<PAGE>
As filed with the Securities and Exchange Commission on April 16, 1999
Registration No. 333-72935
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
LATITUDE COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
----------------
Delaware 5045 94-3177392
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
2121 Tasman Drive
Santa Clara, CA 95054
(408) 988-7200
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
----------------
Emil C.W. Wang
President and Chief Executive Officer
Latitude Communications, Inc.
2121 Tasman Drive
Santa Clara, CA 95054
(408) 988-7200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
Mark A. Medearis Jeffrey D. Saper
Edward Y. Kim Selim Day
Anita Vasudevan Ava M. Hahn
VENTURE LAW GROUP WILSON SONSINI GOODRICH & ROSATI
A Professional Corporation Professional Corporation
2800 Sand Hill Road 650 Page Mill Road
Menlo Park, CA 94025 Palo Alto, CA 94304
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration 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,
please 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 this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 16, 1999
3,000,000 Shares
[LOGO]
Latitude Communications, Inc.
Common Stock
--------
Before this offering, there has been no public market for the common stock.
The initial public offering price of the common stock is expected to be between
$10.00 and $12.00 per share. We have made application to list the common stock
on The Nasdaq Stock Market's National Market under the symbol "LATD."
We have granted the underwriters an option to purchase a maximum of 450,000
additional shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" starting on
page 6.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Latitude
------------ ------------- ------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Hambrecht & Quist
Dain Rauscher Wessels
a division of
Dain Rauscher
Incorporated
The date of this prospectus is , 1999.
<PAGE>
Description of Graphics for Inside Front Cover Pages of Prospectus
[PHOTO DESCRIPTION: Three people
standing, with their shadows forming
puzzle pieces being placed
together.]
Latitude --
extending
the workplace
<PAGE>
[PHOTO DESCRIPTION: Man with
child in baseball uniform,
with shadows on the wall of
people at a conference
table.]
"Got paged about a production
problem. Used MeetingPlace to
resolve it with suppliers, and
only missed one inning."
THE VIRTUAL MEETING
From voicemail, fax machines and
cellular phones to e-mail,
laptop computers and handheld
devices, business have adopted
communications technologies to
extend the workplace beyond the
physical office. No single,
widely deployable technology,
however, has successfully
emulated the voice and data
collaboration that occurs in a
face-to-face meeting. We believe
that enterprises today need a
cost-effective and easy-to-use
solution that enables
simultaneous real-time voice
communication and secure
document collaboration.
[PHOTO DESCRIPTION:
Photo of a clock.]
[PHOTO DESCRIPTION:
Photo of people walking to
work.]
[PHOTO DESCRIPTION:
A woman working on a laptop
computer at a table, with a
shadow on the wall of the
person working at a personal
computer along with others.]
<PAGE>
<TABLE>
<S> <C>
"I'll listen to the competitive [PHOTO DESCRIPTION: A man standing
analysis presentation later on looking at his watch holding a
MeetingPlace. Can't be late for my briefcase, with a shadow on the wall
anniversary dinner." of the person listening to a
presentation.]
WELCOME TO MEETINGPLACE MeetingPlace AN ENTERPRISE SOLUTION Our objective
is an integrated voice and data is to make MeetingPlace a standard
conferencing solution that enables communications tool within an
virtual meetings among an enterprise. MeetingPlace is a
organization's employees, vendors scalable solution that integrates
and customers, irrespective of their with an enterprise's existing
geographic locations. With telephone and data networks. In
MeetingPlace, participants can addition, MeetingPlace is designed
schedule and attend a meeting, share to integrate seamlessly into widely
and edit documents, and record and deployed enterprise software
access meeting content. MeetingPlace applications, such as web browsers
extends the capabilities of the and certain collaborative software
basic voice conference call through environments such as Microsoft
a broad feature set designed to Outlook. As a result, an enterprise
enhance general conferencing can provide employees with a
capabilities as well as to satisfy powerful productivity tool while
specific business applications. lowering its overall cost of
Moreover, MeetingPlace offers users conferencing.
easy access to data conferencing,
which we believe will become an
important business application of
the Internet.
"Just used MeetingPlace to finalize
the customer presentation with my
field sales team. Wonder if this
hotel has an exercise room."
</TABLE>
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Additional Information
About Latitude.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated
Financial Data.......................................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 32
Management............................................................... 45
Related Party Transactions............................................... 58
Principal Stockholders................................................... 59
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 64
Where You Can Find
More Information........................................................ 65
Underwriting............................................................. 66
Notice to Canadian Residents............................................. 68
Legal Matters............................................................ 69
Experts.................................................................. 69
Index to Financial Statements............................................ F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
------------
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.
Latitude Communications, Inc.
---------------
We are a leading provider of integrated voice and data conferencing
solutions for geographically dispersed organizations. We develop, market and
support our MeetingPlace system, which allows companies to conduct virtual
meetings and thereby extend real-time decision making processes irrespective of
the geographic location of participants. With MeetingPlace, participants can
schedule and attend a meeting, share and edit documents, and capture and
retrieve meeting content. MeetingPlace is designed to be an enterprise-wide
resource and to leverage existing technologies such as telephones, cellular
phones and personal computers. Moreover, we expect that the dramatic growth in
web browsers and collaborative software applications will drive data
conferencing as an important business application of the Internet.
MeetingPlace consists of three components: (a) the MeetingPlace conference
server; (b) MeetingPlace software; and (c) system integration options.
MeetingPlace incorporates many easy-to-use features that allow participants to
emulate the voice and data collaboration that occurs in a face-to-face meeting,
such as breakout sessions, roll calls and meeting handouts. MeetingPlace
provides simultaneous voice and data conferencing and the ability to record and
access meeting content while lowering the enterprise's overall conferencing
costs.
Our objective is to make MeetingPlace a standard communications tool within
an enterprise. To achieve this objective, we intend to establish MeetingPlace
as a ubiquitous desktop application by continuing to integrate it seamlessly
with a wide array of enterprise software, including browsers and collaborative
software applications. Furthermore, we expect to continue to provide our
customers with a range of consulting services to promote broad deployment
within their organizations.
We began commercial shipment of MeetingPlace in December 1994 and, as of
March 31, 1999, had over 200 customers. In addition to enterprise-wide general
deployment, customers have purchased and used MeetingPlace for a variety of
specific business applications, including morning brokerage calls, crisis
management, training and education, customer and client services, supply chain
management and merger integration. MeetingPlace has been installed in some of
the world's leading enterprises, including 3Com, Aetna, Cisco, Credit Suisse
First Boston, Hewlett-Packard, Honeywell, Microsoft, Oracle, State Farm
Insurance, Union Pacific Railroad and the U.S. Federal Reserve Bank.
Our address is 2121 Tasman Drive, Santa Clara, California 95054, and our
telephone number is (408) 988-7200. "MeetingPlace" is a registered trademark of
Latitude, and "Latitude," "Latitude Communications," the Latitude logo,
"MeetingNotes" and "MeetingTime" are trademarks of Latitude. This prospectus
also includes trademarks and service marks owned by other companies.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered........................ 3,000,000 shares
Common stock to be outstanding after this
offering................................... 18,581,657 shares
Use of proceeds............................. For general corporate purposes,
including working capital,
capital expenditures, geographic
expansion and additional sales
and marketing efforts.
Proposed Nasdaq National Market symbol...... LATD
</TABLE>
This table is based on shares outstanding as of March 31, 1999 and excludes
shares that may be issued upon exercise of options or warrants.
Except as otherwise indicated, all information in this prospectus is based
on the following assumptions: (a) a three-for-two split of the common stock
before the effectiveness of this offering; (b) the conversion of each
outstanding share of convertible preferred stock into one share of common stock
immediately before the completion of this offering; (c) no exercise of the
underwriters' over-allotment option; (d) our reincorporation in Delaware before
the effectiveness of this offering; and (e) the filing of our amended and
restated certificate of incorporation upon completion of this offering.
Summary Consolidated Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended Three Months
April 7, 1993 (date December 31, Ended March 31,
of inception) to ------------------------- -------------------
December 31, 1995 1996 1997 1998 1998 1999
------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product ............... $ 1,477 $ 5,103 $10,620 $16,506 $ 3,688 $ 4,627
Service................ 148 943 2,312 4,545 673 1,801
------- ------- ------- ------- ------- -------
Total revenue......... 1,625 6,046 12,932 21,051 4,361 6,428
Gross profit........... 683 3,877 8,969 15,094 3,116 4,708
Operating income
(loss)................ (8,822) (4,390) (2,206) 778 85 316
Net income (loss)...... (8,547) (4,252) (2,229) 703 70 288
Net income (loss) per
share--basic.......... $ (2.02) $ (0.78) $ 0.21 $ 0.02 $ 0.08
Shares used in per
share
calculation--basic.... 2,110 2,850 3,279 3,166 3,444
Net income (loss) per
share--diluted........ $ (2.02) $ (0.78) $ 0.04 $ 0.00 $ 0.02
Shares used in per
share
calculation--diluted.. 2,110 2,850 16,422 15,949 16,767
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.................................. $ 4,397 $34,087
Working capital............................................ 4,407 34,097
Total assets............................................... 12,379 42,069
Long-term obligations...................................... 695 695
Total stockholders' equity................................. 5,303 34,993
</TABLE>
- --------
The as adjusted numbers in the table above are adjusted to give effect to
receipt of the net proceeds from the sale of 3,000,000 shares of common stock
offered by us at an assumed offering price of $11.00 per share after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us.
5
<PAGE>
RISK FACTORS
You should carefully consider the following risks in addition to the
remainder of this prospectus before purchasing our common stock. The risks and
uncertainties described below are intended to highlight risks that are specific
to us and are not the only ones that we face. Additional risks and
uncertainties, such as those that generally apply to business enterprises in
our industry, also may impair our business operations.
Our future profitability is uncertain due to our limited operating history.
Because we commenced operations in May 1993 and have a limited operating
history, we cannot assure you that our revenue will continue to grow or that we
will maintain profitability in the future. Our prospects must be considered in
light of the risks and uncertainties encountered by companies in the early
stages of development, including:
. our substantial dependence on our MeetingPlace products, which were first
introduced in December 1994 and which have limited market acceptance;
. our need to expand our marketing, sales and support organizations;
. our unproven ability to anticipate and respond to technological and
competitive developments in the emerging market for voice and data
collaboration systems;
. our ability to retain existing customers;
. the degree to which our customers perceive that our products are secure
and reliable;
. the market's acceptance of integrated real-time voice and data
conferencing; and
. our dependence on our current executive officers.
In addition, we are unable to predict our future product development, sales
and marketing, and administrative expenses. To the extent that these expenses
increase, we will need to increase revenue to sustain profitability. Because
our product market is new and evolving, we cannot accurately predict the future
growth rate, if any, or the ultimate size of our market. Our ability to
increase revenue and sustain profitability also depends on the other risk
factors described in this section.
Our operating results may fluctuate significantly.
Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate and may not meet the expectations of securities
analysts or investors. If this occurs, the price of our common stock would
likely decline. The factors that may cause fluctuations of our operating
results include the following:
. changes in the amount and timing of our revenue because of the
lengthiness and unpredictability of our sales cycle;
. delays we may encounter in introducing new versions of MeetingPlace and
new products and services;
. changes in our mix of revenues generated from product sales and services;
. changes by existing customers in their levels of purchases of our
products and services;
. changes in our mix of sales channels through which our products and
services are sold; and
. changes in our mix of domestic and international sales.
6
<PAGE>
Orders at the beginning of each quarter typically do not equal expected
revenue for that quarter. In addition, a significant portion of our orders are
received in the last month of each fiscal quarter. Accordingly, we are
dependent upon obtaining orders in a quarter for shipment in the same quarter
to achieve our revenue objectives. If we fail to ship products by the end of a
quarter in which the order is received, or if our prospective customers delay
their orders or delivery schedules until the following quarter, we may fail to
meet our revenue objectives, which may adversely impact our operating results.
Our market is highly competitive.
We compete in a market that is highly competitive and rapidly changing. We
expect competition to persist and intensify in the future which could adversely
affect our ability to increase sales, penetrate new markets and maintain
average selling prices.
We face competition from a number of different sources. Currently, our
principal competitors include:
. major telecommunications carriers that operate service bureaus for voice
conferencing, such as AT&T Corp., MCI Worldcom, Inc. and Sprint
Corporation;
. private branch exchange, or PBX, vendors that sell systems with voice
conferencing capabilities, such as Lucent Technologies Inc. and Nortel
Networks;
. providers of video conferencing systems such as PictureTel Corporation,
Pinnacle Systems, Inc. and 8x8, Inc.; and
. smaller start-up companies that offer web-based voice and data
conferencing products.
In addition, we anticipate that, in the future, we may experience
competition from potential competitors that include:
. networking companies, such as Cisco Systems, Inc., 3Com Corporation,
Lucent Technologies Inc. and Nortel Networks that are currently focusing
on providing hardware to enable the transmission of voice over the
Internet and that may offer voice and data conferencing functionality at
a cost lower than ours or at no cost; and
. collaborative software providers, such as Microsoft Corporation and Lotus
Development Corporation, that are currently focusing on data conferencing
products and that may in the future incorporate voice conferencing
functionality into their products at little or no incremental charge to
their customers.
Many of these companies have longer operating histories, stronger brand
names and significantly greater financial, technical, marketing and other
resources than we do. These companies also may have existing relationships with
many of our prospective customers. In addition, these companies may be able to
respond more quickly than we can to new or emerging technologies and changes in
customer requirements.
New competitors may emerge and rapidly acquire significant market share.
Competitive pressure, including any reduction in the cost of voice conferencing
services provided by service bureaus, may make it difficult for us to acquire
and retain customers and may require us to reduce the price of our products and
services.
7
<PAGE>
Our market is in an early stage of development, and our products may not be
adopted.
If the market for our integrated voice and data conferencing products fails
to grow or grows more slowly than we anticipate, we may not be able to increase
revenues or remain profitable. The market for integrated real-time voice and
data conferencing is relatively new and rapidly evolving. Our ability to remain
profitable depends in large part on the widespread adoption by end users of
real-time voice and data conferencing.
We will have to devote substantial resources to educate prospective
customers about the uses and benefits of our products. In addition, businesses
that have invested substantial resources in other conferencing products may be
reluctant or slow to adopt our products, which might replace or compete with
their existing systems. Our efforts to educate potential customers may not
result in our products achieving market acceptance.
Rapid technological changes could cause our products to become obsolete or
require us to redesign our products.
The market in which we compete is characterized by rapid technological
change, frequent new product introductions, changes in customer requirements
and emerging industry standards. In particular, we expect that the growth of
the Internet and Internet-based telephony applications, as well as general
technology trends such as migrations to new operating systems, will require us
to adapt our product to remain competitive. This adaptation could be costly and
time-consuming. Our products could become obsolete and unmarketable if products
using new technologies are introduced and new industry standards emerge. For
example, the widespread acceptance of competing technologies, such as video
conferencing and the transmission of voice over the Internet, could diminish
demand for our current products. As a result, the life cycle of our products is
difficult to estimate.
To be successful, we will need to develop and introduce new products and
product enhancements that respond to technological changes or evolving industry
standards, such as the transmission of voice over the Internet, in a timely
manner and on a cost effective basis. In addition, our current full care
support agreements with our customers require us to deliver two product
upgrades per year. We cannot assure you that we will successfully develop these
types of products and product enhancements or that our products will achieve
broad market acceptance.
Our sales cycle is lengthy and unpredictable.
Any delay in sales of our products could cause our quarterly revenue and
operating results to fluctuate. The typical sales cycle of our products is
lengthy, generally between six to nine months, unpredictable, and involves
significant investment decisions by prospective customers, as well as our
education of potential customers regarding the use and benefits of our
products. Furthermore, many of our prospective customers have neither budgeted
expenses for voice and data conferencing systems nor have personnel
specifically dedicated to procurement and implementation of these conferencing
systems. As a result, our customers spend a substantial amount of time before
purchasing our products in performing internal reviews and obtaining capital
expenditure approvals. We cannot be certain that this cycle will not lengthen
in the future. The emerging and evolving nature of the real-time voice and data
conferencing market may lead to confusion in the market,
8
<PAGE>
which may cause prospective customers to postpone their purchase decisions. In
addition, general concerns regarding Year 2000 compliance may further delay
purchase decisions by prospective customers.
If we fail to expand our sales and distribution channels, our business could
suffer.
If we are unable to expand our sales and distribution channels, we may not
be able to increase revenue or achieve market acceptance of our MeetingPlace
product. We have recently expanded our direct sales force and plan to recruit
additional sales personnel. New sales personnel will require training and take
time to achieve full productivity, and there is strong competition for
qualified sales personnel in our business. In addition, we believe that our
future success is dependent upon establishing successful relationships with a
variety of distribution partners. To date, we have entered into agreements with
only a small number of these distribution partners. We cannot be certain that
we will be able to reach agreement with additional distribution partners on a
timely basis or at all, or that these distribution partners will devote
adequate resources to selling our products. Furthermore, if our distribution
partners fail to adequately market or support our products, the reputation of
our products in the market may suffer. In addition, we will need to manage
potential conflicts between our direct sales force and third-party reselling
efforts.
Our ability to expand into international markets is uncertain.
We intend to continue to expand our operations into new international
markets. In addition to general risks associated with international expansion,
such as foreign currency fluctuations and political and economic instability,
we face the following risks and uncertainties any of which could prevent us
from selling our products in a particular country or harm our business
operations once we have established operations in that country:
. the difficulties and costs of localizing products for foreign markets,
including the development of multilingual capabilities in our
MeetingPlace system;
. the need to modify our products to comply with local telecommunications
certification requirements in each country; and
. our lack of a direct sales presence in other countries, our need to
establish relationships with distribution partners to sell our products
in these markets and our reliance on the capabilities and performance of
these distribution partners.
If we fail to integrate our products with third-party technology, our sales
could suffer.
Our products are designed to integrate with our customers' data and voice
networks, as well as with enterprise applications such as browsers and
collaborative software applications. If we are unable to integrate our products
with these networks and systems, sales of our products could suffer.
Accordingly, the reliability and performance of a MeetingPlace system at a
customer's site are largely dependent on a number of factors, including:
. the third party software and hardware products, including voice and data
network systems, used by the customer;
. the configurations on end users' personal computers; and
. the end users' methods of access such as cellular telephones and laptop
computers.
9
<PAGE>
If we are not able to readily integrate our products with these networks or
enterprise applications, for instance, as a result of technology enhancements
or upgrades of these systems, we could be required to redesign our products,
which could be costly and time-consuming. We may not be able to redesign our
products or be certain that any redesign we may develop would achieve market
acceptance. In addition, we will need to continually modify our products as
newer versions of the enterprise applications with which our products integrate
are introduced. Our ability to do so largely depends on our ability to gain
access to the advanced programming interfaces for these applications, and we
cannot assure you that we will have access to necessary advanced programming
interfaces in the future.
We may experience difficulties managing our expected growth.
Our recent growth has strained, and we expect that any future growth will
continue to strain, our management systems and resources, which could hinder
our ability to continue to grow in the future.
In particular, we may not be able to install 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.
We may not be able to recruit and retain additional qualified personnel.
Competition for qualified personnel in the San Francisco Bay area, as well as
other markets in which we recruit, is extremely intense and characterized by
rapidly increasing salaries, which may increase our operating expenses or
hinder our ability to recruit qualified candidates.
In the future, we may experience difficulties meeting the demand for our
products and services. The installation and use of our products requires
training. If we are unable to provide training and support for our products,
the implementation process will be longer and customer satisfaction may be
lower.
Our business could suffer if we lose the services of our current management
team.
Our future success depends on the ability of our management to operate
effectively, both individually and as a group. The intense competition for
qualified personnel in our industry and geographic region could hinder our
ability to replace any of these key employees if we were to lose their services
in the future.
In addition, three of our seven executive officers joined us during the past
12 months. Accordingly, our executive officers' ability to function effectively
as a management team remains unproven.
The loss of our right to use technology licensed to us by third parties could
harm our business.
We license technology that is incorporated into our products from third
parties, including digital signal processing algorithms and the MeetingPlace
server's operating system and relational database. Any interruption in the
supply or support of any licensed software could disrupt our operations and
delay our sales, unless and until we can replace the functionality provided by
this licensed software. Because our products incorporate software developed and
maintained by third parties, we depend on these third parties to deliver and
support reliable products, enhance their current products, develop
10
<PAGE>
new products on a timely and cost-effective basis and respond to emerging
industry standards and other technological changes.
Any interruption in supply of components from outside manufacturers and
suppliers could hinder our ability to ship products in a timely manner.
We rely on third parties to obtain most of the components of the
MeetingPlace server and integrate them with other standard components, such as
the central processing unit and disk drives. If these third parties are no
longer able to supply and assemble these components or are unable to do so in a
timely manner, we may experience delays in shipping our products and have to
invest resources in finding an alternative manufacturer or manufacture our
products internally. We also face the following risks associated with our
dependence on third party manufacturing:
. reduced control over delivery schedules;
. quality assurance; and
. the potential lack of adequate capacity if we encounter greater than
expected demand.
In addition, we obtain key hardware components, including the processors and
digital signal processing devices used in the MeetingPlace server, from sole
source suppliers. In the past, we have experienced problems in obtaining some
of these components in a timely manner from these sources, and we cannot be
certain that we will be able to continue to obtain an adequate supply of these
components in a timely manner or, if necessary, from alternative sources. If we
are unable to obtain sufficient quantities of components or to locate
alternative sources of supply, we may experience delays in shipping our
products and incur additional costs to find an alternative manufacturer or
manufacture our products internally.
Our products may suffer from defects, errors or breaches of security.
Software and hardware products as complex as ours are likely to contain
undetected errors or defects, especially when first introduced or when new
versions are released. Any errors or defects that are discovered after
commercial release could result in loss of revenue or delay in market
acceptance, diversion of development resources, damage to our customer
relationships or reputation or increased service and warranty cost. Our
products may not be free from errors or defects after commercial shipments have
begun, and we are aware of instances in which some of our customers have
experienced product failures or errors.
Many of our customers conduct confidential conferences, and transmit
confidential data, using MeetingPlace. Concerns over the security of
information sent over the Internet and the privacy of its users may inhibit the
market acceptance of our products. In addition, unauthorized users in the past
have gained, and in the future may be able to gain, access to our customers'
MeetingPlace systems. Any compromise of security could deter people from using
MeetingPlace and could harm our reputation and business and result in claims
against us.
11
<PAGE>
We may be unable to adequately protect our proprietary rights, and we may be
subject to infringement claims.
We rely primarily on a combination of patents, copyrights, trademarks, trade
secret laws and contractual obligations with employees and third parties to
protect our proprietary rights. Unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary. In
addition, other parties may breach confidentiality agreements or other
protective contracts. Furthermore, the laws of many foreign countries do not
protect our intellectual property rights to the same extent as the laws of the
United States.
We may be subject to legal proceedings and claims for alleged infringement
of third party proprietary rights, such as patents, trademarks or copyrights,
particularly as the number of products and competitors in our industry grow and
functionalities of products overlap. Any claims relating to the infringement of
third party proprietary rights, even if not meritorious, could result in costly
litigation, divert management's attention and resources, or require us to enter
into royalty or license agreements which are not advantageous to us. Parties
making these claims may be able to obtain injunctive or other equitable relief,
which could prevent us from selling our products.
Dell Computer Corporation has registered the "Latitude" mark for computers
in the United States and in other countries. Dell's United States trademark
registration and Canadian application have blocked our ability to register the
"Latitude Communications" and "Latitude" with logo marks in the United States
and the "Latitude Communications" mark in Canada. Since we believe that we have
priority of trade name usage in the United States, we have petitioned to cancel
Dell's United States registration and opposed its Canadian application. The
outcome of these proceedings is uncertain. If Dell's registration for the
"Latitude" mark is not canceled or if we are unable to obtain consent from Dell
for our registration of our marks, we may not be able to register our marks and
would have to rely solely on common law protection for such marks. We cannot
assure you that we will be free from challenges of or obstacles to our use or
registration of our marks.
We are subject to government regulation, and our failure to comply with these
regulations could harm our business.
Our products are subject to a wide variety of safety, emissions and
compatibility regulations imposed by governmental authorities in the United
States or in other countries in which we sell our products. If we are unable to
obtain necessary approvals or maintain compliance with the regulations of any
particular jurisdiction, we may be prohibited from selling our products in that
territory. In addition, in order to sell our products in many international
markets, we are required to obtain certifications that are specific to the
local telephony infrastructure.
We may be subject to claims related to Year 2000 issues, and Year 2000 concerns
could adversely affect our revenues.
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, will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Year 2000 compliance
12
<PAGE>
efforts may involve significant time and expense, and uncorrected problems
could materially adversely affect our business, financial condition and
operating results. We may face claims based on Year 2000 issues arising from
the integration of multiple products within an overall system. We may also
experience reduced sales of our products as potential customers reduce their
budgets for voice and data conferencing products due to increased expenditures
on their own Year 2000 compliance efforts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Readiness
Disclosure."
Our stock price may be volatile.
We expect that the market price of our common stock will fluctuate as a
result of variations in our quarterly operating results. These fluctuations may
be exaggerated if the trading volume of our common stock is low. In addition,
due to the technology-intensive and emerging nature of our business, the market
price of our common stock may rise and fall in response to:
. announcements of technological or competitive developments;
. acquisitions or strategic alliances by us or our competitors; or
. the gain or loss by us of significant orders.
Certain existing stockholders own a large percentage of our voting stock and
could control the voting power of the common stock.
On completion of this offering, executive officers and directors and their
respective affiliates will beneficially own, in the aggregate, approximately
58% of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may delay, deter or prevent
transactions that would result in the change of control, which in turn could
reduce the market price of our common stock.
Future sales of our common stock may depress our stock price.
After this offering, we will have outstanding 18,581,657 shares of common
stock. Sales of a substantial number of shares of common stock in the public
market following this offering could materially adversely affect the market
price of our common stock. All the shares sold in this offering will be freely
tradable. Upon the expiration of arrangements between our stockholders and
Latitude or the underwriters in which our stockholders have agreed not to sell
or dispose of their Latitude common stock, all of the remaining 15,581,657
shares of common stock outstanding after this offering will be eligible for
sale in the public market 180 days following the date of this prospectus. Of
these shares, 11,682,572 shares will be subject to volume limitations under
federal securities laws.
If our stockholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market, the market price of our common stock could fall. See "Shares
Eligible for Future Sale" and "Underwriting."
13
<PAGE>
This prospectus contains forward-looking statements that involve risks and
uncertainties.
We have made forward-looking statements under the sections entitled
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." These statements
involve risks and uncertainties that may cause our business or financial
results to materially differ from those expressed by the forward-looking
statements.
We have identified forward-looking statements by using terms such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," or "continue" or the negative of these terms or other
comparable terminology.
We are under no duty to update any of the forward-looking statements after
the date of this prospectus to conform these statements to actual results.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the 3,000,000 shares of common stock
offered by us are estimated to be approximately $29.7 million, or approximately
$34.3 million if the underwriters' over-allotment option is exercised in full,
at an assumed public offering price of $11.00 per share, after deducting the
estimated underwriting discounts and commissions and the estimated offering
expenses.
We intend to use the net proceeds of this offering primarily for general
corporate purposes, including working capital, capital expenditures, geographic
expansion and additional sales and marketing efforts. We also may use a portion
of the net proceeds to acquire additional businesses, products and technologies
or to establish joint ventures that we believe will complement our current or
future business. However, we have no specific plans, agreements or commitments
to do so and are not currently engaged in any negotiations for any acquisition
or joint venture.
The amounts that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including future revenue
growth, if any, and the amount of cash we generate from operations. As a
result, we will retain broad discretion in the allocation and use of the net
proceeds of this offering. Pending the uses described above, we will invest the
net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business. Therefore, we do not currently anticipate paying any cash dividends
in the future. In addition, the terms of our current credit facility prohibit
us from paying dividends without our lender's consent.
ADDITIONAL INFORMATION ABOUT LATITUDE
We were originally incorporated in California under the name "Convene
Communications, Inc." in April 1993 and changed our name to "Latitude
Communications, Inc." in July 1993. Our web site is located at
"www.latitude.com." Information contained on our web site is not a part of this
prospectus.
15
<PAGE>
CAPITALIZATION
The following table provides the following information:
. the actual capitalization of Latitude as of March 31, 1999;
. the pro forma capitalization of Latitude after giving effect to the
conversion of all outstanding shares of convertible preferred stock into
11,836,227 shares of common stock; and
. the pro forma as adjusted capitalization to give effect to the sale of
3,000,000 shares of common stock at an assumed initial public offering
price of $11.00 per share in this offering after deducting the estimated
underwriting discounts and commissions Latitude expects to pay in
connection with this offering and estimated offering expenses payable by
Latitude.
This table should be read in conjunction with the Consolidated Financial
Statements and the Notes to these financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------
Actual Pro Forma As Adjusted
--------- --------- -----------
(In thousands, except share
data)
<S> <C> <C> <C>
Total long term debt........................... $ 695 $ 695 $ 695
Stockholders' equity:
Preferred stock, $.001 par value per share,
12,211,366 shares authorized, 11,836,227
shares issued and outstanding, actual;
12,211,366 shares authorized, none issued or
outstanding, pro forma; and 5,000,000 shares
authorized, none issued or outstanding, as
adjusted.................................... 12 -- --
Common stock, $.001 par value per share,
27,500,000 shares authorized, 3,745,430
shares issued and outstanding, actual;
27,500,000 shares authorized, 15,581,657
shares issued and outstanding, pro forma;
and 75,000,000 shares authorized and
18,581,657 shares issued and outstanding, as
adjusted.................................... 4 16 19
Additional paid-in capital................... 22,110 22,110 51,797
Notes receivable from common stockholders.... (144) (144) (144)
Deferred stock compensation.................. (2,642) (2,642) (2,642)
Accumulated deficit.......................... (14,037) (14,037) (14,037)
--------- --------- --------
Total stockholders' equity................. 5,303 5,303 34,993
--------- --------- --------
Total capitalization..................... $ 12,379 $ 12,379 $ 42,069
========= ========= ========
</TABLE>
- --------
This table is based on shares outstanding as of March 31, 1999. This table
excludes: (a) 1,494,624 shares subject to outstanding options at a weighted
average exercise price of $2.63 as of March 31, 1999, and 84,938 shares of
common stock available for future issuance under our 1993 Stock Plan;
(b) 134,386 shares of common stock reserved for issuance on the exercise of
outstanding warrants, at a weighted average price of $1.05 per share as of
March 31, 1999; (c) 2,700,000 shares of common stock available for issuance
under our 1999 Stock Plan; (d) 250,000 shares of common stock available for
issuance under our 1999 Directors' Stock Option Plan; and (e) 500,000 shares of
common stock available for issuance under our employee stock purchase plan.
16
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock on March 31, 1999
was $5,303,000 million, or approximately $0.34 per share. Pro forma net
tangible book value represents the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of our common stock in this
offering and the net tangible book value per share of our common stock
immediately following this offering.
After giving effect to our sale of 3,000,000 shares of common stock offered
by this prospectus and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our net tangible
book value would have been $34,993,000, or approximately $1.88 per share. This
represents an immediate increase in net tangible book value of $1.54 per share
to existing stockholders and an immediate dilution in net tangible book value
of $9.12 per share to new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $11.00
Pro forma net tangible book value per share as of March 31,
1999.......................................................... $0.34
Increase per share attributable to new investors............... 1.54
-----
Pro forma net tangible book value per share after this offering.. 1.88
------
Dilution in pro forma net tangible book value per share to new
investors....................................................... $ 9.12
======
</TABLE>
This table excludes 1,494,624 shares subject to outstanding options and
134,386 shares issuable upon exercise of outstanding warrants as of March 31,
1999. See Note 7 of the Notes to Consolidated Financial Statements. The
exercise of outstanding options and warrants having an exercise price less than
the offering price would increase the dilutive effect to new investors.
The following table lists, as of March 31, 1999, the differences between the
number of shares of common stock purchased from us, the total price and average
price per share paid by existing investors and by the new investors, before
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us, assuming a public offering price of $11.00 per
share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ---------------------- Average Price
Number Percentage Amount Percentage Per Share
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 15,581,657 83.9% $19,024,762 36.6% $ 1.22
New investors........... 3,000,000 16.1 33,000,000 63.4 11.00
---------- ----- ----------- ----- ------
Total................. 18,581,657 100.0% 52,024,762 100.0%
========== ===== =========== =====
</TABLE>
- --------
If the underwriters' over-allotment option is exercised in full, the
following will occur:
. the number of shares of common stock held by existing stockholders will
decrease to approximately 81.9% of the total number of shares of our
common stock outstanding after this offering; and
. the number of shares held by new investors will be increased to 3,450,000
or approximately 18.1% of the total number of shares of our common stock
outstanding after this offering.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The tables that follow present portions of our consolidated financial
statements and are not complete. You should read the following selected
financial data in conjunction with our Consolidated Financial Statements and
the Notes to these financial statements and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. The consolidated statement of operations data for the years
ended December 31, 1996, 1997 and 1998, and the consolidated balance sheet data
as of December 31, 1997 and 1998, are derived from and are qualified in their
entirety by our Consolidated Financial Statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants, which are included
elsewhere in this prospectus. The consolidated statement of operations data for
the years ended December 31, 1994 and 1995 and the consolidated balance sheet
data as of December 31, 1994, 1995 and 1996 are derived from audited
consolidated financial statements that are not included in this prospectus. The
consolidated statement of operations data for the three months ended March 31,
1998 and 1999 and the consolidated balance sheet data as of March 31, 1999 are
derived from unaudited consolidated financial statements included elsewhere in
this prospectus. In the opinion of management, the unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements and contain all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of our
results of operations for these periods and financial condition at these dates.
