<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PORTAL SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7375 77-0369737
(State or other
jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or
organization) Classification Code Number) Identification Number)
</TABLE>
---------------
20883 Stevens Creek Boulevard
Cupertino, California 95014
(408) 343-4400
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
---------------
Mr. John E. Little
President and Chief Executive Officer
Portal Software, Inc.
20883 Stevens Creek Boulevard
Cupertino, California 95014
(408) 343-4400
(Name address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
J. Stephan Dolezalek, Esq. Larry W. Sonsini, Esq.
Timothy R. Curry, Esq. David C. Drummond, Esq.
David A. Makarechian, Esq. Mark L. Reinstra, Esq.
Elizabeth A.R. Yee, Esq. Michael F. Hayden, Esq.
BROBECK, PHLEGER & HARRISON LLP WILSON SONSINI GOODRICH & ROSATI, P.C.
Two Embarcadero Place 650 Page Mill Road
2200 Geng Road Palo Alto, California 94304-1050
Palo Alto, California 94303 (650) 493-9300
(650) 424-0160
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Aggregate Offering Amount of
Title of Securities to be Registered Price (1) Registration Fee
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value per share... $70,000,000 $19,460
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this preliminary prospectus is not complete and +
+may be changed. These securities may not be sold until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus is not an offer to sell nor does it seek an offer to buy +
+these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated , 1999.
Shares
Portal Software, Inc.
[LOGO]
Common Stock
-----------
This is an initial public offering of shares of Portal Software, Inc. All of
the shares of common stock are being sold by Portal.
Prior to this offering, there has been no public market for the common stock.
It is currently estimated that the initial public offering price per share will
be between $ and $ . Application has been made for quotation of the
common stock on the Nasdaq National Market under the symbol "PRSF".
See "Risk Factors" beginning on page 6 to read about certain factors you
should consider before buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price......................... $ $
Underwriting discount................................. $ $
Proceeds, before expenses, to Portal.................. $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional shares from Portal at the initial public offering price less
the underwriting discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Goldman, Sachs & Co.
Credit Suisse First Boston
BancBoston Robertson Stephens
Hambrecht & Quist
-----------
Prospectus dated , 1999.
<PAGE>
[DESCRIPTION OF ARTWORK]
Images of the different screens from Infranet.
A diagram with the word "Infranet" in the middle and spokes extending outward
in all directions. Each spoke indicates an element of an Internet-based
service provider's business.
A list of Portal's representative customers above Portal's logo is on the
bottom right-hand side of the page.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and notes to those
statements appearing elsewhere in this prospectus. Except as set forth in the
consolidated financial statements or as otherwise specified in this prospectus,
all information in this prospectus: (1) assumes no exercise of the
underwriters' over-allotment option; (2) reflects a for one split of the
outstanding shares of common stock and preferred stock to be completed before
the effectiveness of the registration statement related to this offering; (3)
reflects the conversion of all of our outstanding preferred stock into common
stock upon the effectiveness of the registration statement; and (4) reflects
our reincorporation into Delaware immediately prior to the consummation of this
offering. See "Description of Capital Stock" and "Underwriting".
Portal Software, Inc.
Our Business
We develop, market and support real-time, scalable customer management and
billing software, or CM&B software, for providers of Internet-based services.
Our Infranet software is a comprehensive solution that meets the complex,
mission-critical provisioning, accounting, reporting and marketing needs of
providers of Internet-based services. Our "Real Time No Limits" Infranet
solution enables the real-time provisioning and reporting of services,
including such functions as account creation, user authentication and
authorization, activity tracking, pricing and rating, billing and customer
service, including self-service, all on a scale of up to millions of users. We
have built Infranet using an open architecture with fully documented
application programming interfaces, or APIs, which facilitate customization,
integration with existing software applications, and creation of new services
by our customers, partners and third parties.
We were founded in 1985 as an on-line service and one of the first Internet
service providers or ISPs, and we began focusing in late 1993 on developing and
marketing real-time CM&B software for the Internet. We shipped the first
generally available version of Infranet in May 1996. Our approximately 80
Infranet customers include ISPs, such as Concentric Network Corporation and
UUNet Technologies, Inc.; on-line enterprises, such as Juno Online Services,
L.P. and 3Com Corporation's Palm.net; and on-line divisions of
telecommunications carriers, such as BellSouth Corp. and U S West, Inc.
Our Market Opportunity
Providers of Internet-based services and telecommunications carriers are
demanding enhanced capabilities from their CM&B systems as the relentless pace
of change and innovation mandates a new level of CM&B performance and
functionality. Existing CM&B systems used by many traditional
telecommunications carriers are not designed to accomodate "always on", data-
oriented services and can generally be characterized as inflexible, batch-
oriented, non-distributed and difficult to scale in an Internet environment.
Existing CM&B solutions have significant difficulties in adapting to the needs
of providers of Internet-based services that continually introduce new services
and programs.
We believe that providers of Internet-based services will increasingly
require a CM&B solution that is real-time, distributed, scalable, flexible and
easily adaptable to a vast number of emerging products and services. Infranet
is designed to meet the critical functional requirements of scalability,
enterprise-wide integration, including interoperability with legacy systems,
comprehensive functionality, ease of use, flexibility and improved time to
market. This enables service providers to capture the business benefits of
increased revenue, reduced costs and improved customer service.
3
<PAGE>
Our Strategy
Our strategy is to establish Portal as the CM&B platform of choice for
providers of Internet-based services. Key elements of this strategy are:
Extend Market Leadership Position. Our objective is to extend our position as
a leader in the Internet-based CM&B market to establish Portal as the broad
platform of choice for providers of Internet-based services. We intend to take
advantage of our technological leadership, strategic partnerships, significant
customer relationships, broad-based sales and marketing efforts and scalable
business model to create a widespread customer base that will be difficult for
potential competitors to penetrate.
Target Leading Providers of Advanced Communications Services Worldwide. The
scalability and flexibility of Infranet enables us to target a broad range of
providers of Internet-based services, including on-line service divisions of
major telecommunications providers worldwide, on-line service providers and
companies that use the Internet to provide entirely new types of communications
services.
Build a Long-Term, High Margin, Software-Driven Business Model. The
scalability, comprehensive functionality and extensibility of Infranet,
combined with our strategic partnerships, are designed to allow us to achieve
and maintain a high margin, software-driven business, rather than the service-
intensive, customer-specific approach of many of our competitors.
Leverage Partnerships with Systems Integrators, and with Platform, Software
and Services Providers. We have established a series of partnerships with
systems integrators, such as Andersen Consulting LLP, Cap Gemini Group, NTT
Software Corporation and PricewaterhouseCoopers LLP and hardware platform,
software and services providers, such as Cisco Systems, Inc., Compaq
Corporation, Hewlett-Packard Company, Microsoft Corporation, Oracle Corporation
and Sun Microsystems, Inc. We believe that our partnership strategy is unique
in breadth and scope within our market, provides us with a competitive
advantage and serves as a "force multiplier" which leverages our own internal
capabilities.
Grow with Customers and the Internet. Our strategy is to maximize
opportunities for long-term revenue growth by targeting service providers with
excellent growth prospects and capitalizing on additional sales opportunities
with our customers through the addition of subscribers, add-on component sales,
additional service revenues and maintenance and support agreements. We intend
to continue to evolve and refine our business to track the growth of Internet-
based services, so that as these services proliferate, our revenue growth
opportunities will also increase.
Corporate Information
Portal Software, Inc. was incorporated in California in March 1994 as Portal
Information Network, Inc. In December 1995, Portal Communications Company, a
company founded by John E. Little, Portal's Chief Executive Officer, and
incorporated in California in May 1985, was merged into Portal Information
Network, Inc. In October 1997, Portal Information Network, Inc. changed its
name to Portal Software, Inc. Portal Software, Inc. plans to reincorporate in
Delaware prior to the consummation of the offering. References in this
prospectus to "Portal", "we", "our" and "us" refer to Portal Software, Inc., a
Delaware corporation, its predecessors, and each of its subsidiaries. Portal's
principal executive offices are located at 20883 Stevens Creek Boulevard,
Cupertino, California 95014 and Portal's telephone number is (408) 343-4400.
