Investors' Rights Agreement. In the event of
any inconsistency or conflict between the Investors' Rights Agreement and this
Amendment, the terms, conditions and provisions of this Amendment shall govern
and control.
7. Continuance of Investors' Rights Agreement. Except as expressly modified by
this Amendment, the Investors' Rights Agreement will continue in full force and
effect in accordance with its terms.
8. Miscellaneous.
8.1 Amendment of Investors' Rights Agreement. Effective upon the
execution and delivery of this Amendment by the Company, the Warrantholder and
the Existing Investors, the Investors' Rights Agreement shall be amended as
herein provided pursuant to Section 3.7 of the Investors' Rights Agreement. This
Amendment is entered into on behalf of all Investors (as defined in the
Investors' Rights Agreement) and shall be binding upon each holder of any
Registrable Securities currently outstanding, each future holder of all such
Registrable Securities, the Warrantholder and the Company.
8.2 Governing Law. This Amendment shall be governed by and construed
under the laws of the State of California, as applied to agreements among
California residents entered into and to be performed entirely within
California.
8.3 Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.4 Entire Agreement. The Investors' Rights Agreement and this Amendment
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. All previous discussions and
agreements with respect to such subject matter are superseded by the Investors'
Rights Agreement and this Amendment.
* * *
4
<PAGE> 26
Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
COMPANY:
Saba Software, Inc.
By:
----------------------------------
Babak Yazdani, President
WARRANTHOLDER:
General Electric Company
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
EXISTING INVESTOR:
Babak Yazdani
(7,000,000 shares of Common Stock)
By:
----------------------------------
Babak Yazdani
<PAGE> 27
Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement
EXISTING INVESTORS:
Sequoia Capital VIII
(5,177,822 shares of Series B Preferred Stock)
(594,062 shares of Series C Preferred Stock)
(282,286 shares of Series D Preferred Stock)
Sequoia International Technology Partners VIII
(65,701 shares of Series B Preferred Stock)
(7,538 shares of Series C Preferred Stock)
(3,573 shares of Series D Preferred Stock)
Sequoia International Technology Partners VIII (Q)
(342,788 shares of Series B Preferred Stock)
(39,329 shares of Series C Preferred Stock)
(18,643 shares of Series D Preferred Stock)
By: SC VIII Management LLC, a California limited
liability partner
Its: General Partner
By:
----------------------------------
Managing Member
CMS Partners LLC
(114,263 shares of Series B Preferred Stock)
(13,109 shares of Series C Preferred Stock)
(6,214 shares of Series D Preferred Stock)
Sequoia 1997
(12,569 shares of Series B Preferred Stock)
(1,442 shares of Series C Preferred Stock)
By:
----------------------------------
Sequoia Capital Franchise Fund
(947,168 shares of Series C Preferred Stock)
(465,569 shares of Series D Preferred Stock)
<PAGE> 28
Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement
Sequoia Capital Franchise Partners
(167,147 shares of Series C Preferred Stock)
(63,487 shares of Series D Preferred Stock)
By: SCFF Management, LLC, a Delaware limited liability company
Its: General Partner
By:
----------------------------------
Managing Member
<PAGE> 29
Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement
EXISTING INVESTORS:
Omega Ventures III, L.L.C.
(677,806 shares of Series C Preferred Stock)
RS & Co. Offshore Omega Ventures III
(1,056,970 shares of Series C Preferred Stock)
By: RS Omega III Holdings, L.L.C.
Its: Authorized Signatory
By:
----------------------------------
Managing Member
Omega Bayview, L.L.C.
(93,448 shares of Series C Preferred Stock)
(23,522 shares of Series D Preferred Stock)
By:
----------------------------------
Authorized Signatory
Crossover Fund II, L.P.
(173,526 shares of Series C Preferred Stock)
By: Crossover Investment Management, L.L.C.
Its: General Partner
By:
----------------------------------
Managing Member
Crosslink Omega Ventures III, L.L.C.
(170,612 shares of Series D Preferred Stock)
By:
----------------------------------
Crosslink Offshore Omega Ventures III
(266,051 shares of Series D Preferred Stock)
By:
----------------------------------
<PAGE> 30
Amendment No. 1 to Third Amended and Restated Investors' Rights Agreement
Crosslink Crossover Fund III, L.P.
(43,678 shares of Series D Preferred Stock)
By:
----------------------------------
<PAGE> 1
Exhibit 10.7
LEASE AGREEMENT BLDG: Westport 12
OWNER: 90
PROP: 912
UNIT: 200
TENANT: 91201
THIS LEASE, made this 16th day of March, 1999 between WESTPORT JOINT
VENTURE, a California general partnership, hereinafter called Landlord, and
SABA SOFTWARE, INCORPORATED, a Delaware corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit
"A", attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
Subject to Paragraph 54, for the period beginning on May 1,1999 through November
30, 2000, Premises shall mean the second floor and related Common Area on the
first floor (for a total square footage of 25, 884+ square feet) of that certain
48,384 +/- square foot, two-story building located at 2400 Bridge Parkway,
Redwood City, California 94065 as shown in Red on Exhibit B attached hereto (the
"Initial Leased Premises"); beginning December 1, 2000 through April 30, 2001,
the Premises shall be increased to approximately 36,000+ square feet; and
beginning May 1, 2001, Premises shall mean one hundred percent of the Building,
with the total additional 22,500+/- square feet (the "Must Take Space") shown in
Blue on Exhibit B attached hereto. Said Premises is more particularly shown
within the area outlined in Red and Blue on Exhibit A attached hereto. The
entire parcel, of which the Premises is a part, is shown within the area
outlined in Green on Exhibit A attached. The Initial Leased Premises shall be
improved by Landlord as shown on Exhibit B, and is leased in the configuration
as shown in Red on Exhibit B attached hereto. The Must Take Space shall be
improved pursuant to Lease Paragraph 54.
As used herein the Complex shall mean and include all of the land outlined in
Green and described in Exhibit "A", attached hereto, and all of the buildings,
common area private roads within the Complex, improvements, fixtures and
equipment now or hereafter situated on said land.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances and
for no other purpose. Tenant shall not do or permit to be done in or about the
Premises or the Complex nor bring or keep or permit to be brought or kept in or
about the Premises or the Complex anything which is prohibited by or will in any
way increase the existing rate of (or otherwise affect) fire or any insurance
covering the Complex or any part thereof, or any of its contents, or will cause
a cancellation of any insurance covering the Complex or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises or the Complex which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Complex or injure or
unreasonably annoy them, or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises or the Complex. No
sale by auction shall be permitted on the Premises. Tenant shall not place any
loads upon the floors, walls, or ceiling, which endanger the structure, or place
any harmful fluids or other materials in the drainage system of the building, or
overload existing electrical or other mechanical systems. No waste materials or
refuse shall be dumped upon or permitted to remain upon any part of the Premises
or outside of the building in which the Premises are a part, except in trash
containers placed inside exterior enclosures designated by Landlord for that
purpose or inside of the building proper where designated by Landlord. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to remain
outside the Premises or on any portion of common area of the Complex. No
loudspeaker or other device, system or apparatus which can be heard outside the
Premises shall be used in or at the Premises without the prior written consent
of Landlord. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless
against any loss, expense, damage, attorney's fees, or liability arising out of
failure of Tenant to comply with any applicable law. Tenant shall comply with
any covenant, condition, or restriction ("CC&R's") affecting the Premises. The
provisions of this paragraph are for the benefit of Landlord only and shall not
be construed to be for the benefit of any tenant or occupant of the Complex.
2. TERM *
A. The term of this Lease shall be for a period of FIFTEEN (15) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraph
2(B) and 3, shall commence on the 1st day of May, 1999 and end on the 30th day
April, 2014.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:
(a) One day after a Certificate of Occupancy is granted by the proper
governmental agency, or, if the governmental agency having jurisdiction over
the area in which the Premises are situated does not issue certificates of
occupancy, then the same number of days after certification by Landlord's
architect or contractor that Landlord's construction work has been completed; or
(b) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(c) When the Tenant Improvements have been substantially completed for
Tenant's use and occupancy, in accordance and compliance with Exhibit B of this
Lease Agreement; or
(d) As otherwise agreed in writing.
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom; but in that event
the commencement and termination dates of the Lease, and all other dates
affected thereby shall be revised to conform to the date of Landlord's delivery
of possession, as specified in Paragraph 2(b), above. The above is, however,
subject to the provisions that [ILLEGIBLE] 60 days from the commencement date
herein (except those delays caused by Acts of God, strikes, war, utilities,
governmental [ILLEGIBLE] materials, and delays beyond Landlord's control shall
be excluded in calculating such period) in which instance Tenant, at its
option, may, by written notice to Landlord, terminate this Lease.
* It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account for
the number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month)
at the Basic Rent scheduled for the projected commencement date as shown in
Paragraph 43.
<PAGE> 2
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as Landlord
may designate without deduction, offset, prior notice, or demand, and Landlord
agrees to accept as Basic Rent for the leased Premises the total sum of THIRTY
ONE MILLION FIVE HUNDRED SIXTY FIVE THOUSAND FIVE HUNDRED EIGHTY EIGHT AND
40/100 ($31,565,588.40) Dollars in lawful money of the United States of America,
payable as follows:
SEE PARAGRAPH 43 FOR BASIC RENT SCHEDULE.
B. Time for Payment. In the event that the term of this Lease commences
on a date other than the first day of a calendar month, on the date of
commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number
of days between such date of commencement and the first day of the next
succeeding calendar month bears to the number of days in the partial month. In
the event that the term of this Lease for any reason ends on a date other than
the last day of a calendar month, on the first day of the last calendar month of
the term hereof Tenant shall pay to Landlord as rent for the period from said
first day of said last calendar month to and including the last day of the term
hereof that proportion of the monthly rent hereunder which the number of days
between said first day of said last calendar month and the last day of the term
hereof bears to the number of days in the partial month.
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rental as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to
the delinquent rental due, a late charge for each rental payment in default ten
(10) days. Said late charge shall equal ten (10%) percent of each rental
payment so in default.
D. Additional Rent. Beginning with the commencement date of the term of
this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:
(a) Tenant's proportionate share of all Taxes relating to the Complex as
set forth in Paragraph 12, and
(b) Tenant's proportionate share of all insurance premiums relating to
the Complex, as set forth in Paragraph 15, and
(c) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including common
areas of the Building) and Common Areas of the Complex in which the
Premises are located as set forth in Paragraph 7, and
(d) All charges, costs and expenses, which Tenant is required to pay
hereunder, together with all interest and penalties, costs and
expenses including attorneys' fees and legal expenses, that may
accrue thereto in the event of Tenant's failure to pay such amounts,
and all damages, reasonable costs and expenses which Landlord may
incur by reason of default of Tenant or failure on Tenant's part to
comply with the terms of this Lease. In the event of nonpayment by
Tenant of Additional Rent, Landlord shall have all the rights and
remedies with respect thereto as Landlord has for nonpayment of rent.
The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent
(i) within five days for taxes and insurance and within thirty days for all
other Additional Rent items after presentation of invoice from Landlord or
Landlord's agent setting forth such Additional Rent and/or (ii) at the option of
Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled within 120 days of the end of each calendar year or more
frequently if Landlord so elects to do so at Landlord's sole and absolute
discretion, as compared to Landlord's actual expenditure for said Additional
Rent items, with Tenant paying to Landlord, upon demand, any amount of actual
expenses expended by Landlord in excess of said estimated amount, or Landlord
crediting to Tenant (providing Tenant is not in default in the performance of
any of the terms, covenants and conditions of this Lease) any amount of
estimated payments made by Tenant in excess of Landlord's actual expenditures
for said Additional Rent items.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease,
and if the term hereof shall expire or shall otherwise terminate on a day other
than the last day of a calendar year, the actual Additional Rent incurred for
the calendar year in which the term hereof expires or otherwise terminates
shall be determined and settled on the basis of the statement of actual
Additional Rent for such calendar year and shall be prorated in the proportion
which the number of days in such calendar year preceding such expiration or
termination bears to 365.
E. Fixed Management Fee. Beginning with the Commencement Date of the Term
of the Lease, Tenant shall pay, in addition to the Basic Rent and Additional
Rent, a fixed management fee equal to 3% of the Basic Rent due for each month
during the Lease Term ("Management Fee"). The Management Fee shall be paid to
A&P Property Management Company at 2560 Mission College Blvd., Suite 101, Santa
Clara, CA 95054.
F. Place of Payment of Rent and Additional Rent. All Basic Rent hereunder
and all payments hereunder for Additional Rent shall be paid to Landlord at the
office of Landlord at 2560 Mission College Blvd., Suite 101, Santa Clara, CA
95054 or to such other person or to such other place as Landlord may from time
to time designate in writing.
*G. Security Deposit. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of FOUR HUNDRED SIXTY NINE THOUSAND
THREE HUNDRED TWENTY FOUR AND 80/100 ($469,324.80) Dollars. Said sum shall be
held by Landlord as a Security Deposit for the faithful performance by Tenant of
all of the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the term hereof. If Tenant defaults with respect to
any provision of this Lease, including, but not limited to, the provisions
relating to the payment of rent and any of the monetary sums due herewith.
Landlord may (but shall not be required to) use, apply or retain all or any part
of this Security Deposit for the payment of any other amount which Landlord may
spend by reason of Tenant's default or to compensate Landlord for any other loss
or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said Deposit is so used or applied, Tenant shall, within ten (10)
days after written demand therefor, deposit cash with Landlord in the amount
sufficient to restore the Security Deposit to its original amount. Tenant's
failure to do so shall be a material breach of this Lease. Landlord shall not be
required to keep this Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on such Deposit. If Tenant fully and
faithfully performs every provision of this Lease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Tenant (or at
Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of the Lease term and after Tenant has vacated the Premises. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest whereupon Tenant
agrees to release Landlord from liability for the return of such Deposit or the
accounting therefor.
[ILLEGIBLE] AND COMMON AREA Subject to the terms and conditions of this Lease
and such Rules and Regulations as Landlord may from time to time prescribe,
Tenant and Tenant's employees, invitees and customers shall, in common with
other occupants of the Complex in which the Premises are located, and their
respective employees, invitees and customers, and others entitled to the use
thereof, have the non-exclusive right to use the access roads, parking areas,
and facilities provided and designated by Landlord for the general use and
convenience of the occupants of the Complex in which the Premises are located,
which areas and facilities are referred to herein as "Common Area". This right
shall terminate upon the termination of this Lease. Landlord reserves the right
from time to time to make changes in the shape, size, location, amount and
extent of Common Area. Landlord further reserves the right to promulgate such
reasonable rules and regulations relating to the use of the Common Area, and any
part or parts thereof, as Landlord may deem appropriate for the best interests
of the occupants of the Complex. The Rules and Regulations shall be binding upon
Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them
and cooperate in their observance. Such Rules and Regulations may be amended by
Landlord form time to time, with or without advance notice, and all amendments
shall be effective upon delivery of a copy to Tenant. Landlord shall not be
responsible to Tenant for the non-performance by any other tenant or occupant of
the Complex of any of said Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The manner in
which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of Landlord.
* $140,313.60 Cash due upon Lease execution.
$68,486.40 Promissory Note due December 1, 2000.
$260,524.80 Promissory Note due May 1, 2001.
page 2 of 8
<PAGE> 3
6. PARKING. Tenant shall have the right to use with other tenants or occupants
of the Complex 117 parking spaces in the common parking areas of the Complex.
Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or
invitees shall not use parking spaces in excess of said 117 spaces allocated to
Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion,
to specifically designate the location of Tenant's parking spaces within the
common parking areas of the Complex in the event of a dispute among the tenants
occupying the building and/or Complex referred to herein, in which event Tenant
agrees that Tenant. Tenant's employees, agents, representatives and/or invitees
shall not use any parking spaces other than those parking spaces specifically
designated by Landlord for Tenant's use. Said parking spaces, if specifically
designated by Landlord to Tenant, may be relocated by Landlord at any time, and
from time to time. Landlord reserves the right, at Landlord's sole discretion,
to rescind any specific designation of parking spaces, thereby returning
Tenant's parking spaces to the common parking area. Landlord shall give Tenant
written notice of any change in Tenant's parking spaces. Tenant shall not, at
any time, park, or permit to be parked, any trucks or vehicles adjacent to the
loading areas so as to interfere in any way with the use of such areas, nor
shall Tenant at any time park, or permit the parking of Tenant's trucks or other
vehicles or the trucks and vehicles of Tenant's suppliers or others, in any
portion of the common area not designated by Landlord for such use by Tenant.