The historical results presented below are not necessarily indicative of the
results to be expected for any future fiscal year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
------------------------------------------- --------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------ ------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product............... $ 85 $ 1,393 $ 5,103 $10,620 $16,506 $3,688 $4,627
Service............... 17 130 943 2,312 4,545 673 1,801
------- ------- ------- ------- ------- ------ ------
Total revenue........ 102 1,523 6,046 12,932 21,051 4,361 6,428
------- ------- ------- ------- ------- ------ ------
Cost of revenue:
Product............... 33 454 1,146 2,158 3,182 644 817
Service............... 35 420 1,023 1,805 2,775 601 903
------- ------- ------- ------- ------- ------ ------
Total cost of
revenue............. 68 874 2,169 3,963 5,957 1,245 1,720
------- ------- ------- ------- ------- ------ ------
Gross profit............ 34 649 3,877 8,969 15,094 3,116 4,708
------- ------- ------- ------- ------- ------ ------
Operating expenses:
Research and
development.......... 2,057 2,071 2,466 2,213 2,607 605 903
Marketing and sales... 736 2,160 4,644 7,845 9,744 1,978 2,868
General and
administrative....... 855 636 1,157 1,115 1,666 410 425
Amortization of
deferred stock
compensation......... -- -- -- 2 299 38 196
------- ------- ------- ------- ------- ------ ------
Total operating
expenses............ 3,648 4,867 8,267 11,175 14,316 3,031 4,392
------- ------- ------- ------- ------- ------ ------
Income (loss) from
operations............. (3,614) (4,218) (4,390) (2,206) 778 85 316
Interest income
(expense), net......... 117 115 138 (23) (41) (11) (8)
------- ------- ------- ------- ------- ------ ------
Income (loss) before
provision for income
tax.................... (3,497) (4,103) (4,252) (2,229) 737 74 308
Provision for income
tax.................... -- -- -- -- (34) (4) (20)
------- ------- ------- ------- ------- ------ ------
Net income (loss)....... $(3,497) $(4,103) $(4,252) $(2,229) $ 703 $ 70 $ 288
======= ======= ======= ======= ======= ====== ======
Net income (loss) per
share--basic........... $ (7.63) $ (3.10) $ (2.02) $ (0.78) $ 0.21 $ 0.02 $ 0.08
======= ======= ======= ======= ======= ====== ======
Shares used in per share
calculation--basic..... 459 1,325 2,110 2,850 3,279 3,166 3,444
======= ======= ======= ======= ======= ====== ======
Net income (loss) per
share--diluted......... $ (7.63) $ (3.10) $ (2.02) $ (0.78) $ 0.04 $ 0.00 $ 0.02
======= ======= ======= ======= ======= ====== ======
Shares used in per share
calculation--diluted... 459 1,325 2,110 2,850 16,422 15,949 16,767
======= ======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------------- ---------
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents.. $5,938 $1,751 $5,664 $3,578 $ 3,982 $ 4,397
Working capital............ 5,831 1,574 5,655 3,501 4,470 4,407
Total assets............... 6,820 3,501 8,680 7,715 11,870 12,379
Long-term obligations...... 368 308 760 757 838 695
Total stockholders'
equity.................... 6,072 2,040 5,906 3,748 4,785 5,303
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are a leading provider of integrated voice and data conferencing
solutions for geographically dispersed organizations. We develop, market and
support our MeetingPlace system, which allows companies to conduct virtual
meetings and thereby extend real-time decision making processes irrespective of
the geographic location of participants. With MeetingPlace, participants can
schedule and attend a meeting, view, share and edit documents, and capture and
retrieve meeting content. MeetingPlace is designed to be an enterprise-wide
resource and to leverage existing technologies such as telephones, cellular
phones and personal computers.
We were incorporated in April 1993. From inception until December 1994, our
operations consisted primarily of basic start-up activities, such as research
and development and recruiting personnel. We first recognized revenue from
product sales in December 1994 and generated revenue of $6.0 million, $12.9
million, and $21.1 million in 1996, 1997 and 1998 and $6.4 million in the
quarter ended March 31, 1999. In addition, we incurred net losses of $4.3
million in 1996 and $2.2 million in 1997 and generated net income of
approximately $703,000 in 1998 and $288,000 in the quarter ended March 31,
1999. As of March 31, 1999, we had an accumulated deficit of $14.0 million. We
cannot assure you that our revenues will continue to grow or that we will
maintain profitability in the future.
We generate revenue from sales of our MeetingPlace products and from
customer support and consulting services. Revenue derived from product sales
constituted 84%, 82% and 78% of our total revenue in 1996, 1997 and 1998 and
72% in the quarter ended March 31, 1999. Product revenue is generally
recognized upon shipment. We calculate an allowance for returns based on
historical rates. During 1998, three systems totaling $386,000 were returned
and charged to this allowance. Service revenue includes revenue from
implementation and integration services, system management services, warranty
coverage and customer support. Revenue from implementation and system
integration services is recognized as the services are performed, while revenue
from system management services, warranty coverage and customer support is
recognized ratably over the period of the contract.
We sell our MeetingPlace products primarily through our direct sales force
and, to a lesser extent, through indirect distribution channels. The majority
of our revenue is derived from Fortune 1000 companies, many of which initially
purchase MeetingPlace servers and later expand deployment of our products as
they require additional capacity for voice and data conferencing. In 1997, we
expanded into international markets by opening a sales office in the United
Kingdom and establishing distributor relationships in Hong Kong and Singapore,
and in 1998, we established a distributor relationship in Australia. While we
intend to increase sales through indirect channels and internationally, we
cannot assure you that we will be successful. In 1998, we expanded the breadth
of our support services by establishing a consulting services group to provide
expanded implementation services, system management services and customized
project consulting.
Total cost of revenue consists of component and materials costs, direct
labor costs, warranty costs, royalties and overhead related to manufacturing of
our products, as well as materials, travel
19
<PAGE>
and labor costs related to personnel engaged in our service operations. Product
gross margin is impacted by the proportion of product revenue derived from
software sales, which typically carry higher margins than hardware sales, and
from indirect distribution channels, which typically carry lower margins than
direct sales. Service gross margin is impacted by the mix of services we
provide, which have different levels of profitability, and the efficiency with
which we provide full care support to our customers. We record an allowance for
excess and obsolete inventory by identifying inventory components either
considered excess based on estimates of future usage or obsolete due to changes
in our products. Due primarily to design changes in our products in 1998 and,
to a lesser extent, increases in levels of demonstration inventory at customer
locations, we increased our allowance for excess and obsolete inventory by
$149,000. As a result of technological changes, our products may become
obsolete or we could be required to redesign our products.
Results of Operations
The following table lists, for the periods indicated, the percentage of
total revenue of each line item:
<TABLE>
<CAPTION>
Three
Months
Ended March
Years Ended December 31, 31,
------------------------------ ------------
1996 1997 1998 1998 1999
-------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
As a Percentage of Total Revenue:
Revenue:
Product........................ 84.4% 82.1% 78.4% 84.6% 72.0%
Service........................ 15.6 17.9 21.6 15.4 28.0
-------- -------- -------- ----- -----
Total revenue................ 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product........................ 19.0 16.7 15.1 14.7 12.7
Service........................ 16.9 14.0 13.2 13.8 14.1
-------- -------- -------- ----- -----
Total cost of revenue........ 35.9 30.7 28.3 28.5 26.8
-------- -------- -------- ----- -----
Gross profit.................... 64.1 69.3 71.7 71.5 73.2
-------- -------- -------- ----- -----
Operating expenses:
Research and development....... 40.8 17.1 12.4 13.8 14.0
Marketing and sales............ 76.8 60.6 46.3 45.4 44.6
General and administrative..... 19.1 8.6 7.9 9.4 6.6
Amortization of deferred stock
compensation.................. -- -- 1.4 0.9 3.1
-------- -------- -------- ----- -----
Total operating expenses..... 136.7 86.3 68.0 69.5 68.3
Income (loss) from operations... (72.6) (17.0) 3.7 2.0 4.9
-------- -------- -------- ----- -----
Interest income (expense), net.. 2.3 (0.2) (0.2) (0.3) (0.1)
-------- -------- -------- ----- -----
Income (loss) before provision
for income tax................. (70.3) (17.2) 3.5 1.7 4.8
-------- -------- -------- ----- -----
Provision for income tax........ -- -- (0.2) (0.1) (0.3)
-------- -------- -------- ----- -----
Net income (loss)............... (70.3)% (17.2)% 3.3% 1.6% 4.5%
======== ======== ======== ===== =====
</TABLE>
20
<PAGE>
Quarters Ended March 31, 1998 and 1999
Product Revenue
Product revenue increased 25% from $3.7 million in the quarter ended March
31, 1998 to $4.6 million in the quarter ended March 31, 1999. The increases in
product revenue were due primarily to increased sales of our MeetingPlace
products domestically to new customers, increased sales of additional products
and features to existing customers, and, to a lesser extent, increased
international sales. International sales represented less than 1% and 5% of
product revenue in the quarters ended March 31, 1998 and 1999.
Service Revenue
Service revenue increased 168% from approximately $673,000 in the quarter
ended March 31, 1998 to $1.8 million in the quarter ended March 31, 1999. The
increases in service revenue were attributable primarily to growth in our
customer base during these periods, which led to increased sales of full care
support services, as well as to the introduction of additional consulting
services such as managed services and expanded implementation and integration
services.
Total Cost of Revenue
Total cost of revenue increased 42% from $1.2 million in the quarter ended
March 31, 1998 to $1.7 million in the quarter ended March 31, 1999. The
increase in total cost of revenue was attributable primarily to increased sales
of our MeetingPlace products and related services, as well as the increased
size of our services staff and the costs of providing services to support an
increasingly geographically dispersed customer base. Gross margin increased
from 71% in the quarter ended March 31, 1998 to 73% in the quarter ended March
31, 1999. The increases in gross margins are attributable primarily to
increased economies of scale resulting from increased product and service
revenue, as well as to increased sales of MeetingPlace software and enhanced
features to existing customers. On a forward-looking basis, we anticipate that
gross margins may decline somewhat as the proportions of revenue derived from
sales made through distributors and from services are expected to increase as
percentages of total revenue.
Product gross margin decreased slightly from 83% in the quarter ended March
31, 1998 to 82% in the quarter ended March 31, 1999. We expect product gross
margin to decrease over time due in part to anticipated pricing pressure and an
expected increase in the proportion of revenue derived from indirect
distribution channels.
Service gross margin increased from 11% in the quarter ended March 31, 1998
to 50% in the quarter ended March 31, 1999. The increase in service gross
margin was attributable to increased economies of scale. We expect service
gross margin to decline gradually over time as a result of anticipated pricing
pressure and the expected international expansion of our service operation.
Research and Development Expenses
Research and development expenses consist primarily of compensation and
related costs for research and development personnel, facilities expenses for
testing space and equipment and royalty
21
<PAGE>
payments. Research and development expenses increased 49% from $605,000 in the
quarter ended March 31, 1998 to $903,000 in the quarter ended March 31, 1999.
The increase was attributable primarily to the addition of personnel in our
research and development organization associated with product development. We
expect to continue to make substantial investments in research and development
and anticipate that research expenses will continue to increase in absolute
dollars. Research and development expenses represented 14% of total revenue in
each of the quarters ended March 31, 1998 and 1999.
Marketing and Sales Expenses
Marketing and sales expenses consist primarily of promotional expenditures
and compensation and related costs for marketing and sales personnel. Marketing
and sales expenses increased 45% from $2.0 million in the quarter ended March
31, 1998 to $2.9 million in the quarter ended March 31, 1999. The increase
reflected the addition of personnel in our sales and marketing organizations,
as well as costs associated with increased selling efforts to develop market
awareness of our products and services. Marketing and sales expenses were 45%
of total revenue for the quarters ended March 31, 1998 and 1999.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses,
legal and accounting expenses and other general corporate expenses. General and
administrative expenses
increased 4% from $410,000 in the quarter ended March 31, 1998 to $426,000 in
the quarter ended March 31, 1999, due primarily to the addition of personnel in
our general and administrative organization. We expect general and
administrative expenses to increase in absolute dollars as we add personnel and
incur additional costs related to the anticipated growth of our business and
operation as a public company. General and administrative expenses were 9% and
7% of total revenue for the quarters ended March 31, 1998 and 1999. The
decreases as a percentage of total revenue resulted primarily from increased
total revenue during such periods.
Amortization of Deferred Stock Compensation
In connection with the completion of our initial public offering, options
granted in the last quarter of 1997, 1998 and the first quarter of 1999 have
been considered to be compensatory. Total deferred stock compensation
associated with such options as of March 31, 1999 amounted to $3.1 million.
These amounts are being amortized on a straightline basis over the 48-month
vesting period of such options. Of the total deferred stock compensation,
approximately $195,000 was amortized in the quarter ended March 31, 1999. We
expect amortization of approximately $783,000 in 1999, $783,000 in 2000,
$781,000 in 2001 and $489,000 in 2002 related to these options.
Interest Income (Expense), Net
In the quarters ended March 31, 1998 and 1999, we incurred net interest
expense of approximately $11,000 and $8,000. Interest income (expense), net is
comprised primarily of interest earned on cash and cash equivalents, offset by
interest expense related to obligations under capital leases and equipment
loans. The slight decrease in net interest expense was due primarily to
increased interest income earned on higher cash and cash equivalent balances.
22
<PAGE>
Income Taxes
For the quarter ended March 31, 1999, the provision for income tax was
approximately $20,000, compared to $4,000 in the quarter ended March 31, 1998.
Fiscal Years Ended December 31, 1996, 1997 and 1998
Product Revenue
Product revenue increased 108% from $5.1 million in 1996 to $10.6 million in
1997 and increased 55% to $16.5 million in 1998. The increases in product
revenue were due primarily to increased sales of our MeetingPlace products
domestically to new customers, increased sales of additional products and
features to existing customers, and, to a lesser extent, increased
international sales. International sales represented 4% and 7% of product
revenue in 1997 and 1998.
Service Revenue
Service revenue increased 145% from approximately $943,000 in 1996 to $2.3
million in 1997 and increased 97% to $4.5 million in 1998. The increases in
service revenue were attributable primarily to growth in our customer base
during these periods, which led to increased sales of full care support
services, as well as to the introduction of additional consulting services such
as managed services and expanded implementation and integration services.
Total Cost of Revenue
Total cost of revenue increased 83% from $2.2 million in 1996 to $4.0
million in 1997 and increased 50% to $6.0 million in 1998. The increases in
total cost of revenue were attributable primarily to increased sales of our
MeetingPlace products and related services, as well as the increased size of
our services staff and the costs of providing services to support an
increasingly geographically dispersed customer base. Gross margin increased
from 64% in 1996 to 69% in 1997 and to 72% in 1998. The increases in gross
margins are attributable primarily to increased economies of scale resulting
from increased product and service revenue, as well as to increased sales of
MeetingPlace software and enhanced features to existing customers. On a
forward-looking basis, we anticipate that gross margins may decline somewhat as
the proportions of revenue derived from sales made through distributors and
from services are expected to increase as percentages of total revenue.
Product gross margin in 1996, 1997 and 1998 was 78%, 80% and 81%. The growth
in product gross margin over this period was attributable primarily to
increased economies of scale and the sale of software add-ons to new and
existing customers. We expect product gross margin to decrease over time due in
part to anticipated pricing pressure and an expected increase in the proportion
of revenue derived from indirect distribution channels.
Service gross margin in 1996, 1997 and 1998 was (9)%, 22% and 39%. The
growth in service gross margin was attributable to the creation and development
of our service organization in 1995 and 1996, followed by the subsequent
revenue generated by our service organization. We expect service gross margin
to decline gradually over time as a result of anticipated pricing pressure and
the expected international expansion of our service operation.
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<PAGE>
Research and Development Expenses
Research and development expenses decreased 12% from $2.5 million in 1996 to
$2.2 million in 1997 and increased 18% to $2.6 million in 1998. The decrease in
1997 was due principally to one-time special project consulting costs incurred
in 1996, while the increase in 1998 was attributable primarily to the addition
of personnel in our research and development organization associated with
product development. Research and development expenses represented 41%, 17% and
12% of total revenue for 1996, 1997 and 1998. The decreases as a percentage of
total revenue resulted primarily from increased total revenue during these
periods.
Marketing and Sales Expenses
Marketing and sales expenses increased 69% from $4.6 million in 1996 to $7.8
million in 1997 and increased 24% to $9.7 million in 1998. The increases in
1997 and 1998 reflected the addition of personnel in our sales and marketing
organizations, as well as costs associated with increased selling efforts to
develop market awareness of our products and services. Marketing and sales
expenses were 77%, 61% and 46% of total revenue for 1996, 1997 and 1998. The
decreases in marketing and sales expenses as a percentage of revenue in 1997
and 1998 are attributable primarily to increased productivity of our sales
personnel and increased total revenue in these periods.
General and Administrative Expenses
General and administrative expenses decreased slightly from $1.2 million in
1996 to $1.1 million in 1997, due primarily to lower legal fees and facilities
costs in 1997. General and administrative expenses increased from $1.1 million
in 1997 to $1.7 million in 1998, due primarily to the addition of personnel
performing general and administrative functions. General and administrative
expenses were 19%, 9% and 8% of total revenue for 1996, 1997 and 1998. The
decreases as a percentage of total revenue resulted primarily from increased
total revenue during these periods.
Amortization of Deferred Stock Compensation
Total deferred stock compensation as of December 31, 1998 amounted to $3.1
million. Of the total deferred stock compensation, approximately $299,000 was
amortized in 1998.
Interest Income (Expense), Net
In 1996, we had net interest income of approximately $138,000, while in 1997
and 1998, we incurred net interest expense of approximately $23,000 and
$41,000. The increases in net interest expense in 1997 and 1998 were due
primarily to declining balances of cash and cash equivalents and to declining
interest rates during these periods, as well as to increases in our long-term
debt obligations.
Income Taxes
From inception through September 30, 1997, we incurred net losses for
federal and state tax purposes and did not recognize any tax provision or
benefit during this period. For the quarter ended
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<PAGE>
December 31, 1997, the provision for income tax was immaterial. For the year
ended December 31, 1998, the provision for income tax was approximately
$34,000. As of December 31, 1998, we had $6.7 million of federal and $3.6
million of state net operating loss carryforwards to offset future taxable
income. These carryforwards, if not utilized, expire in 2000 through 2012. As
of December 31, 1998, we had approximately $524,000 of federal and $390,000 of
state carryforwards for research and development and other credits. These
carryforwards, if not utilized, expire in 2010 through 2018. The Tax Reform Act
of 1986 limits the use of net operating loss and tax credit carryforwards in
certain situations where there is an ownership change. Under the Tax Reform Act
of 1986, the determination of whether an ownership change occurs involves a
highly complex calculation; however, an ownership change generally occurs when
over 50% in value of a company's stock is transferred in transactions involving
5% stockholders during a given period. If we should have an ownership change,
our utilization of these carryforwards could be restricted.
We have placed a valuation allowance against our deferred tax asset due to
the uncertainty surrounding the realization of these assets. We evaluate on a
quarterly basis the recoverability of the deferred tax asset and the level of
the valuation allowance. When it is determined that it is more likely than not
the deferred tax assets are realizable, the valuation allowance will be
reduced.
25
<PAGE>
Quarterly Results of Operations
The following table provides unaudited consolidated statement of operations
data for the six quarters ended March 31, 1999, as well as such data expressed
as a percentage of our total revenue for the periods indicated. This data has
been derived from 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 such information
when read in conjunction with our annual audited consolidated financial
statements and notes to these financial statements. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------
Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1998 1998 1998 1998 1999
-------- -------- -------- --------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product............... $3,291 $3,688 $3,867 $4,270 $4,681 $4,627
Service............... 771 673 1,034 1,282 1,556 1,801
------ ------ ------ ------ ------ ------
Total revenue....... 4,062 4,361 4,901 5,552 6,237 6,428
Cost of revenue:
Product............... 623 644 631 879 1,028 817
Service............... 522 601 689 747 738 903
------ ------ ------ ------ ------ ------
Total cost of
revenue............ 1,145 1,245 1,320 1,626 1,766 1,720
------ ------ ------ ------ ------ ------
Gross profit........... 2,917 3,116 3,581 3,926 4,471 4,708
------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development.......... 525 605 600 625 777 903
Marketing and sales... 2,099 1,978 2,374 2,564 2,828 2,868
General and
administrative....... 274 410 401 412 443 425
Amortization of
deferred stock
compensation......... 2 38 61 66 134 196
------ ------ ------ ------ ------ ------
Total operating
expenses........... 2,900 3,031 3,436 3,667 4,182 4,392
------ ------ ------ ------ ------ ------
Income (loss) from
operations............ 17 85 145 259 289 316
Interest income
(expense), net........ (16) (11) (10) (13) (7) (8)
------ ------ ------ ------ ------ ------
Income (loss) before
provision for income
tax................... 1 74 135 246 282 308
Provision for income
tax .................. -- (4) (6) (10) (14) (20)
------ ------ ------ ------ ------ ------
Net income (loss)...... $ 1 $ 70 $ 129 $ 236 $ 268 $ 288
====== ====== ====== ====== ====== ======
Net income (loss) per
share--basic(1)....... $ 0.00 $ 0.02 $ 0.04 $ 0.07 $ 0.08 $ 0.08
====== ====== ====== ====== ====== ======
Shares used in per
share calculation--
basic(1).............. 3,053 3,166 3,243 3,323 3,385 3,444
====== ====== ====== ====== ====== ======
Net income (loss) per
share--diluted(1)..... $ 0.00 $ 0.00 $ 0.01 $ 0.01 $ 0.02 $ 0.02
====== ====== ====== ====== ====== ======
Shares used in per
share calculation--
diluted(1)............ 15,641 15,949 16,145 16,251 16,512 16,767
====== ====== ====== ====== ====== ======
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Percentage of Total Revenue
-------------------------------------------------------------
Quarters Ended
-------------------------------------------------------------
Mar.
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, 31,
1997 1997 1998 1998 1998 1998 1999
--------- -------- -------- -------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenue:
Product............... 82.6% 81.0% 84.6% 78.9% 76.9% 75.1% 72.0%
Service............... 17.4 19.0 15.4 21.1 23.1 24.9 28.0
----- ----- ----- ----- ----- ----- -----
Total revenue....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product............... 16.8 15.3 14.7 12.9 15.8 16.5 12.7
Service............... 13.3 12.9 13.8 14.1 13.5 11.8 14.1
----- ----- ----- ----- ----- ----- -----
Total cost of
revenue............ 30.1 28.2 28.5 27.0 29.3 28.3 26.8
----- ----- ----- ----- ----- ----- -----
Gross profit........... 69.9 71.8 71.5 73.0 70.7 71.7 73.2
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Research and
development.......... 14.3 12.9 13.9 12.2 11.3 12.5 14.0
Marketing and sales... 59.7 51.7 45.4 48.4 46.2 45.4 44.6
General and
administrative....... 6.6 6.8 9.4 8.2 7.3 7.1 6.6
Amortization of
deferred stock
compensation......... -- -- 0.9 1.2 1.2 2.1 3.1
----- ----- ----- ----- ----- ----- -----
Total operating
expenses........... 80.6 71.4 69.6 70.0 66.0 67.1 68.3
----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............ (10.7) 0.4 1.9 3.0 4.7 4.6 4.9
----- ----- ----- ----- ----- ----- -----
Interest income
(expense), net........ (0.5) (0.4) (0.3) (0.2) (0.2) (0.1) (0.1)
----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision for income
tax................... (11.2) 0.0 1.6 2.8 4.5 4.5 4.8
Provision for income
tax................... -- -- (0.1) (0.1) (0.2) (0.2) (0.3)
----- ----- ----- ----- ----- ----- -----
Net income (loss)...... (11.2)% 0.0% 1.5% 2.7% 4.3% 4.3% 4.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Quarterly product revenue has increased in each of the quarters shown above
due to increased sales of MeetingPlace products, including increased follow-on
sales of products to existing customers. Quarterly service revenue has
increased in each of the four quarters ended March 31, 1999, both in absolute
dollars and as a percentage of total revenue, due primarily to the increasing
size of our customer base. Gross margins were relatively constant during the
six quarters ended March 31, 1999. The increase in gross margin in the quarter
ended June 30, 1998 was attributable primarily to a higher proportion of sales
from software add-ons during this period, which typically carry higher margins.
Total operating expenses increased in absolute dollars in each of the
quarters presented above, but generally decreased as a percentage of total
revenue. Research and development expenses generally increased in absolute
dollars during these periods as a result of increased development efforts
related to new products and enhancements of existing products. For the quarter
ended December 31, 1998, research and development expenses increased in both
absolute dollars and as a percentage of total revenue, reflecting the addition
of research and development personnel. Sales and marketing expenses generally
increased in absolute dollars during the quarters presented above as a result
of increased spending for salary and commissions, trade show expenses, public
relations and other promotional expenses. General and administrative expenses
generally increased in absolute dollars during the quarters presented above as
a result of the addition of personnel performing general and administrative
functions.
The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on our level of actual and anticipated business
activities. Research and development
27
<PAGE>
expenses will vary as we develop new products and enhance existing products. In
addition, we have a limited backlog of orders, and total revenue for any future
quarter is difficult to predict. Supply, manufacturing or testing constraints
could result in delays in the delivery of our products.
Our revenue and operating results are difficult to forecast and will
fluctuate, and we believe that period-to-period comparisons of our operating
results will not necessarily be meaningful. As a result, you should not rely
upon them as an indication of future performance. It is likely that our future
quarterly operating results from time to time will not meet the expectations of
security analysts or investors, which would likely cause the price of the
common stock to decline.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
sales of convertible preferred stock, which totaled $18.7 million in aggregate
net proceeds through March 31, 1999. We have also financed our operations
through equipment loans, which totaled $1.2 million in principal amount at
March 31, 1999. As of March 31, 1999, we had $4.4 million of cash and cash
equivalents and a $2.0 million line of credit, all of which was available at
March 31, 1999. This line of credit expires in July 1999. At this time, we do
not intend to borrow any amounts under this line of credit.
Net cash used in operating activities was $4.0 million in 1996 and $1.6
million in 1996 and 1997 and net cash provided by operating activities was $1.0
million in 1998 and $1.1 million in the quarter ended March 31, 1999. For 1997,
cash used by operating activities was attributable primarily to a net loss of
$2.2 million and an increase in trade accounts receivable of $1.1 million,
offset in part by depreciation and amortization of $619,000 and increases in
accrued expenses and deferred revenue of $471,000 and $506,000. For 1998, cash
provided by operating activities was attributable primarily to net income of
approximately $703,000, depreciation and amortization of approximately $696,000
and increases in accounts payable, accrued expenses and deferred revenue of
approximately $442,000, $629,000 and $1.9 million. These amounts were offset in
part by an increase in trade accounts receivable of $3.1 million. This increase
in trade accounts receivable was due in part to the shipment of a $1.3 million
order to a customer in December 1998. Our sales cycle is lengthy and
unpredictable, and could cause our quarterly revenue and operating results to
fluctuate. Any change in our sales cycle could adversely affect our cash
provided by operating activities. For the quarter ended March 31, 1999, cash
provided by operating activities was attributable primarily to net income of
$288,000 and a decrease in trade accounts receivable of $1.0 million, offset in
part by an increase in prepaids and other assets of $335,000 and an increase in
inventory of $243,000.
Net cash used in investing activities was approximately $778,000, $597,000
and $780,000 in 1996, 1997 and 1998 and $610,000 in the quarter ended March 31,
1999. For 1996, 1997 and 1998, cash used in investing activities was
attributable primarily to purchases of property and equipment in the quarter
ended March 31, 1999, cash used in investing activity was also due to an
increase in other assets.
Net cash provided by financing activities was $8.5 million, approximately
$287,000 and $143,000 in 1996, 1997 and 1998, and net cash used in financing
activities was $114,000 in the quarter ended March 31, 1999. For 1996, cash
provided by financing activities was attributable to proceeds for the issuance
of preferred stock and notes payable, offset in part by repayment of notes
payable and capital lease obligations. For 1997 and 1998, cash provided by
financing activities was
28
<PAGE>
attributable to proceeds from the issuance of notes payable, offset in part by
repayment of notes payable and capital lease obligations. For the quarter ended
March 31, 1999, cash used in financing activities was attributable primarily to
repayments of notes payable and capital lease obligations.
As of March 31, 1999, our principal commitments consisted of obligations
outstanding under operating leases and capital equipment leases. Although we
have no material commitments for capital expenditures, we anticipate a
substantial increase in capital expenditures and lease commitments consistent
with our anticipated growth in operations, infrastructure and personnel. We
also may establish additional operations as we expand globally.
We have reviewed our short-term and long-term liquidity needs. Our liquidity
needs for at least the next eighteen months will be met by the net proceeds
from this offering, together with our current cash and cash equivalents. After
this time, we cannot assure you that cash generated from operations will be
sufficient to satisfy our liquidity requirements, and we may need to raise
additional capital by selling additional equity or debt securities or by
obtaining a credit facility. If additional funds are raised through the
issuance of debt securities, these securities could have rights, preferences
and privileges senior to holders of common stock, and the term of this debt
could impose restrictions on our operations. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders, and we cannot be certain that such additional financing will be
available in amounts or on terms acceptable to us, if at all. If we are unable
to obtain this additional financing, we may be required to reduce the scope of
our planned product development and marketing efforts, which could harm our
business, financial condition and operating results.
Year 2000 Readiness Disclosure
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish between twentieth and twenty-first century dates. This may result
in software failures or the creation of erroneous results.
We have conducted the first phases of a Year 2000 readiness review for the
current versions of our products. The review includes assessment,
implementation activities such as remediation, upgrading and replacement of
product versions, validation testing, and contingency planning. We continue to
respond to customer questions about prior versions of our products on a case-
by-case basis.
We have largely completed all phases of this plan, except for contingency
planning, for the current versions of our products. As a result, all current
versions of our products are "Year 2000 Compliant," as defined below, when
configured and used in accordance with the related documentation, and provided
that the underlying operating system of the host machine and any other software
used with or in the host machine or our products are also Year 2000 Compliant.
We have not tested our products on all platforms or all versions of operating
systems that we currently support.
We have defined "Year 2000 Compliant" as the ability to:
. correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
29
<PAGE>
. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
. where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined, and predetermined
manner;
. if the date elements in interfaces and data storage specify the century,
store and provide output of date information in ways that are unambiguous
as to century; and
. recognize the year 2000 as a leap year.
We have tested software obtained from third parties, including licensed
software, shareware, and freeware, that is incorporated into our products, and
we are seeking assurances from our vendors that licensed software is Year 2000
Compliant. Despite testing by us and by current and potential clients, and
assurances from developers of products incorporated into our products, our
products may contain undetected errors or defects associated with Year 2000
date functions. Known or unknown errors or defects in our products could result
in delay or loss of revenue, diversion of development resources, damage to our
reputation, or increased service and warranty costs, any of which could
materially adversely affect our business, operating results or financial
condition. Some commentators have predicted significant litigation regarding
Year 2000 compliance issues, and we are aware of these types of lawsuits
against other software vendors. Because of the unprecedented nature of Year
2000 litigation, it is uncertain whether or to what extent we may be affected
by it.
Our internal systems include both our information technology, or IT, and
non-IT systems. We have initiated an assessment of our material internal IT
systems, including both our own software products and third-party software and
hardware technology, but we have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1999. To the extent
that we are not able to test the technology provided by third-party vendors, we
are seeking assurances from vendors that their systems are Year 2000 Compliant.
We are not currently aware of any material operational issues or costs
associated with preparing our internal IT and non-IT systems for the Year 2000.
However, we may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal IT and non-
IT systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. If our current or future customers fail to achieve
Year 2000 compliance or if they divert technology expenditures, especially
technology expenditures that were reserved for conferencing products, to
address Year 2000 compliance problems, our business could suffer.
To date, we have incurred expenses of approximately $50,000 for Year 2000
compliance activities. We will incur additional costs related to the Year 2000
plan for administrative personnel to manage the project, outside contractor
assistance, technical support for our products, product engineering and
customer satisfaction. We estimate that these additional costs will total less
than $100,000. However, we may experience material problems and costs with Year
2000 compliance not currently identified in our Year 2000 plan that could
adversely affect our business, results of operations, and financial condition.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and
30
<PAGE>
implementing such a plan may itself be material. We intend to develop a
contingency plan by the fourth quarter of 1999. Finally, we are also subject to
external forces that might generally affect industry and commerce, such as
utility or transportation company Year 2000 compliance failures and related
service interruptions.