Information contained on Portal's Web site does not constitute part of this
prospectus.
Portal(R) and Infranet(R) are registered trademarks of Portal and the Portal
logo, Infranet IPT and Real Time No Limits are trademarks of Portal. Each
trademark, tradename or service mark of any other company appearing in this
prospectus belongs to its holder.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered... shares
Common stock to be
outstanding after the
offering.............. shares
Use of proceeds........ For general corporate
purposes and working
capital, including
sales and marketing
activities, product
development and support
and capital
expenditures. See "Use
of Proceeds".
Proposed Nasdaq
National Market
symbol................ PRSF
</TABLE>
The common stock outstanding after this offering excludes:
. 2,276,734 shares of common stock issuable upon exercise of stock options and
warrants outstanding as of January 31, 1999 at a weighted average exercise
price of $4.54 per share;
. 1,200,000 shares of common stock available for grant under our 1999 Stock
Incentive Plan which incorporates our 1995 Stock Option/Stock Issuance Plan;
and
. 600,000 shares of common stock reserved for issuance under our 1999 Employee
Stock Purchase Plan.
See "Capitalization", "Management--Benefit Plans", "Description of Capital
Stock" and Notes 6 and 8 of Notes to Consolidated Financial Statements.
Summary Consolidated Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------------------------------
1995 1996 1997 1998 1999
----------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenues............. $ 1,517 $ 1,862 $ 5,045 $ 9,416 $ 26,669
Total costs and expenses... 1,717 2,347 7,299 16,802 43,460
Loss from operations....... (200) (485) (2,254) (7,386) (16,791)
Net loss................... (197) (535) (2,274) (7,587) (17,071)
Pro forma basic and diluted
net loss per share
(unaudited)............... $ (0.89)
========
Shares used in computing
pro forma basic and
diluted net loss per share
(unaudited)............... 19,272
========
</TABLE>
<TABLE>
<CAPTION>
January 31, 1999
------------------------------
Actual Pro Forma As Adjusted
------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $11,809 $ $
Working capital (deficit)....................... (9,150)
Total assets.................................... 32,344
Long-term obligations, net of current portion... 2,022
Stockholders' equity (net capital deficiency)... (6,551)
</TABLE>
- -------
The consolidated balance sheet data is set forth on an actual basis; pro forma
to give effect to the conversion of the outstanding preferred stock into common
stock upon completion of the offering; and as adjusted to reflect the sale of
shares of common stock offered at an assumed initial public offering
price of $ per share and after deducting the estimated underwriting
discount and the estimated offering expenses. See "Use of Proceeds" and
"Capitalization". Working capital (deficit) at January 31, 1999 includes the
effect of deferred revenue of $23,344,000.
5
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below
before making an investment decision. The risks and uncertainties described
below are not the only ones facing our company. Additional risks and
uncertainties that we are unaware of or that we currently deem immaterial also
may become important factors that may adversely affect our company.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
this case, the trading price of our common stock could decline, and you may
lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. These forward-looking statements include, among others,
those statements including the words "expects", "anticipates", "intends",
"believes" and similar language. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus.
It is difficult to evaluate our business because we have changed our corporate
strategy and we have a limited history operating under our current business
model
Although Portal was founded in 1985, we have a relatively brief operating
history as a provider of CM&B software. In late 1993 we changed our strategic
focus from operating as an ISP to developing CM&B software for Internet-based
businesses. This change required us to adjust our business processes and make a
number of significant personnel changes, including changes and additions to our
engineering and management teams. As a result of our relatively brief operating
history as a provider of CM&B software, our historical financial information is
of limited value in projecting future operating results, and you must consider
the risks and difficulties frequently encountered by early stage companies in
new and rapidly evolving markets. These risks include our:
. substantial dependence on products with only limited market acceptance;
. need to expand our sales and support organizations;
. substantial dependence on the new and evolving Internet market;
. competition with established and emerging companies;
. need to manage changing operations;
. customer concentration;
. reliance upon strategic relationships; and
. dependence upon key personnel.
We cannot be certain that our business strategy will be successful or that we
will successfully address these risks.
We expect to continue to suffer losses
We may not be able to increase or even maintain our revenues, and we may not
achieve sufficient revenues or profitability in any future period. We incurred
net losses of approximately $17.1 million for fiscal year 1999, $7.6 million
for fiscal year 1998 and $2.3 million for fiscal year 1997. As of January 31,
1999, we had an accumulated deficit of approximately $27.6 million. We have not
achieved profitability and expect to continue to incur net losses for at least
the next several quarters.
In addition, we expect to significantly increase our sales and marketing,
product development and administrative expenses. As a result, we will need to
generate significant revenues from sales of Infranet to achieve and maintain
profitability. We expect that we will face increased competition which will
make it more difficult to increase our revenues. Even if we are able to
increase revenues, we may experience price competition which would affect our
gross margins and our profitability. Another factor that will affect our gross
margins is the percentage of our revenues that is derived from indirect
channels and from services, both of which generally have lower margins.
6
<PAGE>
If we do achieve profitability, we cannot be certain that we can sustain or
increase profitability on a quarterly or annual basis. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
You should expect that our quarterly operating results may fluctuate in future
periods
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, including:
. variations in demand for our products and services;
. the timing of sales of our products and services;
. the timing and execution of individual contracts, particularly large
contracts that would materially affect our operating results in a given
quarter;
. changes in the growth rate of Internet usage;
. our ability to develop and attain market acceptance of enhancements to
Infranet and new products and services;
. delays in introducing new products and services;
. new product introductions by competitors;
. changes in our pricing policies or the pricing policies of our competitors;
. the mix of products and services sold;
. the mix of sales channels through which our products and services are sold;
. the mix of domestic and international sales;
. costs related to acquisitions of technologies or businesses;
. the timing of releases of new versions of third-party software and hardware
products that work with our products;
. continued development of our direct and indirect distribution channels,
both in the United States and abroad;
. our ability to attract, integrate, train, retain and motivate a substantial
number of sales and marketing, research and development, technical support
and other management personnel;
. our ability to expand our operations;
. the amount and timing of expenditures related to expansion of our
operations; and
. global economic conditions as well as those specific to ISPs and other
providers of Internet-based services.
We have difficulty predicting the volume and timing of orders. For example,
substantially all of our future revenues will come from licenses of Infranet
and related services, and the market for this product is in its early stages
of development. In any given quarter, our sales have involved, and we expect
will continue to involve, large financial commitments from a relatively small
number of customers. Our sales cycle is long and varies a great deal from
customer to customer. As a result, the cancellation or deferral of even a
small number of licenses of Infranet would reduce our revenues, which would
adversely affect our quarterly financial performance. Also, we have often
booked a large amount of our sales in the last month of the quarter and often
in the last week of that month. Accordingly, delays in the closing of sales
near the end of a quarter could cause quarterly revenue to fall substantially
short of anticipated levels. Significant sales may also occur earlier than
expected, which could cause operating results for later quarters to compare
unfavorably with operating results from earlier quarters.
We often enter into contracts that require us to provide features that are
not yet available or do not otherwise meet our revenue recognition policy
requirements. We book some or all of the fees from these contracts as deferred
revenue. While a portion of our revenues each quarter is recognized from
deferred revenue, our quarterly performance will depend primarily upon
entering into new contracts to generate revenues for that quarter. New
contracts that we enter into may not result in revenue in the quarter in which
the contract was signed, and we may not be able to predict when revenues from
these contracts will be recognized.
7
<PAGE>
We plan to significantly increase our operating expenses to expand our sales
and marketing operations, broaden our customer support capabilities, develop
new distribution channels and fund greater levels of research and development.