Tenant shall not park nor permit to be parked, any inoperative vehicles or
equipment on any portion of the common parking area or other common areas of the
Complex. Tenant agrees to assume responsibility for compliance by its employees
with the parking provision contained herein. If Tenant or its employees park in
other than such designated parking areas, then Landlord may charge Tenant, as an
additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for
each day or partial day each such vehicle is parked in any area other than that
designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow
away from the Complex any vehicle belonging to Tenant or Tenant's employees
parked in violation of these provisions, or to attach violation stickers or
notices to such vehicles. Tenant shall use the parking areas for vehicle parking
only, and shall not use the parking areas for storage. See Paragraph 55.
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE
COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED. As Additional Rent and
in accordance with Paragraph 4D of this Lease. Tenant shall pay to Landlord
Tenant's proportionate share (calculated on a square footage or other equitable
basis as calculated by Landlord) of all expenses of operation, management,
maintenance and repair of the Common Areas of the Complex including, but not
limited to, license, permit, and inspection fees; security; utility charges
associated with exterior landscaping and lighting (including water and sewer
charges); all charges incurred in the maintenance and replacement of landscaped
areas, lakes, private roads within the Complex and roads with reciprocal
easement areas; parking lots and paved areas (including repairs, replacement,
resealing and restriping), sidewalks, driveways, maintenance, repair and
replacement of all fixtures and electrical, mechanical, and plumbing systems;
structural elements and exterior surfaces of the buildings; salaries and
employee benefits of personnel and payroll taxes applicable thereto; supplies,
materials, equipment and tools; the cost of capital expenditures which have the
effect of reducing operating expenses, provided, however that in the event
Landlord makes such capital improvements. Landlord may amortize its investment
in said improvements (together with interest at the rate of fifteen (15%)
percent per annum on the unamortized balance) as an operating expense in
accordance with standard accounting practices, provided, that such amortization
is not a rate greater than the anticipated savings in the operating expenses.
"Additional Debt" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
As Additional Rent and in accordance with paragraph 4D of this Lease.
Tenant shall pay its proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of the cost of operation
(including common utilities), management, maintenance, and repair of the
building (including common areas such as lobbies, restrooms, janitor's closets,
hallways, elevators, mechanical and telephone rooms, stairwells, entrances,
spaces above the ceilings and janitorization of said common areas) in which the
Premises are located. The maintenance items herein referred to include, but are
not limited to, all windows, window frames, plate glass, glazing, truck doors,
main plumbing systems of the building (such as water and drain lines, sinks,
toilets, faucets, drains, showers and water fountains), main electrical systems
(such as panels and conduits), heating and airconditioning systems (such as
compressors, fans, air handlers, ducts, boilers, heaters), store fronts, roofs,
downspouts, building common area interiors (such as wall coverings, window
covering, floor coverings and partitioning), ceilings, building exterior doors,
skylights (if any), automatic fire extinguishing systems, and elevators;
license, permit, and inspection fees; security; salaries and employee benefits
of personnel and payroll taxes applicable thereto; supplies, materials,
equipment and tools; the cost of capital expenditures which have the effect of
reducing operating expenses, provided, however, that in the event Landlord makes
such capital improvements. Landlord may amortize its investment in said
improvements (together with interest at the rate of fifteen (15%) percent per
annum on the unamortized balance) as an operating expense in accordance with
standard accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses. Tenant hereby
waives all rights under, and benefits of, subsection 1 of Section 1932 and
Sections 1941 and 1942 of the California Civil Code and under any similar law,
statute or ordinance now or hereafter in effect. See Paragraph 56.
8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire, normal
wear and tear excepted), with all interior walls painted, or cleaned so that
they appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; the airconditioning and
heating equipment serviced by a reputable and licensed service firm and in good
operating condition (provided the maintenance of such equipment has been
Tenant's responsibility during the term of this Lease) together with all
alterations, additions, and improvements which may have been made in, to, or on
the Premises (except movable trade fixtures installed at the expense of Tenant)
except that Tenant shall ascertain from Landlord within thirty (30) days before
the end of the term of this Lease whether Landlord desires to have the Premises
or any part or parts thereof restored to their condition and configuration as
when the Premises were delivered to Tenant and if Landlord shall so desire,
then Tenant shall restore said Premises or such part or parts thereof before
the end of this Lease at Tenant's sole cost and expense. Tenant, on or before
the end of the term or sooner termination of this Lease, shall remove all of
Tenant's personal property and trade fixtures from the Premises, and all
property not so removed on or before the end of the term or sooner termination
of this Lease shall be deemed abandoned by Tenant and title to same shall
thereupon pass to Landlord without compensation to Tenant. Landlord may, upon
termination of this Lease, remove all moveable furniture and equipment so
abandoned by Tenant, at Tenant's sole cost, and repair any damage caused by
such removal at Tenant's sole cost. If the Premises be not surrendered at the
end of the term or sooner termination of this Lease, Tenant shall indemnify
Landlord against loss or liability resulting from the delay by Tenant in so
surrendering the Premises including, without limitation, any claims made by any
succeeding tenant founded on such delay. Nothing contained herein shall be
construed as an extension of the term hereof or as a consent of Landlord to any
holding over by Tenant. The voluntary or other surrender of this Lease or the
Premises by Tenant or a mutual cancellation of this Lease shall not work as a
merger and, at the option of Landlord, shall either terminate all or any
existing subleases or subtenancies or operate as an assignment to Landlord of
all or any such subleases or subtenancies.
9. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord first and obtained by Tenant, but at the cost of
Tenant, and any addition to, or alteration of, the Premises, except moveable
furniture and trade fixtures, shall at once become a part of the Premises and
belong to Landlord. Landlord reserves the right to approve all contractors and
mechanics proposed by Tenant to make such alterations and additions. Tenant
shall retain title to all moveable furniture and trade fixtures placed in the
Premises. All heating, lighting, electrical, airconditioning, floor to ceiling
partitioning, drapery, carpeting, and floor installations made by Tenant,
together with all property that has become an integral part of the Premises,
shall not be deemed trade fixtures. Tenant agrees that it will not proceed to
make such alteration or additions, without having obtained consent from
Landlord to do so, and until five (5) days from the receipt of such consent, in
order that Landlord may post appropriate notices to avoid any liability to
contractors or material suppliers for payment for Tenant's improvements. Tenant
will at all times permit such notices to be posted and to remain posted until
the completion of work. Tenant shall, if required by Landlord, secure at
Tenant's own cost and expense, a completion and lien indemnity bond,
satisfactory to Landlord, for such work. Tenant further covenants and agrees
that any mechanic's lien filed against the Premises or against the Complex for
work claimed to have been done for, or materials claimed to have been furnished
to Tenant, will be discharged by Tenant, by bond or otherwise, within fifteen
(15) days after the filing thereof, at the cost and expense of Tenant. Any
exceptions to the foregoing must be made in writing and executed by both
Landlord and Tenant. Notwithstanding anything to the contrary herein, under no
circumstances shall Tenant be authorized to penetrate the soil to a depth that
exceeds three and one-half feet from the uppermost surface of the soil.
10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and [illegible], and in good and
sanitary condition. Tenant's maintenance and repair responsibilities herein
referred to include, but are not limited to, janitorization, plumbing systems
within the non-common areas of the Premises (such as water and drain lines,
sinks), electrical systems within the non-common areas of the Premises (such as
outlets, lighting fixtures, lamps, bulbs, tubes, ballasts), heating and
airconditioning controls within the non-common areas of the Premises (such as
mixing boxes, thermostats, time clocks, supply and return grills), all interior
improvements within the premises including but not limited to: wall coverings,
window coverings, acoustical ceilings, vinyl tile, carpeting, partitioning,
doors (both interior and exterior, including closing mechanisms, latches,
locks), and all other interior improvements of any nature whatsoever. Tenant
agrees to provide carpet shields under all rolling chairs or to otherwise be
responsible for wear and tear of the carpet caused by such rolling chairs if
such wear and tear exceeds that caused by normal foot traffic in surrounding
areas. Areas of excessive wear shall be replaced at Tenant's sole expense upon
Lease termination. See Paragraph 57.
page 3 of 8
<PAGE> 4
11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED As additional
Rent and in accordance with paragraph 4D of this Lease, Tenant shall pay its
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the cost of all utility charges such as water, gas,
electricity, telephone, telex and other electronic communications service, sewer
service, waste-pick-up and any other utilities, materials or services furnished
directly to the building in which the Premises are located, including, without
limitation, any temporary or permanent utility surcharge or other exactions
whether or not hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or observance of
any of the terms, covenants or conditions of this Lease to be performed or
observed by it, Landlord shall furnish to the Premises between the hours of 8:00
AM and 6:00 PM, Mondays through Fridays (holidays excepted) and subject to the
rules and regulations of the Complex hereinbefore referred to, reasonable
quantities of water, gas and electricity suitable for the intended use of the
Premises and heat and airconditioning required in Landlord's judgment for the
comfortable use and occupation of the Premises for such purposes. Tenant may,
from time to time, have its staff and equipment operate on a twenty-four (24)
hour-a-day, seven (7) day-a-week schedule, and Tenant shall pay for any extra
utilities used by Tenant. Tenant agrees that at all times it will cooperate
fully with Landlord and abide by all regulations and requirements that Landlord
may prescribe for the proper functioning and protection of the building heating,
ventilating and airconditioning systems. Whenever heat generating machines,
equipment, or any other devices (including exhaust fans) are used in the
Premises by Tenant which affect the temperature or otherwise maintained by the
airconditioning system, Landlord shall have the right to install supplementary
airconditioning units in the Premises and the cost thereof, including the cost
of installation and the cost of operation and maintenance thereof, shall be paid
by Tenant to Landlord upon demand by Landlord. Tenant will not, without the
written consent of Landlord, use any apparatus or device in the Premises
(including, without limitation), electronic data processing machines or machines
using current in excess of 110 Volts which will in any way increase the amount
of electricity, gas, water or airconditioning usually furnished or supplied to
premises being used as general office space, or connect with electric current
(except through existing electrical outlets in the Premises), or with gas or
water pipes any apparatus or device for the purposes of using electric current,
gas, or water. If Tenant shall require water, gas, or electric current in excess
of that usually furnished or supplied to premises being used as general office
space, Tenant shall first obtain the written consent of Landlord, which consent
shall not be unreasonably withheld and Landlord may cause an electric current,
gas, or water meter to be installed in the Premises in order to measure the
amount of electric current, gas or water consumed for any such excess use. The
cost of any such meter and of the installation, maintenance and repair thereof,
all charges for such excess water, gas and electric current consumed (as shown
by such meters and at the rates then charged by the furnishing public utility);
and any additional expense incurred by Landlord in keeping account of electric
current, gas, or water so consumed shall be paid by Tenant, and Tenant agrees to
pay Landlord therefor promptly upon demand by Landlord. See Paragraph 58.
12. TAXES A. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which prorata share shall be allocated to the leased Premises by
square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes", as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by any change in ownership of
the Complex) now or hereafter imposed by any governmental or quasi-governmental
authority or special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the value,
occupancy or use of, all or any portion of the Complex (as now constructed or as
may at any time hereafter be constructed, altered, or otherwise changed) or
Landlord's interest therein; any improvements located within the Complex
(regardless of ownership); the fixtures, equipment and other property of
Landlord, real or personal, that are an integral part of and located in the
Complex; or parking areas, public utilities, or energy within the Complex; (ii)
all charges, levies or fees imposed by reason of environmental regulation or
other governmental control of the Complex; and (iii) all costs and fees
(including attorneys' fees) incurred by Landlord in contesting any Real Property
Tax and in negotiating with public authorities as to any Real Property Tax. If
at any time during the term of this Lease the taxation or assessment of the
Complex prevailing as of the commencement date of this Lease shall be altered so
that in lieu of or in addition to any Real Property Tax described above there
shall be levied, assessed or imposed (whether by reason of a change in the
method of taxation or assessment, creation of a new tax or charge, or any other
cause) an alternate or additional tax or charge (i) on the value, use or
occupancy of the Complex or Landlord's interest therein or (ii) on or measured
by the gross receipts, income or rentals from the Complex, on Landlord's
business of leasing the Complex, or computed in any manner with respect to the
operation of the Complex, then any such tax or charge, however designated, shall
be included within the meaning of the term "Real Property Taxes" for purposes of
this Lease. If any Real Property Tax is based upon property or rents unrelated
to the Complex, then only that part of such real Property Tax that is fairly
allocable to the Complex shall be included within the meaning of the term "Real
Property Taxes". Notwithstanding the foregoing, the term "Real Property Taxes"
shall not include estate, inheritance, gift or franchise taxes of Landlord or
the federal or state net income tax imposed on Landlord's income from all
sources. Tenant shall not be responsible for any real estate tax increase herein
that are attributable solely to extraordinary improvements in excess of typical
office tenant improvements for other tenants in the Complex.
B. Taxes on Tenant's Property
(a) Tenant shall be liable for and shall pay ten days before delinquency, taxes
levied against any personal property or trade fixtures placed by Tenant in or
about the Premises. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of Tenant and if Landlord, after
written notice to Tenant, pays the taxes based on such increased assessment,
which Landlord shall have the right to do regardless of the validity thereof,
but only under proper protest if requested by Tenant, Tenant shall upon demand,
as the case may be, repay to Landlord the taxes so levied against Landlord, or
the proportion of such taxes resulting from such increase in the assessment;
provided that in any such event Tenant shall have the right, in the name of
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest, and any amounts so recovered shall belong to Tenant.
(b) If the Tenant improvements in the Premises, whether installed, and/or
paid for by Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which standard office improvements in
other space in the Complex are assessed, then the real property taxes and
assessments levied against Landlord or the Complex by reason of such excess
assessed valuation shall be deemed to be taxes levied against personal property
of Tenant and shall be governed by the provisions of 12Ba, above. If the records
of the County Assessor are available and sufficiently detailed to serve as a
basis for determining whether said Tenant improvements are assessed at a higher
valuation than standard office improvements in other space in the Complex, such
records shall be binding on both the Landlord and the Tenant. If the records of
the County Assessor are not available or sufficiently detailed to serve as a
basis for making said determination, the actual cost of construction shall be
used.
13. LIABILITY INSURANCE Tenant at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general liability insurance
with a combined single limit coverage of not less than Two Million Dollars
($2,000,000) per occurrence for injuries to or death of persons occurring in, on
or about the Premises or the Complex, and property damage. The policy or
policies affecting such insurance, certificates of insurance of which shall be
furnished to Landlord, shall name Landlord as additional insureds, and shall
insure any liability of Landlord, contingent or otherwise, as respects acts or
omissions of Tenant, its agents, employees or invitees or otherwise by any
conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder, shall be issued by an insurance company admitted to
transact business in the State of California; and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days'
prior written notice to Landlord. If, during the term of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this paragraph 13 is not adequate, Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any of
such policies shall be used for the repair or replacement of such items so
insured.
[ILLEGIBLE] policies of workman's compensation insurance and any other
employee benefit insurance sufficient to comply with all laws.