Impact of Recently Issued Accounting Standards
In December 1998, AcSEC released Statement of Position 98-9, or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence of the fair values
of all the undelivered elements that are not accounted for by means of long-
term contract accounting, (2) vendor-specific objective evidence of fair value
does not exist for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2 (other than the requirement for vendor-
specific objective evidence of the fair value of each delivered element) are
satisfied. The provisions of SOP 98-9 that extend the deferral of the second
sentence of paragraphs 10, 37, 41 and 57 of SOP 97-2 became effective December
15, 1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective for
transactions that are entered into in fiscal years beginning after March 15,
1999. Retroactive application is prohibited. We are evaluating the requirements
of SOP 98-9 and the effects, if any, on our current revenue recognition
policies.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, or SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. We are currently evaluating the impact of SOP 98-1 on our
financial statements and related disclosures.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. We believe the
adoption of SOP 98-5 will not have a material impact on our results of
operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133 will be effective for fiscal
years beginning after June 15, 1999. We do not currently hold derivative
instruments or engage in hedging activities.
31
<PAGE>
BUSINESS
Overview
We are a leading provider of integrated voice and data conferencing
solutions for geographically dispersed organizations. We develop, market and
support our MeetingPlace system, which allows companies to conduct virtual
meetings and thereby extend real-time decision making processes irrespective of
the geographic location of participants. With MeetingPlace, participants can
schedule and attend a meeting, view, share and edit documents, and capture and
retrieve meeting content. MeetingPlace is designed to be an enterprise-wide
resource and to leverage existing technologies such as telephones, cellular
phones and personal computers. Moreover, we expect that the dramatic growth in
web browsers and collaborative software applications will drive data
conferencing as an important business application of the Internet.
MeetingPlace consists of three components: (a) the MeetingPlace conference
server; (b) MeetingPlace software; and (c) system integration options.
MeetingPlace incorporates many easy-to-use features that allow participants to
emulate the voice and data collaboration that occurs in a face-to-face meeting,
such as breakout sessions, roll calls and meeting handouts. MeetingPlace
provides simultaneous voice and data conferencing and the ability to record and
access meeting content while lowering the enterprise's overall conferencing
costs.
We began commercial shipment of MeetingPlace in December 1994 and, as of
March 31, 1999, had over 200 customers. In addition to enterprise-wide general
deployment, customers have purchased and used MeetingPlace for a variety of
specific business applications, including morning brokerage calls, crisis
management, training and education, customer and client services, supply chain
management and merger integration. Furthermore, over 60% of our customers have
purchased additional products or services after their initial system
installations. MeetingPlace has been installed in some of the world's leading
enterprises, including 3Com, Aetna, Cisco, Credit Suisse First Boston, Hewlett-
Packard, Honeywell, Microsoft, Oracle, State Farm Insurance, Union Pacific
Railroad and the U.S. Federal Reserve Bank.
Industry Background
The proliferation of communications technologies is revolutionizing the way
people conduct business. Today, businesses of all sizes are empowering their
employees with a diverse array of communications tools to facilitate
information flow and improve productivity. From voicemail, fax machines and
cellular phones to e-mail, laptop computers and handheld devices, businesses
have demonstrated their continued willingness to adopt technologies that enable
their employees, vendors and customers to communicate more efficiently across
disparate geographies and time zones.
An enterprise's willingness to adopt a new communications technology depends
largely on the technology's ability to efficiently replace or enhance an
existing business practice. Voicemail is a more convenient and cost effective
substitute for the traditional pad-and-paper answering service. E-mail provides
a similar improvement over traditional inter-office mail. Cellular phones and
laptop computers provide added flexibility for mobile workers over the
traditional telephone and desktop computer. In addition, enterprises have
sought to enhance their competitive advantage by creating a virtual presence
with their customers and vendors through such means as e-commerce and
extranets. Each of these technologies has increased productivity by extending
the workplace beyond the physical office.
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<PAGE>
An integral part of this workplace extension is the ability to coordinate
communications and decision making among people in different locations. As a
result, companies are expanding their use of existing technologies such as
voice-oriented conferencing and data-oriented collaborative software. According
to Frost & Sullivan, the total market for audio and video conferencing services
and equipment in the United States is projected to grow from $8.5 billion in
1998 to more than $24 billion by 2003. Meanwhile, according to International
Data Corporation, the total installed base of collaborative software clients in
the United States is expected to grow from 47 million in 1998 to more than 114
million by 2002.
We believe that no single, widely deployable technology, however, has been
able to effectively provide the integrated voice and data collaboration that
occurs in a face-to-face meeting in a cost effective manner. In order to have a
meeting today, a business typically must have everyone present in a conference
room or invest in limited and often expensive technologies or services that
allow people to communicate. For example, audio conferencing, although widely
used and available, is relatively expensive and does not enable participants to
share and modify documents. Video conferencing systems enable participants to
see each other but have technical limitations, such as minimum bandwidth
requirements, and are not widely available to users. Collaborative software
applications, such as Microsoft Outlook and Lotus Notes, focus on workflow
improvements rather than sharing documents real-time and allowing users to
speak with other participants.
To address this need for efficient, real-time voice and data communication,
organizations have resorted to using a patchwork of these technologies,
including conferencing, fax, e-mail and collaborative software applications.
While these technologies have been widely implemented, the result has been the
creation of discrete islands of communication within organizations, which fail
to create a virtual meeting experience that promotes information flow and
effective decision making. We believe that the growing geographic dispersion
and mobility of workers further compound this problem.
As a consequence, we believe there is significant demand for an integrated,
cost-effective and easy-to-use product that enables simultaneous real-time
voice communication and secure document collaboration irrespective of
geographic location. Furthermore, we believe that such a product must leverage
the existing voice and data infrastructure within the enterprise to facilitate
widespread deployment and realize significant cost savings. Finally, the system
must provide incremental capabilities to improve the meeting itself.
Accordingly, we believe that there is a need for a solution that enables
virtual meetings to further extend an enterprise's workplace.
The Latitude Solution
We have developed a solution, MeetingPlace, that allows companies to conduct
virtual meetings which extend real-time decision making processes irrespective
of the geographic locations of participants. With MeetingPlace, users can
schedule and attend a meeting, share and edit documents, and record and access
meeting content. Attendees can participate in a meeting using widely available
communications devices such as telephones, cellular phones, laptop computers
and desktop computers. MeetingPlace is designed to be an enterprise-wide
resource and to integrate seamlessly into widely deployed enterprise software
environments, including corporate intranets and collaborative software
environments such as Microsoft Outlook.
33
<PAGE>
[Graphic depicting the Latitude MeetingPlace server and methods of access and
use.]
Key benefits of MeetingPlace include:
. Seamless integration of real-time voice and data
conferencing. MeetingPlace allows participants to easily schedule and
attend meetings that combine voice conferencing with real-time sharing
and editing of data. By leveraging an enterprise's existing voice and
data networks, MeetingPlace provides reliable and robust transport of
toll-quality voice as well as real-time data sharing and editing.
. Time-displaced access to meetings. MeetingPlace provides an integrated
ability to record and archive meeting conversations and materials,
enabling information generated during a meeting to be efficiently passed
on to those unable to attend. In addition, audio or data information can
be made available to participants in advance of the meeting.
. Lower overall cost of conferencing. With a MeetingPlace server installed,
the cost of a conference is limited to the long-distance charge, if any,
for each participant. In contrast, the cost of a conference using a
third-party service bureau typically ranges between $0.30 and $0.55 per
minute per participant within the United States. As such, we believe that
a typical customer can realize significant cost savings relative to
existing voice conferencing services provided by third-party service
bureaus.
. Security and control. MeetingPlace's customer premise-based system
provides an architecture which enables an enterprise to manage data
collaboration securely behind its network security system, referred to in
the software industry as a corporate firewall, consistent with its other
information technology strategies. Additionally, MeetingPlace eliminates
several risks associated with third party conferencing service bureaus,
such as operators giving access to unwelcome participants.
. Ease of use and broad feature set. MeetingPlace allows users to schedule,
attend and review meetings easily from their telephones or familiar
desktop environments such as browsers or
34
<PAGE>
Microsoft Outlook. In addition, MeetingPlace incorporates a large number
of features that allow end users to emulate many aspects of a face-to-face
meeting such as breakout sessions, roll calls and meeting hand-outs.
. Scalability and configurability. MeetingPlace is scalable with an
enterprise's conferencing needs. MeetingPlace servers are designed to be
networked together to coordinate the deployment of servers on a global
basis and to allow for large single meeting sessions of over 1,000
simultaneous participants. Moreover, MeetingPlace can be configured in a
variety of ways in order to satisfy specific business applications, such
as training and supply chain management.
Strategy
Our objective is to make MeetingPlace a standard communications tool within
an enterprise. Underlying this objective is our vision of making integrated
voice and data collaboration through MeetingPlace as widely utilized as e-mail
and voice mail. Our long-term strategy is comprised of the following elements,
each of which we are pursuing on an ongoing basis:
. Establish MeetingPlace as a ubiquitous desktop application. We intend to
continue to integrate MeetingPlace seamlessly with a wide array of
enterprise software, including browsers, collaborative software and
enterprise resource planning and customer relationship management
applications. For example, MeetingPlace is already available to end users
through browser interfaces as well as Microsoft Outlook, and we
anticipate introducing at least one additional interface by mid-2000. We
intend to leverage the large installed base of these applications to
establish MeetingPlace as a standard desktop productivity tool by
deploying MeetingPlace as an integral element of these applications.
. Aggressively leverage installed customer base to increase market
penetration. We will focus on developing prominent Fortune 1000 reference
accounts to encourage widespread market acceptance of our products. We
intend to apply the expertise that we have gained in penetrating existing
vertical markets, such as financial services and high technology, to
actively pursue new markets. We are currently attempting to expand our
presence in the areas of professional services, manufacturing,
healthcare, transportation, education and government. Additionally, we
will continue to promote increased usage and deployment of our products
by our existing customers through after-market sales and support.
. Leverage technological expertise to address significant market
opportunities. We have gained significant technological expertise in both
voice and data enterprise network environments, as well as in such areas
as digital signal processing and system integration. Furthermore, we are
developing new features and applications to enhance our existing product
offerings and to address significant market opportunities such as voice
over the Internet and Internet video. In addition, our technology
platform is designed to use open standards such as the specification for
data conferencing referred to in the software and networking industries
as the T.120 specification and the specification for Internet telephony
referred to in the software and networking industries as the H.323
specification.
. Develop partnerships to expand distribution channels. We continue to
expand our direct selling efforts in domestic markets. We also plan to
increasingly utilize indirect distribution
35
<PAGE>
channels such as third party distributors and system integration partners.
We expect to focus our partnership efforts on expanding our geographic
scope to reach customers in other countries and in regions of the United
States we do not presently serve, and on entering into distribution and
co-marketing arrangements with partners that have expertise in specific
vertical markets.
. Provide value-added consulting services to our customers. In addition to
our full-care support to customers, we offer a wide variety of value-
added consulting services such as installation, training, system
administration, help desk services, and web site and systems integration.
We believe that providing these value-added services to our customers
enhances our ability to achieve broad deployment within their
enterprises.
. Extend MeetingPlace functionality to enable collaborative knowledge
management. Our long-term product development strategy includes the
development of features and applications to enable what we refer to as
collaborative knowledge management. We expect that collaborative
knowledge management will extend the current capabilities of MeetingPlace
for real-time capture, archival and retrieval of meeting content to allow
enterprises to access and manage the information generated in their
meetings. We intend to incorporate technologies such as voice recognition
and search engines, as well as integrate MeetingPlace with handheld
devices.
Products and Services
MeetingPlace Hardware and Software Platform
Our MeetingPlace system enables the enterprise-wide deployment of real-time
voice and data conferencing capabilities. Designed to integrate with an
enterprise's existing telephone and data networks, MeetingPlace facilitates
meetings among people in different locations using phones and network
connected computers. The MeetingPlace system consists of three types of
components:
MeetingPlace Conference Server. At the core of the MeetingPlace system is
the MeetingPlace conference server, an integrated hardware and software
platform. The MeetingPlace server is built around an Intel Pentium processor
and incorporates standard trunk interfaces to many analog and digital phone
systems, an Ethernet interface for local area networks, and a storage system
based on the small computer systems interface, or SCSI, to manage internal
database functions and conference recordings. In addition, the platform
utilizes our advanced high-performance digital signal processing, cards to
manage voice communications. Each MeetingPlace server can scale from 8 to 120
concurrent users in any combination of different sized conferences, enabling
customers to configure the MeetingPlace server on a concurrent user basis. In
addition to the MeetingPlace conference server, an enterprise can increase
scalability and reliability with the following options:
. MeetingPlace Network Server. An integrated hardware and software platform
that enables customers to manage up to eight MeetingPlace conference
servers with centralized scheduling, administration and reporting.
. MeetingPlace Shadow Network Server. An integrated hardware and software
platform that provides redundancy in the event of failure of the
MeetingPlace network server.
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<PAGE>
MeetingPlace Software. The MeetingPlace conference server includes system
software necessary to schedule, conduct and manage real-time voice and data
conferences. This software includes an operating system and a structured query
language, or SQL, relational database, as well as integrated voice processing,
conference scheduling and conference bridging software. The MeetingPlace system
software also includes an optional simple network management protocol, or SNMP,
agent for centralized network management. Enterprise customers can configure
their MeetingPlace systems by choosing any of the following software options:
. MeetingPlace Data Conferencing. Server-based software that facilitates
real-time data collaboration using either standards-based collaboration
software such as Microsoft NetMeeting or Java-compatible web browsers
such as Microsoft Internet Explorer and Netscape Navigator.
. MeetingNotes. Software that facilitates management of meeting agendas,
roll calls, attached electronic documents, related web hyperlinks, and
conference recordings.
. MeetingPlace Flex Menus. Software that enables customization of telephone
touch-tone menus to access particular meetings and their associated
MeetingNotes information.
. MeetingTime. Windows or Macintosh compatible client software that enables
users to schedule, configure and monitor advanced meeting functions such
as breakout sessions and lecture style, listen-only meetings.
System Integration Options. We also offer several optional modules that
enable the integration of MeetingPlace with other strategic communications
tools used by the enterprise. Currently, these modules include:
. MeetingPlace WebPublisher. Windows NT-based software that integrates
MeetingPlace with an enterprise's web server to provide end users with
browser-based scheduling and management of conferences. WebPublisher also
integrates with RealAudio to provide streaming audio playback of
conference recordings.
. MeetingPlace Outlook Interface. Windows NT-based software that integrates
MeetingPlace with Microsoft Exchange to facilitate conference scheduling
and delivery of notifications through the Microsoft Outlook calendaring
interface from the user's desktop.
. MeetingPlace E-mail Gateway. Windows NT-based software that integrates
MeetingPlace with popular e-mail systems, including Microsoft Exchange
and Lotus Notes, for automated e-mail delivery of conference
notifications and meeting materials.
. MeetingPlace Fax Gateway. Windows NT-based software that integrates
MeetingPlace with a Windows NT-based fax server for automated fax
delivery of conference notifications and meeting materials.
37
<PAGE>
Our MeetingPlace system is designed for deployment in enterprise
environments with a wide array of standard and optional features for end users,
help desk employees and system managers, including:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capability Features
<S> <C>
Meeting Set-Up. . ability to schedule in advance or real-time
Automated
scheduling and . schedule via MeetingTime software, web browser,
notification of telephone or Microsoft Outlook
meetings.
. scheduling of recurring meetings
. password and profile restrictions
. notification through e-mail, Microsoft Outlook, fax or
pager
. automatic dial-out to participants
- ------------------------------------------------------------------------------------
In-Session Capabilities. . roll calls
Management and control . announced and screened entries
of
meeting attendance and . participant exclusion
flow.
. breakout sessions
. lecture style, listen-only conferences
. real-time speaker identification
. interactive question and answer format
. participant muting
. automated dial-out to late participants
- ------------------------------------------------------------------------------------
Attachments. . distribution and notification of meeting materials,
Distribution of including electronic documents, prerecorded voice or
electronic meeting video and Internet hyperlinks
materials.
. access before, during or after meeting
. automatic forwarding by e-mail or fax
. access to materials via the web, by e-mail or by fax
- ------------------------------------------------------------------------------------
Recording. Recording, . on/off control during conference
storage and playback of
conferences.
. automatic posting for playback
. password or profile controlled access
. access through telephone, downloaded audio file or
streaming audio using RealAudio over the web
- ------------------------------------------------------------------------------------
System Administration. . remote administration via Internet protocol-based
Tools for network (e.g., Internet)
management of . help desk monitoring via standard simple network
MeetingPlace by system management protocol, or SNMP, applications
administrators.
. configuration, user profile management, capacity
planning, internal billback and automated backups
through MeetingTime software
. system reporting capability
</TABLE>
We license technology that is incorporated into our products from third
parties, including digital signal processing algorithms and the MeetingPlace
server's operating system and relational database. See "Risk Factors--The loss
of our right to use technology licensed to us by third parties could harm our
business." Software and hardware products as complex as ours are likely to
contain undetected errors or defects. See "Risk Factors--Our products may
suffer from defects, errors or breaches of security."
Consulting and Support Services
In addition to our MeetingPlace hardware and software offerings, we provide
extensive follow-on consulting and support services to our customers to ensure
successful deployment of MeetingPlace in their organizations. We offer
implementation and integration services on an individual engagement basis, and
full care support and managed services on an ongoing recurring basis.
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<PAGE>
. Implementation Services. Implementation services include turnkey project
management, database design, specific business application development,
training and on-site installation. These services target seamless
integration with a wide variety of telephone systems, local area network
configurations, web servers and messaging systems.
. Integration Services. Integration services include customization of web
interfaces to MeetingPlace, custom programming of telephone access menus
through the MeetingPlace Flex Menu Option, custom reporting and billing,
integration of MeetingPlace into non-standard voice or data networking
infrastructures and advanced application support and training. These
services are designed for customers with special application or
integration needs.
. Full Care Support. Full care support is an annual or multi-year service
plan that provides telephone-based technical support to system managers.
In addition, participating customers receive a software subscription
service for new releases, access to a standby conference server and
onsite hardware maintenance.
. Managed Services. Managed services are designed for customers that desire
on-site MeetingPlace systems but wish to outsource MeetingPlace's
administration and management. Managed services include all user profile
management, help desk support, rollout, capacity planning, technical
support and monthly usage reporting.
Technology
MeetingPlace incorporates a wide variety of internally developed and third
party licensed technologies. Key aspects of our technology platform include:
. High-performance digital signal processing engine. To meet the needs of a
highly scalable conferencing system, we designed our own general purpose
digital signal processing card based on a reduced instruction set
computing, or RISC, microprocessor and programmable Texas Instruments
digital signal processing chips. MeetingPlace configurations can contain
up to four digital signal processing cards to deliver up to five billion
instructions per second, of processing power in a single server. Our
software leverages the power of these digital signal processing cards to
provide high quality conference bridging that integrates digital signal
processing algorithms for echo cancellation, automatic gain control,
background noise suppression, voice compression, and speaker and dial
tone detection.
. Conference scheduling engine. A sophisticated conference scheduling
engine efficiently allocates MeetingPlace system resources, including
conference licenses, access ports, recording space and meeting
identification numbers. The scheduling agent utilizes a structured query
language, or SQL, relational database to manage transactions originating
internally or externally from either the voice or data network. The
software allows for sufficient flexibility to encompass real-world
scenarios including early arrivals, unexpected participants, conference
no-shows and meetings that run over their scheduled times.
. Conference recording and playback. To record and play back conferences,
MeetingPlace enables voice compression and decompression in addition to a
proprietary voice file system. The integration of conference scheduling,
bridging and recording enables MeetingPlace to facilitate impromptu
recording and playback of voice conferences without operator intervention
or external equipment.
39
<PAGE>
. Robust server software architecture. MeetingPlace utilizes a robust set
of internally developed application programming interfaces, or APIs, that
are designed to integrate with a variety of external applications,
including web servers, e-mail systems and fax servers.
. Distributed network architecture. MeetingPlace enables the centralized
administration and management of multiple servers distributed over an
enterprise's local or wide area network. The system also incorporates an
internal database replication engine, system-wide redundancy for
MeetingPlace network servers and fault tolerance to network outages.
To be successful, we will need to develop and introduce new products that
respond to technological changes or evolving industry standards, such as voice
over the Internet, in a timely manner and on a cost-effective basis. In
addition, we will need to integrate our products with our customers' networks
and enterprise applications on an ongoing basis. Furthermore, any significant
interruption in the supply or support of any licensed software incorporated in
our products could adversely affect our sales. See "Risk Factors--Rapid
technological changes could cause our products to become obsolete or require us
to redesign our products," "--If we fail to integrate our products with third-
party technology, our sales could suffer" and "--The loss of our right to use
technology licensed to us by third parties could harm our business."
Customers
We began commercial shipment of our products in December 1994 and, as of
March 31, 1999, had over 200 customers. Our typical customers are medium to
large businesses with geographically diverse employees, suppliers, customers
and other constituents. In addition to enterprise-wide general deployment,
customers have purchased and used MeetingPlace for a variety of specific
business applications, including crisis management, training and education,
customer and client services, supply chain management and merger integration.
Furthermore, over 60% of our existing customers have purchased additional
products or services after their initial system installations. The following is
a representative list of our customers that have purchased MeetingPlace:
High Technology
Software Hardware Networking and
America Online, Inc. Apple Computer, Inc. Telecommunications
Cadence Design Fujitsu Limited 3Com Corporation
Systems, Inc. Hewlett-Packard Aspect Telecommuni-
Clarify Inc. Company cations Corporation
Edify Corporation Honeywell Inc. Bell Atlantic
Enterprise Systems, Hutchinson Corporation
Inc. Technology Ciena Corporation
Great Plains Incorporated Cisco Systems, Inc.
Software, Inc. Natural Microsystems Norstan Inc.
Informix Corporation Corporation Tellabs, Inc.
Microsoft Quantum Corporation
Corporation Rockwell
NetManage, Inc. International
Network Associates, Corporation
Inc. Seagate Technology,
Oracle Corporation Inc.
Qualcomm
Incorporated
- --------------------------------------------------------------------------------
40
<PAGE>
Financial Services
Investment Banking Insurance Other Financial Services
BancBoston Robertson Stephens Inc.
Aetna Inc. Brown Brothers Harriman &
Credit Suisse First Boston Corporation Co.
American International Group, Inc.
J.C. Bradford & Co. CNA Financial Corporation Capital Group Companies
CUNA Mutual Group Inc.
Morgan Stanley Dean Witter & Co.
Conseco, Inc.
John Hancock Mutual Life Insurance Company
NationsBanc Montgomery Securities LLC
State Farm Insurance Fidelity Investments
Prudential Securities Incorporated
Franklin Templeton
SG Cowen Securities Corporation
UBS AG Commercial Banking Instinet Corp.
ABN AMRO Bank NV Southwest Securities
BankBoston Group, Inc.
Bank of America The Vanguard Group
Compass Bank
Life Savings Bank
KeyCorp
Northern Trust Bank
STAR Financial Bank
- --------------------------------------------------------------------------------
Other Industry Sectors
<TABLE>
<S> <C> <C>
Professional Services Transportation Retail
Andersen Consulting Air Canada Best Buy Co., Inc.
Automatic Data Processing, Inc. CSX Corp. Pier 1 Imports, Inc.
A.T. Kearney, Inc. Budget Rent a Car Corporation Rite Aid Corporation
Burlington Northern Santa Fe Weight Watchers International,
The Boston Consulting Group, Inc. Corp. Inc.
Cambridge Technology Partners, Inc. Union Pacific Corp.
Deloitte & Touche, LLP Education
Electronic Data Systems, Corp. Healthcare California State University
Gartner Group, Inc. Kaiser Permanente The Ohio State University
Merck-Medco Managed Care,
International Data Corporation L.L.C. Rio Salado College
META Group, Inc. University of Illinois
University of Texas
Government
U.S. Federal Reserve Bank
NASA
U.S. Court of Appeals
State of Alaska
State of New Mexico
</TABLE>
- --------------------------------------------------------------------------------
No single customer accounted for more than 10% of our total revenues in 1997
or 1998. The inclusion of the names of our customers in the table above and in
the discussion below is not intended to imply that these customers are actively
endorsing or promoting our products and services.
The following are specific examples of how customers use MeetingPlace to
solve their collaboration needs:
. Hewlett-Packard installed its first MeetingPlace servers with a total of
240 ports in January 1996 in its Palo Alto, California facilities. Since
its initial installation, Hewlett-Packard has deployed MeetingPlace as a
standard communications tool. Today, Hewlett-Packard has deployed over 23
MeetingPlace servers with a total of 2,300 ports in the United States,
Asia and Latin America, connected through Hewlett-Packard's virtual
private network. According to Hewlett-Packard, it saved approximately
$300,000 per month in 1998 based on its current
41
<PAGE>
usage of approximately 6 million minutes per month. Hewlett-Packard
continues to adopt new applications for MeetingPlace and is currently
rolling out data conferencing and web integration system-wide.
. Credit Suisse First Boston's parent company, Credit Suisse, initially
rolled out MeetingPlace in January 1995 as a cost effective conferencing
solution to schedule, record and archive intraday conference calls. This
enabled their worldwide sales force and securities traders to communicate
with each other regarding market conditions and investment opportunities.
Since its initial deployment with Credit Suisse, MeetingPlace has been
adopted within divisions of Credit Suisse First Boston in North America,
Europe and Asia to satisfy their conferencing needs. In addition,
MeetingPlace's technology has resolved such issues as ambient noise from
the trading floor and poor audio quality from telephones from various
countries. Conference leaders have greater control over the calls, long
distance connection delays have been eliminated, and participation has
dramatically increased.
. Budget Rent a Car chose MeetingPlace as a vital component of its distance
learning solution. MeetingPlace creates a virtual classroom between three
training labs in Lisle, Illinois, and 127 remote workstation sites across
the United States. MeetingPlace breakout sessions enable paired role-play
exercises and dialog sessions. Sessions are also recorded so that absent
trainees can call into the MeetingPlace system and listen to them at
their convenience. According to Budget, training costs have dropped from
$2,000 to just $156 per trainee, and training penetration has increased
from 60% to 99%.
Marketing and Sales
Marketing. To create awareness, market demand and sales opportunities for
our products, we engage in a number of marketing activities which include
exhibiting products and applications at industry trade shows and on our web
site, direct marketing, advertising in selected publications aimed at targeted
markets, public relations activities with trade and business press and
distribution of sales literature, technical specifications and documentation.
Our marketing efforts focus on educating the significant influencers within
enterprises, targeting IT executives and IT managers to build a business case
and closing on initial deployment applications. In addition, we cultivate
relationships with major network and telecommunications equipment providers,
and we intend to engage in co-marketing activities with enterprise software
providers.
Sales. Our distribution strategy is to sell our products and services to
medium to large businesses with geographically dispersed employees, suppliers,
customers and other constituents. We employ a direct sales force in the United
States as our primary distribution channel to market to these enterprises. As
of March 31, 1999, our direct sales force consisted of 41 sales
representatives located in 15 cities. Latitude uses a consultative sales
approach working closely with customers to understand and define their needs
and determine how they can be addressed by our products and services. This
strategy continues after the initial product implementation, the successful
completion of which is typically a prerequisite to full scale deployment.
While the sales cycle varies from customer to customer, it typically lasts
between six and nine months. See "Risk Factors--Our sales cycle is lengthy and
unpredictable."
In addition to our direct sales force in the United States and the United
Kingdom, we use indirect channels to extend our marketing effort. The indirect
channels consist of resellers that target specific
42
<PAGE>
geographic regions and vertical markets, as well as usage-based resellers who
offer access to MeetingPlace services on a per-minute basis. As of March 31,
1999, we had six domestic resellers and three international resellers. We
intend to grow all of our reseller channels. See "Risk Factors--If we fail to
expand our sales and distribution channels, our business could suffer" and "--
Our ability to expand into international markets is uncertain."
Competition
We compete in a market that is highly competitive and rapidly changing. We
expect competition to persist and intensify in the future. We believe the
principal competitive factors in our market include, or are likely to include,
overall cost of conferencing, product performance and features such as the
ability to integrate voice and data, reliability, ease of use, size of customer
base, quality of service and technical support, sales and distribution
capabilities and strength of brand name. A description of our principal
competitors and the risks associated with the competitive nature of our market
are discussed in greater detail in "Risk Factors--Our market is highly
competitive."
We cannot be certain that we will be able to compete successfully with
existing or new competitors. If we fail to compete successfully against current
or future competitors, our business could suffer.
Patents and Intellectual Property Rights
Our success is heavily dependent upon protecting our proprietary technology.
We rely primarily on a combination of patents, copyright, trademark, trade
secrets, non-disclosure agreements and other contractual provisions to protect
our proprietary rights. As of March 31, 1999, we had four issued U.S. patents
relating to voice processing interfaces, recording and retrieval of audio
conferences, and graphical computer interfaces for teleconference systems. We
cannot be certain that these patents will provide us with any competitive
advantages or will not be challenged, invalidated or circumvented by third
parties or that the patents of others will not have an adverse effect on our
ability to do business. A discussion of risks associated with the protection of
our patents and intellectual property rights and potential infringement by us
of the patents and intellectual property rights of others is presented in "Risk
Factors--We may be unable to adequately protect our proprietary rights, and we
may be subject to infringement claims."
Manufacturing
We currently outsource the manufacturing of all of the subassemblies and
components of the MeetingPlace server to third parties. This strategy allows us
to reduce costly investment in manufacturing capital and to leverage the
expertise of our vendors. Our manufacturing operation consists primarily of
final assembly and testing of fully-configured MeetingPlace servers. Some of
the components and parts used in our products are procured from sole sources,
including the processor and digital signal processing device used in our
MeetingPlace server. We typically obtain components from only one vendor even
where multiple sources are available, to maintain quality control and enhance
the working relationship with suppliers. These purchases are made under
existing contracts or purchase orders. The failure of any sole source suppliers
to deliver on schedule could delay or interrupt our delivery of products and
thereby adversely affect our business. See
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<PAGE>
"Risk Factors--Any interruption in supply of components from outside
manufacturers and suppliers could hinder our ability to ship products in a
timely manner."
Employees
As of March 31, 1999, we had a total of 121 employees, of which 29 were in
research and development, 79 were in sales, marketing and customer support, and
13 were in finance, administration and operations. Our future performance
depends in significant part upon our ability to attract new personnel and the
continued service of existing personnel in key areas including engineering,
technical support and sales. Competition for qualified personnel is intense and
there can be no assurance that we will be successful in attracting or retaining
employees in the future. None of our employees are subject to a collective
bargaining agreement. We consider our relations with our employees to be good.
See "Risk Factors--We may experience difficulties managing our expected growth"
and "--Our business could suffer if we lose the services of our current
management team."
Facilities
We lease approximately 39,000 square feet for our headquarters facility in
Santa Clara, California, which we expect to expand to approximately 51,000
square feet in the second quarter of 1999. The current lease for the Santa
Clara facility expires in December 2000, at which time we have the option to
extend it for an additional five years. We also lease space at eleven other
locations in the U.S. and three internationally. Each of these other offices is
leased on a month-to-month basis or under a lease with a term of 12 months or
less.
Legal Proceedings
We are not currently a party to any material legal proceedings.
44
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table provides certain information with respect to our
executive officers and directors as of December 31, 1998.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Emil C.W. Wang.......... 47 President, Chief Executive Officer and Director
Glenn A. Eaton.......... 36 Vice President, International
Roberta H. Gray......... 47 Vice President, Marketing
Janet A. Gregory........ 46 Vice President, North American Sales
Christopher D. Harvey... 41 Vice President, Customer Support
Rick M. McConnell....... 33 Chief Financial Officer and Vice President, Finance and Administration
Edward D. Tracy......... 39 Vice President, Product Operations
Thomas H. Bredt......... 58 Director
Robert J. Finocchio,
Jr. ................... 47 Director
F. Gibson Myers, Jr. ... 56 Director
James L. Patterson...... 60 Director
</TABLE>
- --------
Mr. Wang, Latitude's founder, has served as our President and Chief
Executive Officer and as a director since our inception in April 1993. Before
founding Latitude, Mr. Wang served in various management positions with Aspect
Telecommunications Corporation, a provider of call center systems. Before
Aspect, Mr. Wang was employed with ROLM Corporation, a manufacturer of PBX
systems, and was a consultant with Bain & Co., a management consulting firm.
Mr. Wang holds a B.S. degree in civil engineering from Princeton University and
an M.S. degree in structural engineering and an M.B.A. degree from Stanford
University.
Mr. Eaton has served as our Vice President, International since January
1999, and previously served as our Vice President, Business Development, from
December 1997 to January 1999, Vice President, Marketing from October 1994 to
December 1997 and Director of Marketing from May 1993 to October 1994. Before
Latitude, Mr. Eaton served in various management positions with Aspect,
including Director of Product Marketing for the Aspect CallCenter from May 1989
to April 1993. Before Aspect, Mr. Eaton was employed with ROLM for six years.
Mr. Eaton holds an B.S. degree in electrical engineering from the Massachusetts
Institute of Technology.
Ms. Gray has served as our Vice President, Marketing since October 1998.