We determine our operating expenses largely on the basis of anticipated revenue
trends and a high percentage of our expenses are fixed in the short term. As a
result, a delay in generating or recognizing revenue could cause significant
variations in our operating results from quarter-to-quarter and could result in
substantial operating losses.
Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance.
It is likely that in future quarters, our operating results may be below the
expectations of public market analysts and investors. In this event, the price
of our common stock may fall. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Our business depends on Infranet, and it is uncertain whether the market will
accept this product
Our future growth depends on the commercial success of Infranet. Our business
will be harmed if our target customers do not adopt and purchase Infranet. The
market for Internet-based CM&B software is in its early stages of development.
We are not certain that our target customers will widely adopt and deploy
Infranet as their CM&B solution. Our future financial performance will also
depend on the successful development, introduction and customer acceptance of
new and enhanced versions of Infranet. In the future we may not be successful
in marketing Infranet or any new or enhanced products or services.
Many of our customers purchase and implement Infranet in phases. We also
deploy Infranet across a variety of computer hardware platforms and integrate
it with a number of legacy systems, third-party software applications and
programming tools, which may present significant technical challenges.
Implementation currently requires participation by our professional services
group, which has significantly limited resources. Some customers may also
require us to develop costly customized features or capabilities, which
increase our costs and consume our limited customer service and support
resources. Also, revenues we derive from our services business have a
significantly lower margin than revenues derived from licensing Infranet. If
new or existing customers have difficulty deploying our products or require
significant amounts of our professional services support, our operating margins
and our business could be harmed.
We rely on our direct sales force to sell Infranet
Our financial success depends to a large degree on the ability of our direct
sales force to increase sales to a level required to reach and maintain
profitability. Therefore, our ability to increase revenues in the future
depends considerably upon our success in recruiting, training and retaining
additional direct salespeople and the success of the direct sales force. There
is a shortage of direct sales personnel with the skills and expertise necessary
to sell our products. Also, it may take a new salesperson several months before
he or she becomes a productive member of our sales force. Our business will be
harmed if we fail to hire or retain qualified sales personnel, or if newly
hired salespeople fail to develop the necessary sales skills or develop these
skills more slowly than we anticipate.
In addition, we may miss sales opportunities that are available through other
sales distribution methods and other sources of leads, such as domestic and
foreign resellers and value-added resellers. In the future, we intend to
augment our indirect sales distribution methods through additional third-party
distribution arrangements. However, there is no guarantee that we will
successfully augment these arrangements or that the expansion of indirect sales
distribution methods will increase revenues. We may be at a serious competitive
disadvantage if we fail to enhance these indirect sales channels. See
"Business--Sales and Marketing".
8
<PAGE>
Our customer base is concentrated
A substantial portion of our license and services revenues in any given
quarter has been, and is expected to continue to be, generated from a limited
number of customers with large financial commitments. As a result, if a large
contract is cancelled or deferred or an anticipated contract does not
materialize, our business would be harmed. We have initially targeted large
ISPs, including on-line divisions of telecommunications carriers and other
providers of Internet-based services. Some of the industries we have targeted
are consolidating, which could reduce the number of potential customers
available to us. See "Business--Customers".
We rely on systems integrators and other strategic relationships to implement
and sell Infranet
We must develop and maintain strategic relationships with systems
integrators, software vendors, distribution partners and customers. We have
entered into relationships with third-party systems integrators, as well as
with hardware platform and software applications developers and service
providers. We have derived, and anticipate that we will continue to derive, a
significant portion of our revenues from customers that have significant
relationships with our market and platform partners. Our direct sales force
sells Infranet and our services in conjunction with these third parties. We
could lose sales opportunities if we fail to work effectively with these
parties or fail to grow our base of market and platform partners.
Many of these partners also work with competing software companies, and our
success will depend on their willingness and ability to devote sufficient
resources and efforts to marketing our products versus the products of others.
We may not be able to enter into additional, or maintain our existing,
strategic relationships on commercially reasonable terms, or at all. Our
agreements with these parties typically are in the form of nonexclusive
referral fee or reseller agreements that may be terminated by either party
without cause or penalty and with limited notice. Therefore, there is no
guarantee that any single party will continue to market our products. If these
relationships fail, we will have to devote substantially more resources to the
distribution, sales and marketing, implementation and support of Infranet than
we would otherwise, and our efforts may not be as effective as those of our
partners, either of which would harm our business.
It is difficult to predict the timing of individual orders because Infranet has
a long and variable sales cycle
To date, the sales cycle for Infranet has been three to six months or more
and has required pre-purchase evaluation by a significant number of employees
in our customers' organizations. The long sales and implementation cycles for
Infranet may cause license revenues and operating results to vary significantly
from period to period. Along with systems integrators and our other
distribution partners, we spend significant time educating and providing
information to our prospective customers regarding the use and benefits of
Infranet. Even after purchase, our customers tend to deploy Infranet slowly and
deliberately, depending on the specific technical capabilities of the customer,
the size of the deployment, the complexity of the customer's network
environment, and the quantity of hardware and the degree of hardware
configuration necessary to deploy Infranet. See "--You should expect that our
quarterly operating results may fluctuate in future periods" and "Business--
Sales and Marketing".
Our success depends on our ability to successfully manage growth
Our ability to successfully offer Infranet and new products and services in a
rapidly evolving market requires an effective planning and management process.
We continue to increase the scope of our operations domestically and
internationally and have grown our headcount substantially. Our business will
suffer dramatically if we fail to effectively manage this growth. On January
31, 1999, we had a total of 242 employees, compared to a total of 119 employees
on January 31, 1998. Between
9
<PAGE>
July 1998 and February 1999, we hired 108 new employees, and we expect to
continue to hire new employees at a rapid pace. This growth has placed, and our
anticipated future operations will continue to place, a significant strain on
our management systems and resources and on our internal training capabilities.
We expect that we will need to continue to improve our financial and managerial
controls and reporting systems and procedures, and will need to continue to
expand, train and manage our work force worldwide. We expect that we will also
have to expand our facilities, and we may face difficulties and significant
expenses identifying and moving into suitable office space.
Our business will suffer if our software contains errors or our product
development is delayed
The products that we develop are complex and may contain undetected errors.
Infranet is used by providers of Internet-based services to monitor and bill
subscribers. Due to the "mission critical" nature of Infranet, undetected
errors are of particular concern. In addition, we often provide customization,
consulting and other technical services in connection with the implementation
and ongoing maintenance of Infranet. The implementation of Infranet typically
involves working with sophisticated software, computing and communications
systems. If we experience difficulties with an implementation or do not meet
project milestones in a timely manner, we could be obligated to devote more
customer support, engineering and other resources to a particular project and
to provide these services at reduced or no cost. If our software contains
undetected errors or we fail to meet our customers' expectations or project
milestones in a timely manner we could experience:
. loss of or delay in revenues and loss of market share;
. loss of customers;
. failure to achieve market acceptance;
. diversion of development resources;
. injury to our reputation;
. increased service and warranty costs;
. legal actions by customers against us; and
. increased insurance costs.
Our licenses with customers generally contain provisions designed to limit
our exposure to potential product liability claims, such as disclaimers of
warranties and limitations on liability for special, consequential and
incidental damages. In addition, our license agreements generally cap the
amounts recoverable for damages to the amounts paid by the licensee to us for
the product or service giving rise to the damages. However, these contractual
limitations on liability may not be enforceable and we may be subject to claims
based on errors in our software or mistakes in performing our services
including claims relating to damages to our customers' internal systems. We
believe our product liability insurance is adequate to cover potential product
liability claims. However, a product liability claim, whether or not
successful, could harm our business.
In the past we have failed to release certain new products and upgrades on
time. These delays may result in customer dissatisfaction, cancellation of
orders and license agreements, negative publicity, loss of revenues, slower
market acceptance or legal action by customers against us. Our business may be
harmed if we are unable to develop, license or acquire new products or
enhancements to Infranet on a timely and cost-effective basis, or if these
products or enhancements are not accepted by the market. See "Business--
Products and Services".