15. PROPERTY INSURANCE Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such
insurance cost is increased due to Tenant's use of the Premises or the Complex,
Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall
have no interest in nor any right to the proceeds of any insurance procured by
Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for loss
or damage caused by fire or any of the extended coverage casualties included in
the releasing party's insurance policies, irrespective of the cause of such fire
or casualty; provided, however, that if the insurance policy of either releasing
party prohibits such waiver, then this waiver shall not take effect until
consent to such waiver is obtained. If such waiver is so prohibited, the insured
party affected shall promptly notify the other party thereof.
page 4 of 8
<PAGE> 5
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex but excluding, however, the willful
misconduct or negligence of Landlord, its agents, servants, employees,
invitees, or contractors of which negligence Landlord has knowledge and
reasonable time to correct. Except as to injury to persons or damage to
property to the extent arising from the willful misconduct or the negligence of
Landlord, its agents, servants, employees, invitees, or contractors. Tenant
shall hold Landlord harmless from and defend Landlord against any and all
expenses, including reasonable attorneys' fees, in connection therewith,
arising out of any injury to or death of any person or damage to or destruction
of property occurring in, on or about the Premises, or any part thereof, from
any cause whatsoever.
17. COMPLIANCE Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of
the provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or
the admission of Tenant in any action against Tenant, whether Landlord be a
party thereto or not, that Tenant has violated any such law, statute, ordinance
or governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This paragraph shall
not be interpreted as requiring Tenant to make structural changes or
improvements, except to the extent such changes or improvements are required as
a result of Tenant's use of the Premises. Tenant shall, at its sole cost and
expense, comply with any and all requirements pertaining to said Premises, or
any insurance organization or company, necessary for the maintenance of
reasonable fire and public liability insurance covering the Premises.
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred
by Tenant. In the event that Tenant shall not, within ten (10) days following
the imposition of such lien, cause the same to be released of record. Landlord
shall have, in addition to all other remedies provided herein and by law, the
right, but no obligation, to cause the same to be released by such means as it
shall deem proper, including payment of the claim giving rise to such lien. All
sums paid by Landlord for such purpose, and all expenses incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest at the prime rate of interest as quoted by the Bank of America.
19. ASSIGNMENT AND SUBLETTING Tenant shall not assign, transfer, or hypothecate
the leasehold estate under this Lease, or any interest therein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer, or subletting, Landlord
shall require Tenant to pay to Landlord, as additional Rent, all rents and/or
additional consideration due Tenant from its assignees, transferees, or
subtenants in excess of the Rent payable by Tenant to Landlord hereunder for
the assigned, transferred and/or subleased space; provided, however, that
before sharing such excess rent, Tenant shall first be entitled to recover from
such excess rent the amount of any reasonable leasing commissions related to
said transaction paid by Tenant to third parties not affiliated with Tenant.
Tenant shall, by thirty (30) days written notice, advise Landlord of its intent
to assign or transfer Tenant's interest in the Lease or sublet the Premises or
any portion thereof for any part of the term hereof. Within thirty (30) days
after receipt of said written notice, if Tenant intends to assign or sublet
more than fifty percent (50%) of the Premises, Landlord may, in its sole
discretion, elect to terminate this Lease as to the portion of the Premises
described in Tenant's notice on the date specified in Tenant's notice by giving
written notice of such election to terminate. If no such notice to terminate is
given to Tenant within said thirty (30) day period, Tenant may proceed to
locate an acceptable sublessee, assignee, or other transferee for presentment
to Landlord for Landlord's approval, all in accordance with the terms,
covenants, and conditions of this paragraph 19. If Tenant intends to sublet the
entire Premises and Landlord elects to terminate this Lease, this Lease shall
be terminated on the date specified in Tenant's notice. If, however, this Lease
shall terminate pursuant to the foregoing with respect to less than all the
Premises, the rent, as defined and reserved hereinabove shall be adjusted on a
pro rata basis to the number of square feet retained by Tenant, and this Lease
as so amended shall continue in full force and effect. In the event Tenant is
allowed to assign, transfer or sublet the whole or any part of the Premises,
with the prior written consent of Landlord, no assignee, transferee or
subtenant shall assign or transfer this Lease, either in whole or in part, or
sublet the whole or any part of the Premises, without also having obtained the
prior written consent of Landlord. A consent of Landlord to one assignment,
transfer, hypothecation, subletting, occupation or use by any other person
shall not release Tenant from any of Tenant's obligations hereunder or be
deemed to be a consent to any subsequent similar or dissimilar assignment,
transfer, hypothecation, subletting, occupation or use by any other person. Any
such assignment, transfer, hypothecation, subletting, occupation or use without
such consent shall be void and shall constitute a breach of this Lease by
Tenant and shall, at the option of Landlord exercised by written notice to
Tenant, terminate this Lease. The leasehold estate under this Lease shall not,
nor shall any interest therein, be assignable for any purpose by operation of
law without the written consent of Landlord. As a condition to its consent,
Landlord shall require Tenant to pay all expenses in connection with the
assignment, and Landlord shall require Tenant's assignee or transferee (or
other assignees or transferees) to assume in writing all of the obligations
under this Lease and for Tenant to remain liable to Landlord under the Lease.
Notwithstanding the above, in no event will Landlord consent to a sub-sublease.
See Paragraph 50.
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest
of Landlord in the land and buildings in which the demised Premises are
located, to secure a loan from a lender (hereinafter referred to as "Lender")
to Landlord, Tenant shall, at the request of Landlord or Lender, execute in
writing an agreement subordinating its rights under this Lease to the lien of
such deed of trust, or, if so requested, agreeing that the lien of Lender's
deed of trust shall be or remain subject and subordinate to the rights of
Tenant under this Lease. Notwithstanding any such subordination, Tenant's
possession under this Lease shall not be disturbed if Tenant is not in default
and so long as Tenant shall pay all rent and observe and perform all of the
provisions set forth in this Lease.
21. ENTRY BY LANDLORD Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them; to perform any services to be provided by
Landlord hereunder; to submit the Premises to prospective purchasers,
mortgagers or tenants; to post notices of nonresponsibility; and to alter,
improve or repair the Premises and any portion of the Complex, all without
abatement of rent; and may erect scaffolding and other necessary structures in
or through the Premises where reasonably required by the character of the work
to be performed; provided, however that the business of Tenant shall be
interfered with to the least extent that is reasonably practical. For each of
the foregoing purposes, any entry to the Premises obtained by Landlord by any of
said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into or a detainer of the Premises or
an eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. Landlord shall also have the right at any time to change the
arrangement or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets or other public parts of the Complex and
to change the name, number or designation by which the Complex is commonly
known, and none of the foregoing shall be deemed an actual or constructive
eviction of Tenant, or shall entitle Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure)
any and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual percuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in
[ILLEGIBLE] or an assignment of Tenant for the benefit of creditors or other
similar act. Nothing contained in this Lease shall be construed as giving or
granting or creating an equity in the demised Premises to Tenant. In no event
shall the leasehold estate under this Lease, or any interest therein, be
assigned by voluntary or involuntary bankruptcy proceeding without the prior
written consent of Landlord. In no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of thirty (30) days from the date of
written notice from Landlord within which to cure any other default under this
Lease. Upon an uncured default of this Lease by Tenant, Landlord shall have the
following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:
(a) The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to, recovery of the worth at the time of
award of the amount by which the unpaid rent for the balance of the term after
the time of award exceeds the amount of rental loss for the same period that
Tenant proves could be reasonably avoided, as computed pursuant to subsection
(b) of said Section 1951.2. Any proof by Tenant under subparagraphs (2) and (3)
of Section 1951.2 of the California Civil Code of the amount of rental loss
that could be reasonably avoided shall be made in the following manner:
Landlord and Tenant shall each select a licensed real estate broker in the
business of renting property of the same type and use as the Premises and in
the same geographic vicinity. Such two real estate brokers shall select a third
licensed real estate
page 5 of 8
<PAGE> 6
broker, and the three licensed real estate brokers so selected shall determine
the amount of the rental loss that could be reasonably avoided from the balance
of the term of this Lease after the time of award. The decision of the majority
of said licensed real estate brokers shall be final and binding upon the parties
hereto.
(b). The rights and remedies provided by California Civil Code Section
which allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c). The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d). To the extent permitted by law, the right and power, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord may from time to time sublet the Premises or
any part thereof for such term or terms (which may extend beyond the term of
this Lease) and at such rent and such other terms as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. Upon each subletting, (i) Tenant shall be immediately liable to
pay Landlord, in addition to indebtedness other than rent due hereunder, the
cost of such subletting, including, but not limited to, reasonable attorneys'
fees, and any real estate commissions actually paid, and the cost of such
alterations and repairs incurred by Landlord and the amount, if any, by which
the rent hereunder for the period of such subletting (to the extent such period
does not exceed the term hereof) exceeds the amount to be paid as rent for the
Premises for such period or (ii) at the option of Landlord, rents received from
such subletting shall be applied first to payment of indebtedness other than
rent due hereunder from Tenant to Landlord; second, to the payment of any costs
of such subletting and of such alterations and repairs; third to payment of rent
due and unpaid hereunder; and the residue, if any, shall be held by Landlord and
applied in payment of future rent as the same becomes due hereunder. If Tenant
has been credited with any rent to be received by such subletting under option
(i) and such rent shall not be promptly paid to Landlord by the subtenant(s), or
if such rentals received from such subletting under option (ii) during any month
be less than that to be paid during that month by Tenant hereunder. Tenant shall
pay any such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. For all purposes set forth in this subparagraph d. No taking
possession of the Premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention be given
to Tenant. Notwithstanding any such subletting without termination, Landlord may
at any time hereafter elect to terminate this Lease for such previous breach.
(e). The right to have a receiver appointed for Tenant upon application by
Landlord, to take possession of the Premises and to apply any rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph d. above.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
24. DESTRUCTION In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible for under Paragraph 10, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the damage
or destruction, or
(b) Terminate this Lease, (providing that the Premises is damaged to the
extent of at least 33 1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty (30) days
from the destruction of the Premises of its election to either rebuild and
restore them, or to terminate this Lease, Landlord shall be deemed to have
elected to rebuild or restore them, in which event Landlord agrees, at its
expense, promptly to rebuild or restore the Premises to their condition prior to
the damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete the rebuilding or restoration within one
hundred eighty (180) days following the date of destruction (such period of time
to be extended for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense
provided this Lease is not cancelled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect. Tenant hereby expressly waives the
provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the
California Civil Code.
In the event that the building in which the premises are situated is
damaged or destroyed to the extent of not less than 33 1/3% of the replacement
cost thereof, Landlord may elect to terminate this Lease whether the Premises be
inured or not. Notwithstanding anything to the contrary herein, Landlord may
terminate this Lease in the event of an uninsured event or if insurance proceeds
are insufficient to cover 100% of the rebuilding costs net of the deductible,
and in such event, the Lease shall terminate within 20 days of Landlord's
receipt of notice of the uninsured event or insufficient funds to cover said
costs.
25. EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving costs or loss of goodwill, shall be and
remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of condemnation of its intention to condemn
the premises or any portion thereof, or (ii) any of the foregoing events occur
with respect to the taking of any space in the Complex not leased hereby, or if
any such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business. Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intentions so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the rent to be paid
by Tenant shall be in the ratio that the area of the portion of the Premises not
so taken or conveyed bears to the total areas of the [ILLEGIBLE COPY]
26. SALE OR CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
complex or any interest therein, by any owner of the reversion then constituting
Landlord, the transferor shall thereby be released from any further liability
upon any of the terms, covenants or conditions (express or implied) herein
contained in favor of Tenant, and in such event, insofar as such transfer is
concerned. Tenant agrees to look solely to the responsibility of the successor
in interest of such transferor in and to the Complex and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale. Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of
this Lease, with the consent of Landlord, shall be construed to be a tenancy
from month to month at the same terms and conditions herein specified insofar as
applicable except that the monthly Basic Rent shall be increased to an amount
equal to one hundred fifty (150%) percent of the monthly Basic Rent required
during the last month of the Lease term.
<PAGE> 7
29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days' prior written notice from Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, standing the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as may be represented by Landlord; that there are no
uncured defaults in Landlord's performance, and that not more than one month's
rent has been paid in advance.
30. CONSTRUCTION CHANGES It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein
are subject to such minor changes as Landlord or Landlord's architect
determines to be desirable in the course of construction of the Premises, and
no such changes, or any changes in plans for any other portions of the Complex
shall affect this Lease or entitle Tenant to any reduction or rent hereunder or
result in any liability of Landlord to Tenant. Landlord does not guarantee the
accuracy of any drawings supplied to Tenant and verification of the accuracy of
such drawings rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid
by it hereunder and such failure shall continue for five (5) days after written
notice by Landlord, or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
thirty (30) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obligated to, make any such payment or perform any such other term
or covenant on Tenant's part to be performed. All sums so paid by Landlord and
all necessary costs of such performance by Landlord together with interest
thereon at the rate of the prime rate of interest per annum as quoted by
the Bank of America from the date of such payment or performance by Landlord,
shall be paid (and Tenant covenants to make such payment) to Landlord on demand
by Landlord, and Landlord shall have (in addition to any other right or remedy
of Landlord) the same rights and remedies in the event of nonpayment by Tenant
as in the case of failure by Tenant in the payment of rent hereunder.
32. ATTORNEYS'S FEES.
(A) In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease,
or because of the breach of any provision of this Lease, or for any other
relief against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgement.
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder,
Tenant shall pay to Landlord its costs and expenses incurred in such suit,
including a reasonable attorney's fee.
33. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any
way affect, the right of either party to insist upon performance and observance
by the other party in strict accordance with the terms hereof.
34. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served
on Tenant by leaving the same at the Premises or if sent by United States
certified or registered mail, postage prepaid, addressed to Tenant at the
Premises. All notices demands, requests, advices or designations by Tenant to
Landlord shall be sent by United States certified or registered mail, postage
prepaid, addressed to Landlord at its offices at 2560 Mission College Blvd.,
Suite 101, Santa Clara, CA 95054. Each notice, request, demand, advice or
designation referred to in this paragraph shall be deemed received on the date
of the personal service or mailing thereof in the manner herein provided, as
the case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time, but
in no event earlier than thirty (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have heretofore been furnished to Tenant
in writing, specifying wherein Landlord has failed to perform such
obligations; provided, however, that if the nature of Landlord's obligations is
such that more than thirty (30) days are required for performance, then
Landlord shall not be in default if Landlord commences performance within such
thirty (30) day period and thereafter diligently prosecutes the same to
completion.
37. CORPORATE AUTHORITY If Tenant is a corporation, (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or
partnership) in accordance with its terms. If Tenant is a corporation, Tenant
shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of the resolution of the Board of Directors of said
corporation authorizing or ratifying the execution of this Lease.
39. LIMITATION OF LIABILITY In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in
the event of any actual or alleged failure, breach or default hereunder by
Landlord:
(i) the sole and exclusive remedy shall be against Landlord's interest
in the Premises leased herein;
(ii) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the partnership)
(iii) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership)
(iv) no partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(v) no judgement will be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(vii) ?? execution will ever be levied against the assets of any partner
of Landlord;
(viii) these covenants and agreement are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this
Lease or imposed by statute or at common law.
page 7 of 8
<PAGE> 8
40. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenant shall not, without the written consent of Landlord, use the name
of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of
this Lease shall be invalid, unenforceable or ineffective for any reason
whatsoever, all other provisions hereof shall be and remain in full force
and effect.
c. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural
as well as the singular and the successors and assigns of Landlord. The
term "Tenant" or any pronoun used in place thereof includes the plural as
well as the singular and individuals, firms, associations, partnerships
and corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted
assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words
used in any gender include other genders. If there be more than one Tenant
the obligation of Tenant hereunder are joint and several. The paragraph
headings of this Lease are for convenience of reference only and shall
have no effect upon the construction or interpretation of any provision
hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other
document required by any reputable title company, licensed to operate in
the State of California, to remove the cloud or encumbrance created by
this Lease from the real property of which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to
the Premises and this agreement and the exhibits and attachments may be
altered, amended or revoked only by an instrument in writing signed by
both Landlord and Tenant. Landlord and Tenant agree hereby that all prior
or contemporaneous oral agreements between and among themselves and their
agents or representatives relative to the leasing of the Premises are
merged in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender
to enable Landlord to obtain financing, so long as Tenant's rights or
obligations hereunder are not substantially affected.
i. Paragraphs 43 through 58 are added hereto and are included as a part
of this lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of
light, air or view by any structure which may be hereafter erected
(whether or not by Landlord) shall in any way affect his Lease, entitle
Tenant to any reduction of rent hereunder or result in any liability of
Landlord to Tenant.