From September 1997 to October 1998, Ms. Gray was Vice President, Strategy and
Business Development at Intrepid Systems, Inc., a provider of retail management
software. From June 1990 to August 1997, she served in various marketing
management positions with SCO, a provider of network computing software,
including Senior Director of Strategic Marketing from August 1996 to August
1997. Before SCO, Ms. Gray was a Market Development Manager with Sun
Microsystems, Inc. from May 1985 to June 1990 and was Director of Software
Engineering from May 1979 to May 1985. Ms. Gray holds a B.S. degree in
mathematical sciences from Stanford University.
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Ms. Gregory has served as our Vice President, North American Sales since
March 1994. From July 1988 to January 1994, Ms. Gregory served in various
management positions with Octel Communications Corporation, a provider of voice
messaging systems, including Director of Marketing for Voice Information
Services, Director of Sales for Voice Information Services and General Manager
for Customer Premises Equipment Sales. Before Octel, Ms. Gregory held various
sales management positions with ROLM from 1980 to 1988. Ms. Gregory holds a
B.A. degree in English from Guilford College.
Mr. Harvey has served as our Vice President, Customer Support since April
1998. From January 1997 to March 1998, Mr. Harvey was an independent consultant
in the field of customer support. From May 1992 to January 1997, he served as
Director of Worldwide Technical Support at Auspex Systems, Inc. a manufacturer
of network file servers. Before Auspex, Mr. Harvey held various management
positions in technical support and systems engineering with Minerva Systems,
Inc., a provider of hardware and software for video compression, and Epoch
Systems, Inc., a provider of optical storage devices. Mr. Harvey holds a B.S.
degree in management from the University of San Francisco and an M.B.A. degree
from Golden Gate University.
Mr. McConnell has served as our Chief Financial Officer and Vice President,
Finance and Administration since December 1998. From January 1994 to November
1998, Mr. McConnell was Chief Financial Officer and Vice President, Finance and
Administration of Storm Technology, Inc., a maker of personal scanners, and
served as Director of Finance and Administration of Storm from June 1992 until
January 1994. From July 1987 to June 1990, Mr. McConnell was employed as a
financial engineer by The First Boston Corporation, predecessor to Credit
Suisse First Boston, a financial services firm. Mr. McConnell holds a B.A.
degree in quantitative economics from Stanford University and an M.B.A. degree
from the Stanford Graduate School of Business.
Mr. Tracy has served as our Vice President, Product Operations since March
1998 and previously served as our Vice President, Product Development, from
December 1996 to March 1998 and Director of Engineering from May 1993 to
December 1996. From January 1986 to May 1993, Mr. Tracy served in various
management positions with Aspect, including Director of Engineering from May
1991 to May 1993. Before Aspect, Mr. Tracy worked with DAVID Systems, Inc., a
telecommunications company, as a designer of voice/data switching PBX systems.
Mr. Tracy holds an Sc.B. degree in engineering from Brown University and an
M.S.E.E. degree in electrical engineering from Stanford University.
Mr. Bredt has served as a director of Latitude since April 1993. Since April
1986, Mr. Bredt has been a general partner and managing director of Menlo
Ventures, a venture capital firm. Mr. Bredt is also a director of Clarify Inc.,
a developer and provider of integrated enterprise front office solutions. Mr.
Bredt holds a B.S.E. degree in science engineering from the University of
Michigan, an M.E.E. degree in electrical engineering from New York University
and a Ph.D. degree in computer science from Stanford University.
Mr. Finocchio has served as a director of Latitude since August 1995. Since
July 1997, Mr. Finocchio has served as Chairman, President and Chief Executive
Officer of Informix Corporation, a provider of information management software.
From December 1988 until May 1997, Mr. Finocchio was employed with 3Com
Corporation, a global data networking company, where he
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held various positions, most recently serving as President, 3Com Systems.
Before his employment with 3Com, Mr. Finocchio held various executive positions
in sales and service with ROLM, most recently as Vice President of ROLM Systems
Marketing. Mr. Finocchio is also a Regent of Santa Clara University. Mr.
Finocchio holds a B.S. degree in economics from Santa Clara University and an
M.B.A. degree from the Harvard Business School.
Mr. Myers has served as a director of Latitude since June 1997. Since 1970,
Mr. Myers has been a general partner or managing director of various entities
associated with Mayfield Fund, a venture capital firm. Mr. Myers also serves as
a director of Spectralink Corporation, a provider of on-premises wireless
telephone systems. Mr. Myers holds a B.A. degree in engineering from Dartmouth
College and an M.B.A. degree from Stanford University.
Mr. Patterson has been a director of Latitude since July 1993. Mr. Patterson
has been an independent consultant since June 1987. Mr. Patterson also serves
as a director of Aspect Telecommunications Corporation. Mr. Patterson holds a
B.S.E.E. degree in electrical engineering from the University of Colorado.
Executive officers are appointed by the board of directors and serve until
their successors are qualified and appointed. There are no family relationships
among any of our directors or officers. Storm filed for Chapter 7 bankruptcy
protection in November 1998 when Mr. McConnell was Storm's Chief Financial
Officer and Vice President, Finance and Administration.
Board Composition
Our bylaws currently provide for a board of directors consisting of five
members. Commencing at the first annual meeting of stockholders following the
annual meeting of stockholders when Latitude shall have had at least 800
stockholders, the board of directors will be divided into three classes, each
serving staggered three-year terms: Class I, whose term will expire at the
first annual meeting of stockholders following the annual meeting of
stockholders when Latitude shall have had at least 800 stockholders; Class II,
whose term will expire at the second annual meeting of stockholders following
the annual meeting of stockholders when Latitude shall have had at least 800
stockholders; and Class III, whose term will expire at the third annual meeting
of stockholders following the annual meeting of stockholders when Latitude
shall have had at least 800 stockholders. As a result, only one class of
directors will be elected at each annual meeting of stockholders of Latitude,
with the other classes continuing for the remainder of their respective terms.
Messrs. Bredt and Myers have been designated as Class I directors; Messrs.
Patterson and Finocchio have been designated as Class II directors; and Mr.
Wang has been designated as a Class III director. These provisions in our
restated certificate of incorporation may have the effect of delaying or
preventing changes in control or management of Latitude. See "Description of
Capital Stock--Anti-Takeover Effects of Delaware Law and Charter Provisions."
Messrs. Bredt and Myers were elected to the board of directors pursuant to a
voting agreement by and among Latitude and certain of its principal
stockholders. This voting agreement will terminate upon completion of this
offering.
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Board Compensation
Except for reimbursement for reasonable travel expenses relating to
attendance at board meetings and the grant of stock options, directors are not
compensated for their services as directors. Directors who are employees of
Latitude are eligible to participate in our 1993 and 1999 Stock Plans and will
be eligible to participate in our employee stock purchase plan. Directors who
are not employees of Latitude will be eligible to participate in our 1999 Stock
Plan and 1999 Directors' Stock Option Plan. See "Stock Plans."
Board Committees
The compensation committee currently consists of Messrs. Myers and
Patterson. The compensation committee reviews and approves the compensation and
benefits for our executive officers, grants stock options under our stock
option plans and makes recommendations to the board of directors regarding such
matters.
The audit committee consists of Messrs. Bredt and Finocchio. The audit
committee makes recommendations to the board of directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by our independent auditors and reviews and
evaluates our audit and control functions.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of Latitude's board of directors
are currently Messrs. Myers and Patterson. Neither Mr. Myers nor Mr. Patterson
has at any time been an officer or employee of Latitude.
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Executive Compensation
Summary Compensation. The following table lists the compensation earned for
services rendered to Latitude in all capacities for the year ended December 31,
1998 by our chief executive officer and the four next most highly compensated
executive officers whose total cash compensation exceeded $100,000 during the
year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------- ------------
Securities
Underlying All Other
Name and Principal Position Salary ($) Bonus ($) Options (#) Compensation($)
--------------------------- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C>
Emil C.W.Wang................ $152,696 $17,348 151,200 $1,242(1)
President and Chief
Executive Officer
Glenn A. Eaton............... 125,108 8,674 46,200 199(2)
Vice President,
International
Janet A. Gregory............. 98,754 92,061 53,700 156(2)
Vice President, North
American Sales
Edward D. Tracy.............. 118,529 26,090 46,200 192(2)
Vice President, Product
Operations
</TABLE>
- --------
(1) Consists of life insurance premiums paid by Latitude and reimbursement for
tax preparation expenses.
(2) Consists of life insurance premiums paid by Latitude.
Under the terms of a bonus plan adopted by the board of directors, our
executive officers will receive performance bonuses in 1999 based on Latitude's
achievement of quarterly revenue targets set by the board of directors.
Option Grants. The following table provides certain information with respect
to stock options granted to each of the executive officers named in the summary
compensation table in the year ended December 31, 1998. In accordance with the
rules of the Securities and Exchange Commission, also shown below is the
potential realizable value over the term of the option, the period from the
grant date to the expiration date, based on assumed rates of stock appreciation
of 5% and 10%, compounded annually. These amounts are based on assumed rates of
appreciation and do not represent our estimate of future stock price. Actual
gains, if any, on stock option exercises will depend on the future performance
of our common stock.
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<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
% of
Total Potential Realizable Value
Number of Options at Assumed Annual Rates
Securities Granted to of Stock Price Appreciation
Underlying Employees Exercise for Option Term
Options in Fiscal Price Expiration ----------------------------
Name Granted(#) Year ($/share) Date 5%($) 10%($)
---- ---------- ---------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Emil C.W. Wang.......... 151,200 14.1% $1.00 1/16/08 $ 95,155 $ 241,179
Glenn A. Eaton.......... 46,200 4.3 1.00 1/16/08 29,075 73,693
Janet A. Gregory........ 53,700 5.0 1.00 1/16/08 33,795 85,657
Edward D. Tracy......... 46,200 4.3 1.00 1/16/08 29,075 73,693
</TABLE>
These stock options, which were granted under the 1993 Stock Plan, become
exercisable at a rate of 1/4 of the total number of shares of common stock
subject to the option on the first anniversary of the date of grant, and 1/48
of the total number of shares each month after the first anniversary, as long
as the optionee remains an employee with, consultant to, or director of
Latitude. On January 8, 1999, the following executive officers were granted
options at an exercise price of $4.33 per share: Mr. Wang, 20,337 shares; Mr.
Eaton, 5,337 shares; Ms. Gregory, 20,337 shares; and Mr. Tracy, 20,337 shares.
The percentage of total options granted to employees in the fiscal year is
based on an aggregate of 1,074,209 shares subject to options granted by
Latitude during the year ended December 31, 1998 to employees of and
consultants to Latitude, including the executive officers named in the summary
compensation table.
The exercise price per share of each option was equal to the fair market
value of our common stock on the date of grant as determined in good faith by
our board of directors on the grant date based upon such factors as the
purchase price paid by investors for shares of Latitude's preferred stock, the
absence of a trading market for Latitude's securities and Latitude's financial
outlook and results of operations.
The potential realizable value is based on the term of the option at its
time of grant, which is ten years, and assumes that the fair market value of
Latitude's common stock on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the appreciated
stock price.
Aggregate Option Exercises and Option Values. The following table provides
summary information concerning the shares of common stock represented by
outstanding stock options held by each of the executive officers named in the
summary compensation table as of December 31, 1998. No options were exercised
by the executive officers named in the summary compensation table during the
year ended December 31, 1998.
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<PAGE>
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options
End(#) at Fiscal Year-End($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Emil C.W. Wang............. 375 152,235 $1,225 $406,875
Glenn A. Eaton............. 375 47,325 1,225 126,875
Janet A. Gregory........... 375 54,825 1,225 146,875
Edward D. Tracy............ 375 47,325 1,225 126,875
</TABLE>
These values are based on the fair market value as of December 31, 1998, as
determined by the board of directors, minus the exercise price, multiplied by
the number of shares underlying the option.
Stock Plans
1993 Stock Plan. Our 1993 Stock Plan provides for the grant of incentive
stock options to employees and nonstatutory stock options and stock purchase
rights to employees, directors and consultants. The purposes of the 1993 Stock
Plan are to attract and retain the best available personnel, to provide
additional incentives to our employees and consultants and to promote the
success of our business.
The 1993 Stock Plan was originally adopted by our board of directors in June
1993 and approved by our stockholders in September 1993. Unless terminated
earlier by the board of directors, the 1993 Stock Plan shall terminate in June
2003. A total of 3,555,000 shares of common stock have been reserved for
issuance under the 1993 Stock Plan. As of March 31, 1999, options to purchase
1,494,624 shares of common stock were outstanding at a weighted average
exercise price of $2.63 per share, 1,975,438 shares had been issued upon
exercise of outstanding options or under restricted stock purchase agreements,
and 84,938 shares remained available for future grant.
The 1993 Stock Plan may be administered by the board of directors or a
committee of the board. The administrator determines the terms of options
granted under the 1993 Stock Plan, including the number of shares subject to
the option, exercise price, term and exercisability. Incentive stock options
granted under the 1993 Stock Plan must have an exercise price equal to at least
100% of the fair market value of the common stock on the date of grant and at
least 110% of the fair market value in the case of options granted to an
employee who holds more than 10% of the total voting power of all classes of
our stock. Nonstatutory stock options granted under the 1993 Stock Plan must
have an exercise price of at least 85% of the fair market value of the common
stock on the date of grant and at least 110% of the fair market value of our
common stock in the case of nonstatutory stock options granted to an optionee
who holds more than 10% of the total voting power of all classes of our stock.
Payment of the exercise price may be made in cash or other forms of
consideration approved by the administrator.
The administrator determines the term of options, which may not exceed 10
years or five years in the case of an option granted to a holder of more than
10% of the total voting power of all classes of our stock. No option may be
transferred by the optionee other than by will or the laws of descent or
distribution. Each option may be exercised during the lifetime of the optionee
only by the optionee.
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<PAGE>
The administrator determines when options become exercisable. Options
granted under the 1993 Stock Plan generally must be exercised within 60 days
after the termination of the optionee's status as an employee, director or
consultant of Latitude, or within 12 months if the termination is due to the
death or disability of the optionee, but in no event later than the expiration
of the option's term. Options granted under the 1993 Stock Plan generally vest
at the rate of 1/4th of the total number of shares subject to the option on the
first anniversary of the date of grant, and 1/48th of the total number of
shares subject to the option each month after the first anniversary.
In addition to stock options, the administrator may issue employees,
directors and consultants stock purchase rights under the 1993 Stock Plan. The
administrator determines the number of shares, price, terms, conditions and
restrictions related to a grant of stock purchase rights. The purchase price of
a stock purchase right granted under the 1993 Stock Plan must be at least 85%
of the fair market value of the shares as of the date of the offer. The period
during which the stock purchase right is held open is determined by the
administrator, but in no case shall the period exceed 30 days. Unless the
administrator determines otherwise, the recipient of a stock purchase right
must execute a restricted stock purchase agreement granting Latitude an option
to repurchase the unvested shares at cost upon termination of the recipient's
relationship with us.
If we merge with or into another corporation, each outstanding option and
stock purchase right may be assumed or an equivalent option or stock purchase
right substituted by the successor corporation. However, if the successor
corporation does not agree to assume or substitute an option or stock purchase
right, then the unvested shares under the option will automatically be
accelerated so that an additional 50% of the total number of unvested shares
will automatically become vested, and any rights of repurchase with respect to
a stock purchase right will automatically terminate with respect to 50% of the
total number of unvested shares. In addition, if the holder of an option or
stock purchase right is an employee and the holder's employment is
involuntarily terminated without cause at any time within 24 months following
our merger with or into another corporation, then, under most circumstances,
the unvested shares under the option will automatically be accelerated so that
an additional 50% of the total number of unvested shares will automatically
become vested, and any rights of repurchase with respect to a stock purchase
right will automatically terminate with respect to 50% of the total number of
unvested shares.
The administrator has the authority to amend or terminate the 1993 Stock
Plan; however, the administrator may not take any action that impairs the
rights of any holder of an outstanding option without the holder's consent. In
addition, stockholder approval is required to increase the number of shares
subject to the 1993 Stock Plan or to change the designation of the class of
persons eligible to be granted options and stock purchase rights.
1999 Stock Plan. Our 1999 Stock Plan was adopted by the board of directors
in February 1999 and was approved by our stockholders in April 1999. A total of
2,700,000 shares of common stock has been reserved for issuance under the 1999
Stock Plan, all of which remain available for future option grants. The
purposes of the 1999 Stock Plan are to attract and retain the best available
personnel to Latitude and to provide additional incentives to our employees and
consultants and to promote the success of our business.
52
<PAGE>
The 1999 Stock Plan provides for the grant of incentive stock options to
employees, including officers and directors, and nonstatutory stock options and
stock purchase rights to employees and consultants, including nonemployee
directors. If not terminated earlier, the 1999 Stock Plan will terminate in
February 2009.
The 1999 Stock Plan may be administered by the board of directors or a
committee of the board. The 1999 Plan is currently administered by the
compensation committee. The administrator determines the terms of options
granted under the 1999 Stock Plan, including the number of shares subject to
the option, exercise price, term and exercisability. In no event, however, may
an individual employee receive option grants or stock purchase rights for more
than 2,700,000 shares under the 1999 Stock Plan in any fiscal year.
The exercise price of all incentive stock options granted under the 1999
Stock Plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of any incentive stock option granted
to an optionee who owns stock representing more than 10% of the total combined
voting power of all classes of outstanding capital stock of Latitude or any
parent or subsidiary corporation of Latitude must equal at least 110% of the
fair market value of the common stock on the date of grant. Generally, the
exercise price of all nonstatutory stock options must equal at least 85% of the
fair market value of the common stock on the date of grant. However, the
exercise price of a nonstatutory stock option granted to an individual who, on
the last day of our most recently completed fiscal year, is our chief executive
officer, or is acting in such capacity, or is one of our four highest
compensated officers, other than our chief executive officer, whose total cash
compensation exceeded $100,000 during the fiscal year, must equal at least 100%
of the fair market value of the common stock on the date of grant. Payment of
the exercise price may be made in cash or other consideration as determined by
the administrator.
The administrator determines the term of options, which may not exceed 10
years or 5 years in the case of an incentive stock option granted to a 10%
stockholder. Generally no option may be transferred by the optionee other than
by will or the laws of descent or distribution. However, the administrator may
in its discretion permit transferability of nonstatutory stock options granted
under the 1999 Stock Plan.
Each option may be exercised during the lifetime of the optionee only by the
optionee or a permitted transferee. The administrator determines when options
become exercisable. Options granted under the 1999 Stock Plan generally become
exercisable at the rate of 1/4th of the total number of shares subject to the
options on the first anniversary of the date of grant, and 1/48th of the total
number of shares subject to the options each month after the first anniversary.
In addition to stock options, the administrator may issue to employees,
directors and consultants stock purchase rights under the 1999 Stock Plan. The
administrator determines the number of shares, price, terms, conditions and
restrictions related to a grant of stock purchase rights. The purchase price of
a stock purchase right granted under the 1999 Stock Plan must be at least 85%
of the fair market value of the shares as of the date of the offer. The period
during which the stock purchase right is held open is determined by the
administrator, but in no case shall this period exceed 30 days. Unless the
administrator determines otherwise, the recipient of a stock purchase right
must execute a restricted stock purchase agreement granting Latitude an option
to repurchase the shares at cost upon termination of the recipient's
relationship with us.
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<PAGE>
If we sell all or substantially all of our assets or merge with another
corporation, then each option and stock purchase right may be assumed or an
equivalent option or stock purchase right substituted by the successor
corporation. However, if the successor corporation does not agree to assume or
substitute an option or stock purchase right, then, the unvested shares under
the option will automatically be accelerated so that an additional 50% of the
total number of unvested shares will automatically become vested, and any
rights of repurchase with respect to the stock purchase right will
automatically terminate with respect to 50% of the total number of unvested
shares. In addition, if the holder of an option or stock purchase right is an
employee and the holder's employment is involuntarily terminated without cause
at any time within 24 months following our merger with or into another
corporation, then, under most circumstances, the unvested shares under the
option will automatically be accelerated so that an additional 50% of the total
number of unvested shares will automatically become vested and any rights of
repurchase with respect to the stock purchase right will automatically
terminate with respect to 50% of the total number of unvested shares. The
administrator has the authority to amend or terminate the 1999 Stock Plan as
long as the amendment or termination does not adversely affect any outstanding
option or stock purchase right and provided that stockholder approval shall be
obtained to the extent it is required by applicable law.
1999 Directors' Stock Option Plan. The 1999 Directors' Stock Option Plan was
adopted by the board of directors in February 1999 and was approved by our
stockholders in April 1999. A total of 250,000 shares of common stock has been
reserved for issuance under the 1999 Directors' Stock Option Plan, all of which
remain available for future grants.
The 1999 Directors' Stock Option Plan provides for the grant of nonstatutory
stock options to nonemployee directors of Latitude. The 1999 Directors' Stock
Option Plan is designed to work automatically without administration; however,
to the extent administration is necessary, it will be performed by the board of
directors. To the extent they arise, it is expected that conflicts of interest
will be addressed by abstention of any interested director from both
deliberations and voting regarding matters in which the director has a personal
interest.
The 1999 Directors' Stock Option Plan provides that each person who is or
becomes a nonemployee director of Latitude will be granted a nonstatutory stock
option to purchase 20,000 shares of common stock on the later of the date on
which the optionee first becomes a nonemployee director of Latitude or the date
of the closing of this offering. Thereafter, on the date of our annual
stockholders meeting each year, each nonemployee director will be granted an
additional option to purchase 5,000 shares of common stock if, on that date, he
or she has served on our board of directors for at least six months.
The 1999 Directors' Stock Option Plan sets neither a maximum nor a minimum
number of shares for which options may be granted to any one nonemployee
director, but does specify the number of shares that may be included in any
grant and the method of making a grant. No option granted under the 1999
Directors' Stock Option Plan is transferable by the optionee other than by will
or the laws of descent or distribution or under a qualified domestic relations
order. Each option is exercisable, during the lifetime of the optionee, only by
the optionee.
The 1999 Directors' Stock Option Plan provides that the first option granted
to a director under this plan shall become exercisable in installments as to
25% of the total number of shares subject to
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<PAGE>
the first option on each of the first, second, third and fourth anniversaries
of the date of grant of the option. Each subsequent option shall become
exercisable in installments as to 50% of the total number of shares on each of
the first and second anniversaries of the date of grant of that option. If a
nonemployee director ceases to serve as a director of Latitude for any reason
other than death or disability, the director may within 90 days after the date
he ceases to be a director of Latitude, exercise options granted under the 1999
Directors' Stock Option Plan to the extent that he was entitled to exercise it
at the date of termination. If the director was not entitled to exercise this
option at the date of termination, or if the director does not exercise the
option within the 90 day period, the option shall terminate. The exercise price
of all stock options granted under the 1999 Directors' Stock Option Plan shall
be equal to the fair market value of a share of our common stock on the date of
grant of the option. Options granted under the 1999 Directors' Stock Option
Plan have a term of ten years.
In the event of the dissolution or liquidation of Latitude, a sale of all or
substantially all of our assets, our merger with or into another corporation or
any other reorganization of Latitude in which more than 50% of the shares of
Latitude entitled to vote are exchanged, each nonemployee director shall have
either (1) a reasonable time within which to exercise the option, including any
part of the option that would not otherwise be exercisable, prior to the
effectiveness of the dissolution, liquidation, sale, merger or reorganization,
at the end of which time the option shall terminate, or (2) the right to
exercise the option, including any part that would not otherwise be
exercisable, or receive a substitute option with comparable terms, as to an
equivalent number of shares of stock of the corporation succeeding Latitude or
acquiring its business by reason of the reorganization. The board of directors
may amend or terminate the 1999 Directors' Stock Option Plan; provided,
however, that no amendment or termination may adversely affect any outstanding
option, and shareholder approval shall be obtained for any amendment as
required by applicable law. If not terminated earlier, the 1999 Directors'
Stock Option Plan will have a term of ten years.
1999 Employee Stock Purchase Plan. Our employee stock purchase plan was
adopted by the board of directors in February 1999 and was approved by our
stockholders in April 1999. A total of 500,000 shares of common stock has been
reserved for issuance under the employee stock purchase plan. The number of
shares reserved for issuance under the employee stock purchase plan will
automatically increase on the first day of each of the fiscal years beginning
in 2000, 2001, 2002, 2003 and 2004 by an amount equal to the lesser of 200,000
shares or one percent of the total shares outstanding on the last day of the
immediately preceding fiscal year.
The employee stock purchase plan, which is intended to qualify under Section
423 of the Code, will be implemented by an offering period commencing on the
date of the closing of this offering and ending on October 31, 1999. Each
subsequent offering period will have a duration of six months. Each offering
period after the first offering period will commence on November 1 and May 1 of
each year. The employee stock purchase plan will be administered by the board
of directors or by a committee appointed by the board.
Employees, including officers and employee directors, of Latitude or of any
majority-owned subsidiary designated by the board, are eligible to participate
in the employee stock purchase plan if they are employed by Latitude or any
subsidiary for at least 20 hours per week and more than five
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<PAGE>
months per year. The employee stock purchase plan permits eligible employees to
purchase common stock through payroll deductions, which may not exceed 15% of
an employee's compensation, at a price equal to the lower of 85% of the fair
market value of our common stock at the beginning or end of the offering
period. The maximum number of shares an employee may purchase during each
offering period is 1,000 shares. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment with Latitude. If not terminated
earlier, the employee stock purchase plan will have a term of 20 years.
The employee stock purchase plan provides that if we merge with or into
another corporation or sell all or substantially all of our assets, each right
to purchase stock under the employee stock purchase plan will be assumed or an
equivalent right substituted by the successor corporation. If the successor
corporation refuses to assume or substitute equivalent rights, the board of
directors may shorten the offering period so that employees' rights to purchase
stock under the employee stock purchase plan are exercised before the merger or
sale of assets. The board of directors has the power to amend or terminate the
employee stock purchase plan as long as this action does not adversely affect
any outstanding rights to purchase stock under this plan. However, the board of
directors may amend or terminate the employee stock purchase plan or an
offering period even if it adversely affects outstanding options in order to
avoid our incurring adverse accounting charges.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as a director except for liability
. for any breach of the director's duty of loyalty to Latitude or to its
stockholders,
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law, or
. for any transaction from which a director derives an improper personal
benefit.
Our bylaws provide that Latitude shall indemnify its directors and executive
officers and may indemnify its officers, employees and other agents to the full
extent permitted by law. We believe that indemnification under our bylaws
covers at least negligence and gross negligence on the part of an indemnified
party. Our bylaws also permit us to advance expenses incurred by an indemnified
party in connection with the defense of any action or proceeding arising out of
the party's status or service as a director, officer, employee or other agent
of Latitude upon an undertaking by the indemnified party to repay these
advances if it is ultimately determined that the party is not entitled to
indemnification.
We have entered into separate indemnification agreements with each of our
directors and officers. These agreements require us to indemnify the director
or officer against expenses, including attorney's fees, judgments, fines and
settlements paid by the individual in connection with any action, suit or
proceeding arising out of the individual's status or service as a director or
officer of Latitude.
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<PAGE>
We are not required to indemnify the individual against liabilities arising
from willful misconduct or conduct that is knowingly fraudulent or deliberately
dishonest. In addition, the indemnification agreements require us to advance
expenses incurred by the individual in connection with any proceeding against
the individual with respect to which he may be entitled to indemnification by
us. We believe that our certificate of incorporation and bylaw provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers. We also maintain directors' and officers'
liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Latitude where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification by these individuals.
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<PAGE>
RELATED PARTY TRANSACTIONS
Stock option grants in the last fiscal year to directors and executive
officers of Latitude are described in this prospectus under the caption
"Management--Executive Compensation."
Since our inception, we have issued, shares of preferred stock in private
placement transactions as follows: an aggregate of 4,762,500 shares of Series A
preferred stock at $0.67 per share in April 1993, an aggregate of 4,030,228
shares of Series B preferred stock at $1.83 per share in June 1994, and an
aggregate of 3,043,499 shares of Series C preferred stock at $2.67 per share in
March 1996. The share and per share data provided elsewhere in this prospectus
and in the table below reflect our reincorporation in Delaware, our three-for-
two stock split and the automatic conversion of our outstanding preferred stock
into common stock upon the completion of this offering. The following table
summarizes the shares of preferred stock purchased by directors and 5%
stockholders of Latitude and persons and entities associated with them in these
private placement transactions:
<TABLE>
<CAPTION>
Series A Series B Series C
Preferred Preferred Preferred
Investor Stock Stock Stock
-------- --------- --------- ---------
<S> <C> <C> <C>
Entities affiliated with Mayfield Fund (F.
Gibson Myers, Jr.)............................. 2,625,000 1,590,909 843,749
Menlo Ventures IV, L.P. (Thomas H. Bredt)....... 1,875,000 1,136,364 1,406,250
James L. Patterson.............................. 109,500 27,000 18,750
Robert J. Finocchio, Jr. ....................... -- 37,500 --
Entities affiliated with Asset Management
Associates..................................... -- 681,819 375,000
Entities affiliated with Canaan Partners........ -- 409,090 375,000
</TABLE>
In the table above, shares held by affiliated persons and entities have been
aggregated. See "Principal Stockholders."
We entered into an Affinity Alliance Agreement with Aspect
Telecommunications Corporation under which we agreed to develop and market
software applications which are compatible with Aspect's products. James L.
Patterson, one of our directors, is a director of Aspect. We also entered into
a co-marketing agreement with Spectralink Corporation under which Spectralink
agreed to market Latitude products. F. Gibson Myers, Jr. is a director of
Spectralink. These agreements are not expected to represent material strategic
relationships.
In April 1999, we granted a stock option to purchase 5,000 shares to the
Entrepreneurs' Foundation, a nonprofit organization of which Mr. Myers is
chairman, in connection with consulting services provided by the Entrepreneurs'
Foundation.
We have entered into indemnification agreements with our officers and
directors which are described in "Management--Limitation of Liability and
Indemnification Matters."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table summarizes information with respect to beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of common stock in this offering, by (a) each person or group of
affiliated persons known by us to own beneficially more than 5% of our
outstanding common stock, (b) each of the executive officers named in the
summary compensation table, (c) each of our directors and (d) all directors and
executive officers of Latitude as a group. As of March 31, 1999, there were
15,581,657 shares of common stock outstanding. To our knowledge and except as
otherwise indicated, we believe that the beneficial owners of the common stock
listed below, based on information furnished by such owners, have sole voting
power and investment power with respect to these shares, subject to community
property laws where applicable. Except as otherwise noted, the following
executive officers, directors and stockholders can be reached at the principal
offices of Latitude.
<TABLE>
<CAPTION>
Percent
Beneficially
Owned(1)
-----------------
Number of Before After
Name and Address Shares Offering Offering
---------------- ---------- -------- --------
<S> <C> <C> <C>
Entities affiliated with Mayfield Fund(1)........ 5,059,658 32.5% 25.2%
2800 Sand Hill Road
Menlo Park, CA 94025
Menlo Ventures IV, L.P........................... 4,417,614 28.4 22.0
3000 Sand Hill Road, Bldg. 4, Ste. 100
Menlo Park, CA 94025
Entities affiliated with Asset Management 1,056,819 6.8 5.3
Associates(2)...................................
2275 E. Bayshore Road, Ste. 150
Palo Alto, CA 94303
Entities affiliated with Canaan Ventures(3)...... 784,090 5.0 3.9
2884 Sand Hill Road, Bldg. 1, Ste. 115
Menlo Park, CA 94025
Emil C.W. Wang(4)................................ 1,104,681 7.1 5.5
Glenn A. Eaton(5)................................ 357,180 2.3 1.8
Edward D. Tracy(6)............................... 285,930 1.8 1.4
Janet A. Gregory(7).............................. 200,680 1.3 1.0
F. Gibson Myers(1)............................... 5,059,658 32.5 25.2
Thomas H. Bredt(8)............................... 4,417,614 28.4 22.0
James L. Patterson(9)............................ 270,549 1.7 1.4
Robert J. Finocchio, Jr. ........................ 97,500 0.6 0.5
All directors and executive officers as a group
(11 persons).................................... 11,793,793 75.2 58.4
</TABLE>
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially owned by
a person includes shares of common stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of March 31, 1999.
The shares issuable pursuant to these options are deemed outstanding for
computing the percentage ownership of the person holding these options but are
not deemed outstanding for the purposes of computing the percentage ownership
of each other person. The number of shares listed in the table above for all
directors and executive officers as a group includes 111,221 shares that are
currently exercisable within 60 days of March 31, 1999.
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<PAGE>
(1) Includes 4,819,801 shares held by Mayfield VII and 239,857 shares held by
Mayfield Associates Fund II. F. Gibson Myers is a director of Latitude and
a general partner of the Mayfield Fund, the general partner of each of
Mayfield VII and Mayfield Associates Fund II. Mr. Myers disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest in these shares.
(2) Includes 681,819 shares held by Asset Management Associates 1989, L.P. and
375,000 shares held by Asset Management Associates 1996, L.P.
(3) Includes 479,863 shares held by Canaan Ventures II Offshore Limited
Partnership and 304,227 shares held by Canaan Ventures II Limited
Partnership.
(4) Includes 1,021,350 shares held by Emil C.W. Wang, 10,800 shares held by Mr.