We must attract and retain additional personnel to execute our business
strategy
We intend to hire a significant number of additional sales, support,
marketing, administrative and research and development personnel in 1999 and
beyond. Competition for these individuals is intense, and we may not be able to
attract, assimilate or retain highly qualified personnel in the future. We
currently have a small customer service and support organization and will need
to increase our staff to support new customers and the expanding needs of our
existing customers. Hiring qualified customer service and support personnel, as
well as sales, marketing,
10
<PAGE>
administrative and research and development personnel, is very competitive in
our industry, particularly in the San Francisco Bay Area, where Portal is
headquartered, due to the limited number of people available with the necessary
technical skills and understanding of the Internet. We expect to face greater
difficulty attracting these personnel with equity incentives as a public
company than we did as a privately held company. Our future success also
depends upon the continued service of our executive officers and other key
sales, marketing and support personnel in general, and on the services of John
E. Little, our President and Chief Executive Officer, and David S. Labuda, our
Chief Technology Officer, in particular. None of our officers or key employees
is bound by an employment agreement for any specific term. Our relationships
with these officers and key employees are at will.
We must manage technological change and enhance our products' interoperability
The market for CM&B software and services and Internet applications is
characterized by rapid technological change, frequent new product
introductions, changes in customer requirements and evolving industry
standards. Future versions of hardware and software platforms embodying new
technologies and the emergence of new industry standards could render our
products obsolete. Our future success will depend upon our ability to develop
and introduce a variety of new products and product enhancements to address the
increasingly sophisticated needs of our customers.
Infranet is designed to work on a variety of hardware and software platforms
used by our customers. However, Infranet may not operate correctly on evolving
versions of hardware and software platforms, programming languages, database
environments, accounting and other systems that our customers use. We must
constantly modify and improve our products to keep pace with changes made to
these platforms and to back-office applications, browsers and other Internet-
related applications. This may result in uncertainty relating to the timing and
nature of new product announcements, introductions or modifications, which may
harm our business. If we fail to modify or improve our products in response to
evolving industry standards, our products could rapidly become obsolete, which
would harm our business.
We rely on software licensed from third parties
Portions of Infranet incorporate software developed and maintained by third-
party software vendors, such as operating systems, tools and database vendors.
We expect that we may have to rely on third-party software vendors and
developers to a larger degree in our future products. Any significant
interruption in the availability of these third-party software products or
defects in these products or future products could harm our sales unless and
until we can secure another source. We depend in part on these third parties'
abilities to enhance their current products, to develop new products on a
timely and cost-effective basis and to respond to emerging industry standards
and other technological changes. We may not be able to replace the
functionality provided by the third-party software currently offered with our
products if that software becomes obsolete, defective or incompatible with
future versions of our products or is not adequately maintained or updated. The
absence of, or any significant delay in, the replacement of that functionality
could result in delayed or lost sales and increased costs and could harm our
business.
Our markets are highly competitive
We compete in markets that are new, intensely competitive, highly fragmented
and rapidly changing. We face competition from providers of traditional CM&B
software such as Amdocs Limited, Kenan Systems Corporation, which was recently
acquired by Lucent Technologies, Inc., LHS Group Inc. and Saville Systems PLC;
emerging providers of Internet-specific billing software, such as Belle Systems
S/A, Solect Technology Group and TAI Corporation; and proprietary systems
developed by providers of Internet-based services. We also compete with systems
integrators and with internal MIS departments of larger
11
<PAGE>
telecommunications carriers. We are aware of numerous other major ISPs,
software developers and smaller entrepreneurial companies that are focusing
significant resources on developing and marketing products and services that
will compete with Infranet. We anticipate continued growth and competition in
the on-line services and telecommunications industries and the entrance of new
competitors into the CM&B software market, and that the market for our products
and services will remain intensely competitive. We expect that competition will
increase in the near term and that our primary long-term competitors may have
not yet entered the market. Many of our current and future competitors have
significantly more personnel and greater financial, technical, marketing and
other resources than we do.
Our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements than we can. Also, current
and potential competitors have greater name recognition and more extensive
customer bases that they can leverage. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins and loss of
market share, any of which could harm our business. See "Business--
Competition".
Our business substantially depends upon the continued growth of the Internet
and Internet-based systems
We sell Infranet to organizations providing Internet-based services.
Consequently, our future revenues and profits, if any, substantially depend
upon the continued acceptance and use of the Internet as an effective medium of
commerce and communication. Rapid growth in the use of the Internet and on-line
services is a recent phenomenon and it may not continue. As a result, a broad
base of regular Internet users may not develop, and the market may not accept
recently introduced services and products that rely upon the Internet.
In addition, for a variety of reasons the Internet may not be accepted as a
viable long-term medium of commerce and communication. For example, the network
infrastructure that supports the Internet may not develop adequately. To the
extent that the Internet continues to experience significant expansion in the
number of users, frequency of use or bandwidth requirements, the infrastructure
for the Internet may be unable to support the demands placed upon it. In
addition, the Internet could lose its viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or due to increased governmental
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet also could result in slower response times and
adversely affect usage of the Internet generally and our customers in
particular. Any of these events could significantly reduce demand for our
products and harm our business.
Our business is subject to risks from international operations
For the year ended January 31, 1999, we derived approximately 27% of our
revenue from sales outside North America. We have established an international
division, Portal Software, Europe, located in England, to market and sell our
products in Europe and the Middle East. We also have offices in Hong Kong and
Sydney to market and sell our products in surrounding regions. We plan to
establish additional facilities in other parts of the world. The expansion of
our existing international operations and entry into additional international
markets will require significant management attention and financial resources.
We cannot be certain that our investments in establishing facilities in other
countries will produce desired levels of revenue. We have sold Infranet
internationally for only a few years and we have limited experience in
developing localized versions of Infranet and marketing and distributing them
internationally. In addition, there are certain risks inherent in doing
business on an international basis, including, among others:
. legal uncertainty regarding liability;
. reduced protection for intellectual property rights in some countries;
12
<PAGE>
. tariffs and other trade barriers;
. difficulties in staffing and managing foreign operations;
. longer sales and payment cycles;
. problems in collecting accounts receivable;
. political and economic instability;
. seasonal reductions in business activity;
. potentially adverse tax consequences;
. the impact of recessions in economies outside the United States;
. variance and unexpected changes in local laws and regulations; and
. difficulties and costs of staffing and managing foreign operations.
Our international revenues are denominated in U.S. dollars; therefore, a
strengthening of the dollar versus other currencies could make our products
less competitive in foreign markets. In the future, we may conduct sales in
local currencies. Consequently, changes in exchange rates could adversely
affect our operating results. In addition, if we conduct sales in local
currencies, we may engage in hedging activities, which may not be successful
and could expose us to additional risks.
Acquisitions may present risks to our business
Although we have not done so in the past, we may make acquisitions or
investments in other companies, products or technologies. If we make any
acquisitions, we will be required to assimilate the operations, products and
personnel of the acquired businesses and train, retain and motivate key
personnel from the acquired businesses. We may be unable to maintain uniform
standards, controls, procedures and policies if we fail in these efforts.
Similarly, acquisitions may cause disruptions in our operations and divert
management's attention from day-to-day operations, which could impair our
relationships with our current employees, customers and strategic partners.
We may have to incur debt or issue equity securities to pay for any future
acquisitions. The issuance of equity securities for any acquisition could be
substantially dilutive to our stockholders. In addition, our profitability may
suffer because of acquisition-related costs or amortization costs for acquired
goodwill and other intangible assets. If we are unable to successfully address
any of these risks, our business could be materially harmed.
Year 2000 issues present technological risks to our business and could harm
sales of Infranet
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 whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
We are still in the process of completing testing of our Year 2000 readiness.