41. BROKERS Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease: none
_______________________________________________________________________________
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.
42. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written
consent of Landlord first had and obtained and Landlord shall have the right to
remove any such sign, placard, picture, advertisement, name or notice without
notice to and at the expense of Tenant. If Tenant is allowed to print or affix
or in any way place a sign in, on, or about the Premises, upon expiration or
other sooner termination of this Lease, Tenant at Tenant's sole cost and
expense shall both remove such sign and repair all damage in such a manner as
to restore all aspects of the appearance of the Premises to the condition prior
to the placement of said sign.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenants shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
WESTPORT JOINT VENTURE SABA SOFTWARE INCORPORATED
a California general partnership a Delaware corporation
JOHN ARRILLAGA SURVIVOR'S TRUST
By: /s/ BARRY JAHANSETAN
-------------------------------
By: /s/ JOHN ARRILLAGA
--------------------------------------
John Arrillaga, Trustee Title: VP FINANCE, ADMIN
----------------------------
Date: 4/9/99
-----------------------------------
PEERY PRIVATE INVESTMENT COMPANY-WP, L.P. Type or Print Name BARRY JAHANSETAN
a California Limited Partnership -----------------
Date: 4/9/99
------------------------------
By: /s/ RICHARD T. PEERY
--------------------------------------
Richard T. Peery, Trustee of the
Richard T. Peery Separate Property Trust
dated 7/20/77, as its General Partner
Date: 4/9/99
-----------------------------------
PEERY PUBLIC INVESTMENT COMPANY-WP, L.P.
a California limited partnership
By: /s/ RICHARD T. PEERY
--------------------------------------
Richard T. Peery, Trustee of the
Richard T. Peery Separate Property Trust
dated 7/20/77, as its General Partner
Date: 4/9/99
-----------------------------------
page 8 of 8
<PAGE> 9
Paragraphs 43 through 58 to Lease Agreement dated March 16, 1999, By and
Between Westport Joint Venture, a California joint venture, as Landlord, and
Saba Software, Incorporated, a Delaware corporation, as Tenant for 48,384+
Square Feet of Space Located at 2400 Bridge Parkway, Redwood City, California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate
sum of THIRTY ONE MILLION FIVE HUNDRED SIXTY FIVE THOUSAND FIVE HUNDRED EIGHTY
EIGHT AND 40/100 DOLLARS ($31,565,588.40), shall be payable as follows:
On May 1, 1999, the sum of FORTY ONE THOUSAND TWO HUNDRED FIFTY AND
NO/100 DOLLARS ($41,250.00) shall be due, and a like sum due on the first day
of each month thereafter, through and including November 1, 1999.
On December 1, 1999, the sum of SEVENTY ONE THOUSAND ONE HUNDRED EIGHTY
ONE AND NO/100 DOLLARS ($71,181.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including April 1, 2000.
On May 1, 2000, the sum of SEVENTY FIVE THOUSAND SIXTY THREE AND 60/100
DOLLARS ($75,063.60) shall be due, and a like sum due on the first day of each
month thereafter, through and including November 1, 2000.
On December 1, 2000, the sum of ONE HUNDRED FOUR THOUSAND FOUR HUNDRED
AND NO/100 DOLLARS ($104,400.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including April 1, 2001.
On May 1, 2001, the sum of ONE HUNDRED FORTY SEVEN THOUSAND FIVE HUNDRED
SEVENTY ONE AND 20/100 DOLLARS ($147,571.20) shall be due, and a like sum due
on the first day of each month thereafter, through and including April 1, 2002.
On May 1, 2002, the sum of ONE HUNDRED FIFTY FOUR THOUSAND EIGHT HUNDRED
TWENTY EIGHT AND 80/100 DOLLARS ($154,828.80) shall be due, and a like sum due
on the first day of each month thereafter, through and including April 1, 2003.
On May 1, 2003, the sum of ONE HUNDRED SIXTY TWO THOUSAND EIGHTY SIX AND
40/100 DOLLARS ($162,086.40) shall be due, and a like sum due on the first day
of each month thereafter, through and including April 1, 2004.
On May 1, 2004, the sum of ONE HUNDRED SIXTY NINE THOUSAND THREE HUNDRED
FORTY FOUR AND NO/100 DOLLARS ($169,344.00) shall be due, and a like sum due on
the first day of each month thereafter, through and including April 1, 2005.
On May 1, 2005, the sum of ONE HUNDRED SEVENTY SIX THOUSAND SIX HUNDRED
ONE AND 60/100 DOLLARS ($176,601.60) shall be due, and a like sum due on the
first day of each month thereafter, through and including April 1, 2006.
On May 1, 2006, the sum of ONE HUNDRED EIGHTY THREE THOUSAND EIGHT HUNDRED
FIFTY NINE AND 20/100 DOLLARS ($183,859.20) shall be due, and a like sum due on
the first day of each month thereafter, through and including April 1, 2007.
On May 1, 2007, the sum of ONE HUNDRED NINETY ONE THOUSAND ONE HUNDRED
SIXTEEN AND 80/100 DOLLARS ($191,116.80) shall be due, and a like sum on the
first day of each month thereafter, through and including April 1, 2008.
On May 1, 2008, the sum of ONE HUNDRED NINETY EIGHT THOUSAND THREE HUNDRED
SEVENTY FOUR AND 40/100 DOLLARS ($198,374.40) shall be due, and a like sum due
on the first day of each month thereafter, through and including April 1, 2009.
On May 1, 2009, the sum of TWO HUNDRED FIVE THOUSAND SIX HUNDRED THIRTY
TWO AND NO/100 DOLLARS ($205,632.00) shall be due, and a like sum due on the
first day of each month thereafter, through and including April 1, 2010.
On May 1, 2010, the sum of TWO HUNDRED TWELVE THOUSAND EIGHT HUNDRED
EIGHTY NINE AND 60/100 DOLLARS ($212,889.60) shall be due, and a like sum due
on the first day of each month thereafter, through and including April 1, 2011.
9
<PAGE> 10
On May 1, 2011, the sum of TWO HUNDRED TWENTY THOUSAND ONE HUNDRED
FORTY SEVEN AND 20/100 DOLLARS ($220,147.20) shall be due, and a like sum due
on the first day of each month thereafter, through and including April 1, 2012.
On May 1, 2012, the sum of TWO HUNDRED TWENTY SEVEN THOUSAND FOUR
HUNDRED FOUR AND 80/100 DOLLARS ($227,404.80) shall be due, and a like sum due
on the first day of each month thereafter, through and including April 1, 2013.
On May 1, 2013, the sum of TWO HUNDRED THIRTY FOUR THOUSAND SIX HUNDRED
SIXTY TWO AND 40/100 DOLLARS ($234,662.40) shall be due, and a like sum due on
the first day of each month thereafter, through and including April 1, 2014; or
until the entire aggregate sum of THIRTY ONE MILLION FIVE HUNDRED SIXTY FIVE
THOUSAND FIVE HUNDRED EIGHTY EIGHT AND 40/100 DOLLARS ($31,565,588.40) has been
paid.
44. "AS-IS" BASIS: Subject only Paragraphs 45 and 54 below and to Landlord
making the improvements shown on Exhibit B to be attached hereto, it is hereby
agreed that the Premises leased hereunder is leased strictly on an "as-is" basis
and in its present condition, and in the configuration as shown on Exhibit B to
be attached hereto, and by reference made a part hereof. It is specifically
agreed between the parties that after Landlord makes the interior improvements
as shown on Exhibit B, Landlord shall not be required to make, nor be
responsible for any cost, in connection with any repair, restoration, and/or
improvement to the Premises in order for this Lease to commence, or thereafter,
throughout the Term of this Lease. Notwithstanding anything to the contrary
within this Lease, Landlord makes no warranty or representation of any kind or
nature whatsoever as to the condition or repair of the Premises, nor as to the
use or occupancy which may be made thereof.
45. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and
expense, construct certain interior improvements (the "Tenant Improvements") in
the Initial Leased Premises, as shown on Exhibit B to be attached to the Lease
and Landlord agrees to deliver the Premises leased hereunder to Tenant, at
Landlord's expense, in the configuration shown in Red on Exhibit B to be
attached hereto. Notwithstanding anything to the contrary above, it is
specifically understood and agreed that Landlord shall be required to furnish
only a standard air conditioning/heating system, normal electrical outlets,
standard fire sprinkler systems, standard bathroom, standard lobby, 2'x4'
suspended acoustical tile drop ceiling throughout the entire space leased,
carpeting and/or vinyl-coated floor tile, and standard office partitions and
doors, as shown on Exhibit B to be attached hereto; provided however, that any
special HVAC and/or plumbing and/or electrical requirements over and above that
normally supplied by Landlord shall be 100 percent the responsibility of and be
paid for 100 percent by Tenant.
Notwithstanding anything to the contrary, it is agreed that in the event Tenant
makes changes, additions, or modifications to the plans and specifications to be
constructed by Landlord as set forth herein, or improvements are installed for
Tenant in excess of those to be provided Tenant by Landlord as set forth on
Exhibit B, any increased cost(s) resulting from said changes, additions, and/or
modifications and/or improvements in excess of those to be provided Tenant shall
be contracted for with Landlord and paid for one hundred percent (100%) by
Tenant.
The interior shall be constructed in accordance with Exhibit B of the Lease, it
being agreed, however, that if the interior improvements constructed by
Landlord relating thereto, do not conform exactly to the plans and
specifications as set forth in the Lease, and the general appearance,
structural integrity, and Tenant's uses and occupancy of the Premises and
interior improvements relating thereto are not materially or unreasonably
affected by such deviation, it is agreed that the commencement date of the
Lease, and Tenant's obligation to pay rental, shall not be affected, and Tenant
hereby agrees, in such event, to accept the Premises and interior improvements
as constructed by Landlord.
Tenant shall have thirty (30) days after the Commencement Date to provide
Landlord with a "punch list" pertaining to Landlord's work with respect to
Tenant's interior improvements. As soon as reasonably possible thereafter,
Landlord, or one of Landlord's representatives (if so approved by Landlord),
and Tenant shall conduct a joint walk-through of the Premises (if Landlord so
requires), and inspect such Tenant Improvements, using their best efforts to
agree on the incomplete or defective construction related to the __________
_______________ by Landlord. After such inspection has been completed,
Landlord shall prepare, and both parties shall sign, a list of all "punch list"
items which the parties reasonably agree are to be corrected by Landlord (but
which shall exclude any damage or defects caused by Tenant, its employees,
agents or parties Tenant has contracted with to work on the Premises). Landlord
shall have thirty (30) days thereafter (or longer if necessary, provided
Landlord is diligently pursuing the completion of the same) to complete, at
Landlord's expense, the repairs on the "punch list" without the Commencement
Date of the Lease and Tenant's obligation to pay Rental thereunder being
affected. This Paragraph shall be of no force and effect if Tenant shall fail
to give any such notice to Landlord within thirty (30) days after the
Commencement
10
<PAGE> 11
Date of this Lease.
46. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.
47. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be governed
by and construed in accordance with the laws of the State of California. If any
provisions of this Lease shall be invalid, unenforceable, or ineffective for
any reason whatsoever, all other provisions hereof shall be and remain in full
force and effect.
48. ASSIGNMENT OF WARRANTIES: During the Term of the Lease, Landlord hereby
assigns to Tenant all of Landlord's Contractor's warranties related to the
tenant improvements provided for Tenant by Landlord as stated in Paragraph 45
and shall cooperate with Tenant in enforcing any of such warranties except that
Landlord shall not be required to pay any legal fees or incur any expenses in
this regard.
49. ASSESSMENT CREDITS: The demised property herein may be subject to a
special assessment levied by the City of Redwood City as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on
such funds created for contingencies and on reserve funds which will be
credited for the benefit of said assessment district. To the extent surpluses
are created in said district through unused contingency funds, interest
earnings or reserve funds, such surpluses shall be deemed the property of
Landlord. Notwithstanding that such surpluses may be credited on assessments
otherwise due against the Leased Premises, Tenant shall pay to Landlord, as
additional rent if, and at the time of any such credit of surpluses, an amount
equal to all such surpluses so credited. For example: if (i) the property is
subject to an annual assessment of $1,000.00, and (ii) a surplus of $200.00 is
credited towards the current year's assessment which reduces the assessment
amount shown on the property tax bill from $1,000.00 to $800.00, Tenant shall,
upon receipt of notice from Landlord, pay to Landlord said $200.00 credit as
Additional Rent.
50. ASSIGNMENT AND SUBLETTING (CONTINUED):
A. Notwithstanding the foregoing, Landlord and Tenant agree that it
shall not be unreasonable for Landlord to refuse to consent to a proposed
assignment, sublease or other transfer ("Proposed Transfer") if the Premises or
another portion of the Property would become subject to additional or
different Government Requirements as a direct or indirect consequence of the
Proposed Transfer and/or the Proposed Transferee's use and occupancy of the
Premises and the Property. However, Landlord may, in its sole discretion,
consent to such a Proposed Transfer where Landlord is indemnified by Tenant and
(i) Subtenant or (ii) Assignee, in form and substance satisfactory to
Landlord's counsel, by Tenant and/or the Proposed Transferee from and against
any and all costs, expenses, obligations and liability arising out of the
Proposed Transfer and/or the Proposed Transferee's use and occupancy of the
Premises and the Property.
B. Any and all sublease agreement(s) between Tenant and any and all
subtenant(s) (which agreements must be consented to by Landlord, pursuant to
the requirements of this Lease) shall contain the following language:
"If Landlord and Tenant jointly and voluntarily elect, for any reason
whatsoever, to terminate the Master Lease prior to the scheduled Master
Lease termination date, then this Sublease (if then still in effect)
shall terminate concurrently with the termination of the Master Lease.
Subtenant expressly acknowledges and agrees that (1) the voluntary
termination of the Master Lease by Landlord and Tenant and the resulting
termination of this Sublease shall not give Subtenant any right or power
to make any legal or equitable claim against Landlord, including without
limitation any claim for interference with contract or interference with
prospective economic advantage, and (2) Subtenant hereby waives any and
all rights it may have under law or at equity against Landlord to
challenge such an early termination of the Sublease, and unconditionally
releases and relieves Landlord, and its officers, directors, employees and
agents, from any and all claims, demands, and/or causes of action
whatsoever (collectively, "Claims"), whether such matters are known or
unknown, latent or apparent, suspected or unsuspected, foreseeable or
unforeseeable, which Subtenant may have arising out of or in connection
with any such early termination of this Sublease. Subtenant knowingly and
intentionally waives any and all protection which is or may be given by
Section 1542 of the California Civil Code which provides as follows: "A
11
<PAGE> 12
general release does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with
debtor.
The term of his Sublease is therefore subject to early termination.
Subtenant's initials here below evidence (a) Subtenant's consideration of
and agreement to this early termination provision, (b) Subtenant's
acknowledgment that, in determining the net benefits to be derived by
Subtenant under the terms of this Sublease, Subtenant has anticipated the
potential for early termination, and (c) Subtenant's agreement to the
general waiver and release of Claims above.
Initials: ___________ Initials: ___________
Subtenant Tenant
C. Landlord hereby agrees to consent to Tenant's assigning or subletting
said Lease to: (i) any parent or subsidiary corporation, affiliate, or
corporation with which Tenant merges or consolidates, provided that the net
worth of said parent or subsidiary corporation, affiliate, or said corporation
has a net worth equal to or greater than the net worth of Tenant (a) at the
time of Lease execution or (b) at the time of such assignment, merger, or
consolidation (whichever is greater); or (ii) any third party or entity to whom
Tenant sells all or substantially all of its assets; provided, that the net
worth of the resulting or acquiring corporation has a net worth after the
merger, consolidation or acquisition equal to or greater than the net worth of
Tenant (a) at the time of Lease execution or (b) at the time of such merger,
consolidation or acquisition (whichever is greater). No such assignment or
subletting will release the Tenant from its liability and responsibility under
this Lease to the extent Tenant continues in existence following such
transaction. Notwithstanding the above, Tenant shall be required to (a) give
Landlord written notice prior to such assignment or subletting to any party as
described in (i) and (ii) above, (b) execute Landlord's consent document
prepared by Landlord reflecting the assignment or subletting and (c) pay
Landlord's costs for processing said Consent prior to the effective date of
said assignment or sublease.