Wang as Custodian Under UGMA for Kevin E. Wang, 10,800 shares held by Mr.
Wang as Custodian Under UGMA for Brian F. Wang and 10,800 shares held by
Mr. Wang as custodian under UGMA for Katherine E. Wang. Also includes
options to purchase 50,931 shares held by Mr. Wang that are currently
exercisable or exercisable within 60 days of March 31, 1999.
(5) Includes 341,250 shares held by Mr. Eaton and options to purchase 15,930
shares held by Mr. Eaton that are currently exercisable or exercisable
within 60 days of March 31, 1999.
(6) Includes 270,000 shares held by Mr. Tracy and options to purchase 15,930
shares held by Mr. Tracy that are currently exercisable or exercisable
within 60 days from March 31, 1999.
(7) Includes 182,250 shares held by Ms. Gregory and options to purchase 18,430
shares held by Ms. Gregory that are currently exercisable or exercisable
within 60 days of March 31, 1999.
(8) Thomas H. Bredt is a director of Latitude and a general partner and
managing member of Menlo Ventures, the general partner of Menlo Ventures
IV, L.P. Mr. Bredt disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest in these shares.
(9) Includes 155,250 shares held by the Patterson Family Trust u/d/t August 26,
1998, 75,000 shares held by the Patterson Grandchildren's Trust UDT 1/6/98,
James L. Patterson and Pamela L. Patterson Trustees, and 30,300 shares held
by Mr. Patterson. Also, includes options to purchase 9,999 shares that are
currently exercisable or exercisable within 60 days of March 31, 1999. Does
not include 504,546 shares held by Aspect Telecommunications Corporation,
of which Mr. Patterson is a director.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
75,000,000 shares of common stock, and 5,000,000 shares of preferred stock. The
following description is intended to be a summary and does not describe all
provisions of our certificate of incorporation or bylaws or Delaware law
applicable to Latitude. For a more thorough understanding of the terms of our
capital stock, you should refer to our certificate of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus is a part.
Common Stock
As of March 31, 1999, there were 15,581,657 shares of common stock
outstanding that were held of record by approximately 121 stockholders after
giving effect to the conversion of our preferred stock into common stock at a
one-to-one ratio and assuming no exercise or conversion of outstanding
convertible securities after December 31, 1998. Assuming no exercise of the
underwriters' over-allotment option and no exercise or conversion of
outstanding convertible securities after March 31, 1999 and after giving effect
to the sale of the shares of common stock in this offering, there will be
18,581,657 shares of common stock outstanding.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of common stock
are entitled to receive ratably dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for payment of
dividends. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of Latitude, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
rights of any preferred stock then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions available to the common stock. All
outstanding shares of common stock are fully paid and non-assessable.
Preferred Stock
Effective upon the closing of this offering, Latitude will be authorized to
issue 5,000,000 shares of undesignated preferred stock. The board of directors
will have the authority, without action by the stockholders, to issue the
undesignated preferred stock in one or more series, to fix the number of shares
constituting any series and to designate the rights, preferences and privileges
of each series, any or all of which may be greater than the rights of the
common stock. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Latitude without further action
by the stockholders and may adversely affect the voting and other rights of the
holders of common stock. At present, we have no plans to issue any shares of
preferred stock.
Registration Rights of Certain Holders
The holders of 11,970,613 shares of common stock, including 134,386 shares
issuable upon exercise of warrants, or their transferees are entitled to rights
with respect to the registration of these shares under the Securities Act.
These rights are provided under the terms of an agreement between
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<PAGE>
Latitude and the holders of these registrable securities. Subject to the
limitations described in this agreement, the holders of the registrable
securities may require, on two occasions at any time after six months from the
effective date of this offering, that Latitude use its best efforts to register
the registrable securities for public resale. We are obligated to register
these shares only if the proposed aggregate offering price is at least
$2,000,000. In addition, if we register any of our common stock either for our
own account or for the account of other security holders, the holders of
registrable securities are entitled to include their shares of common stock in
the registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in the offering. All fees, costs and expenses of these
registrations must be borne by Latitude and all selling expenses, including
underwriting discounts, selling commissions and stock transfer taxes, relating
to registrable securities must be borne by the holders of the securities being
registered.
Effects of Delaware Anti-Takeover Law and Charter Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless the business combination or the transaction in
which the person became an interested stockholder is approved in a prescribed
manner. Generally, a "business combination" includes a merger, asset or stock
sale or other transaction resulting in a financial benefit to the stockholder,
and an "interested stockholder" is a person who, together with affiliates and
associates, owns, or did own within the prior three years, 15% or more of the
corporation's outstanding voting stock. This provision may have the effect of
delaying, deferring or preventing a change in control of Latitude without
further action by the stockholders.
In addition, upon completion of this offering, provisions of our charter
documents, including a provision eliminating the ability of stockholders to
take actions by written consent, may have the effect of delaying or preventing
changes in control or management of Latitude, which could have an adverse
effect on the market price of our common stock. Our stock option and purchase
plans generally provide for assumption of these plans or substitution of an
equivalent option of a successor corporation or, alternatively, at the
discretion of the board of directors, exercise of some or all of the optioned
stock, including non-vested shares, or acceleration of vesting of shares issued
under stock grants, upon a change of control or similar event.
The board of directors has authority to issue up to 5,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the stockholders. The rights of the holders of the common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock, and thus delay, defer or prevent a change in control
of Latitude. Furthermore, the preferred stock may have other rights, including
economic rights senior to the common stock, and, as a result, the issuance of
the preferred stock could have a material adverse effect on the market value of
the common stock. We have no present plan to issue shares of preferred stock.
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<PAGE>
Commencing at the first annual meeting of stockholders following the time as
Latitude shall have had at least 800 stockholders, the board of directors will
be divided into three classes, each serving staggered three-year terms: Class
I, whose term will expire at the first annual meeting of stockholders following
the annual meeting of stockholders when Latitude shall have had at least 800
stockholders; Class II, whose term will expire at the second annual meeting of
stockholders following the annual meeting of stockholders when Latitude shall
have had at least 800 stockholders; and Class III, whose term will expire at
the third annual meeting of stockholders following the annual meeting of
stockholders when Latitude shall have had at least 800 stockholders. As a
result, only one class of directors will be elected at each annual meeting of
stockholders of Latitude, with the other classes continuing for the remainder
of their respective terms. These provisions in our restated certificate of
incorporation may have the effect of delaying or preventing changes in control
or management of Latitude.
Warrants
As of March 31, 1999, warrants were outstanding to purchase an aggregate of
134,386 shares of common stock at a weighted average exercise price of $1.05
per share. Of these warrants, warrants to purchase an aggregate of 90,750
shares of common stock at a weighted average exercise price of $0.67 per share
will automatically expire upon completion of this offering if they are not
exercised before the completion of this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is U.S. Stock Transfer
Corporation.
Listing
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "LATD."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for the common stock.
We cannot provide any assurances that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
these sales occurring, could adversely affect prevailing market prices for the
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding 18,581,657 shares of common
stock. Of these shares, the 3,000,000 shares to be sold in this offering, or
3,450,000 shares if the underwriters' over-allotment option is exercised in
full, will be freely tradable in the public market without restriction under
the Securities Act, unless these shares are held by our affiliates. As defined
in Rule 144 under the Securities Act, an affiliate of an issuer is a person
who, directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with the issuer.
The remaining 15,581,657 shares outstanding upon completion of this offering
were issued and sold in private transactions in reliance on exemptions from
registration under the Securities Act. These shares may be sold in the public
market only if they are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act, as summarized
below.
Under agreements between our stockholders and either Latitude or the
underwriters, substantially all of the holders of these shares have agreed not
to offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of any of these shares for a period of 180 days from the date of this
prospectus. We also have entered into an agreement with the underwriters that
we will not offer, sell or otherwise dispose of common stock for a period of
180 days from the date of this prospectus. On the date of the expiration of
these agreements, all of these shares will be eligible for immediate sale, of
which 11,682,572 shares held by our affiliates will be subject to volume and
other limitations under Rule 144.
Following the expiration of the 180-day term of these agreements, shares
issued upon exercise of options we granted prior to the date of this prospectus
will also be available for sale in the public market under Rule 701 of the
Securities Act. Rule 701 permits resales of shares in reliance upon Rule 144
under the Securities Act but without compliance with certain restrictions,
including the holding-period requirement, imposed under Rule 144.
In general, under Rule 144 as in effect at the closing of this offering,
beginning 90 days after the date of this prospectus, a person who has
beneficially owned these shares for at least one year, including the holding
period of any prior owner who is not an affiliate of Latitude, would be
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (1) 1% of the then-outstanding shares of common stock
or (2) the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to this sale.
Sales under Rule 144 are also subject to manner of sale and notice requirements
and to the availability of current public information about Latitude.
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Under Rule 144(k), a person who is not deemed to have been an affiliate of
Latitude at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner who is not an affiliate of
Latitude, is entitled to sell these shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register approximately 5,029,562 shares of common
stock reserved for issuance under the 1993 Stock Plan, the 1999 Stock Plan, the
1999 Directors' Stock Option Plan and our employee stock purchase plan. The
registration statement will become effective automatically upon filing. After
the filing of a registration statement on Form S-8, shares issued under these
plans may be sold in the open market, subject to (1) the Rule 144 limitations
applicable to affiliates, (2) vesting restrictions imposed by us and (3) the
agreements described above under which our stockholders have agreed not to sell
or dispose any shares of common stock for a period of 180 days from the date of
this prospectus.
In addition, following this offering, the holders of 11,970,613 shares of
common stock, including 134,386 shares issuable upon exercise of warrants, will
have rights to require us to register their shares for future sale. See
"Description of Capital Stock--Registration Rights."
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement, as amended, on Form S-1 under the Securities Act with respect to the
common stock offered by this prospectus. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information
included in the registration statement. Some information is included in
exhibits to the registration statement as permitted by the rules and
regulations of the Commission. For further information with respect to Latitude
and the common stock offered by this prospectus, reference is made to the
registration statement, including the exhibits to the registration statement,
and the financial statements and notes filed as a part of the registration
statement. Statements made in this prospectus concerning the contents of any
document referred to in the prospectus are not necessarily complete. With
respect to each document filed with the Commission as an exhibit to the
registration statement, reference is made to the exhibit for a more complete
description of the matter involved. The registration statement, including
exhibits to the registration statement and the financial statements and notes
filed as a part of the registration statement, as well as the reports and other
information filed with the Commission, may be inspected without charge at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, NY 10048, and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of all or any part of these documents may be obtained from the
Commission upon payment of certain fees prescribed by the Commission. These
reports and other information may also be inspected without charge at a web
site maintained by the Commission. The address of the web site is
http://www.sec.gov.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist LLC
and Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, are acting
as representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Hambrecht & Quist LLC..............................................
Dain Rauscher Wessels..............................................
---------
Total.......................................................... 3,000,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 450,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per Share Over-allotment Over-allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and
commissions payable by us........ $ $ $
Expenses payable by us............ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and our stockholders have agreed that we and
they will not offer, sell, contract to sell, announce an intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Securities Act relating to, any
additional shares of common stock or securities convertible into or
exchangeable or exercisable
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<PAGE>
for any shares of common stock without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus, except in the case of issuances of common stock upon the exercise
of employee stock options outstanding on the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to 150,000 shares of the common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not purchased will be offered
by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "LATD."
Before this offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between us
and the underwriters. The principal factors to be considered in determining the
public offering price include:
. the information in this prospectus and available to the underwriters;
. the history and the prospects for the industry in which we will compete;
. the ability of our management;
. the prospects for our future earnings;
. the present state of our development and our current financial condition;
. the general condition of the securities markets at the time of this
offering;
. and the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the common stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock originally sold by the
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock to be
higher than it would otherwise be in the absence of these transactions. These
transactions may be effected on The Nasdaq National Market and, if commenced,
may be discontinued at any time.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any Canadian purchaser who
wishes to sell the common stock in Canada must do so satisfying applicable
securities laws which will vary depending on the relevant jurisdiction, and the
purchaser may be required to resell the common stock under available statutory
exemptions or obtain a discretionary exemption from the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
before any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (1) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under these securities laws, (2) where
required by law, that the purchaser is purchasing as principal and not as
agent, and (3) the purchaser has reviewed the text above under "Resale
Restrictions".
Rights of Action Applicable to Ontario Purchasers
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission of rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named in
this document may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or these persons. All or a substantial portion of the assets of
the issuer and these persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or these
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or these persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act of British Columbia
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
68
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for Latitude by Venture Law Group, A Professional Corporation, Menlo Park,
California. Mark A. Medearis, a director of Venture Law Group, is the Secretary
of Latitude. Legal matters in connection with this offering will be passed upon
for the underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. An entity affiliated with Venture Law Group
and directors of Venture Law Group hold an aggregate of 49,398 shares of our
common stock.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1998 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the years ended December 31, 1996, 1997 and 1998 included in this
prospectus and in the related financial statement schedule included elsewhere
in the registration statement, have been included in reliance on the report of
PricewaterhouseCoopers, LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
69
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Latitude Communications, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Latitude Communications, Inc. and its subsidiary at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
San Jose, California
February 24, 1999, except for note 12, as to which the date is April 6, 1999
To the Board of Directors and
Stockholders of Latitude Communications, Inc.
The financial statements included herein have been adjusted to give effect
to the reincorporation of the Company in Delaware and reflect the three for two
stock split as described more fully in Note 12 to the financial statements. The
above report is in the form that will be signed by PricewaterhouseCoopers LLP
upon effectiveness of such reincorporation and stock split assuming that, from
February 24, 1999, to the effective date of such reincorporation, no other
events shall have occurred that would affect the accompanying financial
statements or notes thereto.
/s/ PricewaterhouseCoopers LLP
San Jose, California
April 16, 1999
F-2
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, Pro Forma
------------------ March 31, March 31,
1997 1998 1999 1999
-------- -------- ----------- -------------
(See Note 11)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 3,578 $ 3,982 $ 4,397
Trade accounts receivable, net
of allowance for doubtful
accounts of $147 in 1997, $235
in 1998, and $204 in 1999..... 2,519 5,627 4,642
Inventory...................... 475 688 994
Prepaids and other assets...... 139 420 755
-------- -------- -------
Total current assets......... 6,711 10,717 10,788
Property and equipment, net...... 933 1,017 1,091
Deposits and other long-term
assets.......................... 71 136 500
-------- -------- -------
Total assets................. $ 7,715 $ 11,870 $12,379
======== ======== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............... $ 363 $ 805 $ 726
Accrued expenses............... 1,460 2,089 2,086
Deferred revenue............... 920 2,794 3,016
Current portion of long-term
debt.......................... 467 559 553
-------- -------- -------
Total current liabilities.... 3,210 6,247 6,381
-------- -------- -------
Long-term debt................... 757 838 695
-------- -------- -------
Total liabilities............ 3,967 7,085 7,076
-------- -------- -------
Commitments (Note 6)
Preferred stock, $0.001 par
value:
Authorized: 12,211 shares
Issued and outstanding: 11,836
shares in 1997, 1998 and 1999
and no pro forma shares (Liq-
uidation value of $18,680 at
December 31, 1998 and March
31, 1999) .................... 12 12 12 --
Common stock, $0.001 par value:
Authorized: 27,500 shares
Issued and outstanding: 3,755
shares in 1997, 3,739 shares
in 1998, 3,745 shares in 1999
and 15,582 pro forma shares... 4 4 4 $ 16
Additional paid-in capital....... 19,021 21,362 22,110 22,110
Notes receivable from common
stockholders.................... (187) (165) (144) (144)
Deferred stock compensation...... (74) (2,103) (2,642) (2,642)
Accumulated deficit.............. (15,028) (14,325) (14,037) (14,037)
-------- -------- ------- --------
Total stockholders' equity... 3,748 4,785 5,303 $ 5,303
-------- -------- ------- ========
Total liabilities and
stockholders' equity........ $ 7,715 $ 11,870 $12,379
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the
Years Ended December Three Months
31, Ended March 31,
------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Product...................... $ 5,103 $10,620 $16,506 $3,688 $4,627
Service...................... 943 2,312 4,545 673 1,801
------- ------- ------- ------ ------
Total revenue.............. 6,046 12,932 21,051 4,361 6,428
Cost of revenue:
Product...................... 1,146 2,158 3,182 644 817
Service...................... 1,023 1,805 2,775 601 903
------- ------- ------- ------ ------
Total cost of revenue...... 2,169 3,963 5,957 1,245 1,720
------- ------- ------- ------ ------
Gross profit................... 3,877 8,969 15,094 3,116 4,708
------- ------- ------- ------ ------
Operating expenses:
Research and development..... 2,466 2,213 2,607 605 903
Marketing and sales.......... 4,644 7,845 9,744 1,978 2,868
General and administrative... 1,157 1,115 1,666 410 426
Amortization of deferred
stock compensation.......... -- 2 299 38 195
------- ------- ------- ------ ------
Total operating expenses... 8,267 11,175 14,316 3,031 4,392
------- ------- ------- ------ ------
Income (loss) from operations.. (4,390) (2,206) 778 85 316
Interest income................ 276 177 142 36 43
Interest expense............... (138) (200) (183) (47) (51)
------- ------- ------- ------ ------
Income (loss) before provision
for income tax................ (4,252) (2,229) 737 74 308
Provision for income tax....... -- -- (34) (4) (20)
------- ------- ------- ------ ------
Net income (loss).............. $(4,252) $(2,229) $ 703 $ 70 $ 288
======= ======= ======= ====== ======
Net income (loss) per share--
basic......................... $ (2.02) $ (0.78) $ 0.21 $ 0.02 $ 0.08
======= ======= ======= ====== ======
Shares used in per share
calculation--basic............ 2,110 2,850 3,279 3,166 3,444
======= ======= ======= ====== ======
Net income (loss) per share--
diluted....................... $ (2.02) $ (0.78) $ 0.04 $ 0.00 $ 0.02
======= ======= ======= ====== ======
Shares used in per share
calculation--diluted.......... 2,110 2,850 16,422 15,949 16,767
======= ======= ======= ====== ======
Pro forma net income per
share--basic.................. $ 0.05 $ 0.02
======= ======
Shares used in pro forma per
share calculation--basic...... 15,115 15,280
======= ======
Pro forma net income per
share--diluted................ $ 0.04 $ 0.02
======= ======
Shares used in pro forma per
share calculation--diluted.... 16,422 16,767
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three years in the period ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Preferred Capital Notes
Stock Common Stock in Excess Receivable Deferred
------------- -------------- of from Common Stock Accumulated
Shares Amount Shares Amount Par Value Shareholders Compensation Deficit Total
------ ------ ------ ------ --------- ------------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 8,792 $ 9 3,146 $ 3 $10,676 $(103) -- $ (8,547) $ 2,038
Issuance of Series C
preferred stock, net
of issuance costs of
$7.................... 3,044 3 -- -- 8,104 -- -- -- 8,107
Issuance of common
stock................. -- -- 547 1 134 (114) -- -- 21
Repurchase of common
stock................. -- -- (94) -- (16) 8 -- -- (8)
Net loss............... -- -- -- -- -- -- -- (4,252) (4,252)
------ ---- ----- ---- ------- ----- ------- -------- -------
Balances, December 31,
1996,.................. 11,836 12 3,599 4 18,898 (209) -- (12,799) 5,906
Issuance of common
stock................. -- -- 308 -- 86 (48) -- -- 38
Repurchase of common
stock................. -- -- (152) -- (39) 27 -- -- (12)
Payment of notes
receivable from common
stockholders.......... -- -- -- -- -- 43 -- -- 43
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 76 -- $ (76) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 2 -- 2
Net loss............... -- -- -- -- -- -- -- (2,229) (2,229)
------ ---- ----- ---- ------- ----- ------- -------- -------
Balances, December 31,
1997................... 11,836 12 3,755 4 19,021 (187) (74) (15,028) 3,748
Issuance of common
stock................. -- -- 35 -- 28 (4) -- -- 24
Repurchase of common
stock................. -- -- (51) -- (15) 9 -- -- (6)
Payment of notes
receivable from common
stockholders.......... -- -- -- -- -- 17 -- -- 17
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 2,328 -- (2,328) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 299 -- 299
Net income............. -- -- -- -- -- -- 703 703
------ ---- ----- ---- ------- ----- ------- -------- -------
Balances, December 31,
1998................... 11,836 12 3,739 4 21,362 (165) (2,103) (14,325) 4,785
Issuance of common
stock.................. -- -- 7 -- 14 -- -- -- 14
Repurchase of common
stock.................. -- -- -- -- -- -- -- --
Payment of notes
receivable from common
stockholders........... -- -- -- -- -- 21 -- -- 21
Deferred stock
compensation related to
grants of stock options
and issuance of common
stock.................. -- -- -- -- 734 -- (734) --
Amortization of deferred
stock compensation..... -- -- -- -- -- -- 195 -- 195
Net income.............. -- -- -- -- -- -- -- 288 288
------ ---- ----- ---- ------- ----- ------- -------- -------
Balances, March 31,
1999................... 11,836 $ 12 3,746 $ 4 $22,110 $(144) $(2,642) $(14,037) $ 5,303
====== ==== ===== ==== ======= ===== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LATITUDE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the
Three Months
Years Ended December Ended March
31, 31,
------------------------- --------------
1996 1997 1998 1998 1999
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).................. $(4,252) $(2,229) $ 703 $ 70 $ 288
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..... 528 619 696 145 172
Provision for excess and obsolete
inventory........................ 55 66 149 16 63
Provision for doubtful accounts... 59 56 88 -- --
Amortization of deferred stock
compensation..................... -- 2 299 41 195
Changes in operating assets and
liabilities:
Trade accounts receivable........ (1,038) (1,069) (3,062) (957) 985
Inventory........................ (104) (173) (496) (4) (243)
Prepaids and other assets........ (1) (8) (281) 5 (335)
Accounts payable................. (113) 133 442 465 (79)
Accrued expenses................. 583 471 629 93 (3)
Deferred revenue................. 319 506 1,874 487 222
------- ------- ------- ------ ------
Net cash provided by (used in)
operating activities........... (3,964) (1,626) 1,041 361 1,139
------- ------- ------- ------ ------
Cash flows from investing
activities:
Purchases of property and
equipment......................... (778) (597) (743) (138) (246)
Other.............................. -- -- (37) (52) (364)
------- ------- ------- ------ ------
Net cash used in investing
activities..................... (778) (597) (780) (190) (610)
------- ------- ------- ------ ------
Cash flows from financing
activities:
Deposits and other long-term
assets............................ 13 (15) (65) -- --
Decrease (increase) in restricted
cash.............................. (150) 150 -- -- --
Proceeds from issuance of preferred
stock, net of issuance costs...... 8,107 -- -- -- --
Proceeds from issuance of common
stock............................. 21 38 24 1 14
Proceeds from payment of notes
receivable from common
stockholders...................... -- 43 17 -- 21
Repurchase of common stock......... (8) (12) (6) -- --
Proceeds from issuance of notes
payable........................... 899 527 678 -- --
Repayment of notes payable and
capital lease obligations......... (377) (444) (505) (109) (149)
------- ------- ------- ------ ------
Net cash provided by financing
activities..................... 8,505 287 143 (108) (114)
------- ------- ------- ------ ------
Net increase (decrease) in cash and
cash equivalents................... 3,763 (1,936) 404 63 415
Cash and cash equivalents, beginning
of period.......................... 1,751 5,514 3,578 3,578 3,982
------- ------- ------- ------ ------
Cash and cash equivalents, end of
period............................. $ 5,514 $ 3,578 $ 3,982 $3,641 $4,397
======= ======= ======= ====== ======
Supplemental disclosure of cash flow
information:
Cash payments for interest......... $ 139 $ 193 $ 183 $ 47 $ 51
Supplemental disclosure of noncash
financing information:
Issuance of common stock for notes
receivable from stockholder....... $ 114 $ 48 $ 4 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--FORMATION AND BUSINESS OF THE COMPANY:
Latitude Communications, Inc. (the "Company"), founded in April 1993, is a
leading provider of enterprise-based conferencing systems for geographically
dispersed organizations. The Company develops, markets and supports its
MeetingPlace system, which allows companies to conduct virtual meetings and
thereby extend decision making processes across the disparate geographic
locations of participants. MeetingPlace is designed to be an enterprise-wide
resource and to leverage existing technologies, such as telephones, cellular
phones and personal computers. The Company has distributed its product through
distributors and a direct sales force to companies across many industries in
the United States, Europe and Asia.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements at March 31, 1999 and for
the three months ended March 31, 1998 and 1999, together with the related
notes, are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which, in the opinion of management, are necessary for a
fair presentation, in all material respects, of the financial position and the
operating results and cash flows for the interim date and periods presented.
Results for the interim period ended March 31, 1999 are not necessarily
indicative of results for the entire fiscal year or future periods.
Basis of Consolidation
The consolidated financial statements include the accounts of Latitude
Communications, Inc. and its wholly owned subsidiary (the "Company"). All
significant intercompany balances and transactions have been eliminated.
Accounts denominated in foreign currencies have been remeasured into the
U.S. dollar, the functional currency. Foreign currency gains and losses from
remeasurements, which have been insignificant, are included in the consolidated
statement of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Revenue Recognition
The Company adopted the provisions of Statement of Position 97-2, or SOP 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, effective
January 1, 1998. SOP 97-2 supersedes Statement of Position 91-1, Software
Revenue Recognition, and delineates the accounting for software product,
F-7
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
products including software that is not incidental to the product, and
maintenance revenues. Under SOP 97-2, the Company recognizes product revenues
upon shipment if a signed contract exists, the fee is fixed and determinable,
collection of resulting receivables is probable and product returns are
reasonably estimable. The Company generally does not allow product returns;
however, in the past, upon request by a customer and approval of management,
certain returns have been allowed. Therefore, provision for estimated product
returns are recorded at the time products are shipped.
For contracts with multiple obligations (e.g., deliverable and undeliverable
products, maintenance, installation and other services), revenue is allocated
to each component of the contract based on objective evidence of its fair
value, which is specific to the Company, or for products not being sold
separately, the price established by management. The Company recognizes revenue
allocated to undelivered products when the criteria for product revenue set
forth above are met. The Company recognizes revenue allocated to maintenance
fees, including amounts allocated from product revenue, for ongoing customer
support and product updates ratably over the period of the maintenance
contract. Payments for maintenance fees are generally made in advance and are
non-refundable. For revenue allocated to consulting services, such as
installation and training, the Company recognizes revenues as the related
services are performed.
Prior to the adoption of SOP 97-2, effective January 1, 1998, the Company
recognized revenue from the sale of products upon shipment if remaining
obligations were insignificant and collection of the resulting accounts
receivable was probable. The related estimated cost of product installation and
provisions for estimated product returns were accrued upon shipment. Revenue
from software maintenance contracts, including amounts unbundled from product
sales, were deferred and recognized ratably over the period of the contract.
The Company exchanged two systems and one upgrade for certain services and
licenses which resulted in recognition of $282,000 of revenue in 1997 and
research and development and marketing costs of $109,000 and $173,000,
respectively. The Company exchanged two systems with two customers for certain
marketing services and $81,000 in cash which resulted in the recognition of
$497,000 in revenue in 1998, $95,000 of sales and marketing expense and
$321,000 of prepaid sales and marketing expense. In the three months ended
March 31, 1999, the Company exchanged two systems for certain marketing
services, licenses and related training and consulting and $45,000 in cash
which resulted in recognition of $609,000 of revenue, $404,000 of prepaid sales
and marketing expenses and accounts receivable of $160,000 which will be
satisfied through the provision of licenses, training and consulting to the
Company. The assets and services were transferred between parties at their
estimated fair value.
Financial Instruments
The Company considers all highly liquid investments with an original or
remaining maturity of three months or less at the date of purchase to be cash
equivalents.
Commercial paper totaling $2,183,000 and $1,846,000 at December 31, 1997 and
1998, respectively, is included in cash equivalents and is classified as
available-for-sale. The commercial
F-8
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
paper generally matures in one day and is carried at cost, which equals fair
market value. Realized gains or losses are determined using the specific
identification method. There are no realized gains or losses on the sale of
commercial paper and no unrealized gross holding gains or losses in 1996, 1997
or 1998. There were no sales of commercial paper in 1996, 1997 or 1998.
Amounts reported for cash and cash equivalents, accounts receivable,
accounts payable and other accrued liabilities are considered to approximate
fair value primarily due to their short maturities. Based on borrowing rates
currently available to the Company for loans with similar terms, the carrying
value of its notes payable and capital lease obligations approximate fair
value.
Certain Risks and Concentrations
The Company's cash and cash equivalents as of December 31, 1998 are on
deposit with two U.S. financial institutions.
The Company performs ongoing credit evaluations of its customers, and
collateral is not required. The Company maintains allowances for potential
returns and credit losses, and such returns and losses have generally been
insignificant. At December 31, 1997 and 1998, one customer accounted for 14%
and another customer accounted for 23% of accounts receivable, respectively.
MeetingPlace products and related services have accounted for substantially
all of the Company's revenue to date. The market in which the Company competes
is characterized by rapid technological change, frequent new product
introductions, changes in customer requirements and emerging industry
standards. Significant technological change could adversely affect the
Company's operating results and subject the Company to returns of product and
inventory losses. While the Company has ongoing programs to minimize the
adverse effect of such changes and considers technological change in estimating
its allowances, such estimates could change in the future.
The Company licenses technology that is incorporated into its products from
certain third parties, including certain digital signal processing alogorithms
and the MeetingPlace server's operating system and relational databases. Any
significant interruption in the supply or support of any licensed software
could adversely affect the Company's sales, unless and until the Company can
replace the functionality provided by this licensed software. Because the
Company's products incorporate software developed and maintained by third
parties, the Company depends on such third parties to deliver and support
reliable products, enhance their current products, develop new products on a
timely and cost-effective basis and respond to emerging industry standards and
other technological changes. The failure of these third parties to meet these
criteria could harm the Company's business.
The Company relies on third parties to obtain most of the components of the
MeetingPlace server and integrate it with other standard components, such as
the central processing unit and disk drives. If these third parties are no
longer able to supply and assemble these components or are unable to do so in a
timely manner, the Company may experience substantial delays in shipping its
products and have to invest resources in finding an alternative manufacturer or
manufacture our products internally.
F-9
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, although the Company generally uses standard parts and
components in its products, the Company obtains certain components, including
the processors and digital signal processing devices used in the MeetingPlace
server, from sole source suppliers. In the past, the Company has experienced
problems in obtaining some of these components in a timely manner from these
sources, and it may be unable to continue to obtain an adequate supply of these
components in a timely manner or, if necessary, from alternative sources. If
the Company is unable to obtain sufficient quantities of components or to
locate alternative sources of supply, the Company may experience substantial
delays in shipping its products and incur additional costs to find an
alternative manufacturer or manufacture its products internally.
Inventories
Inventory is stated at the lower of cost or market. Cost is determined on a
standard cost basis which approximates the first in, first out method.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over the shorter of the estimated useful life of three years or the
length of the capital lease for assets acquired under capital leases. Gains and
losses from the disposal of property and equipment are taken into income in the
year of disposition. Repairs and maintenance costs are expensed as incurred.
Depreciation expense for 1996, 1997 and 1998 was $293,000, $537,000 and
$607,000, respectively.
Research and Development Costs
Costs related to research, design and development of products are charged to
research and development expenses as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers provided research and development activities for the related hardware
portion of the product have been completed. Generally, the Company's products
include hardware and software components that are developed concurrently. As a
result, the Company has not capitalized any software development costs to date
as such costs have not been significant.
Income Taxes
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
current tax laws and rates. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
Advertising
The Company expenses advertising costs as they are incurred. Advertising
expense for fiscal year 1996, 1997, and 1998 was $26,000, $19,000 and $115,000,
respectively.
F-10
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
The Company accounts for its stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees" and presents disclosure required by
Statement of Financial Accounting Standard No. 123 ("SFAS No. 123").
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of vested
common shares outstanding for the period. Diluted net income (loss) per share
is computed giving effect to all dilutive potential common shares, including
options, warrants and preferred stock. Options, warrants and preferred stock
were not included in the computation of diluted net loss per share in 1996 and
1997 because the effect would be antidilutive.
A reconciliation of the numerator and denominator used in the calculation of
historical basic and diluted net (income) loss per share follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
For the Three
Month Period
Year Ended December 31, Ended March 31,
------------------------- ---------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Historical net loss per share, basic
and diluted:
Numerator for net income (loss),
basic and diluted................. $(4,252) $(2,229) $703 $ 70 $ 288
------- ------- ------- ------- -------
Denominator for basic earnings per
share:
Weighted average vested common
shares outstanding............... 2,110 2,850 3,279 3,166 3,444
------- ------- ------- ------- -------
Net income (loss) per share basic.. $ (2.02) $ (0.78) $ 0.21 $ 0.02 $ 0.08
======= ======= ======= ======= =======
Denominator for diluted earnings
per share:
Weighted average vested common
shares outstanding............... 2,110 2,850 3,279 3,166 3,444
Effect of dilutive securities:
Nonvested common shares......... 478 611 294
Common stock options............ 727 254 1,073
Warrants........................ 102 87 120
Convertible preferred stock..... 11,836 11,836 11,836
------- ------- ------- ------- -------
Weighted average common and common
equivalent shares................ 2,110 2,850 16,422 15,949 16,767
------- ------- ------- ------- -------
Net income (loss) per share
diluted........................... $ (2.02) $ (0.78) $0.04 $ 0.00 $ 0.02
======= ======= ======= ======= =======
Antidilutive securities not
included in diluted net income
(loss) per share calculation for
the entire year:
Nonvested common shares........... 1,082 647
Common stock options.............. 75
Warrants.......................... 134 134
Convertible preferred stock....... 11,836 11,836
------- ------- ------- ------- -------
13,052 12,692 -- -- --
======= ======= ======= ======= =======
</TABLE>
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for
reporting and display of
F-11
<PAGE>
comprehensive income and its components in a full set of general-purpose
financial statements. There was no difference between the Company's net income
(loss) and its total comprehensive income (loss) for 1996, 1997 and 1998.