Infranet operates in complex network environments and directly and indirectly
interacts with a number of other hardware and software systems. Our software
also interfaces with third-party systems, such as credit card processing
services and customer-specific modifications that our service providers, third-
party integrators and customers have created to be used with Infranet. Despite
preliminary investigation and testing by us and our partners, Infranet and the
underlying systems and protocols running it may contain errors or defects
associated with Year 2000 date functions. We have not conducted our own tests
to determine to what extent our software fails to properly recognize Year 2000
dates when running on any of its hardware platforms, or when interoperating
with third-party systems or customer-specific modifications. We also have not
performed any operational tests on our internal systems. Accordingly, we are
unable to predict to what extent our business may be affected if our software,
the systems that operate in conjunction with our software or our internal
systems experience a material Year 2000 failure. Known or unknown errors or
defects that affect the operation of our software
13
<PAGE>
could result in delay or loss of revenue, cancellation of customer contracts,
diversion of development resources, damage to our reputation, increased service
and warranty costs, and litigation costs, any of which could adversely affect
our business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
The purchasing patterns of our customers and potential customers based on
Year 2000 issues may make it difficult to predict future sales of Infranet.
Many companies are deferring software purchases until after January 1, 2000.
Other companies are accelerating purchases of software products prior to 2000,
causing an increase in short-term demand and a consequent decrease in long-term
demand for software products.
Our business depends upon our proprietary rights, and there is a risk of
infringement
Our success and ability to compete depend substantially upon our internally
developed technology, which we protect through a combination of patent,
copyright, trade secret and trademark law. We currently have three U.S. patent
applications pending. In addition, we have two registered U.S. trademarks and
four U.S. and international trademark applications pending. We generally enter
into confidentiality or license agreements with our employees, consultants and
corporate partners, and generally control access to and distribution of our
software, documentation and other proprietary information. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology or to develop products with
the same functionality as our products. Others may develop technologies that
are similar or superior to our technology. Policing unauthorized use of our
products is difficult, and we cannot be certain that the steps we have taken
will prevent misappropriation of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.
In addition, many of our license agreements require us to place the source
code for Infranet into escrow. Such agreements generally provide that these
parties will have a limited, non-exclusive right to use this code if (1) there
is a bankruptcy proceeding by or against us, (2) we cease to do business
without a successor or (3) we discontinue providing maintenance and support.
Substantial litigation regarding intellectual property rights exists in the
software industry. We expect that our software products may be increasingly
subject to third-party infringement claims as the number of competitors in our
industry segments grow and the functionality of products in different industry
segments overlaps. Some of our competitors in the market for CM&B software may
have filed or may intend to file patent applications covering aspects of their
technology upon which they may claim our technology infringes. We cannot be
certain that any of these competitors will not make a claim of infringement
against us with respect to our products and technology.
As is common in the software industry, we may receive, from time to time,
notice of claims of infringement of other parties' proprietary rights. Any
litigation, brought by us or by others, could be time-consuming, result in
costly litigation and diversion of technical and management personnel, cause
product shipment delays or require us to develop non-infringing technology or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on acceptable terms, or at all,
and could have a material and adverse impact on our gross margins and
profitability. If a successful claim of product infringement were made against
us and we could not develop non-infringing technology or license the infringed
or similar technology on a timely and cost-effective basis, our business could
be significantly harmed. See "Business--Intellectual Property".
We face risks from the uncertainties of regulation of the Internet
We are not currently subject to direct regulation by any domestic or foreign
governmental agency, other than regulations applicable to businesses generally.
However, due to the increasing popularity and use of the Internet, it is
possible that a number of laws
14
<PAGE>
and regulations may be adopted with respect to the Internet, relating to:
. user privacy;
. pricing;
. content;
. taxation of goods and services provided over the Internet;
. copyrights;
. distribution; and
. characteristics and quality of products and services.
The growth and development of the market for Internet-based services may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business on-line. The adoption
of any additional laws or regulations may decrease the expansion of the
Internet. A decline in the growth of the Internet could decrease demand for our
products and services and increase our cost of doing business, or otherwise
harm our business. Moreover, the applicability to the Internet of existing laws
in various jurisdictions governing issues such as property ownership, sales
tax, libel and personal privacy is uncertain and may take years to resolve. Our
business could be harmed by any new legislation or regulation, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the
Internet and other on-line services.
We have substantial discretion as to how to use the proceeds from this offering
Our management has complete discretion as to how to spend the proceeds from
this offering and may spend these proceeds in ways with which our stockholders
may not agree. We cannot predict that investment of the proceeds will yield a
favorable or any return. See "Use of Proceeds".
There has been no prior public market for our common stock, and the price of
our common stock may be volatile
Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained upon the completion
of this offering. We are negotiating the initial offering price of the common
stock with the underwriters. However, the initial offering price may not be
indicative of the prices that will prevail in the public market after the
offering, and the market price of the common stock could fall below the initial
public offering price. See "Underwriting".
The trading price of the common stock may fluctuate widely as a result of a
number of factors, many of which are outside our control. Some of these factors
include:
. quarter-to-quarter variations in our operating results;
. failure to meet the expectations of industry analysts;
. changes in earnings estimates by analysts;
. announcements and technological innovations or new products by us or our
competitors;
. increased price competition;
. developments or disputes concerning intellectual property rights; and
. general conditions in the Internet industry.
In addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
Internet and computer software companies and which have often been unrelated to
the operating performance of these companies.
Our officers and directors will be able to exert significant control on Portal
Executive officers, directors and entities affiliated with them will, in the
aggregate, beneficially own approximately % of our outstanding common stock
following the completion of this offering. These stockholders, if acting
together, would be able to significantly influence all matters requiring
approval by our stockholders, including the election of directors and the
approval of mergers or other business combination transactions. See "Principal
Stockholders".
15
<PAGE>
We have adopted certain anti-takeover provisions
After this offering, the board of directors will have the authority to issue
up to 5,000,000 shares of preferred stock. Further, without any further vote or
action on the part of the stockholders, the board of directors will have the
authority to determine the price, rights, preferences, privileges and
restrictions of the preferred stock. This preferred stock, if it is ever
issued, may have preference over and harm the rights of the holders of common
stock. Although the issuance of this preferred stock will provide us with
flexibility in connection with possible acquisitions and other corporate
purposes, this issuance may make it more difficult for a third party to acquire
a majority of our outstanding voting stock. We currently have no plans to issue
preferred stock.
Certain provisions of our amended and restated certificate of incorporation
and bylaws and the Delaware General Corporation Law may delay or impede a
merger, tender offer or proxy contest involving Portal. Furthermore, the board
of directors is divided into three classes, only one of which is elected each
year. Directors may only be removed by the affirmative vote of 66 2/3% or
greater of all classes of voting stock, and the removal must be for cause.
These factors may further delay or prevent a change of control of Portal.
Our stock price may be affected by shares eligible for future sale
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
shares of common stock (based upon shares outstanding as of January 31, 1999),
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants after January 31, 1999. Of these shares, the
shares sold in this offering will be freely tradable. This leaves
22,611,910 shares eligible for sale in the public market beginning 180 days
after the date of this prospectus.
Immediate and substantial dilution
If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. If other
securityholders exercise options or warrants to purchase our capital stock, you
will suffer further dilution. See "Dilution".
We have no intention to pay dividends
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy".
16
<PAGE>
USE OF PROCEEDS
The net proceeds to Portal from the sale and issuance of the
shares of common stock offered hereby are estimated to be $ million
(approximately $ million if the underwriters' over-allotment option is
exercised in full), at the assumed initial public offering price of $ per
share after deducting the estimated underwriting discount and estimated
offering expenses. Portal is conducting this offering primarily to increase its
equity capital, create a public market for its common stock and to facilitate
future access by Portal to public equity markets. Portal intends to use the net
proceeds for general corporate purposes and working capital, including sales
and marketing activities, product development and support and capital
expenditures. In addition, Portal may use a portion of the net proceeds to
acquire or invest in complementary businesses or products or to obtain the
right to use complementary technologies. Portal has no agreements or
commitments with respect to any acquisition or investment, and it is not
involved in any negotiations with respect to any transaction. Pending these
uses, the net proceeds of this offering will be invested in short-term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
Portal has never declared or paid dividends on its capital stock and does not
anticipate declaring or paying cash dividends in the foreseeable future.