51. BANKRUPTCY AND DEFAULT. Paragraph 22 is modified to provide that with
respect to non-monetary defaults not involving Tenant's failure to pay Basic
Rent or Additional Rent, Tenant shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such
non-monetary default, and (ii) Tenant commences cure of such default as soon as
reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such
cure to completion.
52. ABANDONMENT. Paragraph 23 is modified to provide that Tenant shall not be
in default under the Lease if it leaves all or any part of Premises vacant so
long as (i) Tenant is performing all of its other obligations under the Lease
including the obligation to pay Basic Rent and Additional Rent (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and heating and
ventilation system are operated and maintained to the extent necessary to
prevent damage to the Premises or its systems.
53. HAZARDOUS MATERIALS. Landlord and Tenant agree as follows with respect to
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises and the
common areas of the Complex (hereinafter collectively referred to as the
"Property"):
A. As used herein, the term "Hazardous Materials" shall mean any
material, waste, chemical, mixture or byproduct which is or hereafter is
defined, listed or designated under Environmental Laws (defined below) as a
pollutant, or as contaminant, or as a toxic or hazardous substance, waste or
material, or any other unwholesome, hazardous, toxic, biohazardous, or
radioactive material, waste, chemical, mixture or byproduct, or which is listed,
regulated or restricted by any Environmental Law (including without limitation,
[illegible] or derivatives or fractions thereof, polychlorinated bipheryls, or
asbestos). As used herein, the term "Environmental Laws" shall mean any
applicable Federal, State of California or local government law (including
common law), statute, regulation, rule, ordinance, permit, license, order,
requirement, agreement, or approval, or any determination, judgment, directive,
or order of any executive or judicial authority at any level of Federal, State
of California or local government (whether now existing or subsequently adopted
or promulgated) relating to pollution or the protection of the environment,
ecology, natural resources, or public health and safety.
12
<PAGE> 13
B. Tenant shall obtain Landlord's written consent, which may be withheld
in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous
Materials activities (defined below); provided, however, that Landlord's
consent shall not be required for normal use in compliance with applicable
Environmental Laws of customary household and office supplies, such as mild
cleaners, lubricants and copier toner. As used herein, the term "Tenant's
Hazardous Materials Activities" shall mean any and all use, handling,
generation, storage, disposal, treatment, transportation, release, discharge,
or emission of any Hazardous Materials on, in, beneath, to, from, at or about
the Property, in connection with Tenant's use of the Property, or by Tenant or
by any of Tenant's agents, employees, contractors, vendors, invitees, visitors
or its future subtenants or assignees. Tenant agrees that any and all Tenant's
Hazardous Materials Activities shall be conducted in strict, full compliance
with applicable Environmental Laws at Tenant's expense, and shall not result in
any contamination of the Property or the environment. Tenant agrees to provide
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the Property during the term of the Lease of which Tenant becomes
aware, and further agrees to provide Landlord with prompt written notice of any
violation of Environmental Laws in connection with Tenant's Hazardous Materials
Activities of which Tenant becomes aware. If Tenant's Hazardous Materials
Activities other than normal use of customary household and office supplies,
Tenant also agrees at Tenant's expense: (i) to install such Hazardous Materials
monitoring, storage and containment devices as Landlord reasonably deems
necessary (Landlord shall have no obligation to evaluate the need for any such
installation or to require any such installation); (ii) provide Landlord with a
written inventory of such Hazardous Materials, including an update of same each
year upon the anniversary date of the Commencement Date of the Lease
("Anniversary Date"); and (iii) on each Anniversary Date, to retain a qualified
environmental consultant, acceptable to Landlord, to evaluate whether Tenant is
in compliance with all applicable Environmental Laws with respect to Tenant's
Hazardous Material Activities. Tenant, at its expense, shall submit to Landlord
a report from such environmental consultant which discusses the environmental
consultant's findings within two (2) months of each Anniversary Date. Tenant,
at its expense, shall promptly undertake and complete any and all steps
necessary, and in full compliance with applicable Environmental Laws,
to fully correct any and all problems or deficiencies identified by the
environmental consultant, and promptly provide Landlord with documentation of
all such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at its
expense, shall (i) properly remove from the Property all Hazardous Materials
which come to be located at the Property in connection with Tenant's Hazardous
Materials Activities, and (ii) fully comply with and complete all facility
closure requirements of applicable Environmental Laws regarding Tenant's
Hazardous Materials Activities, including but not limited to (x) properly
restoring and repairing the Property to the extent damaged by such closure
activities, and (y) obtaining from the local Fire Department or other
appropriate governmental authority with jurisdiction a written concurrence that
closure has been completed in compliance with applicable Environmental Laws.
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
such closure activities.
D. If Landlord, in its sole discretion, believes that the Property has
become contaminated as a result of Tenant's Hazardous Materials Activities,
Landlord in addition to any other rights it may have under this Lease or under
Environmental Laws or other laws, may enter upon the Property and conduct
inspection, sampling and analysis, including but not limited to obtaining and
analyzing samples of soil and groundwater, for the purpose of determining the
nature and extent of such contamination. Tenant shall promptly reimburse
Landlord for the costs of such an investigation, including but not limited to
reasonable attorney's fees Landlord incurs with respect to such investigation,
that discloses Hazardous Materials contamination for which Tenant is liable
under this Lease. Except as may be required of Tenant by applicable
Environmental Laws, Tenant shall not perform any sampling, testing, or drilling
to identify the presence of any Hazardous Materials at the Property, without
Landlord's prior written consent which may be withheld in Landlord's
discretion. Tenant shall promptly provide Landlord with copies of any claims,
notices, work plans, data and reports prepared, received or submitted in
connection with any sampling, testing or drilling performed pursuant to the
preceding sentence.
E. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose consent shall not unreasonably be withheld) and hold harmless
Landlord, its employees, assigns, successors, successors-in-interest, agents
and representatives from and against any and all claims (including but not
limited to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any
obligation of Tenant under this Paragraph 53 (collectively, "Tenant's
Environmental Indemnification"). Tenant's Environmental Indemnification
shall include but is not limited to the obligation to promptly and fully
reimburse Landlord for losses in or reductions to rental income, and diminution
in fair market value of the Property. Tenant's Environmental Indemnification
shall further include but is not limited to the obligation to diligently and
properly implement to completion, at Tenant's expense, any and all environmental
13
<PAGE> 14
investigation, removal, remediation, monitoring, reporting, closure activities,
or other environmental response action (collectively, "Response Actions").
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
Response Actions.
F. Landlord hereby informs Tenant, and Tenant hereby acknowledges, that
the Premises and adjacent properties overlie a former solid waste landfill site
commonly known as the Westport Landfill ("Former Landfill"). Landlord further
informs Tenant, and Tenant hereby acknowledges, that (i) prior testing has
detected the presence of low levels of certain volatile and semi-volatile
organic compounds and other contaminants in the groundwater, in the leachate
from the landfilled solid waste, and/or in certain surface waters of the
Property, as more fully described in Section 2.3.2 of the report entitled
"Revised Discharge Monitoring Plan, Westport Landfill Site, Redwood City,
California" prepared by Geomatrix Consultants, dated May 1996 ("Discharge
Plan"), (ii) methane gas is or may be generated by the landfilled solid waste
(item "i" immediately preceding and this item "ii" are hereafter collectively
referred to as the "Landfill Contamination"), and (iii) the Premises and the
Former Landfill are subject to the California Regional Water Quality Control
Board's ("Regional Board") Waste Discharge Requirements Order No. 94-181 (the
"Order"). The Order is attached hereto as Exhibit C. As evidenced by their
initials set forth immediately below, Tenant acknowledges that Landlord has
provided Tenant with copies of the environmental reports listed on Exhibit D,
and Tenant acknowledges that Tenant and Tenant's experts (if any) have had
ample opportunity to review such reports and that Tenant has satisfied itself
as to the environmental conditions of the Property and the suitability of such
conditions for Tenant's intended use of the Property.
Initial: Initial:
----------- ----------
Tenant Landlord
G. Landlord shall indemnify, defend, and hold harmless Tenant against
any and all claims asserted by third parties (excluding any agents, employees,
contractors, vendors, invitees, visitors, future subtenants and assignees of
Tenant, and excluding any other parties related to Tenant), including all
liabilities, judgments, damages, suits, orders, government directives, costs
and expenses in connection with such claims, which arise from (i) the Landfill
Contamination, or (ii) the Order, as may be amended ("Landlord's Environmental
Indemnity"); provided, however that Landlord's Environmental Indemnity shall be
subject to the following limitations and conditions:
(1) Landlord's Environmental Indemnity shall not apply to any
economic or consequential damages suffered by Tenant, including
but not limited to loss of business or profits.
(2) Landlord's Environmental Indemnity shall not apply, without
limitation, to any releases caused by Tenant's Hazardous
Materials Activities.
(3) Tenant acknowledges that Landlord must comply with the Order, as
may be amended, and with directives of government authorities
including the Regional Board, with respect to the Contamination
and the Former Landfill. Tenant further acknowledges that
groundwater monitoring wells, methane recovery wells and
equipment, and other environmental control devices are located on
and about the Premises and may be modified or added to during the
term of the Lease (collectively, "Environmental Equipment"), and
that environmental investigation, monitoring, closure and
post-closure activities (collectively, "Environmental
Activities") will be performed on the Premises during the term of
the Lease. Tenant shall allow Landlord, and any other party named
as a discharger under the Order, as may be amended, and their
respective agents, consultants and contractors, and agents of
governmental environmental authorities with jurisdiction
("Government Representatives") to enter the Premises to access
the Environmental Equipment and to perform Environmental
Activities during the term of the Lease, provided that Tenant's
use and occupancy of the Premises shall not unreasonably be
disturbed.
(4) Tenant and Landlord shall reasonably cooperate with each other
regarding any Environmental Activities to be performed, and
regarding any Environmental Equipment to be installed,
maintained, or removed on the Premises during the term of the
Lease.
(5) Tenant shall be responsible at its expense for repairing any
Environmental Equipment damaged due to the negligence of Tenant
or Tenant's agents, employees, contractors, vendors, invitees,
visitors, future subtenants or assignees (such terms "invitees"
and "visitors" are used in this Paragraph 54 shall not include
Landlord or any other party named as a discharger under the Order
as may be amended, or any of their respective agents, consultants
or contractors, or any Government Representatives).
14
<PAGE> 15
It is agreed that the Tenant's responsibilities related to Hazardous Materials
will survive the expiration or termination of this Lease and that Landlord may
obtain specific performance of Tenant's responsibilities under this Paragraph
53.
54. MUST-TAKE SPACE: As consideration to Tenant, Landlord has agreed to allow
Tenant to phase into the entire Building as noted below. This Lease provides the
obligation for Tenant to phase into additional space (located on the first floor
of the Building in areas to be selected by Landlord) on two separate dates
following the Commencement Date of the Lease. The date of the first phase in is
December 1, 2000 and the estimated phase in square footage is 10,116+/- square
feet including Tenant's share of the Common Area of the Building (hereinafter
referred to as Must-Take Space #1); the date of the second phase in is April 1,
2001 and the estimated square footage is 12,384+/- (hereinafter referred to as
Must-Take Space #2). Reference to the "Must-Take Space" herein after refers to
Must-Take Space #1 and Must-Take Space #2. As of April 1, 2001, Tenant's total
square footage leased shall equal one hundred percent (100%) of said Building.
The parties understand that the exact square footage of the Must-Take Space #1 &
the Must-Take Space #2 is unknown at this time and will be measured by Landlord
once the locations of said Must-Take Space are determined by Landlord. Upon
completion of construction of the demising walls of the Must-Take Space,
Landlord shall calculate the total square footage of the Must-Take Space #1 and
the Must-Take Space #2 (including Tenant's share of the Common Area, the sum of
which is the hereinafter referred to as the "Actual Square Footage"). On the
final determination of the Actual Square Footage of the Must-Take Space #1 and
of Must-Take Space #2, the parties shall execute an amendment to this Lease
stating said Actual Square Footage and adjusting the Basic Rent accordingly.
Tenant acknowledges that the Basic Rent projected in the Rent schedule is based
on the Actual Square Footage for (i) Must-Take Space #1 being 10,116 square feet
at the then monthly per square foot rate of $2.90 and (ii) Must-Take Space #2
being 12,384 square feet at then monthly per square foot rate of $3.05. Any
change in the Actual Square Footage will result in an adjustment to the Basic
Rent Schedule. Execution of said amendment shall not be a condition precedent to
the effectiveness of the increase in square footage and the resultant adjustment
in Rent.
The Must-Take Space shall be leased to Tenant in its then "as-is" condition and
configuration as of the respective phase in dates (i.e., Landlord shall not be
required to construct any improvements in, or contribute any tenant improvement
allowance for the Must-Take Space other than installing the demising walls,
dropped ceiling and carpeting (with materials similar to those used on the
second floor of the Leased Premises).
Except as otherwise noted in this Lease, beginning on the respective phase in
dates and continuing for the balance of the Lease Term (including extensions, if
any), the Must-Take Space shall be part of the Premises under this Lease.
Tenant's lease of the Must-Take Space shall be on the same terms and conditions
as those affecting the Initial Premises, including the same Monthly Basic Rent
rate as then applies to the Initial Premises.
Landlord shall tender the Must-Take Space to Tenant on the aforementioned date;
however, Landlord shall not be liable to Tenant or otherwise be in default under
this Lease if Landlord is unable to tender the Must-Take Space to Tenant on the
projected delivery date(s) due to the failure of any other tenant to timely
vacate and surrender to Landlord the Must-Take Space or any portion of it.
Landlord agrees to use its commercially reasonable efforts to enforce its right
to possession of the Must-Take Space against such other tenant should it be
necessary to do so. Tenant's obligation to pay Basic Rent on the respective
Must-Take Space will not commence until Landlord tenders the respective
Must-Take Space to Tenant. In the event of a delay in said delivery, the Basic
Rent schedule and the Aggregate Rent will be amended accordingly. Landlord's
failure to so tender any portion of the Must-Take Space on the respective
date(s) identified above (i) shall not affect the Lease or Tenant's obligation
to pay Rent as related to the portion of the Building that Landlord has tendered
possession to Tenant, and (ii) shall not give Tenant reason to terminate the
Lease or cancel Tenant's obligation to lease said Must-Take Space.
Notwithstanding anything to the contrary above, due to Landlord's accommodating
Tenant and allowing tenant to phase into the entire Building, Tenant shall be
responsible for one hundred percent (100%) of all Additional Rent expenses on
the entire Building as if Tenant has leased one hundred percent (100%) of said
Building from the original Lease Commencement Date. However, during the period
any part of the Must-Take Space is leased by Landlord to a third party tenant
prior to Tenant phasing into the Must-Take Space #1 and/or Must-Take Space #2 as
noted above, Landlord shall adjust Tenant's share of the Additional Rent
expenses on a pro-rata basis based on the total square footage leased by
Landlord to a third party tenant. Tenant understands that prior to the
respective phase in dates, Landlord may, from time to time, lease all or any
part of the Must-Take Space to one or more third party tenants, and that portion
of the Must-Take Space so leased will be leased between
15
<PAGE> 16
Landlord and said third party tenants; provided that in no event will Landlord
lease any portion of the Must-Take Space for a period that exceeds the
respective phase in date.