Impact of Recently Issued Accounting Standards
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, or SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company is currently evaluating the impact of SOP 98-1
on its financial statements and related disclosures.
In December 1998, AcSEC released Statement of Position 98-9, or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition," with Respect to
Certain Transactions. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence ("VSOE") of the
fair values of all the undelivered elements that are not accounted for by means
of long-term contract accounting, (2) VSOE of fair value does not exist for one
or more of the delivered elements, and (3) all revenue recognition criteria of
SOP 97-2 (other than the requirement for VSOE of the fair value of each
delivered element) are satisfied. The provisions of SOP 98-9 that extend the
deferral of certain paragraphs of SOP 97-2 became effective December 15, 1998.
These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999.
Retroactive application is prohibited. The Company is evaluating the
requirements of SOP 98-9 and the effects, if any, on the Company's current
revenue recognition policies.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. The Company
believes the adoption of SOP 98-5 will not have a material impact on its
results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 133 establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133 will be effective for fiscal
years beginning after June 15, 1999. The Company does not currently hold
derivative instruments or engage in hedging activities.
Reclassifications
Certain amounts in the financial statements have been reclassified to
conform with the current year's presentation. These reclassifications did not
change previously reported stockholders' equity or net loss.
F-12
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3--BALANCE SHEET ACCOUNTS (IN THOUSANDS):
Inventory:
<TABLE>
<CAPTION>
December 31, March 31,
---------------- ---------------
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Raw materials............................... $ 355 $ 359 $ 608
Work in process............................. 3 36 18
Finished goods.............................. 117 293 368
------- ------- -------
$ 475 $ 688 $ 994
======= ======= =======
Property and equipment, net:
<CAPTION>
December 31, March 31,
---------------- ---------------
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Leasehold improvements...................... $ 150 $ 165 $ 166
Computer equipment.......................... 1,943 2,544 2,700
Office equipment............................ 508 635 724
------- ------- -------
2,601 3,344 3,590
------- ------- -------
Less accumulated depreciation and
amortization............................... (1,668) (2,327) (2,499)
------- ------- -------
$ 933 $ 1,017 $ 1,091
======= ======= =======
Accrued expenses:
<CAPTION>
December 31, March 31,
---------------- ---------------
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Accrued commission expense.................. $ 550 $ 544 $ 279
Accrued sales incentives.................... 176 143 84
Accrued vacation............................ 136 227 273
Other....................................... 598 1,175 1,450
------- ------- -------
$ 1,460 $ 2,089 $ 2,086
======= ======= =======
</TABLE>
NOTE 4--LONG-TERM DEBT:
The long-term debt consists of notes payable for the purchase of equipment
under a senior loan and security agreement with a leasing company. Under the
terms of the agreement, the notes, which bear interest in the range from 12.18%
to 16.27%, are collateralized by the underlying equipment and are due in
monthly payments of interest and principal through June 2002.
F-13
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum payments under the notes payable are as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ending December 31,
<S> <C>
1999............................................................. $ 720
2000............................................................. 560
2001............................................................. 281
2002............................................................. 110
------
1,671
Less amount representing interest.................................. (274)
------
1,397
Less current portion............................................... (559)
------
$ 838
======
</TABLE>
NOTE 5--LINE OF CREDIT:
The Company has a line of credit of $2,000,000 with a major U.S. financial
institution, which bears interest at the prime rate, expires July 1999 and is
collateralized by substantially all the Company's assets. Borrowings under the
line of credit are limited to 80% of eligible accounts receivables. The line of
credit contains certain financial covenants, which include maintaining a
minimum quick ratio, minimum total net worth and a maximum debt to total net
worth ratio, and prohibits the payment of dividends without the lenders
consent.
At December 31, 1998, the Company was in compliance with these covenants and
no amounts were outstanding under the line of credit.
NOTE 6--COMMITMENTS:
The Company leases office space under a noncancellable operating lease which
provides for an option to extend for an additional five years and expires in
December 2000. Future annual minimum lease payments under the noncancellable
operating lease are as follows (in thousands):
<TABLE>
<S> <C>
1999.................................................................. $470
2000.................................................................. 493
----
$963
====
</TABLE>
Rent expense was $488,000, $639,000 and $759,000 in 1996, 1997, and 1998,
respectively. On April 1, 1999, the Company leased additional office space
under an amendment to the above operating lease. Future annual minimum lease
payments under this amendment are increased to a total of $614,000 and $645,000
in 1999 and 2000, respectively.
At December 31, 1998, the Company has committed to purchase approximately
$701,000 of raw materials inventory under noncancellable purchase orders.
F-14
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7--STOCKHOLDERS' EQUITY
Convertible Preferred Stock:
The convertible preferred stock comprise the series designated as follows
(in thousands):
<TABLE>
<CAPTION>
Common
Number of Shares
Number of Shares Reserved
Shares Issued and for Liquidation
Authorized Outstanding Conversion Value
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Series A..................... 4,950 4,763 4,763 $ 3,175
Series B..................... 4,074 4,029 4,029 7,389
Series C..................... 3,187 3,044 3,044 8,116
------ ------ ------ -------
12,211 11,836 11,836 $18,680
====== ====== ====== =======
</TABLE>
Each share of Series A, Series B and Series C preferred stock is convertible
into one share of the Company's common stock at the option of the holder at any
time after the date of issuance, subject to adjustments for certain dilutive
issuances of securities, or automatically convertible upon the closing date of
a public offering of the Company's common stock at an aggregate offering price
of not less that $10,000,000 and a price per share of not less than $5.00. The
preferred stockholders also have certain registration rights, the right to one
vote for each share of common stock into which such shares of preferred stock
are convertible and the right, voting as a class, to elect two members of the
Company's Board of Directors.
The Series A, Series B and Series C preferred stock have a liquidation
preference of $0.67, $1.83 and $2.67 per share, respectively, subject to
adjustment for splits or other recapitalizations, plus all declared but unpaid
dividends. If funds are insufficient for full payment of these amounts, the
entire assets and funds of the Company legally available are distributed
ratably among the holders of preferred stock. After the preferred stockholders
have received the full amount to which they are entitled, the remaining assets
shall be distributed ratably to the holders of the common stock.
The holders of Series A, Series B and Series C preferred stock are entitled
to annual noncumulative dividends of $0.07, $0.18 and $0.27, respectively, per
share, when and if declared by the Company's Board of Directors. As of December
31, 1998, no dividends have been declared.
Convertible Preferred Stock Warrants
The Company has issued fully exercisable warrants to purchase 91,000 shares
of Series A preferred stock and 43,000 shares of Series B preferred stock at a
price of $0.67 and $1.83 per share, respectively, which expire in June 2003 and
September 2004, respectively, or with respect to the 91,000 shares of Series A
preferred stock, upon an initial public offering. The Company has reserved
91,000 shares of Series A preferred stock and 44,000 shares of Series B
preferred stock for the exercise of these warrants. The warrants were issued in
conjunction with capital lease obligations and long-term equipment financing
arrangements. The value of the warrants at the date of issuance was not
significant.
F-15
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Founders' Common Stock
The Company has sold 1,770,000 shares of its common stock to founders of the
Company under agreements which provide that if the founders desire to sell or
transfer their shares the Company has the right of first refusal at the then
current fair market value. The Company's right of first refusal terminates upon
initial public offering of the Company's common stock.
1993 Stock Plan
In March 1993, the Company's Board of Directors adopted the 1993 Plan (the
"Plan") and through December 31, 1998 authorized 3,555,000 shares of common
stock for issuance under the Plan. The Plan consists of Stock Purchase Rights
and an Option Grant Program.
Stock Purchase Rights provide for issuance of common stock at not less than
85% of the fair market value of the stock to employees and consultants. The
Plan provides that the Administrator of the Plan shall advise the offeree in
writing of the terms, conditions and restrictions related to the offer.
Restricted stock purchases are subject to the company's right of repurchase at
the employee purchase price upon termination of employment. The right to
repurchase generally lapses 25% one year from the date of purchase and 1/48
each month thereafter. In addition, the Company has a right of first refusal
similar to that for the founders' common stock.
The Option Grant Program provides for grants of incentive stock options to
employees and nonstatutory stock options to employees and consultants. The
exercise price of incentive stock options and nonstatutory stock options
granted under the Plan must be at least 100% and 85%, respectively, of the fair
market value of the shares on the date of grant. Options generally expire ten
years from the date of the grant or such shorter term as may be provided in the
option agreement. Options granted under the Plan typically become exercisable
over a four year period at a rate of 25% after the first year and 1/48 each
month thereafter.
Deferred Stock Compensation
During 1997 and 1998, the Company issued stock purchase rights and options
to certain employees under the 1993 Stock Plan with exercise prices below the
deemed fair market value of the Company's common stock at the date of grant. In
accordance with the requirements of APB 25, the Company has recorded deferred
compensation for the difference between the purchase price of stock issued to
employees under stock purchase rights or the exercise price of the stock
options and the fair market value of the Company's stock at the date of grant.
This deferred compensation is amortized to expense over the period during which
the Company's right to repurchase the stock lapses or options become
exercisable, generally four years. At December 31, 1998, the Company had
recorded deferred compensation related to these options in the total amount of
$2,404,000, of which $2,000, and $299,000 had been amortized to expense during
1997 and 1998. In the three months ended March 31, 1999, additional deferred
compensation of $734,000 and amortization of $195,000 was recorded. Future
compensation expense from options granted through March 31, 1999 is estimated
to be $783,000, $783,000, $781,000, and $489,000 for the years ending December
31, 1999, 2000, 2001, and 2002, respectively.
F-16
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1993 Stock Plan Activity
The activity for the stock purchase rights and stock options are as follows
(in thousands except per share amounts):
<TABLE>
<CAPTION>
Restricted Stock Plan Stock Option Plan
----------------------- -----------------------
Weighted Weighted
Average Average
Purchase Exercise
Number Price Number Price
Shares of Per of Per
Available Shares Share Amount Shares Share Amount
--------- ------ -------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 904 3,146 $0.05 $153
Shares authorized....... 150 -- -- --
Shares purchased........ (547) 547 $0.25 134
Shares repurchased...... 94 (94) $0.17 (16)
------ ----- ----- ----
Balances, December 31,
1996................... 601 3,599 $0.07 271
Shares purchased........ (308) 308 $0.28 86
Shares repurchased...... 152 (152) $0.26 (39)
Options granted......... (75) -- -- 75 $0.39 $ 29
------ ----- ----- ---- ----- ----- ------
Balances, December 31,
1997................... 370 3,755 $0.09 318 75 $0.39 29
Additional shares
reserved............... 1,125 -- -- -- -- --
Shares purchased........ (35) 35 $0.79 28 -- --
Shares repurchased...... 51 (51) $0.27 (15) -- --
Options granted......... (1,315) -- -- -- 1,315 $2.32 3,050
Options cancelled....... 38 -- -- -- (38) $1.47 (55)
------ ----- ----- ---- ----- ----- ------
Balances, December 31,
1998................... 234 3,739 $0.09 $331 1,352 $2.24 $3,024
Shares purchased........ (1) 1 10 8 -- -- --
Shares repurchased...... -- -- -- -- -- --
Options granted......... (174) -- -- -- 174 $5.61 979
Options exercised....... -- -- -- -- (6) $0.91 (6)
Options cancelled....... 27 -- -- -- (27) $2.89 (76)
------ ----- ----- ---- ----- ----- ------
Balances, March 31,
1999................... 86 3,740 $0.09 $339 1,493 $2.63 $3,921
====== ===== ===== ==== ===== ===== ======
</TABLE>
At December 31, 1996, 1997 and 1998, 1,082,000, 647,000 and 325,000 shares
of outstanding common stock, respectively, were subject to the Company's right
of repurchase at weighted average purchase prices of $0.17, $0.24, and $0.27,
respectively. No options were exercisable as of December 31, 1997 and 17,000
were exercisable as of December 31, 1998.
Pro Forma Stock Compensation
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Company's stock
option plan. Had compensation cost been determined based on the fair value at
the grant date for the awards in 1997 and 1998 consistent with the provisions
of SFAS No. 123, the Company's net income (loss) for 1997 and 1998,
respectively, would have been as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -----
<S> <C> <C>
Net income (loss)--as reported............................. $(2,229) $ 703
Net income (loss)--pro forma............................... $(2,238) $ 618
Net income (loss) per share--basic as reported............. $ (0.78) $0.21
Net income (loss) per share--basic pro forma............... $ (0.79) $0.19
Net income (loss) per share--diluted as reported........... $ (0.78) $0.05
Net income (loss) per share--diluted pro forma............. $ (0.79) $0.04
</TABLE>
F-17
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made
each year.
The weighted-average grant date fair value of stock options granted was,
$2.13 and $6.96 common stock option for 1997 and 1998, respectively.
In accordance with the provisions of SFAS 123, the fair value of each stock
option is estimated using the following assumptions for option grants during
1997 and 1998; dividend yield of 0%, volatility of 0%, risk-free interest rates
of between 4.50% to 7.20% at the date of grant and an expected term of five
years.
During 1997 and 1998, stock purchase rights for 27,000 and 35,000 shares of
the Company's common stock, with weighted-average exercise prices of $0.40 and
$0.79 per share and weighted-average fair values of $1.66 and $3.85 per share,
were granted with exercise prices below the estimated market value at the date
of grant.
During 1997 and 1998, options to purchase 71,000 and 1,315,000 shares of the
Company's common stock, with weighted-average exercise prices of $0.41 and
$2.32 per share and weighted-average fair values of $2.10 and $6.19 per share,
were granted with exercise prices below the estimated market value at the date
of grant.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
---------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.27-0.40 66,000 8.95 $0.39 17,000 $0.30
$1.00-1.40 401,000 9.09 1.02 -- --
$1.83-2.80 316,000 9.37 2.07 -- --
$3.27-3.67 569,000 9.86 3.40 -- --
---------- --------- ---- ----- ------ -----
$0.27-3.67 1,352,000 9.47 $2.23 17,000 $0.30
========== ========= ==== ===== ====== =====
</TABLE>
NOTE 8--INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current:
Federal, net of benefit of net operating loss
carryforwards of $246,000 in 1998...................... $-- $-- $17
State, net of benefit of net operating loss
carryforwards of $23,000 in 1998....................... -- -- 17
---- ---- ---
$-- $-- $34
==== ==== ===
</TABLE>
F-18
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1998, income before provision for income taxes consisted of $1,420,000
of income from U.S. operations and $384,000 of loss from foreign operations.
In 1997, loss before provision for income taxes consisted of $1,816,000 of
loss from U.S. operations and $413,000 of loss from foreign operations. In
1996, loss before provision for income tax consisted of $4,252,000 of loss
from U.S. operations.
The Company's effective tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statutory federal income
tax (benefit) rate....... (34.0)% (34.0)% 34.0 %
State taxes net of federal
benefits................. -- -- 4.0
Net operating losses not
benefited................ 34.0 34.0 --
Benefit of net operating
loss carryforwards....... -- -- (39.0)
Alternative minimum tax... -- -- 5.0
Other..................... -- -- 1.0
----- ----- -----
Effective tax rate...... 0.0% 0.0% 5.0%
===== ===== =====
</TABLE>
The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Net operating loss carryforwards........................ $ 2,702 $ 2,728
Research and development credit......................... 817 781
Property and equipment.................................. 243 279
Capitalized research and development for tax purposes... 2,116 1,366
Other................................................... 419 806
------- -------
6,297 5,960
Less valuation allowance................................ (6,297) (5,960)
------- -------
Net deferred tax asset.................................. $ -- $ --
======= =======
</TABLE>
The valuation allowance increased by $890,000 in 1997 and decreased by
$337,000 in 1998.
The Company has placed a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.
Management evaluates on a quarterly basis the recoverability of the deferred
tax asset and the level of the valuation allowance. At such time as it is
determined that it is more likely than not that the deferred tax assets are
realizable, the valuation allowances will be reduced.
At December 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $6,681,000 and $3,632,000, respectively,
available to offset future regular and alternative minimum taxable income. The
Company's federal and state net operating loss carryforwards expire in 2000
through 2012, if not utilized.
At December 31, 1998, the Company had federal and state research and
development and other credits of approximately $524,000 and $390,000,
respectively. The research and development credit carryforwards expire in 2010
through 2018, if not utilized.
F-19
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. If the Company should have an ownership change, as
defined, utilization of the carryforwards could be restricted.
NOTE 9--EMPLOYEE BENEFIT PLANS:
The Company sponsors the Latitude Communications Salary Savings Plan (the
"Plan") which qualifies under Section 401(k) of the Internal Revenue Code. All
employees meeting minimum age requirements are eligible to enroll in the Plan
upon initiating employment. Currently, the Company is not offering an employer
contribution.
NOTE 10--SIGNIFICANT CUSTOMER AND GEOGRAPHIC INFORMATION:
The Company has adopted the Financial Accounting Standards Board's
Statements of Financial Accounting Standards No. 131, or SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information," effective for fiscal
years beginning after December 31, 1997. SFAS 131 supersedes Statement of
Financial Accounting Standards No. 14 or SFAS 14, "Financial Reporting for
Segments of a Business Enterprise." SFAS 131 changes current practice under
SFAS 14 by establishing a new framework on which to base segment reporting and
also requires interim reporting of segment information.
Management uses one measurement of profitability for its business. The
Company markets its products and related services to customers in many
industries in the United States, Europe and Asia.
Revenue and long-lived-asset information by geographic area as of and for
the year ended:
<TABLE>
<CAPTION>
Long-Lived
Revenues Assets
-------- ----------
(in thousands)
<S> <C> <C>
December 31, 1996:
United States........................................ $ 6,046 $ 955
International........................................ -- --
------- ------
Total.............................................. $ 6,046 $ 955
======= ======
December 31, 1997:
United States........................................ $12,493 $ 896
International........................................ 439 37
------- ------
Total.............................................. $12,932 $ 933
======= ======
December 31, 1998:
United States........................................ $19,549 $ 979
International........................................ 1,502 38
------- ------
Total.............................................. $21,051 $1,017
======= ======
</TABLE>
In 1997 and 1998, no customer accounted for more than 10% of total revenue.
In 1996, one customer accounted for 12% of total revenue or $726,000.
F-20
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--UNAUDITED PRO FORMA NET INCOME (LOSS) PER SHARE AND PRO FORMA
STOCKHOLDERS' EQUITY (DEFICIT):
Pro forma basic net income per share has been computed as described in Note
2 and also gives effect to common equivalent shares from preferred stock that
will automatically convert upon the closing of the Company's initial public
offering (using the as-if-converted method).
A reconciliation of the numerator and denominator used in the calculation of
pro forma basic and diluted net income per share follow (in thousands except
per share data):
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1999 1999
------------ ------------
<S> <C> <C>
Pro forma net income per share, basic and diluted:
Net income......................................... $ 703 $ 288
------- -------
Shares used in computing net income per share,
basic............................................. 3,279 3,444
Adjustment to reflect the effect of the assumed
conversion of convertible preferred stock ....... 11,836 11,836
------- -------
Shares used in computing pro forma net income per
share, basic...................................... 15,115 15,280
------- -------
Pro forma net income per share, basic.............. $ 0.05 $ 0.02
------- -------
Shares used in computing net income per share,
diluted........................................... 16,422 16,767
Adjustment to reflect the effect of the assumed
conversion of convertible preferred stock ....... -- --
------- -------
Shares used in computing pro forma net income per
share, diluted.................................... 16,422 16,767
------- -------
Pro forma net income per share, diluted............ $ 0.04 $ 0.02
======= =======
</TABLE>
If the offering contemplated by this Prospectus is consummated, all of the
convertible preferred stock outstanding, as of the closing date will
automatically be converted into an aggregate of approximately 11,836,000 shares
of common stock based on the shares of convertible preferred stock outstanding
at March 31, 1999. Unaudited pro forma stockholders' equity at March 31, 1999,
as adjusted for the conversion of preferred stock, is disclosed on the balance
sheet.
NOTE 12--SUBSEQUENT EVENTS:
On April 6, 1999, the Company authorized the outstanding shares of the
predecessor California Corporation's common stock and all classes of its
preferred stock to be converted automatically into shares of the Delaware
Corporation's common stock and its preferred stock on a three-for-two basis.
All share and per share amounts in the consolidated financial statements have
been restated to reflect the stock split which will be effected upon re-
incorporation of the Company in Delaware. In addition, the Company authorized
an increase in the authorized common stock to 75,000,000 shares, par value
$0.001, and 5,000,000 shares of preferred stock, par value $0.001.
In addition, on April 6, 1999, the Company adopted the 1999 Stock Option
Plan (the "1999 Plan"), the 1999 Directors' Stock Option Plan (the "Directors
Plan") and the 1999 Employee Stock Purchase Plan (the "Purchase Plan").
F-21
<PAGE>
LATITUDE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The 1999 Plan provides for the granting to employees, including officers and
directors, of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") and for the granting to
employees and consultants (including nonemployee directors) of nonstatutory
stock options. If not terminated earlier, the 1999 Plan will terminate in
February 2009. A total of 2,700,000 shares of common stock has been reserved
for issuance under the 1999 Plan, all of which remain available for future
option grants.
The Directors' Plan provides that each person who is or becomes a
nonemployee director of Latitude will be granted a nonstatutory stock option to
purchase 20,000 shares of common stock on the later of the date on which the
optionee first becomes a nonemployee director of Latitude or the date of the
closing of this offering. Thereafter, on the date of the Company's Annual
Stockholders Meeting each year, each nonemployee director will be granted an
additional option to purchase 5,000 shares of common stock if, on such date, he
or she has served on the Company's board of directors for at least six months.
A total of 250,000 shares of common stock has been reserved for issuance under
the Directors' Plan, all of which remain available for future grants.
The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 15% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
the Company's common stock at the beginning or end of the offering period. A
total of 500,000 shares of common stock has been reserved for issuance under
the Purchase Plan.
F-22
<PAGE>
Description of Graphics for Inside Back Cover Pages of Prospectus
<TABLE>
<S> <C>
[Graphic of screen capture showing [Graphic showing photo of MeetingPlace
MeetingPlace scheduling menu on Microsoft server.]
Internet Explorer.]
One or more MeetingPlace servers, in
combination with client software,
provide a complete conferencing solution
for the enterprise.
With MeetingPlace, employees have access to a [Graphic of screen capture showing
virtual meeting through the interface of MeetingTime client software.]
their choice. Simple telephone access for
voice conferencing is available through any
touch tone telephone, while data conferencing
capabilities can be utilized through a
network-connected computer. In addition,
users can schedule and set up meetings on
MeetingPlace through their corporate intranet
site, Latitude's MeetingTime client or their
personal Microsoft Outlook calendar.
[Graphic of screen capture showing
MeetingPlace meeting setup menu.]
</TABLE>
<PAGE>
[Logo of Latitude Appears Here]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Latitude in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee................................................ $ 11,510
NASD filing fee..................................................... 4,640
Nasdaq National Market listing fee.................................. 95,000
Printing and engraving expenses..................................... 200,000
Legal fees and expenses............................................. 350,000
Accounting fees and expenses........................................ 275,000
Blue Sky qualification fees and expenses............................ 2,000
Transfer Agent and Registrar fees................................... 15,000
Miscellaneous fees and expenses..................................... 46,850
----------
Total............................................................. $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act"). The
Registrant's Amended and Restated Certificate of Incorporation provides for
indemnification of its directors and officers to the maximum extent permitted
by the Delaware General Corporation Law and the Registrant's Bylaws provides
for indemnification of its directors, officers, employees and other agents to
the maximum extent permitted by the Delaware General Corporation Law. In
addition, the Registrant has entered into Indemnification Agreements with its
directors and officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require the Company, among
other things, to indemnify its directors against certain liabilities that may
arise by reason of their status or service as directors (other than liabilities
arising from willful misconduct of culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' insurance if available on reasonable
terms. Reference is also made to Section 7 of the Underwriting Agreement
contained in Exhibit 1.1 hereto, indemnifying officers and directors of the
Company against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
(a) Since January 1, 1996, the Registrant has issued and sold (without
payment of any selling commission to any person) the following unregistered
securities:
II-1
<PAGE>
(1) Prior to the completion of this offering, the Registrant intends
to effect a three-for-two stock split of its outstanding common stock
in which every two outstanding shares of common stock will be split
into three shares of common stock.
(2) In March 1996, the Registrant issued and sold shares of Series C
Preferred Stock convertible into an aggregate of 3,043,500 shares of
common stock to a total of 11 investors for an aggregate purchase price
of $8,116,000.
(3) As of December 31, 1998, 1,968,636 shares of common stock had
been issued upon exercise of options or pursuant to restricted stock
purchase agreements and 1,352,496 shares of common stock were issuable
upon exercise of outstanding options under the Registrant's 1993 Stock
Plan.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
The issuance described in Item 15(a)(1) was or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transaction did not involve a "sale" of securities. The issuances described in
Items 15(a)(2) were deemed to be exempt from registration under the Securities
Act in reliance upon Section 4(2) thereof as transactions by an issuer not
involving any public offering. The issuances described in Items 15(a)(3) were
deemed to be exempt from registration under the Securities Act in reliance upon
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. In addition, such
issuances were deemed to be exempt from registration under Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
where affixed to the securities issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this offering.
3.3* Bylaws of the Registrant.
4.1 Form of the Registrant's common stock certificate.
5.1 Opinion of Venture Law Group, a Professional Corporation.
10.1* Form of Indemnification Agreement.
10.2* 1993 Stock Plan, as amended, and forms of stock option agreement and
restricted stock purchase agreement.
10.3* 1999 Stock Plan and forms of stock option agreement and restricted stock
purchase agreement.
10.4+ 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.5* 1999 Directors' Stock Option Plan and form of stock option agreement.
10.6* Warrant To Purchase Series B Preferred Stock.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.7* Amended and Restated Registration Rights Agreement dated March 26,
1996.
10.8+ Lease Agreement dated July 31, 1995 between the Registrant and the
Arrillaga Family Trust and Richard T. Peery Separate Property Trust for
offices at 2121 Tasman Drive, Santa Clara, CA and form of amendment
thereto.
10.9* Senior Loan and Security Agreement dated September 15, 1994 between the
Registrant and Phoenix Leasing Incorporated and amendments thereto.
10.10* Master Equipment Lease dated July 2, 1998 between the Registrant and
Norstan Financial Services, Inc.
10.11* 1999 Executive Incentive Plan between the Registrant and certain
executive officers of the Registrant.
10.12* 1999 Executive Bonus Program.
21* Subsidiaries.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
+Replaces and supersedes prior filed exhibit.
(b) Financial Statement Schedules
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment to Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Santa Clara, State of California, on April 16, 1999.
Latitude Communications, Inc.
/s/ Emil C.W. Wang
By: _________________________________
Emil C.W. Wang,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Emil C.W. Wang President, Chief Executive April 16, 1999
______________________________________ Officer and Director
(Emil C.W. Wang) (Principal Executive
Officer)
/s/ Rick M. McConnell Vice President of Finance April 16, 1999
______________________________________ and Administration and
(Rick M. McConnell) Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Director April 16, 1999
______________________________________
(Thomas H. Bredt)
* Director April 16, 1999
______________________________________
(Robert J. Finocchio, Jr.)
* Director April 16, 1999
______________________________________
(F. Gibson Myers, Jr.)
* Director April 16, 1999
______________________________________
(James L. Patterson)
/s/ Rick M. McConnell
*By: _________________________________
Rick M. McConnell
Attorney in fact
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Latitude Communications, Inc.:
In connection with our audits of the consolidated financial statements of
Latitude Communications, Inc. and subsidiary as of December 31, 1997 and 1998,
and for each of the three years in the period ended December 31, 1998, which
financial statements are included in the Prospectus, we have also audited the
financial statement schedule listed in Item 16 herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 24, 1999
S-1
<PAGE>
Schedule II
Latitude Communications, Inc.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Balance at (Reductions) Balance at
Beginning to Costs and End of
of Period Expenses Write-Offs Period
---------- ------------ ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended December 31,
1996...................... $ 32 $ 59 $-- $ 91
Year ended December 31,
1997...................... 91 56 -- 147
Year ended December 31,
1998...................... 147 88 -- 235
Allowance for excess and
obsolete inventory:
Year ended December 31,
1996...................... $ 25 $ 55 $-- $ 80
Year ended December 31,
1997...................... 80 66 -- 146
Year ended December 31,
1998...................... 146 149 -- 295
Deferred tax asset valuation
allowance:
Year ended December 31,
1996...................... $3,607 $1,800 $-- $5,407
Year ended December 31,
1997...................... 5,407 890 -- 6,297
Year ended December 31,
1998...................... 6,297 (337) -- 5,960
Allowance for returns:
Year ended December 31,
1996...................... $ 86 $ 127 $ $ 213
Year ended December 31,
1997...................... 213 122 (139) 196
Year ended December 31,
1998...................... 196 515 (386) 325
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<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 and effective upon completion of this offering.
3.3* Bylaws of the Registrant.
4.1 Form of the Registrant's common stock certificate.
5.1 Opinion of Venture Law Group, a Professional Corporation.
10.1* Form of Indemnification Agreement.
10.2* 1993 Stock Plan, as amended, and forms of stock option agreement and
restricted stock purchase agreement.
10.3* 1999 Stock Plan and forms of stock option agreement and restricted
stock purchase agreement.
10.4+ 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.5* 1999 Directors' Stock Option Plan and form of stock option agreement.
10.6* Warrant To Purchase Series B Preferred Stock.
10.7* Amended and Restated Registration Rights Agreement dated March 26,
1996.
10.8+ Lease Agreement dated July 31, 1995 between the Registrant and the
Arrillaga Family Trust and Richard T. Peery Separate Property Trust for
offices at 2121 Tasman Drive, Santa Clara, CA and Form of amendment
thereto.
10.9* Senior Loan and Security Agreement dated September 15, 1994 between the
Registrant and Phoenix Leasing Incorporated and amendments thereto.
10.10* Master Equipment Lease dated July 2, 1998 between the Registrant and
Norstan Financial Services, Inc.
10.11* 1999 Executive Incentive Plan between the Registrant and certain
executive officers of the Registrant.
10.12* 1999 Executive Bonus Program.
21* Subsidiaries.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
+Replaces and supersedes prior filed exhibit.
<PAGE>
EXHIBIT 4.1
<TABLE>
<CAPTION>
<S> <C> <C>
COMMON STOCK COMMON STOCK
NUMBER SHARES
[LATITUDE COMMUNICATIONS, INC. LOGO]
CUSIP 518292 10 7
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR
CERTAIN RESTICTIONS
</TABLE>
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$0.001 PAR VALUE, OF
LATITUDE COMMUNICATIONS, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated _________________________
<TABLE>
<CAPTION>
[LATITUDE COMMUNICATIONS, INC. Corporate Seal]
<S> <C>
/s/ Rick McConnell /s/ EMIL WANG
ASSISTANT SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY_______________________________
AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
LATITUDE COMMUNICATIONS, INC.
The Corporation will furnish without charge to each stockholder who so
requests a copy of the powers, designations, preferences and relative,
participating, optional or other special rights to each class of stock or series
thereof, and the qualifications, limitations, or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Trans to Minors Act
survivorship and not as tenants __________________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________________________________
___________________________________________________
____________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
____________________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and appoint
___________________________________________________________________________________________________________________________ Attorney
to transfer the said shares on the books to the within named Corporation with full power of substitution in the premises.
Dated:_____________________________________________
X ______________________________________________________________________________
X ______________________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
____________________________________________________
</TABLE>
<PAGE>
EXHIBIT 5.1
April 16, 1999
Latitude Communications, Inc.
2121 Tasman Drive
Santa Clara, CA 95054
Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1, as amended, filed
by you with the Securities and Exchange Commission on February 25, 1999 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of a total of 3,000,000 shares of your
Common Stock (the "Shares") to be sold to the underwriters as described in the
Registration Statement for resale to the public, including an over-allotment
option to purchase 450,000 shares granted to the underwriters. As your counsel
in connection with this transaction, we have examined the proceedings taken and
are familiar with the proceedings proposed to be taken by you in connection with
the sale and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares when issued and sold in the manner
described in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and in any amendment thereto.
Sincerely,
VENTURE LAW GROUP
A Professional Corporation
/s/ VENTURE LAW GROUP
<PAGE>
EXHIBIT 10.4
LATITUDE COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Latitude Communications, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Latitude Communications, Inc., a Delaware
-------
corporation.