Payments of future dividends, if any, will be at the discretion of
Portal's board of directors after taking into account various factors,
including its financial condition, operating results, current and anticipated
cash needs and plans for expansion.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Portal as of January 31,
1999, on an actual basis; on a pro forma basis giving effect to the conversion
of all outstanding shares of convertible preferred stock into 9,550,729 shares
of common stock upon the completion of this offering; and as adjusted to
reflect the estimated net proceeds from the sale of shares of common stock
offered by Portal at an initial public offering price of $ per share after
deducting the underwriting discount and the estimated offering expenses. This
table should be read in conjunction with the consolidated financial statements
and notes to consolidated financial statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
January 31, 1999
--------------------------------
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share amounts)
<S> <C> <C> <C>
Current portion of long-term obligations..... $ 4,601 $ 4,601 $ 4,601
======== ======== =======
Long-term obligations, excluding current
portion..................................... $ 2,022 $ 2,022 $ 2,022
Stockholders' equity (net capital
deficiency):
Convertible preferred stock: 20,000,000
shares, no par value per share, authorized,
actual and pro forma; 5,000,000 shares,
$0.001 par value per share, authorized, as
adjusted; 9,550,729 shares, no par value per
share, issued and outstanding, actual; no
shares issued and outstanding, pro forma,
$0.001 par value per share; no shares issued
and outstanding, as adjusted................ 18,482 --
Common stock: 35,000,000 shares, no par value
per share, authorized, actual and pro forma;
200,000,000 shares, $0.001 par value per
share, authorized, as adjusted;
13,061,181 shares, no par value per share,
issued and outstanding, actual; 22,611,910
shares, no par value per share, issued and
outstanding, pro forma; shares,
$0.001 par value per share, issued and
outstanding, as adjusted(1)................. 927 19,409
Additional paid-in capital................... 14,136 14,136
Notes receivable from stockholders........... (318) (318) (318)
Deferred stock compensation.................. (12,176) (12,176) (12,176)
Accumulated deficit.......................... (27,602) (27,602) (27,602)
-------- -------- -------
Stockholders' equity (net capital
deficiency)................................. (6,551) (6,551)
-------- -------- -------
Total capitalization......................... $ (4,529) $ (4,529) $
======== ======== =======
</TABLE>
- --------
(1) The number of shares outstanding as of January 31, 1999 excludes:
. 2,276,734 shares of common stock issuable upon exercise of stock options
and warrants outstanding at a weighted average exercise price of $4.54
per share;
. 1,200,000 shares of common stock available for grant under the 1999
Stock Incentive Plan which incorporates our 1995 Stock Option/Stock
Issuance Plan; and
. 600,000 shares of common stock reserved for issuance under Portal's 1999
Employee Stock Purchase Plan.
See "Management--Benefit Plans", "Description of Capital Stock" and Notes 6
and 8 of Notes to Consolidated Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of Portal at January 31,
1999, was approximately $(6,551,000), or $(0.29) per share. Pro forma net
tangible book value (deficit) per share represents total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
after giving effect to the conversion of all outstanding convertible preferred
stock. After giving effect to the sale of shares of common stock offered
by Portal at the initial public offering price of $ per share, and after
deducting the estimated underwriting discounts and estimated offering expenses,
Portal's pro forma net tangible book value at January 31, 1999, would have been
$ , or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares of
common stock in this offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Pro forma net tangible book value (deficit) per share prior to
the offering.................................................. $ (0.29)
Increase per share attributable to new investors...............
--------
Pro forma net tangible book value per share after the offering...
-----
Dilution per share to new investors.............................. $
=====
</TABLE>
The following table summarizes, as of January 31, 1999, on the pro forma
basis described above, the total number of shares and consideration paid to
Portal and the average price per share paid by existing stockholders and by new
investors purchasing shares of common stock in this offering at an assumed
initial public offering price of $ per share (before deducting the
estimated underwriting discount and estimated offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 22,611,910 % $ % $
New investors.............. $ % $
Totals..................... 100% 100%
========== ==== ====
</TABLE>
The foregoing computations are based on the number of shares of common stock
outstanding as of January 31, 1999 and exclude:
. 2,276,734 shares of common stock issuable upon exercise of stock options
and warrants outstanding at a weighted average exercise price of $4.54
per share;
. 1,200,000 shares of common stock available for grant under the 1999
Stock Incentive Plan which incorporates our 1995 Stock Option/Stock
Issuance Plan; and
. 600,000 shares of common stock reserved for issuance under the 1999
Employee Stock Purchase Plan.
To the extent that any of these options or warrants are exercised, there will
be further dilution to new investors. See "Capitalization", "Management--
Benefit Plans", "Description of Capital Stock" and Notes 6 and 8 of Notes to
Consolidated Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of Portal Software, Inc. and the Notes to Consolidated Financial Statements
included elsewhere in this prospectus. The consolidated statement of operations
data set forth below for the fiscal years ending January 31, 1997, 1998 and
1999 and the consolidated balance sheet data as of January 31, 1998 and 1999
have been derived from audited consolidated financial statements of Portal
Software, Inc. included elsewhere in this prospectus, which have been audited
by Ernst & Young LLP, Independent Auditors. The consolidated statement of
operations data for the year ended January 31, 1996 and the consolidated
balance sheet data at January 31, 1996 and 1997, are derived from audited
consolidated financial statements that are not included in this prospectus. The
consolidated statement of operations data for the year ended January 31, 1995
and the consolidated balance sheet data at January 31, 1995 are unaudited. The
historical results are not necessarily indicative of results to be expected for
any future period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
Year Ended January 31,
----------------------------------------------
1995 1996 1997 1998 1999
------ ------- -------- -------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
License fees................. $ -- $ -- $ 3,944 $ 6,892 $ 13,536
Services..................... 1,517 1,862 1,101 2,524 13,133
------ ------- -------- -------- ---------
Total revenues.............. 1,517 1,862 5,045 9,416 26,669
------ ------- -------- -------- ---------
Costs and expenses:
Cost of license fees......... -- 13 62 970 458
Cost of services............. 791 267 518 2,152 9,425
Research and development..... 432 517 2,527 5,628 11,252
Sales and marketing.......... -- 44 2,371 5,436 14,112
General and administrative... 494 1,506 1,821 2,616 6,253
Amortization of deferred
stock compensation.......... -- -- -- -- 1,960
------ ------- -------- -------- ---------
Total costs and expenses.... 1,717 2,347 7,299 16,802 43,460
------ ------- -------- -------- ---------
Loss from operations........... (200) (485) (2,254) (7,386) (16,791)
Interest income (expense) and
other income, net............. 3 (50) (20) (201) 435
------ ------- -------- -------- ---------
Loss before income taxes....... (197) (535) (2,274) (7,587) (16,356)
Provision for income taxes..... -- -- -- -- (715)
------ ------- -------- -------- ---------
Net loss....................... $ (197) $ (535) $ (2,274) $ (7,587) $ (17,071)
====== ======= ======== ======== =========
Basic and diluted net loss per
share (1)..................... $ $ $ (0.57) $ (1.07) $ (1.75)
====== ======= ======== ======== =========
Shares used in computing basic
and diluted net loss per share
(1)........................... -- -- 3,972 7,092 9,754
====== ======= ======== ======== =========
Pro forma basic and diluted net
loss per share (unaudited)
(1)........................... $ (0.89)
=========
Shares used in computing pro
forma basic and diluted net
loss per share (unaudited)
(1)........................... 19,272
=========
<CAPTION>
January 31,
----------------------------------------------
1995 1996 1997 1998 1999
------ ------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents ..... $ 16 $ 328 $ 1,540 $ 14,646 $ 11,809
Working capital (deficit)...... (373) (1,045) (651) 6,581 (9,150)
Total assets................... 549 881 3,527 23,125 32,344
Long-term obligations, net of
current portion............... 170 98 447 1,500 2,022
Stockholders' equity (net
capital deficiency)........... (26) (652) 111 7,763 (6,551)
</TABLE>
- --------
(1) The basic and diluted net loss per share and the pro forma basic and
diluted net loss per share computation excludes potential shares of common
stock (preferred stock, warrants, options and common stock subject to
repurchase rights held by Portal), since their effect would be
antidilutive. See Note 1 of Notes to Consolidated Financial Statements for
a detailed explanation of the determination of the shares used to compute
basic and diluted net loss per share and pro forma basic and diluted net
loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this prospectus contains
forward-looking statements that involve risks and uncertainties. These forward-
looking statements include, among others, those statements including the words,
"expects", "anticipates", "intends", "believes" and similar language. Portal's
actual results could differ materially from those discussed in this prospectus.