Notwithstanding anything to the contrary herein, in the event Tenant is, at any
time in material default of this Lease prior to the respective phase in date(s)
and Tenant has not cured the default as provided for in this Lease, Landlord
shall have the right, but not the obligation, to rescind Tenant's right to phase
into said Must-Take Space by giving written notice to Tenant within thirty (30)
days of said material default by Tenant, and this Lease shall continue, absent
this Paragraph 54, for the remaining Term hereof.
55. PARKING CONTINUED: Subject to Paragraph 54 above, (i) effective December
1, 2000, Tenant's non-exclusive parking spaces shall increase to approximately
162 spaces (the total number of parking spaces is subject to the actual square
footage occupied by Tenant) and (ii) effective May 1, 2001 (i) Tenant's
non-exclusive parking space shall increase to 218 spaces.
56. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF
THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED: Effective May 1,
2001, Tenant shall occupy one hundred percent (100%) of the Building in which
the Premises are located, and as a result, Lease Paragraph 7 shall be deleted
in its entirety and replaced with the following:
"7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON
AREAS OF THE COMPLEX: As Additional Rent and in accordance with
Paragraph 4D of this Lease, Tenant shall pay to Landlord Tenant's
proportionate share (calculated on a square footage or other equitable
basis as calculated by Landlord) of all expenses of operation,
management, maintenance and repair of the Common Areas of the Complex
including, but not limited to, license, permit, and inspection fees;
security; utility charges associated with exterior landscaping and
lighting (including water and sewer charges); all charges incurred in
the maintenance and replacement of landscaped areas, lakes, parking
lots and paved areas (including repair, replacement, resealing and
restriping), sidewalks, driveways and private roads within the Complex
and roads with reciprocal easement areas; maintenance, repair, and
replacement of all fixtures and electrical, mechanical and plumbing
systems; structural elements and exterior surfaces of the buildings;
salaries and employees benefits of personnel and payroll taxes
applicable thereto; supplies, materials, equipment and tools; the cost
of capital expenditures which have the effect of reducing operating
expenses, provided, however, that in the event Landlord makes such
capital improvements, Landlord may amortize its investment in said
improvements (together with interest at the rate of fifteen percent
(15%) per annum on the unamortized balance) as an operating expense in
accordance with standard accounting practices, provided, that such
amortization is not at a rate greater than the anticipated savings in
the operating expenses.
"Additional Rent" as used herein shall not include Landlord's
debt repayments, interest on charges; expenses directly or indirectly
incurred by Landlord for the benefit of any other tenant; cost for the
installation of partitioning or any other tenant improvements; cost of
attracting tenants; depreciation; interest, or executive salaries."
57. TENANT MAINTENANCE:
A. It is understood that as of the Lease Commencement Date, Tenant
shall be the sole occupant of the building located at 2400 Bridge Parkway,
Redwood City, of which the Leased Premises is a part. Tenant agrees that,
until such time as Landlord leases any portion of the remaining vacant space in
the building to a third party, Tenant shall be responsible for the maintenance
and repair, as defined in Lease Paragraph 10 ("Tenant Maintenance"), for the
entire building, including, but not limited to, the entire HVAC system,
electrical systems and plumbing systems within the Building.
B. Effective May 1, 2001, Tenant shall occupy one hundred percent
(100%) of the Building in which the Premises are located, and as a result,
Lease Paragraph 10 shall be deleted in its entirety and replaced with the
following:
"10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense,
keep and maintain the Premises (including appurtenances) and every
part thereof in a high standard of maintenance and repair, or
replacement, and in good and sanitary
16
<PAGE> 17
condition. Tenant's maintenance and repair responsibilities herein
referred to include, but are not limited to, janitorization, all windows
(interior and exterior), window frames, plate glass and glazing (destroyed
by accident or act of third parties), truck doors, plumbing systems (such
as water and drain lines, sinks, toilets, faucets, drains, showers and
water fountains), electrical systems (such as panels, conduits, outlets,
lighting fixtures, lamps, bulbs, tubes and ballasts), heating and air
conditioning systems (such as compressors, fans, air handlers, ducts,
mixing boxes, thermostats, time clocks, boilers, heaters, supply and
return grills), structural elements and exterior surfaces of the building,
store fronts, roofs, downspouts, all interior improvements within the
Premises including but not limited to wall coverings, window coverings,
carpet, floor coverings, partitioning, ceilings, doors (both interior and
exterior), including closing mechanisms, latches, locks, skylights (if
any), automatic fire extinguishing systems, and elevators and all other
interior improvements of any nature whatsoever. Tenant agrees to provide
carpet shields under all rolling chairs or to otherwise be responsible for
wear and tear of the carpet caused by such rolling chairs if such wear and
tear exceeds that caused by normal foot traffic in surrounding areas.
Areas of excessive wear shall be replaced at Tenant's sole expense upon
Lease termination. Tenant hereby waives all rights under, and benefits of,
Subsection 1 of Section 1932 and Section 1941 and 1942 of the California
Civil Code and under any similar law, statute or ordinance now or
hereafter in effect. In the event any of the above maintenance
responsibilities apply to any other tenant(s) of Landlord where there is
common usage with other tenant(s), such maintenance responsibilities and
charges shall be allocated to the Leased Premises by square footage or
other equitable basis as calculated and determined by Landlord."
58. UTILITIES CONTINUED:
A. It is understood that as of the Lease Commencement Date, Tenant shall
be the sole occupant of the building located at 2400 Bride Parkway, Redwood
City, of which the Leased Premises is a part. Tenant agrees to be responsible
for paying 100% of the utilities, including, but not limited to, water, sewer,
gas and electricity, for the entire building until such time as the remaining
vacant space in the building is leased. Tenant agrees that the utilities for
said building will be placed in Tenant's name and that Tenant will pay all
utilities directly to the respective company(s). When any of the remaining
vacant space in said building is leased, Landlord will notify Tenant and
Landlord will transfer all utilities into Landlord's name and subject to the
entire provisions of this Paragraph 56A, Tenant will pay its pro rata charge
for said utilities monthly in advance as described in and subject to Paragraph
4 "Rent" and Paragraph 8 "Utilities" of this Lease. If Tenant shall require
water, gas, or electric current in excess of that usually furnished or supplied
to Premises being used as general office space, Tenant shall first obtain the
written consent of Landlord, which consent shall not be unreasonably withheld
and Landlord may cause an electric current, gas and/or water meter to be
installed in the Premises in order to measure the amount of electric current,
gas or water consumed for any such excess use. The cost of any such meter and
of the installation, maintenance and repair thereof, all charges for water, gas
and electric current consumed by Tenant (as shown by such meters and at the
rates then charged by the furnishing public utility); and any additional
expense incurred by Landlord in keeping account of electric current, gas, or
water so consumed shall be paid by Tenant, and Tenant agrees to pay Landlord
therefor promptly upon demand by Landlord.
B. Subject to Paragraph 54 above, effective May 1, 2001, Tenant shall lease
100% of the Building from Landlord, and shall be responsible for paying to the
respective utility companies one hundred percent of the utilities for the
Building. Effective May 1, 2001, Lease Paragraph 11 ("UTILITIES OF THE BUILDING
IN WHICH THE PREMISES ARE LOCATED") shall be deleted in its entirety and shall
be replaced with the following:
"11. UTILITIES: Tenant shall pay promptly, as the same become due, all
charges for water, gas, electricity, telephone, telex and other electronic
communications service, sewer service, waste pick-up and any other
utilities, materials or services furnished directly to or used by Tenant
on or about the Premises during the Term of this Lease, including, without
limitation, any temporary or permanent utility surcharge or other
exactions whether or not hereinafter imposed.
Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of Rent by reason of any interruption or
failure of utility services to the Premises when such interruption or
failure is caused by accident, breakage, repair, strikes, lockouts, or
other labor disturbances or labor disputes of any nature, or by any other
cause, similar or dissimilar, beyond the reasonable control of Landlord."
17
<PAGE> 18
[PARCEL I AND II MAP]
<PAGE> 19
EXHIBIT C
CALIFORNIA REGIONAL WATER QUALITY CONTROL BOARD
SAN FRANCISCO BAY REGION
ORDER NO. 94-181
UPDATED WASTE DISCHARGE REQUIREMENT FOR:
WESTPORT INVESTMENTS
(PEERY/ARRILLAGA)
PARKWOOD 101/Westport Landfill
REDWOOD CITY, SAN MATEO COUNTY
The California Regional Water Quality Control Board, San Francisco Bay
Region, (hereinafter called the Board), finds that:
1. Westport Investments Inc. is the site's legal owner hereinafter
referred to as the discharger. The site is located adjacent to Belmont Slough in
Redwood City as shown in Figure 1, which is incorporated herein as a part of
this Order. No waste has been disposed of at the site since 1970, and the site
is considered a closed site.
PURPOSE OF UPDATING ORDER:
2. The primary objectives of this order are to revise the site's
groundwater and leachate monitoring program, and to bring the site into
compliance with the current regulations of Article 5, Title 23, Division 3,
Chapter 15 of the California Code of Regulations. Additionally, this Order
requires the discharger to reconstruct those portions of the landfill which do
not meet the requirements of Section 2581, Article 8, of Chapter 15.
SITE DESCRIPTION:
3. The site is located approximately one mile east of Highway 101,
and it is bordered by Belmont Slough to the north and west, and by an existing
residential development and Marine World Parkway to the east and south. The site
is divided into three areas. Two of these areas, the mound (35 acres) and
panhandle (10 acres) areas, are associated with refuse fill and currently have a
cap (with a varying thickness) overlying them. The third area (40 acres),
between the refuse fill areas and the levees, is a low-lying area that does not
contain refuse. The site's surface soils are currently composed largely of fill
that has been used to establish a cap over the refuse fill area, or used to fill
the low-lying elevations.
1
<PAGE> 20
SITE HISTORY:
4. The site was a tidal marshlands until approximately 1910, at which time
the area was diked and used for pasture lands. The area was used as a
refuse disposal site from 1948 to about 1970. Disposal in the panhandle
area of the site reportedly ceased in about 1963, while disposal in the
mound area continued until 1970 (Levin-Fricke, 1989a). The site has been
closed in accordance with the Board's Order No. 76-77 dated October 18,
1977. Closure involved placement of low permeability soils, Bay Mud clays
and construction fill, over the top of the refuse.
5. On July 20, 1976 Waste Discharge Requirements (WDRs) Order No. 76-77 was
adopted for the site. On October 18, 1977 Order NO. 76-77 was revised by
the adoption of Order NO. 77-134.
6. On March 2, 1994 United Soil Engineering, Inc., (USC), conducted an
investigation to determine the thickness of the landfill's cover. A total
of 77 borings were advanced to a depth of 6 feet. USC's investigation
revealed that an additional one to two feet of clay or low permeability
soils are required to achieve a minimum thickness for most part of the
landfill's cover. [Note: Section 2581 of Article 8 requires two feet of
appropriate materials as a foundation layer for the final cover, one foot
of soil with a permeability of (less than or equal to) 10(-6) cm/sec and
one foot of protective cover soil.]
7. In some portion of the landfill, the thickness of final cover does not
meet the requirements of Article 8 of Chapter 15.
GEOLOGIC SETTING OF THE SITE:
8. The sediments underlying the landfill consist primarily of shallow Bay
deposits comprised of "Bay mud" clays and silty clays. Stiff to very stiff
sandy clay/clayey sand was encountered below the Bay Mud extending to a
depth of approximately 200 feet below ground surface. According to Cooper
Engineers (Cooper, 1983), a moderately permeable sequence of clay, sand,
and gravel underlies the stiff clays, beginning at a depth of 200 feet
below ground surface. Franciscan bedrock was reported to be at a depth of
approximately 300 feet below ground surface (bgs) along the western side
of the site and 500 feet bgs along the eastern side of the site as
reported by Cooper Engineers (1983). A general geologic cross section of
the South Bay, including the site, is shown in Figure 2.
HYDROGEOLOGIC SETTING OF THE SITE:
9. Investigations have shown that the groundwater movement is radially away
from the mounded areas. However, the potential flow directions are likely
influenced by the presence of the operating leachate collection and
recovery system located along a line
2
<PAGE> 21
approximately 10 feet from the southern border of the mound area.
Groundwater flow may also be influenced by the presence of landfill gas
barriers installed off site on the Peninsula Landing site, south of the
Panhandle, and on the Boardwalk site south of the Mound area.
10. The direction of deeper groundwater flow cannot be established with a
high level of certainty because of the relatively discontinuous nature
of the water bearing zones in the low permeability clay layer beneath
the recent Bay Mud. However, based on a study conducted by Mclaren
(McLaren, 1989), "...regional hydrogeologic condition suggest that
deeper groundwater moves in an easterly direction toward San Francisco
Bay."
11. A comparison of the shallow and deep groundwater levels have indicated
the existence of a slightly downward vertical gradient except for well
P-1A and P-1B. In October of 1988, an upward gradient was observed for
the two aforementioned monitoring wells. However, subsequent studies for
these wells showed a downward vertical gradient.
12. Confined aquifer zones of moderate permeability which are the major
groundwater sources for the region, are located at a depth of 190 to 200
feet beneath the site. This aquifer zone is an extension of the major
artesian basin of the South Bay and Santa Clara Valley and consists
chiefly of unconsolidated Quarternary alluvium.
13. The beneficial uses of Belmont slough, and South San Francisco Bay are
as follows:
a. Wildlife habitat
b. Brackish and salt water marshes
c. Water contact recreation
d. Non-water contact water recreation
e. Commercial and sport fishing
f. Preservation of rare and endangered species
g. Esturaine habitat
h. Fish migration and spawning
14. The present and potential beneficial uses of the deeper groundwater are
as follows:
a. Domestic and municipal water supply
b. Industrial process supply
c. Industrial service supply
d. Agricultural supply
WASTES AND THEIR CLASSIFICATION:
15. Approximately 45 acres of the project site were used for landfill
disposal of municipal solid waste and incinerator ash from 1948 to 1970.
About 650,000 cubic yards of fill material has been disposed of at the
site. The refuse material at the site consisted of
3
<PAGE> 22
paper, glass, plastic, and minor amounts of wood and rock fragments and
incinerator ashes.
MONITORING PROGRAM:
16. There are 10 existing on-site groundwater monitoring wells and 2
off-site wells to the south of the site, near Marine World Parkway.
These wells were installed by various consultants in conjunction with
the evaluation of groundwater conditions for the entire 85-acre site.
Seven wells monitor landfill leachate.
17. An investigation was conducted by LEVIN-FRICKE during the period from
August through December 1988 to characterize soil and groundwater
quality at the landfill in accordance with the Solid Waste Assessment
Test (SWAT) requirements. This investigation concluded that the landfill
was leaking low levels of contaminants.
18. The discharger shall initiate a semi-annual monitoring program for the
existing monitoring network which consists of 6 leachate wells (P-2A,
P-1A, S-1A, S-2, S-5, LW-1), five deep groundwater wells (UGP-1, P-2B,
P-1B, MW-1, MW-2), 21 shallow groundwater wells (UPG-2, P-8, P-7, K-1,
P-3, K-3, K-4, P-5, P5-1, K-5, MW-3, MW3-1, MW3-2, S-3A, S-4A, P-4, K-2,
P-6), and 4 surface water monitoring points (SW-1, SW-2, SW-3, SW-4) as
shown in Figure 1 of the attached discharge monitoring program. The
points of compliance for shallow and deep groundwater zones have been
identified as those wells which monitor the shallow and the deep
groundwater zones beneath the site.
19. Federal Regulations [40 Code of Federal Regulations (CFR) Parts 122,
123, and 124] require specific categories of industrial activities,
including landfills, to obtain a NPDES permit for storm water
discharges. The State Water Resources Control Board has issued a General
Permit for Storm Water Discharges Associated with Industrial Activities
(NPDES Permit No. CAS000001). This facility is subject to these
requirements. Pursuant to the Stormwater Discharge Program, this
facility is required to submit a Notice of Intent for coverage under
the General Permit; to prepare and implement a monitoring program; and
to submit an annual report. Compliance with the monitoring and reporting
requirements of this Order are intended to assure compliance with the
requirements of the General Permit.