(e) "Compensation" means total cash compensation received by an
------------
Employee from the Company or a Designated Subsidiary. By way of illustration,
but not limitation, Compensation includes regular compensation such as salary,
wages, overtime, shift differentials, bonuses, commissions and incentive
compensation, but excludes relocation, expense reimbursements, tuition or other
reimbursements and income realized as a result of participation in any stock
option, stock purchase, or similar plan of the Company or any Designated
Subsidiary..
(f) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
<PAGE>
(h) "Corporate Transaction" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "Designated Subsidiaries" means the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Offering Date" means the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" means a period of six (6) months commencing on
---------------
May 1 and November 1 of each year, except for the first Offering Period as set
forth in Section 4(a).
(n) "Officer" 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.
(o) "Plan" means this Employee Stock Purchase Plan.
----
(p) "Purchase Date" means the last day of each Offering Period of the
-------------
Plan.
(q) "Purchase Price" means with respect to an Offering Period an
--------------
amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below)
of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower.
(r) "Share" means a share of Common Stock, as adjusted in accordance
-----
with Section 18 of the Plan.
(s) "Subsidiary" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
2
<PAGE>
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by a series of Offering
----------------
Periods of six (6) months' duration, with new Offering Periods commencing on or
about May 1 and November 1 of each year (or at such other time or times as may
be determined by the Board of Directors). The first Offering Period shall
commence on the effective date of the Registration Statement on Form S-1 for the
initial public offering of the Company's Common Stock (the "IPO Date") and
--------
continue until October 31, 1999. The Plan shall continue until terminated in
accordance with Section 19 hereof. The Board of Directors of the Company shall
have the power to change the duration and/or the frequency of Offering Periods
with respect to future offerings without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the
Purchase Date of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than fifteen percent (15%) of such participant's compensation on
each payday during the Offering Period. All payroll deductions made by a
participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
3
<PAGE>
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during the Offering Period
may decrease the rate of his or her Contributions with respect to the Offering
Period by completing and filing with the Company a new subscription agreement
authorizing a change in the payroll deduction rate. The change in rate shall be
effective as of the beginning of the next calendar month following the date of
filing of the new subscription agreement, if the agreement is filed at least ten
(10) business days prior to such date and, if not, as of the beginning of the
next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased during any Offering Period scheduled to end
during the current calendar year to 0%. Payroll deductions shall re-commence at
the rate provided in such participant's subscription agreement at the beginning
of the first Offering Period which is scheduled to end in the following calendar
year, unless terminated by the participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however that the maximum number of
Shares an Employee may purchase during each Offering Period shall be 1,000
shares (subject to any adjustment pursuant to section 19 below,) and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
-----------------
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal. For purposes of the Offering Date under the first
-----------------------
Offering Period under the Plan, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on the Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in
4
<PAGE>
his or her account. No fractional Shares shall be issued. The Shares purchased
upon exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after the Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the Shares purchased upon exercise of
his or her option. Any payroll deductions accumulated in a participant's
account which are not sufficient to purchase a full Share shall be retained in
the participant's account for the subsequent Offering Period, subject to earlier
withdrawal by the participant as provided in Section 10 below. Any other
amounts left over in a participant's account after a Purchase Date shall be
returned to the participant.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
the Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
12. Stock.
-----
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
500,000 Shares, plus an annual increase on the first day of each of the
Company's fiscal years beginning in 2000, 2001,
5
<PAGE>
2002, 2003 and 2004 equal to the lesser of (i) 200,000 Shares, (ii) one percent
(1.00%) of the Shares outstanding on the last day of the immediately preceding
fiscal year, or (iii) such lesser number of Shares as is determined by the
Board. If the Board determines that, on a given Purchase Date, the number of
shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Offering Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Purchase Date, the Board may in
its sole discretion provide (x) that the Company shall make a pro rata
allocation of the Shares of Common Stock available for purchase on such Offering
Date or Purchase Date, as applicable, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Purchase Date, and continue all Offering Periods then in effect, or (y) that the
Company shall make a pro rata allocation of the shares available for purchase on
such Offering Date or Purchase Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Purchase Date, and terminate any or all Offering Periods then in effect
pursuant to Section 19 below. The Company may make pro rata allocation of the
Shares available on the Offering Date of any applicable Offering Period pursuant
to the preceding sentence, notwithstanding any authorization of additional
Shares for issuance under the Plan by the Company's stockholders subsequent to
such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of an
Offering Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
6
<PAGE>
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 14) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
16. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), the maximum number of shares of Common Stock
--------
which may be purchased by a participant in an Offering Period, the number of
shares of Common Stock set forth in Section 12(a) above, and the price per Share
of Common Stock covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock (including any
such change in the number of Shares of Common Stock effected in connection with
a change in domicile of the Company), or any other increase or decrease in the
number of Shares effected without receipt of consideration by the Company;
provided however that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities
7
<PAGE>
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an option.
(b) Corporate Transactions. In the event of a dissolution or
----------------------
liquidation of the Company, the Offering Period then in progress will terminate
immediately prior to the consummation of such action, unless otherwise provided
by the Board. In the event of a Corporate Transaction, each option outstanding
under the Plan shall be assumed or an equivalent option shall be substituted by
the successor corporation or a parent or Subsidiary of such successor
corporation, unless the Board determines, in the exercise of its sole discretion
and in lieu of such assumption or substitution, to shorten the Offering Period
then in progress by setting a new Purchase Date (the "New Purchase Date"). If
-----------------
the Board shortens the Offering Period then in progress in lieu of assumption or
substitution in the event of a Corporate Transaction, the Board will notify each
participant in writing, at least ten (10) days prior to the New Purchase Date,
that the Purchase Date for his or her option has been changed to the New
Purchase Date and that his or her option will be exercised automatically on the
New Purchase Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this Section 18, an
option granted under the Plan shall be deemed to be assumed, without limitation,
if, at the time of issuance of the stock or other consideration upon a Corporate
Transaction, each holder of an option under the Plan would be entitled to
receive upon exercise of the option the same number and kind of shares of stock
or the same amount of property, cash or securities as such holder would have
been entitled to receive upon the occurrence of the transaction if the holder
had been, immediately prior to the transaction, the holder of the number of
Shares of Common Stock covered by the option at such time (after giving effect
to any adjustments in the number of Shares covered by the option as provided for
in this Section 18); provided however that if the consideration received in the
transaction is not solely common stock of the successor corporation or its
parent (as defined in Section 424(e) of the Code), the Board may, with the
consent of the successor corporation, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in Fair Market Value to the per Share
consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 18, no such termination of the Plan may
affect options previously granted, nor may an amendment to the Plan make any
change in any option previously granted which adversely affects the rights of
any participant, provided that the Plan or an Offering Period may be terminated
or amended by the Board by the Board's setting a new
8
<PAGE>
Purchase Date with respect to an Offering Period then in progress if the Board
determines that termination or amendment of the Plan and/or the Offering Period
is in the best interests of the Company and the stockholders or if continuation
of the Plan and/or the Offering Period would cause the Company to incur adverse
accounting charges as a result of a change after the effective date of the Plan
in the generally accepted accounting rules applicable to the Plan. In addition,
to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or
under Section 423 of the Code (or any successor rule or provision or any
applicable law or regulation), the Company shall obtain stockholder approval in
such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
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 Company at the location, or by
the person, designated by the Company 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
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 19.
9
<PAGE>
23. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
10
<PAGE>
LATITUDE COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
NEW ELECTION ______
CHANGE OF ELECTION ______
1. I, ________________________, hereby elect to participate in the
Latitude Communications, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for
----
the Offering Period ______________, ____ to _______________, ____, and subscribe
to purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 15% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can decrease the rate of my Contributions on one occasion only
during an Offering Period by completing and filing a new Subscription Agreement
with such decrease taking effect as of the beginning of the calendar month
following the date of filing of the new Subscription Agreement, if filed at
least ten (10) business days prior to the beginning of such month. Further, I
may change the rate of deductions for future Offering Periods by filing a new
Subscription Agreement, and any such change will be effective as of the
beginning of the next Offering Period. In addition, I acknowledge that, unless
I discontinue my participation in the Plan as provided in Section 10 of the
Plan, my election will continue to be effective for each successive Offering
Period.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "Latitude Communications, Inc. 1999 Employee
Stock Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
_______________________ _____________________________________
(Relationship) (Address)
_____________________________________
8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the Purchase
Date, I will be treated for federal income tax purposes as having received
ordinary compensation income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares on the Purchase Date over
the price which I paid for the shares, regardless of whether I disposed of the
shares at a price less than their fair market value at the Purchase Date. The
remainder of the gain or loss, if any, recognized on such disposition will be
treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
- -----------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
- ------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated to,
- -------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the
2
<PAGE>
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
SIGNATURE: ____________________________
SOCIAL SECURITY #: ____________________
DATE: _________________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
_______________________________________
(Signature)
_______________________________________
(Print name)
3
<PAGE>
LATITUDE COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the Latitude Communications, Inc. 1999 Employee Stock Purchase Plan (the "Plan")
----
for the Offering Period that began on _________ ___, _____. This withdrawal
covers all Contributions credited to my account and is effective on the date
designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated: ___________________ _________________________________________
Signature of Employee
_________________________________________
Social Security Number
<PAGE>
EXHIBIT 10.8
LEASE AGREEMENT
THIS LEASE, made this 31st day of July , 1995 between JOHN ARRILLAGA,
Trustee, or his Successor Trustee, UTA dated 7/20/77 (ARRILLAGA FAMILY TRUST) as
amended, and RICHARD T. PEERY, Trustee, or his Successor Trustee, UTA dated
7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended , hereinafter
called Landlord, and LATITUDE COMMUNICATIONS a California corporation,
hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit
"A", attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
A portion of that certain 51,200+ square foot, two-story building located at
2121 Tasman Drive, Santa Clara,. California 95054, consisting of approximately
39,157+ square feet of space. Said Premises is more particularly shown within
the area outlined in Red on Exhibit A. The entire parcel, of which the Premises
----------
is a part, is shown within the area outlined in Green on Exhibit A attached
---------
hereto. The Premises is leased on an "as-is" basis, and in the improved
configuration as shown in Red on Exhibit B to be attached hereto.
---------
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,
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
coveting 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 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, attorneys' 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 FIVE (5) years (unless
sooner terminated as hereinafter provided) and, subject to Paragraphs 2(B) and
3, shall commence on the 1st day of January , 1996 and end on the 31st day
December, of 2000.
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; Notwithstanding anything to the contrary herein, it is agreed
by the parties hereto, that said Lease shall not commence prior to January 1,
1996 unless any of Tenant's operating personnel occupy any part of the Premises
prior to January 1, 1996; 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 provision that the period of delay, of delivery of the premises
shall not exceed 60 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.
* 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.
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<PAGE>
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 TWO
MILLION TWO HUNDRED THIRTY ONE THOUSAND NINE HUNDRED FORTY NINE AND NO/100
($2,231,949.00) 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 thirty (30). In the event that the term of this Lease for any reason
ends on a date other than the last day of a calendar month, on the first day of
the last calendar month of the term hereof Tenant shall pay to Landlord as rent
for the period from said first day of said last calendar month to and including
the last day of the term hereof that proportion of the monthly rent hereunder
which the number of days between said first day of said last calendar month and
the last day of the term hereof bears to thirty (30).
C. Late Charge. Notwithstanding any other provision of this Lease, if Tenant
is in default in the payment of rental as set forth in this Paragraph 4 when
due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (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 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 (30) days for all
other Additional Rent items after presentation of invoice from Landlord or
Landlord's agent setting forth such Additional Rent and/or (ii) at the option of
Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled 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
refunding 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. Within thirty (30) days after receipt of Landlord's reconciliation, Tenant
shall have the right, at Tenant's sole expense, to audit, at a mutually
convenient time at Landlord's office, Landlord's records relating to the
foregoing expenses. Such audit must be conducted by Tenant or an independent
nationally recognized accounting firm that is not being compensated by Tenant or
other third party on a contingency fee basis. If such audit reveals that
Landlord has overcharged Tenant, the amount overcharged shall be credited to
Tenant's account within thirty (30) days after the audit is concluded.
E. 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 Peery/Arrillaga, File 1504, Box 60000: San Francisco, CA
94160 or to such other person or to such other place as Landlord may from time
to time designate in writing.
* F. Security Deposit. Subject to Paragraph 50, concurrently with Tenant's
execution of this Lease, Tenant shall deposit with Landlord the sum of EIGHTY
TWO THOUSAND TWO HUNDRED TWENTY NINE AND 70/100 ($82,229.70) 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 thc 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.
5. RULES AND REGULATIONS AND COMMON AREA Subject to the terms and conditions
of this Lease and such Rules and Regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees, invitees and customers shall, in
common with other occupants of the 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 from time to time, with or without advance notice, and
all amendments shall be effective upon delivery of a copy to Tenant. Landlord
shall not be responsible to Tenant for the non-performance by any other tenant
or occupant of the 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.
* $41,114.85 due upon Lease execution.
$41,114.85 Promissory Note due January 1, 1997.
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<PAGE>
6. PARKING Tenant shall have the right to use with other tenants or occupants of
the Complex 144 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 144 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.
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 4 D 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 of landscaped areas, lakes,
parking lots. sidewalks, driveways: maintenance, repair and replacement of all
fixtures and electrical, mechanical, and plumbing systems: structural elements
and exterior surfaces of the buildings; salaries and employee benefits of
personnel and payroll taxes applicable thereto; supplies, materials, equipment
and tools; the cost of capital expenditures which have the effect of reducing
operating expenses, provided, however, that in the event Landlord makes such
capital improvements, Landlord shall amortize its investment in said
improvements (together with interest at the rate of fifteen (15%) percent per
annum on the unamortized balance) as an operating expense in accordance with
standard accounting practices, provided, that such amortization is not at a rate
greater than the anticipated savings in the operating expenses.
"Additional Rent" as used herein shall not include Landlord's debt repayments;
interest on charges: expenses directly or indirectly incurred by Landlord for
the benefit of any other tenant; cost for the installation of partitioning or
any other tenant improvements; cost of attracting tenants; depreciation;
interest, or executive salaries.
As Additional Rent and in accordance with paragraph 4 D 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 coverings, 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 shall amortize its investment in said improvements
(together with interest at the rate of fifteen (15%) percent per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate greater
than the anticipated savings in the operating expenses. 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.
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 had 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. Non-floor-to-ceiling cubicles shall be considered 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 ten (l0) days after the filing thereof, at
the cost and expense of Tenant. Any exceptions to the foregoing must he made in
writing and executed by both Landlord and Tenant.
10. TENANT MAINTENANCE. Subject to paragraphs 54 and 55 Tenant shall, at its
sole cost and expense, keep and maintain the Premises (including appurtenances)
and every part thereof in a high standard of maintenance and repair, and in good
and sanitary condition. Tenant's maintenance and repair 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.
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11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED As Additional
Rent and in accordance with paragraph 4 D 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 communication, 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 8:00AM and
6:00PM 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 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 an 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. Tenant may, from time to time, have its staff
and equipment operate on a twenty-four (24) hours-a-day seven (7) days-a-week
schedule, and Tenant shall pay for any extra utilities used by Tenant. Landlord
acknowledges that Tenant may use electrical current up to 220 volts subject to
the terms and conditions of this Paragraph 11.
12. TAXES. A. As Additional Rent and in accordance with Paragraph 4 D 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 Landlords 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.
B. Taxes of 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 amount 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 1213a, 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 insurance with
combined single limit coverage of not less than Two Million Dollars (2,000,000)
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.
Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with all
laws.
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.
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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. of any insurance
organization or company, necessary or the maintenance of reasonable fire and
public liability insurance coveting the Premises. SEE PARAGRAPH 54.
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 hot
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 may
require that Tenant agrees to pay to Landlord, as additional rent, fifty percent
(50%) of all rents or additional consideration provided, however, that for
sharing such excess rent, Tenant shall first be entitled to recover from such
excess rent the amount of any reasonable leasing commissions paid by Tenant to
third parties not affiliated with Tenant received by Tenant from its assignees,
transferees, or subtenants in excess of the rent payable by Tenant to Landlord
hereunder. Tenant shall, by thirty (30) ------- days written notice, advise
Landlord of its intent to assign or transfer Tenant's interest in the Lease or
sublet the Premises or any portion thereof for any portion of the term hereof.
Within thirty (30) days after receipt of said written notice, Landlord may, in
its sole discretion, elect to terminate this Lease as to the portion of the
Premises described in Tenant's notice on the date specified in Tenant's notice
by giving written notice of such election to terminate. If no such notice to
terminate is given to Tenant within said 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 which consent shall not be
unreasonably withheld. A consent of Landlord to one assignment, transfer,
hypothecation, subletting, occupation or use by any other person shall not
release Tenant from any of Tenant's obligations hereunder or be deemed to be a
consent to any subsequent similar or dissimilar assignment, transfer,
hypothecation, subletting, occupation or use by any other person. Any such
assignment, transfer, hypothecation, subletting, occupation or use without such
consent shall be void and shall constitute a breach of this Lease by Tenant and
shall, at the option of Landlord exercised by written notice to Tenant.
terminate this Lease. The Leasehold estate under this Lease shall not, nor shall
any interest therein, be assignable for any purpose by operation of law without
the written consent of Landlord which consent shall not be unreasonably
withheld. As a condition to its consent, Landlord may require Tenant to pay all
expenses in connection with the assignment, and Landlord may require Tenant's
assignee or transferee (or other assignees or transferees) to assume in writing
all of the obligations under this Lease and for Tenant to remain liable to
Landlord under the Lease. SEE PARAGRAPH 56.
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 bankruptcy action or liquidation
action or reorganization action or insolvency action or an assignment of or by
Tenant for the benefit of creditors, or any similar action undertaken by Tenant,
or the insolvency of Tenant, shall, at Landlord's option, constitute a breach of
this Lease by Tenant. If the trustee or receiver appointed to serve during a
bankruptcy, liquidation, reorganization, insolvency or similar action elects to
reject Tenant's unexpired Lease, the trustee or receiver shall notify Landlord
in writing of its election within thirty (30) days after an order for relief in
a liquidation action or within thirty (30) days after the commencement of any
action.
Within thirty (30) days after court approval of the assumption of this Lease,
the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, us used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of Landlord
to refuse to accept an assignment upon commencement of or in connection with a
bankruptcy, liquidation, reorganization or insolvency action or an assignment of
Tenant for the benefit of creditors or other similar act. Nothing contained in
this Lease shall be construed as giving or granting or creating an equity in the
demised Premises to Tenant. In no event shall the leasehold estate under this
Lease, or any interest therein, be assigned by voluntary or involuntary
bankruptcy proceeding without the prior written consent of Landlord. In no event
shall this Lease or any rights or privileges hereunder be an asset of Tenant
under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation made
under this Lease shall constitute a default hereunder by Tenant upon expiration
of the appropriate grace period hereinafter provided. Tenant shall have a period
of five (5) days from the date of written notice from Landlord within which to
cure any default in the payment of rental or adjustment thereto. Tenant shall
have a period of thirty (30) days from the date of written notice from Landlord
within which to cure any other default under this Lease; provided, however, that
if the nature of Tenant's failure is such that more than thirty (30) days is
reasonably required to cure the same, Tenant shall not be in default so long as
Tenant commences performance within such thirty (30) day period and thereafter
prosecutes the same to completion. Upon an uncured default of this Lease by
Tenant, Landlord shall have the following rights and remedies in addition to any
other rights or remedies available to Landlord at law or in equity:
(a). The rights and remedies provided for by California Civil Code Section
1951.2, including but not limited to recovery of the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of rental loss for the same period that Tenant
proves could be reasonably avoided, as computed pursuant to subsection (b) of
said Section 1952.2. 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 rented
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
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<PAGE>
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 panics
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 (it) 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 (it) 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. 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 (except that Tenant may vacate so long as it pays
rent, provides an on-site security guard during normal business hours from
Monday through Friday, and otherwise performs its obligations hereunder) 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 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 that 33 1/3 % of the replacement cost
thereof. Landlord may elect to terminate this Lease, whether the Premises be
injured or not.
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 cost 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 of which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the
portion of the premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business. Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to landlord of its intention so to do, and upon
giving of such notice this lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the rent to be paid
by Tenant shall be in the ratio that the area of the portion of the Premises not
so taken or conveyed bears to the total area of the Premises prior to such
taking.
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. SEE PARAGRAPH 57.
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 the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent
required during the last month of the Lease term.
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29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten (10)
business days' prior written notice to Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is unmodified
and in full force and effect (or. if modified. Mating 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 default, 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 of 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 or shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or releasing
Tenant from any obligation of Tenant hereunder, may. but shall not be 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' FEES.
(A) In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, lot 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 Peery/Arrillaga, 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 coveting the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has tailed 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 and Landlord's
assets:
(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 judgment 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) no writ of execution will ever be levied against the assets of any
partner of Landlord:
(viii) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.
Page 7 of 8
<PAGE>
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 heir, 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,
administration, 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
obligations of Tenant hereunder are joint and several. The paragraph headings
of this Lease are for convenience of reference only and shall have no effect
upon the construction or interpretation of any 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 properly 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 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. Tenant shall not place anything or allow anything to be placed
near the glass of any window, door partition or wall which may appear
unsightly from outside the Premises.
Subject to approval by the City of Santa Clara, Landlord shall install, at
Landlord's cost and expense, a monument on the berm, in a location to be
selected by Landlord, and Tenant may use up to 76% of said monument for its
sign. In the event Tenant leases 100% of said building, Tenant may use 100%
of said monument for its sign. Tenant shall pay for all costs and expenses
related to the installation of its sign and the eventual removal thereof.
IN WITNESS WHEREOF. Landlord and Tenant have executed and delivered this Lease
as of the day and year last written below.
LANDLORD: TENANT:
ARRILLAGA FAMILY TRUST LATITUDE COMMUNICATIONS,
a California corporation
By /s/ John Arrillaga By /s/ Emil Wang
------------------------------------- --------------------------
John Arrillaga, Trustee
Dated: 8/24/95 Title PRESIDENT & CEO
---------------------------------- ----------------------
RICHARD T. PEERY SEPARATE PROPERTY TRUST
Type or Print Name EMIL WANG
---------
BY /s/ Richard T. Peery Dated: 8/24/95
-------------------------------------- ----------------------
Richard T. Peery, Trustee
Dated: 8/30/95
----------------------------------
<PAGE>
Paragraphs 43 through 58 to Lease Agreement Dated July 31, 1995, By and Between
the Arrillaga Family Trust and the Richard T. Peery Separate Property Trust, as
Landlord, and LATITUDE COMMUNICATIONS, a California corporation, as Tenant for
39,157+ Square Feet of Space Located at 2121 Tasman Drive, Santa Clara,
California.
43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum
---------
of TWO MILLION TWO HUNDRED THIRTY ONE THOUSAND NINE HUNDRED FORTY NINE AND
NO/100 DOLLARS ($2,231,949.00), shall be payable as follows:
On January 1, 1996, the sum of THIRTY THREE THOUSAND TWO HUNDRED EIGHTY
THREE AND 45/100 DOLLARS ($33,283.45) shall be due, and a like sum due on the
first day of each month thereafter, through and including December 1, 1996.
On January 1, 1997, the sum of THIRTY FIVE THOUSAND TWO HUNDRED FORTY ONE
AND 30/100 DOLLARS ($35,241.30) shall be due, and a like sum due on the first
day of each month thereafter, through and including December 1, 1997.
On January 1, 1998, the sum of THIRTY SEVEN THOUSAND ONE HUNDRED NINETY
NINE AND 15/100 DOLLARS ($37,199.15) shall be due, and a like sum due on the
first day of each month thereafter, through and including December 1, 1998.
On January 1, 1999, the sum of THIRTY NINE THOUSAND ONE HUNDRED FIFTY SEVEN
AND NO/100 DOLLARS ($39,157.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including December 1, 1999.
On January 1, 2000, the sum of FORTY ONE THOUSAND ONE HUNDRED FOURTEEN AND
85/100 DOLLARS ($41,114.85) shall be due, and a like sum due on the first day of
each month thereafter, through and including December 1, 2000; or until the
entire aggregate sum of TWO MILLION TWO HUNDRED THIRTY ONE THOUSAND NINE HUNDRED
FORTY NINE AND NO/100 DOLLARS ($2,231,949.00) has been paid.
44. EARLY ENTRY: Subject to the provisions of Paragraph 47, ("Tenant Interior
-----------
Improvements") Tenant and its agents and contractors shall be permitted to enter
the Premises prior to the Commencement Date for the purpose of installing at
Tenant's sole cost and expense, Tenant's trade fixtures and equipment, telephone
equipment, security systems and cabling for computers. Such entry shall be
subject to all of the terms and conditions of this Lease, except that Tenant
shall not be required to pay any Rent on account thereof. Any entry or
installation work by Tenant and its agents in the Premises pursuant to this
Paragraph 44 shall (i) be undertaken at Tenant's sole risk, (ii) not interfere
---------
with or delay Landlord's work in the Premises (if any), and (iii) not be deemed
occupancy or possession of the Premises for purposes of the Lease. Tenant shall
indemnify, defend, and hold Landlord harmless From any and all loss, damage,
liability, expense (including reasonable attorney's fees), claim or demand of
whatsoever character, direct or consequential, including, but without limiting
thereby the generality of the foregoing, injury to or death of persons and
damage to or loss of property arising out of the exercise by Tenant of any early
entry right granted hereunder. In the event Tenant's work in said Premises
delays the completion of the interior improvements to be provided by Landlord,
if any, or in the event Tenant has not completed construction of it's interior
improvements by the scheduled Commencement Date, it is agreed between the
parties that this Lease will commence on the scheduled Commencement Date of
January 1, 1996 regardless of the construction status of said interior
improvements completed or to be completed by Tenant or Landlord. Landlord and
Tenant acknowledge that the date on which Tenant's obligation to pay Rent under
the Lease would otherwise commence may be delayed because of a delay in
completion of construction of the Tenant Improvements due to (i) any act by
Tenant which interferes with or delays construction of the Tenant Improvements,
including Tenant's entry to install trade fixtures pursuant to Paragraph 44
hereof, (ii) any changes, modifications and/or additions in the Tenant
Improvements requested by Tenant and approved by Landlord, or (iii) special
materials or equipment ordered or specified by Tenant that cannot be obtained by
Landlord at normal cost within a reasonable period of time because of limited
availability. It is the intent of the parties hereto that the commencement of
Tenant's obligation to pay Rent under the Lease not be delayed by any of such
causes or by any other act of Tenant (except as expressly provided herein) and,
in the event it is so delayed, Tenant's obligation to pay Rent under the Lease
shall commence as of the date it would otherwise have commenced absent delay
caused by Tenant.
Page 9
<PAGE>
45. EARLY OCCUPANCY: Notwithstanding anything to the contrary in this Lease, in
---------------
the event the Premises leased hereunder become available for Tenant's use and
occupancy prior to the scheduled Commencement Date hereof, Tenant shall have the
right to occupy the Premises as of the date Landlord so completes said Premises
for Tenant's use and occupancy. This Lease shall commence and Tenant shall pay
to Landlord, effective as of the data Premises are delivered to Tenant, all
Additional Rent expenses which are Tenant's responsibility hereunder (however,
Tenant shall not be responsible for paying Basic Rent during the early occupancy
period), and Tenant shall be obligated to perform, and be bound by, each and
every term, covenant, and condition of this Lease. In the event Tenant occupies
the Premises prior to January 1, 1996, the Term of this Lease will be extended
to include the early occupancy period (i.e. If Tenant occupies said space on
December 1, 1995, the Lease Term will be extended for one month from a five year
Term to a five year one month Term).
46. "AS-IS" BASIS: Subject only to Paragraphs 47, 54 and 55, and to Landlord
------------
making the improvements shown on Exhibit B to be attached hereto, it is hereby
---------
agreed that the Premises leased hereunder is leased strictly on an "as-is" basis
and in its present condition, and in the configuration as shown on Exhibit B to
---------
be attached hereto, and by reference made a part hereof. Except as noted herein,
it is specifically agreed between the parties that after Landlord makes the
interior improvements as shown on Exhibit B, Landlord shall not be required to
---------
make, nor be responsible for any cost, in connection with any repair,
restoration, and/or improvement to the Premises in order for this Lease to
commence, or thereafter, throughout the Term of this Lease. Landlord makes no
warranty or representation of any kind or nature whatsoever as to the condition
or repair of the Premises, nor as to the use or occupancy which may be made
thereof.
47. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and expense,
----------------------------
construct certain interior improvements (the "Tenant Improvements") in the
Premises, as shown on Exhibit B to be attached to the Lease and Landlord agrees
---------
to deliver the Premises leased hereunder to Tenant, at Landlord's expense, in
the configuration shown in Red on Exhibit B to be attached hereto.
---------
Notwithstanding anything to the contrary above, it is specifically understood
and agreed that Landlord shall be required to furnish only a standard air
conditioning/heating system, normal electrical outlets, standard fire sprinkler
systems, standard bathroom, standard lobby, 2'x 4' suspended acoustical tile
drop ceiling throughout the entire space leased, carpeting and/or vinyl-coated
floor tile, and standard office partitions and doors, as shown on Exhibit B to
---------
be attached hereto; provided however, that any special HVAC and/or plumbing
and/or electrical requirements over and above that normally supplied by Landlord
shall be 100 percent the responsibility of and be paid for 100 percent by
Tenant.
Notwithstanding anything to the contrary, it is agreed that in the event Tenant
makes changes, additions, or modifications to the plans and specifications to be
constructed by Landlord as set forth herein, or improvements are installed for
Tenant in excess of those to be provided Tenant by Landlord as set forth on
Exhibit B, any increased cost(s) resulting from said changes, additions, and/or
- ---------
modifications and/or improvements in excess of those to be provided Tenant shall
be contracted for with Landlord and paid for one hundred percent (100%) by
Tenant.
The interior shall be constructed in accordance with Exhibit B of the Lease, it
---------
being agreed, however, that if the interior improvements 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 forty five (45) days after the Commencement Date to provide
Landlord with a "punch list" pertaining to Landlord's work With respect to
Tenants interior improvements. As soon as reasonably possible thereafter,
Landlord, or one of Landlord's representatives (if so approved by Landlord), and
Tenant shall conduct a joint walk-through of the Premises (if Landlord so
requires), and inspect such Tenant Improvements, using their best efforts to
agree on the incomplete or defective construction related to the Tenant
Improvements 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
Page 10
<PAGE>
by Landlord (but which shall exclude any damage or defects caused by Tenant, its
employees, agents or parties Tenant has contracted with to work on the
Premises). Landlord shall have thirty (30) days thereafter (or longer if
necessary, provided Landlord is diligently pursuing the completion of the same)
to complete, at Landlord's expense, the repairs on the "punch list" without the
Commencement Date of the Lease and Tenant's obligation to pay Rental thereunder
being affected. This Paragraph shall be of no force and effect if Tenant shall
fail to give any such notice to Landlord within thirty (30) days after the
Commencement Date of this Lease.
48. OPTION TO EXTEND LEASE FOR FIVE (5) YEARS: Provided Tenant is not in
-----------------------------------------
default (pursuant to Paragraph 22 of the Lease, i.e., Tenant has received notice
----
and any applicable cure period has expired without cure) of any of the terms,
covenants, and conditions of this Lease Agreement, Landlord hereby grants to
Tenant an Option to Extend this Lease Agreement for an additional five (5) year
period (the "Extended Term") upon the following terms and conditions:
A. Tenant shall give Landlord written notice of Tenant's exercise of this
Option to Extend not later than six (6) months prior to the scheduled Lease
Termination Date, which Termination Date is currently projected to be December
31, 2000, in which event the Lease shall be considered extended for an
additional five (5) years upon the same terms and conditions, absent this
Paragraph 48, and subject to the Basic Rental set forth below. In the event that
Tenant fails to timely exercise Tenant's option as set forth herein in writing,
Tenant shall have no further Option to Extend this Lease, and this Lease shall
continue in full force and effect for the full remaining term hereof, absent of
this Paragraph 48.
B. The following summarizes the per square foot charge by period under the
Lease Agreement that would be applied to the Extended Term:
<TABLE>
<CAPTION>
Extended Monthly
Term Period PSF Rate Basic Rental
----------- -------- ------------
<S> <C> <C>
01/01/01-12/31/01 $1.10 $43,072.70
01/01/02-12/31/02 $1.15 $45,030.55
01/01/03-12/31/03 $1.20 $46,988.40
01/01/04-12/31/04 $1.25 $48,946.25
01/01/05-12/31/05 $1.30 $50,904.10
</TABLE>
C. The option rights of Tenant under this Paragraph 48, and the Extended
Term thereunder, are granted for Tenant's personal benefit and may not be
assigned or transferred by Tenant, except to a parent corporation, subsidiary
corporation, or corporation with which Tenant merges or consolidates or to whom
Tenant sells all or substantially all of its assets as provided for in Paragraph
56, either voluntarily or by operation of law, in any manner whatsoever. In the
event that Landlord consents to a sublease or assignment under Paragraph 19, the
option granted herein and any Extended Term thereunder shall be Void and of no
force and effect, whether or not Tenant shall have purported to exercise such
option prior to such assignment or sublease.