Factors that could cause or contribute to these differences include, but are
not limited to, the risks discussed in the section entitled "Risk Factors" in
this prospectus.
Overview
Portal Software, Inc. develops, markets and supports real-time customer
management and billing software, known as CM&B software, for providers of
Internet-based services. Portal was incorporated in California in March 1994 as
Portal Information Network, Inc. In December 1995, Portal Communications
Company, a predecessor company that was founded in 1985, was merged with and
into Portal Information Network, Inc. Portal Communications Company operated a
proprietary, network-based on-line system, provided Internet access, and hosted
private label on-line services from its inception until 1996 when these
services were discontinued and the individual customers were sold to Sprint
Corporation. In October 1997, Portal Information Network, Inc. changed its name
to Portal Software, Inc.
In late 1993, Portal began focusing on developing and marketing real-time
CM&B software for the Internet. The first generally available version of the
product, named Infranet, was shipped in May 1996.
Beginning with fiscal year 1997, substantially all of Portal's revenues have
come from the license of Infranet and from related services. Revenues consist
of Infranet license, consulting, training, support and maintenance fees.
License revenues are comprised of perpetual or multiyear license fees which are
primarily derived from contracts with corporate customers and resellers.
Revenue from license fees is recognized when a formal agreement exists or
purchase order is received, delivery of the product has occurred, no
significant Portal obligations with regard to implementation remain, the fee is
fixed or determinable and collectibility is probable. For electronic delivery,
the software is considered to have been delivered when Portal has provided the
customer with the access codes that allow for immediate possession of the
software. If the fee due from the customer is not fixed or determinable,
revenue is recognized as payments become due from the customer. If
collectibility is not considered probable, revenue is recognized when the fee
is collected. Revenue from arrangements with customers that are not the
ultimate users, such as resellers, is not recognized until the product is
delivered to the end-user.
Services revenues are primarily comprised of revenues from systems
integration or other consulting activities, maintenance agreements and training
of customers and partners. If the software is paid for by the customer prior to
the commencement of services and Portal is required to perform only training or
limited installation services, Portal recognizes services revenues as these
services are performed. Otherwise, Portal recognizes services revenues using
contract accounting. Maintenance agreements provide for technical support and
include the right to unspecified upgrades. Maintenance revenues are deferred
and recognized on a straight-line basis over the life of the related agreement,
which is typically one year. Customer advances and billed amounts due from
customers in excess of revenues recognized are recorded as deferred revenue.
Portal has a limited operating history as a software company. Portal incurred
a net loss of $2.3 million for fiscal year 1997, $7.6 million for fiscal year
1998, and $17.1 million for fiscal year 1999. As of January 31, 1999, Portal
had an accumulated deficit of $27.6 million. Since 1994, Portal has not
achieved profitability on a quarterly or annual basis, and Portal anticipates
21
<PAGE>
that it will incur net losses for at least the next several quarters. Portal
expects to increase its sales and marketing, product development and
administrative expenses for the foreseeable future. As a result, Portal will
need to generate significant revenues from licenses of Infranet to achieve and
maintain profitability.
Portal has generated a substantial portion of its historical Infranet
revenues from approximately 80 customers. Portal has established a series of
partnerships with systems integrators and hardware platform, software and
service providers. Portal has derived, and anticipates that it will continue to
derive, a substantial portion of its revenues from customers that have
significant relationships with its market and platform partners.
Results of Operations
The following table sets forth the results of operations for Portal expressed
as a percentage of total revenues. The historical results are not necessarily
indicative of results to be expected for any future period.
<TABLE>
<CAPTION>
Year Ended
January 31,
------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues:
License fees............................................. 78 % 73 % 51 %
Services................................................. 22 27 49
---- ---- ----
Total revenues......................................... 100 100 100
---- ---- ----
Costs and expenses:
Cost of license fees..................................... 1 10 2
Cost of services......................................... 10 23 35
Research and development................................. 50 60 42
Sales and marketing...................................... 47 58 53
General and administrative............................... 36 28 23
Amortization of deferred stock compensation.............. -- -- 7
---- ---- ----
Total costs and expenses............................... 144 179 162
Loss from operations....................................... (44) (79) (62)
Interest income (expense) and other income, net............ 0 (2) 1
---- ---- ----
Loss before income taxes................................... (44) (81) (61)
Provision for income taxes................................. -- -- (3)
---- ---- ----
Net loss................................................... (44)% (81)% (64)%
==== ==== ====
</TABLE>
Years Ended January 31, 1998 and 1999
Revenues
Total revenues were $26.7 million in fiscal year 1999, an increase of $17.3
million or 183% over fiscal year 1998. In fiscal year 1999, no customer
represented 10% or more of total revenues. In fiscal year 1999, Portal's top
ten customers accounted for approximately 37% of total revenues.
License fees declined as a percentage of total revenues in fiscal year 1999
compared to fiscal year 1998 primarily due to Portal signing several contracts
in fiscal year 1999 that required features not yet available and therefore, did
not meet Portal's revenue recognition policy and were not recognizable as
license fees revenues in fiscal year 1999. The percentage decline was also due
to increased demand for Portal's services
License fees totaled $13.5 million in fiscal year 1999, an increase of $6.6
million or 96% over fiscal year 1998. The increase in license fees was
primarily due to expanded marketing activities, growth in Portal's sales force
and greater demand for and acceptance of Infranet.
Services revenues were $13.1 million in fiscal year 1999, an increase of
$10.6 million or
22
<PAGE>
420% over fiscal year 1998. The increase in services revenues resulted, in
part, from the increase in support and maintenance service fees related to
Portal's growing installed base, both in terms of directly supported sites as
well as additional users, and the renewal of maintenance contracts. The
increase also resulted from the timing of services revenue recognition, which
typically begins prior to the recognition of license fees, particularly in the
case of large customers that require integration with legacy systems. In
addition, the increase in services revenues resulted from increased demand for
Portal's consulting, maintenance and training services to meet the increasingly
complex demands of Portal's customers.
<TABLE>
<CAPTION>
Year Ended
January 31,
-------------- Percent
1998 1999 Change
------ ------- -------
(in thousands)
<S> <C> <C> <C>
Geographical Revenues:
North America............................................ $7,955 $19,531 146%
Percentage of total revenues........................... 85% 73%
International
Europe.................................................. 1,072 4,406 311%
Percentage of total revenues........................... 11% 17%
Intercontinental........................................ 389 2,732 602%
Percentage of total revenues........................... 4% 10%
------ ------- ----
Total international...................................... 1,461 7,138 389%
Percentage of total revenues........................... 15% 27%
------ ------- ----
Total revenues........................................... $9,416 $26,669 183%
====== ======= ====
</TABLE>
North American revenues, which are defined by Portal as revenues from the
United States and Canada, were $19.5 million in fiscal year 1999, an increase
of $11.6 million or 146%, over fiscal year 1998. The increase in North American
revenues was primarily due to expanded marketing activities, greater acceptance
of Infranet and growth in Portal's sales force.