EXISTING LEACHATE CONTROL SYSTEM:
20. The leachate collection system of the site consists of two trenches. The
trenches were excavated to depths of 8 to 13 feet bgs. The approximate
locations of the leachate trenches are shown in Figure 3. The leachate
collection and recovery system has been
4
<PAGE> 23
operational in Trench No. 1 since installation. Leachate Trench No. 1 is
fitted with an automatic pumping system that periodically pumps leachate
from manhole No. 1 to the sanitary sewer as needed to maintain a low level
of leachate in the trench. The pumping system for Trench No. 2 is not
currently operating because migration of leachate has been mitigated to
some extent by the relatively impervious clays at the site.
CALIFORNIA ENVIRONMENTAL QUALITY ACT
21. This site is exempt from the provisions of the California Environmental
Quality Act (CEQA) pursuant to Section 15308, Title 14 of the California
Code of Regulation. However, any subsequent development of closed landfill
may not be exempt from CEQA.
22. Sanitary landfills could potentially impact groundwater if not properly
designed maintain and/or operated. Groundwater can also be affected by
water that percolates through waste materials and extracts or dissolves
substances from it and carries them into the groundwater.
23. The preceding impacts are mitigated or avoided by design measures to
control erosion and assure containment of waste and leachate through the
use of leachate collection and removal systems.
24. The Board has notified the discharger and interested agencies and persons
of its intent to prescribe waste discharge requirements for the discharge,
and has provided them with an opportunity to submit their written views and
recommendations.
25. The Board in a public meeting heard and considered all comments pertaining
to the discharge.
IT IS HEREBY ORDERED that the dischargers, their agents, successors and assigns
are to complete closure activities (modifications of clay cap), conduct
postclosure maintenance and monitoring pursuant to authority in Title 23,
Chapter 15, Section 2581 and California Water Code Division 7 and the following:
A. PROHIBITIONS
1. Wastes shall not be in contact with ponded water.
2. Leachate from wastes and ponded water containing leachate or in
contact with refuse shall not be discharged to waters of the State or
of the United States.
3. Wastes of any origin and type shall not be deposited or stored at this
site after the adoption of this Order.
5
<PAGE> 24
4. The discharger, or any future owner or operator of this site, shall
not cause the following conditions to exist in waters of the State at
any place outside the waste management facility:
a. Surface Waters
1. Floating, suspended, or deposited macroscopic particulate
matter or foam.
2. Bottom deposits or aquatic growth.
3. Adversely alter temperature, turbidity, or apparent color
beyond natural background levels.
4. Visible, floating, suspended or deposited oil or other
products of petroleum origin.
5. Toxic or other deleterious substances to be present in
concentrations or quantities which may cause deleterious
effects on aquatic biota, wildlife or waterfowl, or which
render any of these unfit for human consumption either at
levels created in the receiving waters or as a result of
biological concentrations. [Note: the surface water and
shallow groundwater on and in the vicinity of the site are
not used for human consumption since they are brackish
and/or saline]
b. Groundwater
The groundwater shall not be degraded as a result of the waste
maintained at the facility.
B. SPECIFICATIONS
1. All reports pursuant to this Order shall be prepared under the
supervision of a registered civil engineer, California registered
geologist or certified engineering geologist.
2. The site shall be protected from any washout or erosion of wastes from
inundation which could occur as a result of a 100-year 24-hour
precipitation event, or as the result of flooding with a return
frequency of 100 years.
3. The existing leachate control facility shall be maintained and remain
operational as long as leachate is present and it poses a threat to
water quality.
6
<PAGE> 25
4. All conveyance control facilities and hydraulic structures shall be
maintained to ensure normal flow of liquid and to prevent hydraulic
pressure buildup within the pipeline.
5. The discharger shall assure that the foundation of the site, the refuse
fill, and the structures which control leachate, surface drainage,
erosion and gas for this site are constructed and maintained to
withstand conditions generated during maximum probable earthquake.
6. The facility's Leachate Collection and Removal System (LCRS) must be
capable of creating an inward leachate gradient which shall prevent
leachate migration offsite.
7. The existing LCRS shall be inspected monthly or more frequently as
necessary and any accumulated fluid shall be removed.
8. The exterior surfaces (cap) shall be graded to promote lateral runoff of
precipitation and to ensure that ponding does not occur.
9. A detailed survey of the landfill's cap must be made, to assure that
construction is in compliance with the requirement of Article 8 of
Chapter 15.
10. The discharger shall maintain and monitor the waste unit to prevent a
statistically significant increase to exist between water quality at
the point of compliance as provided in Section 2550.5, Article 5 of
Chapter 15.
11. In the event of a release of a constituent of concern beyond the Point
of Compliance, the site will begin a Compliance Period pursuant to
Section 2550.6(a). During the Compliance Period, the discharger shall
perform an Evaluation Monitoring Program and a Corrective Action
Program.
12. The discharger shall install any reasonable additional groundwater and
leachate monitoring devices required to fulfill the terms of any
Discharge Monitoring Program issued by the Executive Officer.
13. Methane and other landfill gases shall be adequately vented, removed
from the landfill units, or otherwise controlled to minimize the danger
of explosion, adverse health effects, nuisance conditions, or the
impairment of beneficial uses of water due to migration through the
vadose (unsaturated) zone in accordance with applicable regulatory
requirements.
14. This Board considers the property owner and site operator to have
continuing responsibility for correcting any problems which arise in
the future as a result
7
<PAGE> 26
of this waste discharge or related operations during the active life and
post-closure maintenance period.
15. The discharger shall maintain all devices or designed features,
installed in accordance with this Order such that they continue to
operate as intended without interruption as provided for by the
performance standards adopted by the California Integrated Waste
Management Board.
16. The discharger shall provide and maintain a minimum of two permanent
surveyed monuments near the landfill from which the location and
elevation of wastes, containment structures, and monitoring facilities
can be determined throughout the post-closure and maintenance periods.
These monuments shall be installed by a licensed land surveyor or
registered civil engineer.
17. The Regional Board shall be notified immediately of any failure
occurring in the waste management unit. Any failure which threatens the
integrity of containment features or the landfill shall be promptly
corrected after approval of the method and schedule by the Executive
Officer.
18. The discharger shall comply with all applicable provisions of Chapter 15
that are not specifically referred to in this Order.
19. The discharger must reconstruct the final cover to meet the requirements
of CCR Title 23.
20. The discharger shall maintain the facility so as to prevent a
statistically significant increase in water quality parameters at the
point of compliance as provided in Section 2550.5. According to Section
2550.2 and 2550.3 of Chapter 15, the discharger is also required to
establish a Water Quality Protection Standards (WQPS) and a list of
Constituents of Concern (COCs). The discharger shall meet the following
schedule in implementing the requirements of this Provision. The
discharger shall monitor a minimum of four quarters (one year) for the
parameters listed in Table 2. Based upon the results of the monitoring,
the discharger shall propose a revised list of COC's and monitoring
parameters in accordance with the requirements of this Order and Article
5 of Chapter 15. Within 15 months following the adoption of this Order,
the discharger shall submit a monitoring program to include a
statistical analysis method to the Board for approval by the Executive
Officer. A non statistical method (e.g., concentration trend analysis
and comparison to practical quantitation limits) will be utilized to
evaluate the significance of groundwater data until the proposed
statistical methods are approved by the Board.
<PAGE> 27
C. PROVISIONS
1. The discharger shall comply with all Prohibitions, Specifications, and
Provisions of this Order, immediately upon adoption of this Order or
as provided below.
2. The discharger shall submit a detailed POST EARTHQUAKE INSPECTION AND
CORRECTIVE ACTION PLAN acceptable to the Executive Officer to be
implemented in the event of any earthquake generating ground shaking
of Richter Magnitude 7 or greater or within 30 miles of the landfill.
The report shall describe the containment features, and ground water
monitoring and leachate control facilities potentially impacted by the
static and seismic deformations of the landfill. The plan shall
provide for reporting results of the post earthquake inspection to the
Board within 72 hours of the occurrence of the earthquake. Immediately
after an earthquake event causing damage to the landfill structures,
the corrective action plan shall be implemented and this Board shall
be notified of any damage.
REPORT DUE DATE: WITHIN THREE MONTHS OF ADOPTION OF THIS ORDER
3. The discharger shall submit a CONTINGENCY PLAN to be instituted in the
event of a leak or spill from the leachate facilities. The discharger
shall give immediate notification to the San Francisco Bay Regional
Water Quality Control Board, the Local Enforcement Agency (LEA), and
the California Department of Toxic Substance Control. The discharger
shall initiate its corrective action plan to stop and contain
the migration of pollutants from the site.
REPORT DUE DATE: WITHIN THREE MONTHS OF ADOPTION OF THIS ORDER
4. The discharger shall file with the Regional Board Discharge Monitoring
Reports prepared under the supervision of a registered civil engineer
or registered geologist performed according to any DISCHARGE
MONITORING PROGRAM issued by the Executive Officer.
5. The reports pursuant to these Provisions shall be prepared under the
supervision of a registered engineer or certified engineering
geologist.
6. The discharger shall comply with all applicable items of the attached
Discharge Monitoring Program, or any amendments thereafter.
7. In the event of any change in control of ownership of land or waste
discharge
9
<PAGE> 28
facilities presently owned or controlled by the Discharger, the
Discharger shall notify the succeeding owner or operator of the
existence of this Order by letter, a copy of which shall be
immediately forwarded to this office. To assume operations of this
Order, the succeeding owner or operator must apply in writing to the
Executive Officer requesting transfer of the Order. (Refer to Standard
Provisions referenced above). The request must contain the requesting
entity's full legal name, the address and telephone number of the
persons responsible for contract with the Board and a statement. The
statement shall comply with the signatory paragraph described in
Standard Provisions and state that the new owner or operator assumes
full responsibility for compliance with this Order. Failure to submit
the request shall be considered a discharge without requirements, a
violation of the California Water Code.
8. The discharger shall immediately notify the Board of any flooding,
equipment failure, slope failure, or other change in site conditions
which could impair the integrity of waste or leachate contaminant
facilities or precipitation and drainage control structures.
NOTIFICATION: IMMEDIATELY
REPORT DUE DATE: WITHIN 7 DAYS AFTER THE INCIDENT
9. The discharger shall prepare, implement and submit a Storm Water
Pollution Prevention Plan in accordance with requirements specified in
State Water Resources Control Board General Permit for Storm Water
Discharges Associated with Industrial Activities (NPDES Permit No.
CAS000001).
REPORT DUE DATE: APRIL 1, 1995
10. The discharger must reconstruct those portions of the landfill's cap
which do not meet the requirements of Article 8, Section 2581 of
Chapter 15. The discharge is required to submit a complete and
comprehensive construction plan with 60 days of the adoption of this
Order.
11. This order requires the discharger to initiate the semi-annual self
monitoring program as defined in the attached Parts A & B.
12. The discharger shall maintain a copy of this Order at the site so as
to be available at all times to site operating personnel.
13. This Board considers the property owner and site operator to have
continuing responsibility for correcting any problems which may arise
in the future as
10
<PAGE> 29
result of this waste discharge or related operations.
14. The discharge shall permit the Board or its authorized representative, upon
presentation of credentials:
a. Immediate entry upon the premises on which wastes are located or in
which any required records are kept.
b. Access to copy any records required to be kept under the terms and
conditions of this Order.
c. Inspection of any treatment equipment, monitoring equipment, or
monitoring method required by this Order or by any other California
State Agency.
d. Sampling of any discharge or ground water governed by this Order.
15. These requirements do not authorize commission of any act causing injury
to the property of another or of the public; do not convey any property
rights; do not remove liability under federal, state or local laws; and do
not authorize the discharge of wastes without appropriate permits from
other agencies or organizations.
16. This Order is subject to Board review and updating, as necessary, to comply
with changing State or Federal laws, regulations, policies, or guidelines;
changes in the Board's Basin Plan; or changes in the discharge
characteristics.
17. Copies of all correspondence, reports, and documents pertaining to
compliance with the Prohibitions, Specifications and Provisions of this
Order, shall also be provided to the Environmental Health Services Division
of San Mateo County.
18. The discharger shall analyze groundwater, leachate and surface water
samples for the parameters as presented in Table 2 of the Discharge
Monitoring Program for the Parkwood 101/westport landfill.
19. TASK 1: DOCUMENTATION OF INSTALLATION OF ADDITIONAL GROUNDWATER
MONITORING WELLS
Completion Date: March 1, 1995
The discharger is required to submit a technical report acceptable to the
Executive Officer that documents that the monitoring wells (MW3-1, MW3-2,
P5-1, LW-1) listed in Table No. 1 in Part B of the attached Self Monitoring
Program have been installed.
11
<PAGE> 30
20. This Order rescinds Orders No. 76-77 and 77-134.
I, Steven R. Ritchie Executive Officer, do hereby certify that the foregoing is
a full, complete, and correct copy of an Order adopted by the California
Regional Water Quality Control Board, San Francisco Bay Region, December 14,
1994.
/s/ STEVEN R. RITCHIE
---------------------
Steven R. Ritchie
Executive Officer
Attachments:
1. Figures:
1. Site Location Map
2. General Geologic X-Section
3. Leachate Trenches Location Map
2. Discharge Monitoring Program
References:
Cooper Engineers (1983). Geotechnical and Waste Management Engineering Studies
for Approval of Concept Plan, Lands of Parkwood 101 Associates, Redwood City,
California.
Levin-Fricke, Inc. (1989). Solid Waste Assessment Test Investigation Report,
Westport Landfill Site, Redwood City, California. November.
McLaren Engineers (1989). Drat Supplemental Environmental Impact Report,
Westport Development Project. October.
United Soil Engineering INC. (1994). Clay Cap Thickness Investigation, Westport
Office Park, Marine World Parkway, Redwood City, California.
12
<PAGE> 31
FIGURE NO. 1
SITE LOCATION MAP
<PAGE> 32
FIGURE NO. 2
GENERAL GEOLOGIC S-SECTION
<PAGE> 33
FIGURE NO. 3
LEACHATE TRENCHES LOCATION MAP
<PAGE> 34
CALIFORNIA REGIONAL WATER QUALITY CONTROL BOARD
SAN FRANCISCO BAY REGION
DISCHARGE MONITORING PROGRAM
FOR
WESTPORT INVESTMENTS INC.
PARKWOOD 101 CLOSED LANDFILL
REDWOOD CITY, SAN MATEO COUNTY
ORDER NO. 94-181
CONSISTS OF
PART A
AND
PART B
<PAGE> 35
PART A
A. GENERAL
Reporting responsibilities of waste dischargers are specified in Sections
13225(a), 13267(b), 13383, and 13387(b) of the California Water Code and
this Regional Board's Resolution No. 73-16. This Discharge Monitoring
Program is issued in accordance with Provision C.4 of Regional Board Order
No. 94-181.
The principal purposes of a discharge monitoring program are:
(1) to document compliance with waste discharge requirements and
prohibitions established by the Board,
(2) to facilitate self-policing by the waste discharger in the prevention
and abatement of pollution arising from waste discharge,
(3) to develop or assist in the development of standards of performance,
and toxicity standards,
(4) to assist the discharger in complying with the requirements of Article
5, Chapter 15 as revised July 1, 1991.
B. SAMPLING AND ANALYTICAL METHODS
Sample collection, storage, and analyses shall be performed according to
the most recent version of EPA Standard Methods and in accordance with an
approved sampling and analysis plan.
Water and waste analysis shall be performed by a laboratory approved for
these analyses by the State of California. The director of the laboratory
whose name appears on the certification shall supervise all analytical work
in his/her laboratory and he/she or their authorized representative shall
sign all reports of such work submitted to the Regional Board.
All monitoring instruments and equipment shall be properly calibrated
and maintained to ensure accuracy of measurements.
C. DEFINITION OF TERMS
1. A grab sample is a discrete sample collected at any time.
2. Receiving waters refers to any surface water which actually or
potentially receives surface or groundwater which pass over, through,
or under waste materials or contaminated soils. In this case, the
groundwater beneath and adjacent to the landfill
2
<PAGE> 36
areas and the surface runoff from the site are considered receiving waters.