D. INCREASED SECURITY DEPOSIT: In the event the Term of Tenant's Lease is
--------------------------
extended pursuant to this Paragraph 48, Tenant's Security Deposit shall be
increased to equal twice the Basic Rental due for the last month of the Extended
Term (i.e. $50,904.10 per month X 2 = $101,808.20).
49. FIRST RIGHT OF REFUSAL: Beginning with the thirty-sixth month of the Lease
----------------------
Term, and provided Tenant is not in default in any of the terms, covenants, and
conditions of this Lease Agreement, Tenant, during the Term of this Lease and
subject to the provisions hereinafter contained, shall have the First Right of
Refusal to lease approximately 12,043+ square feet of space as shown in Blue on
the attached Exhibit C, consisting of the remaining space on the first floor in
---------
the building in which the Leased Premises are located (hereinafter referred to
as "First Right Space") upon the following terms and conditions:
A. It is understood that said First Right Space is, as of the date of
this Lease, vacant and unleased. Landlord agrees that, after the thirty-sixth
month of the Lease Term, in the event Landlord receives an offer to lease said
First Right Space from a third party, rental and upon terms and conditions which
are satisfactory to Landlord, Landlord shall, prior to executing a lease
agreement with a third party for said First Right Space, offer said First Right
Page 11
<PAGE>
Space to Tenant at the same Basic Rent per square foot rate as scheduled in this
Lease Agreement dated July 3l, 1995, as amended, between Landlord and Tenant,
and upon the same terms, covenants, and conditions outlined in this Lease
Agreement between Landlord and Tenant. If said third party lease offer is for a
period which extends beyond this Tenant's Lease Termination Date, Landlord shall
have the right to require Tenant's Lease Term be extended to coincide with the
termination of said third party lease, in which case Tenant's Basic Rent per
square foot rate shall be increased by $.05 per square foot on an annual basis,
commencing with the extended term or, Landlord may elect, at its sole and
absolute discretion, not to extend Tenant's Term. Tenant shall have five (5)
business days after receipt of said rental and terms and conditions in which to
accept said rental and terms and conditions in writing. In the event Tenant
rejects or fails to accept said rent, terms, and conditions and execute a lease
agreement for said First Right Space at the rental and upon the terms and
conditions so presented by Landlord within said five (5) business day period,
Tenant shall have no further First Right of Refusal and Landlord shall be free
to execute a lease with a third party without further obligation to Tenant with
respect to said First Right Space, and this Lease Agreement dated July 3 l, 1995
shall continue in full force and effect for the full remaining term hereof,
absent of this Paragraph 49.
B. The First Right of Refusal of Tenant under this Paragraph 49 is
granted for Tenant's personal benefit and may not be assigned or transferred by
Tenant, except to a parent corporation, subsidiary corporation, or corporation
with which Tenant merges or consolidates or to whom Tenant sells all or
substantially all of its assets as provided for in Paragraph 56, either
voluntarily or by operation of law, in any manner whatsoever. In the event that
Landlord consents to a sublease or assignment under Paragraph 19, the First
Right option granted herein shall be void and of no force and effect, whether or
not Tenant shall have purported to exercise such First Right option prior to
such assignment or sublease.
C. Notwithstanding the above, Landlord acknowledges that during the first
thirty-six (36) months of the Lease Term, Landlord shall not lease the First
Right Space to a third party tenant for a term that exceeds the first thirty-six
(36) months of the Lease Term. In the event Landlord enters into a third party
lease as described above during said thirty-six (36) month period, Tenant's
First Right of Refusal option shall be effective as of the termination date of
said third party lease, upon the terms and conditions set forth in Paragraph 49A
above.
50. SECURITY DEPOSIT CONTINUED: Providing Tenant (i) is not in default
--------------------------
(pursuant to Paragraph 22 of the Lease, i.e., Tenant has received notice and any
----
applicable cure period has expired without cure) of any of the terms, covenants,
and conditions of this Lease Agreement and (ii) pays all Basic Rent and
Additional Rent by the due date, as specified in Paragraph 4D and Paragraph 43,
during the first twelve months of the Lease Term, the maturity date of the
Promissory Note (representing one-half of Tenant's Security Deposit), shall be
extended to January l, 1998. Notwithstanding the above, in the event the
Promissory Note is extended pursuant to this Paragraph 50, said Promissory Note
shall be due in full immediately if: (i) Tenant subsequently fails to pay its
Basic Rent and/or Additional Rent by the due date and/or (ii) Tenant is in
default of the Lease at any time prior to January l, 1998.
51. UTILITIES: It is understood that Tenant is the sole occupant of the
---------
building located at 2121 Tasman Drive, Santa Clara, 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 Tenant will pay its share of said utilities monthly in
advance as described in and subject to Paragraph 4 "Rent" and Paragraph 11
"Utilities of the Building in Which the Premises are Located" of this Lease.
52. CONSENT: Whenever the consent of one party to the other is required
-------
hereunder, such consent shall not be unreasonably withheld.
53. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
-------------------
existence or use of "Hazardous Materials" (as defined herein) on, in, under or
about the Premises and real property located beneath said Premises (hereinafter
collectively referred to as
Page 12
<PAGE>
the "Property") and the Complex:
As used herein, the term "Hazardous Materials" shall mean any hazardous or toxic
substance, material or waste which is or becomes subject to or regulated by any
local governmental authority, the State of California, or the United States
Government. The term "Hazardous Materials" includes, without limitation any
material or hazardous substance which is (i) listed under Article 9 or defined
as "hazardous" or "extremely hazardous" pursuant to Article 11 of Title 22 of
the California Administrative Code, Division 4, Chapter 30, (ii) listed or
defined as a "hazardous waste" pursuant to the Federal Resource Conservation and
Recovery Act, Section 42 U.S.C. Section 6901 et. seq., (iii) listed or defined
as a "hazardous substance" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601), (iv) petroleum or any derivative of petroleum, or (v) asbestos.
To the best of Landlord's knowledge, the Property, including all underlying land
and groundwater, are free from contamination by toxic or otherwise hazardous
substances; however, Landlord shall have no obligation to investigate. Subject
to the terms of this Paragraph 53, Tenant shall have no obligation to "clean
up", reimburse, release, indemnify, or defend Landlord with respect to any
Hazardous Materials or wastes which Tenant (prior to and during the term of the
Lease) or other parties on the Property or Complex, as described below, (during
the term of this Lease) did not store, dispose, or transport in, use, or cause
to be on the Property or which Tenant, its agents, employees, contractors,
invitees or its future subtenants and/or assignees (if any) (during the Term of
this Lease), did not store, dispose, or transport in, use or cause to be on the
Complex in violation of applicable law as stated below.
Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, invitees or its future subtenants
and/or assignees (if any), or other parties on the Property, does store,
dispose, or transport in, use or cause to be on the Property, and which Tenant,
its agents, employees, contractors, invitees or its future subtenants and/or
assignees (if any) does store, dispose, or transport in, use or cause to be on
the Complex and Tenant shall not be responsible for such hazardous materials
contamination stored, disposed, transported in, used, or caused to be on the
Complex by other parties on the Complex, and (ii) any claims, including third
party claims, resulting from such Hazardous Materials contamination. Tenant
shall indemnify Landlord and hold Landlord harmless from any liabilities,
demands, costs, expenses and damages, including, without limitation, attorney
fees incurred as a result of any claims resulting from such Hazardous Materials
contamination.
Tenant also agrees not to use or dispose of any Hazardous Materials on the
Property or the Complex without first obtaining Landlord's written consent.
Tenant agrees to complete compliance with governmental regulations regarding the
use or removal or remediation of Hazardous Materials used, stored, disposed of,
transported or caused to be on the Property or the Complex as stated above, and
prior to the termination of said Lease Tenant agrees to follow the proper
closure procedures and will obtain a clearance from the local fire department
and/or the appropriate governing agency. If Tenant uses Hazardous Materials,
Tenant also agrees to install, at Tenant's expense, such Hazardous Materials
monitoring devices as Landlord deems reasonably necessary. It is agreed that the
Tenant's responsibilities related to Hazardous Materials will survive the
termination date of the Lease and that Landlord may obtain specific performance
of Tenant's responsibilities under this Paragraph 53.
54. COMPLIANCE CONTINUED: Any non-conformance of the improvements installed and
--------------------
paid for by Landlord as set forth on Exhibit B, required to be corrected by the
---------
governing agency, shall be corrected at the cost and expense of Landlord if such
non-conformance exists as of the Commencement Date of the Lease and further
provided that such governing agency's requirement to correct the non-conformance
is not initiated as a result of: (i) any future improvements made by or for
Tenant; or (ii) any permit request made to a governing agency by or for Tenant.
Any non-conformance of the Premises occurring after the Commencement Date of
this Lease Agreement shall be the responsibility of Tenant to correct at
Tenant's cost and expense.
Landlord agrees to amortize the cost of capital improvements necessitated by any
new laws, statutes, ordinances or governmental rules, regulations, or
requirements as an operating expense over the life of said improvement and
Tenant shall pay its pro rata share of said capital improvement cost based on
the remaining Term (and/or extended Term, if any) of the Lease. For example: (i)
Landlord incurs capital improvement costs of $10,000 one year prior to Lease
Page 13
<PAGE>
Termination Date, and (ii) said capital improvement's life is ton (10) years;
Tenant shall pay upon receipt of invoice from Landlord its pro rata share of
$1,000.00).
In the event the Term of the Lease is extended, pursuant to Paragraph 48 or by
any other agreement between Landlord and Tenant, Tenant's pro rata share of the
capital improvement cost shall be increased to include the additional amount
payable to Landlord due to the Extended Term of the Lease. For Example: In the
event: (i) Landlord incurred capital, improvement costs illustrated above; and
(ii) Tenant exercises its Option to Extend this Lease for an additional five (5)
year period, Tenant would be liable for an additional payment to Landlord of
$5,000.00 as Additional Rent. Said payment would be due in full immediately upon
Tenant's exercise of its Option to Extend.
55. MAINTENANCE OF THE PREMISES: In addition to, and notwithstanding anything
---------------------------
to the contrary in Paragraph 10, Landlord shall maintain the structural shell,
foundation, and roof structure (but not the interior improvements, roof
membrane, or glazing) of the building leased hereunder at Landlord's cost and
expense provided Tenant has not caused such damage, in which event Tenant shall
be responsible for 100 percent of any such costs for repair or damage so caused
by the Tenant. Notwithstanding the foregoing, a crack in the foundation, or
exterior walls that does not endanger the structural integrity of the building,
or which is not life-threatening, shall not be considered material, nor shall
Landlord be responsible for repair of same.
56. ASSIGNMENT AND SUBLETTING CONTINUED: In addition to and notwithstanding
-----------------------------------
anything to the contrary in Paragraph 19 of this Lease, Tenant shall be entitled
to assign or sublet without Landlord's consent (but shall still give Landlord
notice thereof) to: (i) any parent or subsidiary corporation, or corporation
with which Tenant merges or consolidates, or (ii) any third party or entity to
whom Tenant sells all or substantially all of its assets; provided, that the net
worth of the resulting or acquiring corporation has a net worth after the
merger, consolidation or acquisition equal to or greater than the net worth of
Tenant at the time of such merger, consolidation or acquisition. No such
assignment or subletting will release the Tenant from its liability and
responsibility under this Lease to the extent Tenant continues in existence
following such transaction. Notwithstanding the above, Tenant shall be required
to (a) give Landlord written notice prior to such assignment or subletting to
any party as described in (i) and (ii) above, and (b) execute an acknowledgement
document prepared by Landlord reflecting the assignment or subletting.
57. SALE OR CONVEYANCE BY LANDLORD (CONTINUED): Not withstanding anything to
-----------------------------------------
the contrary in the Lease, if Landlord sells or otherwise conveys its interest
in the Premises, Landlord shall not be relieved of its obligation under the
Lease, unless and until the successor assumes in writing Landlord's obligations
under the Lease.
58. ASSIGNMENT OF WARRANTIES: Upon Lease commencement and during the Term of
------------------------
the Lease, Landlord hereby assigns to Tenant all of Landlord's Contractor's
warranties specifically related to Tenant's Leased Premises 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.
(THIS SPACE LEFT INTENTIONALLY BLANK)
Initial: /s/ EW,JA
-------------------------
Page 14
<PAGE>
[GRAPHIC: FLOOR PLAN DEPICTING THREE
BUILDINGS IN WHICH PORTION OF
BUILDING BEING LEASED IS HIGHLIGHTED.]
EXHIBIT A TO LEASE AGREEMENT DATED JULY 31, 1995 BY AND BETWEEN ARRILLAGA FAMILY
- ---------
TRUST AND RICHARD T. PEERY SEPERATE PROPERTY TRUST, AS LANDLORD, AND LATITUDE
COMMUNICATIONS, AS TENANT.
GUADELUPE A
<PAGE>
EXHIBIT B TO LEASE AGREEMENT DATED JULY 31, 1995 BY AND BETWEEN THE ARRILLAGA
- ---------
FAMILY TRUST AND THE RICHARD T. PEERY SEPARATE PROPERTY TRUST, AS LANDLORD, AND
LATITUDE COMMUNICATIONS, AS TENANT.
TENANT IMPROVEMENT SPECIFICATIONS
- ---------------------------------
Responsible Party (L = Landlord; T = Tenant)
DOORS:
- ------
L Building standard, solid core veneer (ash) three foot by 9'-0" doors and
frames to comply with all necessary fire ratings as required. Doors stained
and sealed to match architect's finish selection. Schlage or equal door
lever hardware in polished stainless steel finish, provide all necessary
hardware.
L New roll up door to be installed in Manufacturing area (per drawing).
L Provide locksets on ten (10) doors.
T Provide locksets on any doors over the ten (10) doors to be furnished by
Landlord.
T Provide Card Key access for the doors leading to the restroom core area (if
desired).
PARTITIONS AND GLAZING:
- -----------------------
L Provide layout per drawing. All interior partitions shall be 3 1/2", metal
studs with 5/8" drywall each side. Provide approximately 20 LF of Herc.
glass and double doors in the board room.
CEILING:
- --------
L 2'x 4' ceiling grid system (with 2'x 2' "second look" tile). 9' 0" FF. with
standard ceiling tile in open staff areas, offices, lounges, etc.
WINDOW COVERING:
- ----------------
T All perimeter windows shall receive vertical blind window treatment.
MILLWORK:
- ---------
L As indicated on drawings, in utility areas, all exposed surfaces to be
plastic laminate.
(2 of 2)
<PAGE>
FLOOR-COVERING:
- ---------------
L Carpet Border: In conference room and lobby: Shaw or approved equivalent.
All carpet to be glue down, base is to be 2 1/2" rubber. Lunch room,
coffee/copy, lab, supply rooms and data room shall have 12" x 12" Vinyl
tile. Provide allowance for granite or ceramic tile in the lobby area.
HVAC:
- -----
L Predicated on population density and equipment, and lighting levels,
Landlord shall design and install a complete building standard and
supplemental heating, cooling and ventilation system. Separate zone control
shall be provided for the conference rooms, and any other areas deemed
necessary by the mechanical engineers.
* Assume that each desk, workstation, office, etc. shall eventually receive
a Macintosh or IBM personal computer at an average of 300 watts of power.
HVAC calculations shall assume a 100% operating demand for any given time
period (based on 250 square feet per person load).
L In all occupied areas, exhaust and supply fresh air conditioning to the
latest accepted standards as set forth by the American Society of Heating,
Refrigeration, Air Conditioning and Engineers.
T Upgrade HVAC systems to be capable of accommodating 110% of equipment heat
loads within any one room (10% safety margin) - if requested.
T Provide a remote motor ducted exhaust fan in all conference rooms.
T Lab area is to be on a dedicated zone with 24 hour operation; suitable to
accommodate electrical load in the lab.
T Any other requirements above those provided for by Landlord above.
LIGHTING/ELECTRICAL AND DATA:
- -----------------------------
L For all lighting, switch each room and/or area separately. Provide slide
bar dimmer switches on incandescent downlights in conference rooms.
L Florescent lighting shall be illuminated with 2'x 4' lamp parabolic
fixtures (recessed) or approved equal throughout the space. Upgrade lights
to be installed in the boardroom, lunchroom and sconce type fixtures to be
installed in the stairways.
L In addition to building standard lighting, additional fluorescent lighting
shall be
(2 of 2)
<PAGE>
installed so as to initially allow 80' candle lighting at all remaining
conference room, offices, and open office areas.
L Provide all necessary exit and emergency lighting as required. All lighting
to comply with local and state title 24 requirements.
L All conference rooms shall have one phone and two electrical outlets each.
L Open office area is to receive J-boxes above the suspended ceiling system
24'-0" on center for open office cubicles. Each office cubicle is to be
capable of having one phone/data and two electrical outlets. All Hardwall
offices are to have two electrical outlets and two phone/data outlets. The
data and lab areas are to have two electrical and two data outlets per
wall.
L Provide separate circuit outlets at all copiers and lounge areas as
required in locations to be specified by Tenant.
L Provide all necessary electrical components including panels, transformers,
as required.
T Provide occupancy switch sensors by "Novitas" or approved equal for all
offices.
T Hook up electrical to furniture provided by Tenant.
T Provide separate circuit outlets for any sensitive equipment.
T The lab area is to have a total of thirty 120 volt 20 amp single phase
circuits with 26 of those circuits being duplex. Install 8 cord drops 48"
from the finish floor. Provide additional panel capacity for 40% growth
serving this area.
L The lunch room will require sufficient electrical capacity to service
additional vending equipment that Tenant may elect to install at their
expense.
TELEPHONE:
- ----------
T All offices, workstations, secretary and conference areas shall be wired
for data and to telephone room for network connections. Outlets to receive
modular receptacles for both telephone and data (Tenant to provide
requirements)
T Design, engineer, furnish and install a empty conduit stub - ups as may be
required to install tenant telephone and data system wiring as noted above,
including all necessary back boards and electrical outlets.
DATA PROCESSING:
- ----------------
(2 of 2)
<PAGE>
T Provide conduit and power feeds as required for internal accounting, word
processing computer systems and PC rooms. Power feeds for c.p.u.'s must be
dedicated, isolated grounded outlets.
PLUMBING:
- ---------
L Engineer, furnish and install at the lunch room, a stainless steel sink
with goose neck faucet. Hot and cold running water. Water taps and for ice
maker and coffee maker (which will be provided by Tenant).
L Provide an 120 gallon water heater.
L Men's and women's toilet rooms to comply with local, California and ADA
codes and requirements as required.
FIRE PROTECTION:
- ----------------
T Provide fire alarm system and fire monitoring system.
MISCELLANEOUS:
- --------------
L Exterior entry way is to be upgraded and re-worked per the requirements of
Tenant.
Initial: /s/ EW, JA
-------------------------
(2 of 2)
<PAGE>
Guadalupe A
AMENDMENT NO.1
TO LEASE
THIS AMENDMENT NO 1 is made and entered into this December 22, 1998, by
and between JOHN ARRILLAGA, Trustee, or his Successor Trustee UTA dated 7/20/77
(JOHN ARRILLAGA SURVEYOR'S TRUST) (previously known as the "Arrillaga Family
Trust") as amended, and RICHARD T. PEERY, Trustee, or his Successor Trusty UTA
dated 7/20/77 (RICHARD T. PEERY SEPARATE PROPERTY TRUST) as amended,
collectively as LANDLORD, and LATTITUTE COMMUNICATIONS, a California
corporation, as TENANT.
RECITALS
A. WHEREAS, by Lease Agreement dated July 31, 1995 Landlord leased to
Tenant approximately 39,157+ square feet of that certain 51,200+ square foot
- -
building located at 2121 Tasman Drive, Santa Clara, California, the details of
which are more particularly set forth in said July 31, 1995 Lease Agreement, and
B. WHEREAS, said Lease was amended by the Commencement Letter dated
December 13, 1995 which changed the Commencement Date of the Lease from January
1, 1996 to December 1, 1995, and confirmed the Termination Date of December 31,
2000, and,
C. WHEREAS, it is now the desire of the parties hereto to amend the Lease
by (i) increasing the square footage of the Leased Premises effective June1,
1999, (ii) amending the Basic Rent schedule and Aggregate Rent accordingly,
(iii) increasing the Security Deposit required under the Lease, (iv) increasing
Tenant's non-exclusive parking spaces, (v) amending the Lease Paragraphs 19
("Assignment and Subletting") and 48 ("Option to Extend Lease for Five (f)
Years"), (vi) replacing Lease Paragraphs 7 ("Expenses of Operation, Management,
and Maintenance"), 11 ("Utilities of the Building in Which the Premises are
Located"), 39 ("Limitation of Liability"), (vii) deleting Lease Paragraphs 49
("First Right of Refusal") and 51 ("Utilities"), and (viii) adding paragraphs
("Choice of Law: Severability") and (Authority to Execute") to said Lease
Agreement as hereinafter set forth.
AGREEMENT
NOW THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the hereinafter mutual promises, the
parties hereto do agree as follows:
1. INCREASED PREMISES: Effective June 1, 1999, the size of the Leased
------------------
Premises will be increased by 12,043+ square feet, or from 39,157+ square feet
- -
to 51,200+ square feet of space (one hundred percent of the Building). Total
-
said Premises are more particularly shown within the area outlined in Red on
Exhibit A. The entire parcel, of which the Leased Premises is a part, is shown
- ---------
within the area outlined in Green on Exhibit A. The additional 12,043+ square
--------- -
feet of space is leased on an "as-is" basis, in its present condition and
configuration, as set forth in blue on Exhibit B attached hereto, with the
---------
entire interior leased Premises shown in Red on Exhibit B.
---------
2. BASIC RENT SCHEDULE: The Basic Rent schedule, as shown in Paragraph
-------------------
4(A) of the Lease Agreement, shall be amended as follows:
On June 1, 1999, the sum of FIFTY ONE THOUSAND TWO HUNDRED AND NO/100
DOLLARS ($51,200.00) shall be due, and a like sum on the first day of each month
thereafter, through and including December 1, 1999.
On January 1, 2000, the sum of FIFTY THREE THOUSAND SEVEN HUNDRED SIXTY
AND NO/100 DOLLARS ($53,760.00) shall be due, and a like sum on the first day of
each month thereafter, through and including December 1, 2000.
As a result of the increase in square feet leased, the Aggregate Rental
shall be increased by $236,042.80, or from $2,231,949.00 to $2,467,991.80.
Initial:
--------
<PAGE>
Guadalupe A
3. INCREASED PARKING: Effective June 1, 1999, Tenant's nonexclusive
-----------------
parking spaces shall be increased by 45 spaces or from 144 spaces to 189 spaces.
4. SECURITY DEPOSIT: Tenant's Security Deposit shall be increased by
----------------
$25,290.30, or from $82,229.70 to $107,520.00, payable upon Tenant's execution
of this Amendment No. 1.
5. ASSIGNMENT AND SUBLETTING: Lease Paragraph 19 ("Assignment and
-------------------------
Subletting") shall be amended to include the following language:
"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
any other 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 unforseeable, which Subtenant may
have arising out of or in connection with any such early termination of
this Sublease. Subtenant knowingly and intentionally waives any and all
protection which is or may be given by Section 1542 of the California Civil
Code which provides as follows: "A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have
materially affected his settlement with debtor.
The term of this Sublease is therefor subject to early termination.
Subtenant's initials here below evidence (Subtenant's consideration of and
agreement to this early termination provision, (b) Subtenant's
acknowledgement 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
6. OPTION TO EXTEND LEASE FOR FIVE (5) YEARS: Due to the increase in the
-----------------------------------------
square footage of the Leased Premises, Section B of Lease Paragraph 48 ("Option
to Extend Lease for Five (5) Years") is hereby deleted and replaced with the
following:
B. The following summarizes the per square foot charge by period under
the Lease Agreement that would be applied to the Extended Term:
Initial:
--------
<PAGE>
Guadalupe A
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Extended PSF Rate Monthly
Term Period Basic Rent
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
<S> <C> <C>
01/01/01-12/31/01 $1.10 $56,320.00
- --------------------------------------------------------------------------------------------
01/01/01-12/31/02 $1.15 $58,880.00
- --------------------------------------------------------------------------------------------
01/01/03-12/31/03 $1.20 $61,440.00
- --------------------------------------------------------------------------------------------
01/01/04-12/31/04 $1.25 $64,000.00
- --------------------------------------------------------------------------------------------
01/01/05-12/31/05 $1.30 $66,560.00
- --------------------------------------------------------------------------------------------
</TABLE>
7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON
----------------------------------------------------------------
AREAS OF THE COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED: Effective
- -------------------------------------------------------------------
June 1, 1999, 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 or 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; 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."
8. TENANT MAINTENANCE: Effective June 1, 1999, 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:
Initial:
--------
<PAGE>
Guadalupe A
"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
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 sold 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."
Initial:
---------
<PAGE>
Guadalupe A
9. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED: Effective
-----------------------------------------------------------
June 1, 1999, Tenant shall occupy one hundred percent (100%) of the
Building in which the Premises are located, and as a result, Lease
Paragraph 11 shall be deleted in its entirety and replaced with the
following:
"11. UTILITIES. Tenant shall have all utilities servicing the
Premises transferred into Tenant's name effective June1, 1999. Tenant
shall pay promptly, as the same become due, all charges for water,
gas, electricity, telephone, telex and other electronic communication
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. In the event the above
charges apply to any other tenant(s) of Landlord where there is common
usage with other tenant(s), such charges shall be allocated to the
Leased Premises by square footage or other equitable basis as
calculated and determined by Landlord.
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."
10. LIMITATION OF LIABILITY: Lease Paragraph 39 ("Limitation of
Liability") shall be deleted and replaced in its entirety by the
following:
"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 judgment 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) no writ of execution will every be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord and also
by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall
be applicable to any covenant or agreement either expressly contained in
this Lease or imposed by stature or at common law."
11. RIGHT OF FIRST REFUSAL: It is agreed between the parties that Lease
----------------------
Paragraph 49 ("First Right of Refusal") is hereby deleted in its entirety and
shall be of no further force or effect.
12. UTILITIES: It is agreed between the parties that Lease Paragraph 51
("Utilities") is hereby deleted in its entirety and shall be of no further force
or effect.
13. 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.
Initial:
--------
<PAGE>
Guadalupe A
14. AUTHORITY TO EXECUTE. The parties executing this Agreement hereby
--------------------
warrant and represent that they are properly authorized to execute this
Agreement and bind the parties on behalf of whom they execute this Agreement and
to all of the terms, covenants and conditions of this Agreement as they relate
to the respective parties hereto.
EXCEPT AS MODIFIED HEREIN, all other terms, covenants, and conditions of
said July 31, 1995 Lease Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No. 1
to Lease as of the day and year last written below.
LANDLORD: TENANT:
JOHN ARRILLAGA SURVIVOR'S TRUST LATTITUDE COMMUNICATIONS
A California corporation
By
-------------------------- ---------------------------
John Arrillaga, Trustee
------------------------------
Print or Type Name
Date:
------------------------
RICHARD T. PEERY SEPARATE Title:
PROPERTY TRUST --------------------
Date:
--------------------
By
---------------------------
Richard T. Peery, Trustee
Date:
-------------------------
<PAGE>
Guadalupe A
[GRAPHIC: MAP
ENTIRE PARCEL OF WHICH PREMISES
LEASED UNDER AGREEMENT IS A PART.
BUILDING LEASED UNDER THE AGREEMENT
IS HIGHLIGHTED. THE MAP DEPICTS
THREE SQUARE-SHAPED BUILDINGS ARRANGED
IN A DIAGONAL PATTERN FROM
UPPER LEFT TO LOWER RIGHT. SURROUND THE
BUILDINGS ARE LINES THAT REPRESENT
PARKING SPACES. TO THE LEFT OF THE
BUILDINGS IS A CURVING LINE LABELED
"FUTURE TASMAN DRIVE." IN THE
UPPER CORNER OF THE MAP IS A
CURVING LINE LABELED "CALLE DE LUNA."]
EXHIBIT A TO AMENDMENT NO.1 DATED DECEMBER 22,
---------
1998 BY AND BETWEEN THE JOHN ARRILLAGA SURVIVOR'S
TRUST AND THE RICHARD T. SEPARATE PROPERTY TRUST,
AS LANDLORD, AND LATTITUDE COMMUNICATIONS, AS
TENANT.
Initial:
--------
<PAGE>
Guadalupe A
[GRAPHIC: INTERIOR FLOOR PLAN OF THE SECOND FLOOR
OF BUILDING BEING LEASED SHOWING LOCATION OF
CONFERENCE ROOMS, ENGINEERING AND TESTING AREAS
AND OTHER COMMON FACILITIES. IN EACH CORNER OF THE
FLOORPLAN ARE TWO OR THREE CONFERENCE ROOMS,
WITH THREE ADDITIONAL CONFERENCE ROOMS ALIGNED ALONG
THE LEFT WALL. AT THE LEFT AND RIGHT CENTERS OF THE
FLOORPLAN ARE STAIRWAYS. THE CENTER OF THE FLOORPLAN
CONTAINS ROOMS LABELED "LAB,", "COPY," "SHOWER,"
"MEN," "WOMEN," "LUNCHROOM," "AUDIO RM," "DATA RM"
AND "VESTIBULE." THE ENTIRE FLOORPLAN IS
RECTANGULAR AND MARKED BY A GRID WITH LETTERS
ON ONE AXIS AND NUMBERS ON THE OTHER AXIS.
EACH ROOM IS MARKED BY SYMBOLS AND NUMBERS INDICATING
ROOM NUMBERS, WALLS, FINISH MATERIALS, DOORS,
WINDOWS AND HARDWARE. A LEGEND TO THESE SYMBOLS
IS SET FORTH AT THE TOP OF THE PAGE.]
EXHIBIT B TO AMENDMENT NO.1 DATED DECEMBER 22,
---------
1998 BY AND BETWEEN THE JOHN ARRILLAGA SURVIVOR'S
TRUST AND THE RICHARD T. SEPARATE PROPERTY TRUST,
AS LANDLORD, AND LATTITUDE COMMUNICATIONS, AS
TENANT.
2121 TASMAN DRIVE
SANTA CLARA, CA
Initial:
--------
<PAGE>
Guadalupe A
[GRAPHIC: INTERIOR FLOOR PLAN OF THE FIRST FLOOR
OF BUILDING BEING LEASED IN WHICH
ADDITIONAL SPACE BEING LEASED UNDER
AMENDMENT NO. 1 IS HIGHLIGHTED. THE ENTIRE
FLOORPLAN IS RECTANGULAR AND MARKED BY A GRID
WITH LETTERS ON ONE AXIS AND NUMBERS ON THE OTHER
AXIS. THE TOP PORTION OF THE FLOOR PLAN IS MARKED
"MANUFACTURING," WITH ROOMS LABELED "CONFERENCE"
AND "UTILITY RM" AT THE UPPER RIGHT CORNER.
IN THE CENTER OF THE FLOORPLAN ARE ROOMS LABELED
"LOBBY," "CONFERENCE," "VESTIBULE," "MAIL/STORAGE,"
"DATA ROOM," "MEN" AND "WOMEN," AS WELL AS TWO STAIRWELLS.
THE LOWER PORTION OF THE FLOORPLAN CONTAINS
APPROXIMATELY 23 ROOMS MARKED "OFFICE," AS WELL AS
ROOMS MARKED "CONF RM," "LOBBY," "COMM RM,"
"DOC CONTROL" AND "COPY RM."]
EXHIBIT B TO AMENDMENT NO.1 DATED DECEMBER 22,
---------
1998 BY AND BETWEEN THE JOHN ARRILLAGA SURVIVOR'S
TRUST AND THE RICHARD T. SEPARATE PROPERTY TRUST,
AS LANDLORD, AND LATTITUDE COMMUNICATIONS, AS
TENANT.
Initial:
--------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-72935) of our reports, dated February 24, 1999 except for note 12, as
to which the date is April 6, 1999, on our audit of the financial statements
and the financial statement schedule of Latitude Communications, Inc. We also
consent to the references to our firm under the caption "Experts" and "Selected
Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
San Jose, California
April 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 3,982 4,397
<SECURITIES> 0 0
<RECEIVABLES> 5,862 4,846
<ALLOWANCES> 235 204
<INVENTORY> 688 994
<CURRENT-ASSETS> 10,717 10,788
<PP&E> 3,344 3,590
<DEPRECIATION> 2,327 2,499
<TOTAL-ASSETS> 11,870 12,379
<CURRENT-LIABILITIES> 6,247 6,381
<BONDS> 0 0
0 0
12 12
<COMMON> 4 4
<OTHER-SE> 4,769 5,287
<TOTAL-LIABILITY-AND-EQUITY> 11,870 12,379
<SALES> 21,051 6,428
<TOTAL-REVENUES> 21,051 6,428
<CGS> 3,182 817
<TOTAL-COSTS> 5,957 1,720
<OTHER-EXPENSES> 14,316 4,392
<LOSS-PROVISION> 88 31
<INTEREST-EXPENSE> 183 51
<INCOME-PRETAX> 737 308
<INCOME-TAX> 34 20
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 703 288
<EPS-PRIMARY> 0.21 0.08
<EPS-DILUTED> 0.05 0.02
</TABLE>