3. Standard observations refer to:
a. Receiving Waters
1) Floating and suspended materials of waste origin: presence or
absence, source and size of affected area.
2) Discoloration and turbidity: description of color, source, and size
of affected area.
3) Evidence of odors, presence or absence, characterization, source,
and distance of travel from source.
4) Evidence of beneficial use: presence of water associated wildlife.
5) Flow rate.
6) Weather conditions: wind direction and estimated velocity, total
precipitation during the previous five days and on the day of
observation.
b. Perimeter of the waste management unit
1) Evidence of liquid leaving or entering the waste management unit,
estimated size of affected area and flow rate. (Show affected area
on a map.)
2) Evidence of odors, presence or absence, characterization, source,
and distance of travel from source.
3) Evidence of erosion and/or daylighted refuse.
c. The waste management unit
1) Evidence of ponded water at any point on the waste management
facility.
2) Evidence of odors, presence or absence, characterization, source,
and distance of travel from source.
3) Evidence of erosion and/or daylighted refuse.
4) Standard Analysis (SA) and measurements are listed on Table 2
(attached).
D. SAMPLING, ANALYSIS, AND OBSERVATIONS
The discharger is required to perform sampling, analyses, and observations
in the following media:
1. Groundwater per Section 2550.7(b)
2. Surface water per Section 2550.7(c) and per the general requirements
specified in Section 2550.7(e) of Article 5, Chapter 15 and
3. Vadose zone per Section 2550.7(d). This item is neither feasible nor
applicable for this landfill.
3
<PAGE> 37
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Chlorinated Herbicides 8150 w/ Once in 5 yr 3
capillary
column
- -----------------------------------------------------------------------------
Arsenic 7061 Semi-annual 3
- -----------------------------------------------------------------------------
Cadmium 7131 Semi-annual 3
- -----------------------------------------------------------------------------
Chromium 6010 Semi-annual 3
- -----------------------------------------------------------------------------
Copper 6010 Semi-annual 3
- -----------------------------------------------------------------------------
Lead 7421 Semi-annual 3
- -----------------------------------------------------------------------------
Mercury 7470 Semi-annual 3
- -----------------------------------------------------------------------------
Nickel 6010 Semi-annual 3
- -----------------------------------------------------------------------------
Selenium 7740 Semi-annual 3
- -----------------------------------------------------------------------------
Silver 6010 Semi-annual 3
- -----------------------------------------------------------------------------
Zinc 6010 Semi-annual 3
- -----------------------------------------------------------------------------
</TABLE>
1. Not Applicable
2. Methods for Chemical Analysis of Water and Wastes, EPA600/4/79/029, revised
March 1983
3. EPA SW-846
4. Only for surface water monitoring
2
<PAGE> 38
Table 2 - Discharge Monitoring Plan, List of Analytical Parameters
<TABLE>
<CAPTION>
Method
Parameters (USEPA) Frequency Reference
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Leachate Level Measurements Field Semi-annual 1
- --------------------------------------------------------------------------------
Water Level Measurements Field Semi-annual 1
- --------------------------------------------------------------------------------
Temperature Measurements Field Semi-annual 1
- --------------------------------------------------------------------------------
Electrical Conductivity Field Semi-annual 3
- --------------------------------------------------------------------------------
pH Field Semi-annual 3
- --------------------------------------------------------------------------------
Total Organic Carbon 415.1 Semi-annual 2
- --------------------------------------------------------------------------------
Total Nitrogen (the sum of Nitrate 351.2 Semi-annual 2
Nitrogen and Kjeldahl Nitrogen)
- --------------------------------------------------------------------------------
Turbidity Field Semi-annual 1, 4
- --------------------------------------------------------------------------------
Alkalinity, bicarbonate 310.1 Semi-annual 2
- --------------------------------------------------------------------------------
Alkalinity, hydroxide 310.1 Semi-annual 2
- --------------------------------------------------------------------------------
Biological Oxygen Demand 410.4 Semi-annual 4
- --------------------------------------------------------------------------------
Ammonia as N (nonionized) 350.1 Semi-annual 4
- --------------------------------------------------------------------------------
Chemical Oxygen Demand 410.2 Semi-annual 2, 4
- --------------------------------------------------------------------------------
Total Dissolved Solids 160.1 Semi-annual 2, 4
- --------------------------------------------------------------------------------
Total Suspended Solids 160.2 Semi-annual 2, 4
- --------------------------------------------------------------------------------
Volatile Organic Compounds 8260 w/ Once in 5 yrs 3
(Appendix I) capillary
column
- --------------------------------------------------------------------------------
Volatile Organic Compounds 8260/w Once in 5 yrs 3
(Appendix I & II) capillary
column
- --------------------------------------------------------------------------------
Appendix II 8270 Once in 5 yrs 3
Semi-volatile Organics Compounds
- --------------------------------------------------------------------------------
Organophosphorus Pesticides & 8140 w/ Once in 5 yrs 3
PCB's capillary
column
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 39
E. RECORDS TO BE MAINTAINED
Written reports shall be maintained by the discharger or laboratory, and
shall be retained for a minimum of five years. This period of retention shall
be extended during the course of any unresolved litigation regarding this
discharge or when requested by the Board. Such records shall show the following
for each sample:
1. Identity of sample and sample station number.
2. Date and time of sampling.
3. Date and time of analyses, and name of the personal performing the
analyses.
4. Complete procedure used, including method of preserving the sample, and
the identity and volumes of reagents used where applicable; or reference
to standard EPA methods.
5. Calculation of results.
6. Results of analyses, and detection limits for each analysis.
F. REPORTS TO BE FILED WITH THE BOARD
1. Written detection monitoring reports shall be filed by the 15th day of the
month following the report period. In addition, an annual report shall be
filed as indicated in F.3 below. The reports shall be comprised of the
following:
a. Letter of Transmittal
A letter transmitting the essential points in each report should
accompany each report. Such a letter shall include a discussion of any
requirement violations found during the last report period, and
actions taken or planned for correcting the violations. If the
discharger has previously submitted a detailed time schedule for
correcting requirement violations, a reference to the correspondence
transmitting such schedule will be satisfactory. If no violations have
occurred in the last report period, this shall be stated in the letter
of transmittal. Monitoring reports and the letter transmitting the
monitoring reports shall be signed by a principal executive officer at
the level of vice president or his duly authorized representative, if
such representative is responsible for the overall operation of the
facility from which the discharge originates. The letter shall contain
a statement by the official, under penalty of perjury, that to the
best of the signer's knowledge, the report is true, complete, and
correct.
b. Each monitoring report shall include a compliance evaluation summary.
The summary shall contain:
4
<PAGE> 40
1) A graphic description of the velocity and direction of groundwater flow
under/around the waste management unit, based upon the past and present
water level elevations and pertinent visual observations. A statistical
evaluation of the water quality monitoring data for all groundwater
compliance points (As required under Part B (Table 1)).
2) The method and time of water level measurement, the type of pump used
for purging, pump placement in the well; method of purging, pumping
rate, equipment and methods used to monitor field PH, temperature, and
conductivity during purging, calibration of the field equipment,
results of the PH, temperature conductivity and turbidity testing, well
recovery time, and method of disposing of the purge water.
3) Type of pump used, pump placement for sampling, a detailed description
of the sampling procedure; number and description of equipment, field
and travel blanks; number and description of duplicate samples; type of
sample containers and preservatives used, the date and time of
sampling, the name and qualification of the person actually taking the
samples, and any other observations.
c. A map or aerial photograph shall accompany each report showing observation
and monitoring station locations.
d. Laboratory statements of results of analyses specified in Part B must be
included in each report. The director of the laboratory whose name appears
on the laboratory certification shall supervise all analytical work in
his/her laboratory and shall sign all reports of such work submitted to the
Board.
1) The methods of analyses and detection limits must be appropriate for
the expected concentrations. Specific methods of analyses must be
identified. If methods other than EPA approved methods or Standard
Methods are used, the exact methodology must be submitted for review
and approval by the Executive Officer prior to use.
2) In addition to the results of the analyses, laboratory quality
assurance/quality control (QA/QC) information must be included in the
monitoring report. The laboratory QA/QC information should include the
method, equipment and analytical detection limits; the recovery rates;
and explanation for any recovery rate that is outside of the normal
range specified by the EPA for that method; the results of equipment
and method blanks; the results of spiked and surrogate samples; the
frequency of quality control analysis; and the name of the person(s)
performing the analyses.
e. An evaluation of the effectiveness of the leachate-monitoring or control
facilities,
5
<PAGE> 41
which includes an evaluation of leachate buildup within the disposal units,
a summary of leachate volumes removed from the units, and a discussion of
the leachate disposal methods utilized.
f. A summary and certification of completion of all standard observations for
the waste management unit, the perimeter of the waste management unit, and
the receiving waters.
g. The quantity and types of wastes disposed of during the past quarter, and
the locations of the disposal operations.
2. CONTINGENCY REPORTING
a. A report shall be made by telephone of any seepage from the disposal area
immediately after it is discovered. A written report shall be filed with the
Board within five days thereafter. This report shall contain the following
information:
1) a map showing the location(s) of discharge;
2) approximate flow rate;
3) nature of effects; i.e., all pertinent observations and analyses; and
4) corrective measures underway or proposed.
b. A report shall be made in writing to the Board within seven days of
determining that a statistically significant increase occurred at a point of
compliance (between a down gradient sample and a WQPS). Notification shall
indicate what WQPS(s) has/have been exceeded. The discharger shall
immediately re-sample at the compliance point where this difference has been
found and reanalyze.
c. If re-sampling and analysis confirms the earlier finding of a statistically
significant increase between monitoring results and WQPS(s), the discharger
must submit to the Board an amended Report of Waste Discharge as specified
in Section 2550.8(k)(5) for establishment of an Evaluation Monitoring
Program (EMP) meeting the requirements of Section 2550.9 of Chapter 15.
d. Within 180 days of determining statistically significant evidence of a
release, submit to the regional board an engineering feasibility study for a
Corrective Action Program (CAP) necessary to meet the requirements of
Section 2550.10. At a minimum, the feasibility study shall contain a
detailed description of the corrective action measures that could be taken
to achieve background concentrations for all constituents of concern.
3. REPORTING
By January 31 of each year, the discharger shall submit an annual report to
the Board
6
<PAGE> 42
covering the previous calendar year. This report shall contain:
a. Tabular and graphical summaries of the monitoring data obtained
during the previous year; the report should be accompanied by a 5-1/4" or
3-1/2" computer data disk, MS-DOS ASCII format, tabulating the year's
data.
b. A comprehensive discussion of the compliance record, and the
corrective actions taken or planned which may be needed to bring the
discharger into full compliance with the waste discharge requirements.
c. A map showing the area, if any, in which filling has been completed
during the previous calendar year. [Not applicable for this site]
d. A written summary of the groundwater analyses indicating any change
in the quality of the groundwater.
e. An evaluation of the effectiveness of the leachate monitoring/control
facilities, which includes an evaluation of leachate buildup within the
disposal units, a summary of leachate volumes removed from the units, and
a discussion of the leachate disposal methods utilized.
4. WELL LOGS
A boring log and a monitoring well construction log shall be submitted for
each new sampling well established for this monitoring program, as well as a
report of inspection or certification that each well has been constructed in
accordance with the construction standards of the Department of Water
Resources. These shall be submitted within 30 days after well installation.
7
<PAGE> 43
PART B
1. DESCRIPTION OF OBSERVATION STATIONS AND SCHEDULE OF OBSERVATIONS
A. ON-SITE OBSERVATIONS -- Report Semi-annually
<TABLE>
<CAPTION>
STATION DESCRIPTION OBSERVATIONS FREQUENCY
<S> <C> <C> <C>
V-1 Located on the Standard Quarterly
thru waste disposal observations
V-'n' area as deli- for the waste
neated by a management
500 foot grid unit.
network.
P-1 Located at Standard Quarterly
thru equidistant observations
P-'n' intervals not for the
(perim- exceeding 1000 perimeter.
eter) feet around the
perimeter of
the waste
management unit.
</TABLE>
A map showing visual and perimeter compliance points (V and P stations)
shall be submitted by the discharger in the semi-annually monitoring
report.
B. GROUNDWATER, LEACHATE AND SURFACE WATER MONITORING
REPORT SEMI-ANNUALLY
Groundwater, surface water, leachate and seepage monitoring points shall
be monitored as outlined below on Table 1 and Table 2 and shown on
Figure 1 (Attached).
During the wet season (October through April), estimate or calculate the
volume of storm water discharge from each outfall and collect and
analyze samples of storm water discharge from two storm events during
each wet season which produce
8
<PAGE> 44
significant storm water discharge as defined in State Water Resources
Control Board Order No. 92-12-DWQ (General Permit for Storm Water
Discharges). The samples must be analyzed for:
- pH, total suspended solids (TSS), specific conductance, and total
organic carbon (TOC).
- Toxic chemicals and other pollutants that are likely to be present in
storm water discharge in significant quantities.
<PAGE> 45
TABLE 1
MONITORING POINTS FOR EACH MONITORING MEDIUM:
<TABLE>
<CAPTION>
UPGRADIENT
MONITORING MEDIA POINTS OF COMPLIANCE WELLS
- ---------------- -------------------- -----------
<S> <C> <C>
Surface Water SW1, SW2, SW3 SW1
- ----------------------------------------------------------------------------
Groundwater Deep groundwater UPG-1
Monitoring Wells: P-2B,
P-1B, MW-1, MW-2.
Shallow Groundwater UPG-2
Monitoring Wells: P-8, P-
7, K-1, P-3, K-3,* K-4, P-
5, P5-1, K-5, MW-3,
MW3-1, MW3-2, S-3A, S-
4A, P-4, K-2, P-6
- ----------------------------------------------------------------------------
Leachate *P-2A, P-1A, LW-1, S- Not Applicable
1A, S-2, S-5
- ----------------------------------------------------------------------------
</TABLE>
* Leachate wells are not considered compliance points
* K-4 is not a compliance groundwater monitoring well
C. FACILITIES MONITORING
The discharger shall inspect all facilities to ensure proper and safe
operations once per quarter and report quarterly. The facilities to be
monitored shall include, but not be limited to:
a. Leachate collection and removal systems;
b. Surface water monitoring points;
c. Shallow and deep groundwater monitoring wells;
d. Perimeter diversion channels;
e. Leachate wells;
10
<PAGE> 46
I, Steven Ritchie Executive Officer, hereby certify that the foregoing
Self-Monitoring Program:
1. Has been developed in accordance with the procedures set forth in this
Board's Resolution No. 73-16 in order to obtain data and document
compliance with waste discharge requirements established in this Board's
Order No. 94-181.
2. Is effective on the date shown below.
3. May be reviewed or modified at any time subsequent to the effective date,
upon written notice from the Executive Officer.
/s/ STEVEN R. RITCHIE
----------------------------------------
Steven R. Ritchie
Executive Officer
Date Ordered: December 14, 1994
Attachments:
Figure 1 - Monitoring Points Location Map
Table 2 - Discharge Monitoring Plan
11
<PAGE> 47
FIGURE 1
[MONITORING POINTS LOCATION MAP]
<PAGE> 48
EXHIBIT "D"
HAZARDOUS MATERIALS REPORTS
PROVIDED TO TENANT
1) Applicability of ChemRisk Assessment for the Westport Site, Dated October
1989, to Currently Proposed Site Development Plan - Report dated June 28,
1994, prepared by ChemRisk
2) Draft Supplement Environment Impact Report for Westport Development
Project dated October 1989, prepared by McLaren
3) Revised Discharge Monitoring Plan for Westport Landfill Site Dated May 1996
prepared by Geomatrix Consultants
<PAGE> 1
EXHIBIT 23.2
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
December 16, 1999, except for Note 12, as to which the date is January 28, 2000,
in the Registration Statement (Amendment No. 2 to Form S-1 No. 333-95761) and
related Prospectus of Saba Software, Inc. for the registration of 4,000,000
shares of its common stock.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
March 15, 2000