International revenues for Europe and Intercontinental, which is defined by
Portal as Asia-Pacific, Japan and Latin America, totaled $7.1 million in fiscal
year 1999, an increase of $5.7 million or 389% over fiscal year 1998. European
revenues were $4.4 million in fiscal year 1999, an increase of $3.3 million or
311% over fiscal year 1998. Intercontinental revenues were $2.7 million in
fiscal year 1999, an increase of $2.3 million or 602% over fiscal year 1998.
The increase in international revenues was primarily due to growth in Portal's
direct sales force and increased marketing efforts worldwide and the opening of
an international sales office in Hong Kong.
International revenues represented 27% of total revenues in fiscal year 1999,
compared with 15% in fiscal year 1998. In fiscal year 1999, revenues from
Europe were 17% of total revenues and revenues from Intercontinental were 10%
of total revenues.
Expenses
Cost of License Fees
Cost of license fees consists of resellers' commission payments to systems
integrators and third-party royalty obligations. Cost of license fees was $0.5
million in fiscal year 1999, a decrease of $0.5 million or 53% from fiscal year
1998. The decrease was primarily due to a substantial reseller commission paid
to a systems integrator in fiscal year 1998. Portal did not incur any shipping,
packaging or documentation costs, as its product was delivered electronically
over the Internet. Portal believes that in future periods resellers'
commissions may increase in aggregate dollars and as a percentage of total
revenues as Portal expands its base of systems integrator partners.
23
<PAGE>
Cost of Services
Cost of services primarily consists of maintenance, consulting, and training
expenses. Cost of services was $9.4 million in fiscal year 1999, an increase of
$7.3 million or 338% over fiscal year 1998. The increase was primarily due to
an increase in the number of consulting and support personnel necessary to
support both the expansion of Portal's installed base of customers and new
installations. Portal expects cost of services to increase substantially in the
next few quarters as a result of increased demand for services.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related
costs for Portal's development and technical support efforts. Research and
development expenses were $11.3 million in fiscal year 1999, an increase of
$5.6 million or 100% over fiscal year 1998. The increase was primarily due to
an increase in the number of research and development personnel necessary to
support both expanded functionality of Infranet and increases in Portal's
quality assurance, technical support and technical publications operations.
Portal believes its investment in research and development will increase
substantially in future periods. Portal has not capitalized any software
development costs to date.
Sales and Marketing Expenses
Sales and marketing expenses consist of personnel and related costs for
Portal's direct sales force, marketing staff and marketing programs, including
trade shows, advertising and costs associated with Portal's recruitment of new
and maintenance of existing strategic partnerships. Sales and marketing
expenses were $14.1 million in fiscal year 1999, an increase of $8.7 million or
160% over fiscal year 1998. The increase was primarily due to an increase in
the number of sales and marketing personnel, the opening of new sales offices
in the United States and Hong Kong, the costs of establishing sales
capabilities in China and expenses incurred in connection with trade shows and
additional marketing programs. Portal expects that sales and marketing expenses
will increase substantially over the next year as Portal hires additional sales
and marketing personnel, increases spending on advertising and marketing
programs and establishes sales offices in additional domestic and international
locations.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
legal, human resources and facilities and information system expenses not
allocated to other departments. General and administrative expenses were
$6.3 million in fiscal year 1999, an increase of $3.6 million or 139% over
fiscal year 1998. The increase was primarily due to an increase in the number
of general and administrative personnel and to increased legal and accounting
costs incurred in connection with business activities. Portal expects that
general and administrative expenses will increase substantially over the next
year as Portal hires additional general and administrative personnel.
Amortization of Deferred Stock Compensation
Portal recorded deferred stock compensation of approximately $14.1 million in
fiscal year 1999, representing the difference between the exercise prices of
options granted to acquire certain shares of common stock during fiscal year
1999 and the deemed fair value for financial reporting purposes of Portal's
common stock on their respective grant dates. Portal amortized deferred
compensation expense of $2.0 million during fiscal year 1999. This compensation
expense relates to options awarded to individuals in all operating expense
categories. Total deferred compensation at January 31, 1999 of $12.2 million is
being amortized over the vesting periods of the options on a graded vesting
method. The amortization of deferred compensation currently recorded is
estimated to be $6.8 million in fiscal year 2000.
24
<PAGE>
Provision for Income Taxes
The $0.7 million income tax provision shown for this period is the result of
alternative minimum taxes, foreign withholding taxes on revenue, and tax on
earnings generated from operations in certain foreign jurisdictions.
Years Ended January 31, 1997 and 1998
Revenues
Total revenues were $9.4 million in fiscal year 1998, an increase of $4.4
million or 87% over fiscal year 1997. In fiscal year 1998, one customer
represented approximately 47% of total revenues. In fiscal year 1998, Portal's
top ten customers accounted for approximately 83% of total revenue.
License fees were $6.9 million in fiscal year 1998, an increase of $2.9
million or 75% over fiscal year 1997. The increase in license fees was
primarily due to expanded sales and marketing activities and greater acceptance
of Infranet.
Services revenues were $2.5 million in fiscal year 1998, an increase of $1.4
million or 129% over fiscal year 1997. The increase in services revenues
resulted, in part, from the increase in support and maintenance service fees
related to Portal's growing installed base, both in terms of directly supported
sites as well as additional users, and the renewal of maintenance contracts.
The increase also resulted from the timing of services revenue recognition,
which typically begins prior to the recognition of license fees, particularly
in the case of large customers that require integration with legacy systems. In
addition, the increase in services revenues resulted from increased demand for
Portal's consulting, maintenance and training services to meet the increasingly
complex demands of Portal's customers.
<TABLE>
<CAPTION>
Year Ended
January 31,
--------------- Percent
1997 1998 Change
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Geographical Revenues:
North America........................................... $ 4,370 $ 7,955 82%
Percentage of total revenues.......................... 87% 85%
International
Europe................................................. 400 1,072 168%
Percentage of total revenues......................... 8% 11%
Intercontinental....................................... 275 389 41%
Percentage of total revenues......................... 5% 4%
------- ------- ----
Total international..................................... 675 1,461 116%
Percentage of total revenues.......................... 13% 15%
------- ------- ----
Total revenues.......................................... $ 5,045 $ 9,416 87%
======= ======= ====
</TABLE>
North American revenues were $8.0 million in fiscal year 1998, an increase of
$3.6 million or 82% over fiscal year 1997. The increase in North American
revenues was primarily due to expanded marketing activities, greater acceptance
of Infranet, and growth in Portal's sales force.
International revenues for Europe and Intercontinental totaled $1.5 million
in fiscal year 1998, an increase of $0.8 million or 116% over fiscal year 1997.
European revenues were $1.1 million in fiscal year 1998, an increase of $0.7
million or 168% over fiscal year 1997, due to the recognition of revenues from
seven additional European customers in fiscal year 1998. Intercontinental
revenue increased 41% over fiscal year 1997. The increase in international
revenues was primarily due to the growth in Portal's direct sales force and
25
<PAGE>
increased marketing efforts worldwide, particularly in Europe.
International revenues represented 15% of total revenue in fiscal year 1998,
compared with 13% in fiscal year 1997.
Expenses
Cost of License Fees
Cost of license fees consists of resellers' commission payments to systems
integrators and third-party royalty obligations. Cost of license fees was $1.0
million in fiscal year 1998, an increase of $0.9 million over fiscal year 1997.
The increase was primarily due to a reseller commission paid to a systems
integrator in fiscal year 1998. Portal did not incur any shipping, packaging or
documentation costs, as its product was delivered electronically over the
Internet.
Cost of Services
Cost of services primarily consists of maintenance, consulting and training
expenses. Cost of services was $2.2 million in fiscal year 1998, an increase of
$1.6 million or 315% over fiscal year 1997. The increase was primarily due to
an increase in the number of consulting and support personnel necessary to
support expansion of Portal's installed base of customers and new
installations.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related
costs for Portal's development and technical support efforts. Research and
development expenses were $5.6 million in fiscal year 1998, an increase of $3.1
million or 123% over fiscal year 1997. The increase was primarily due to an
increase in the number of research and development personnel necessary to
support expanded functionality of Infranet and increases in Portal's quality
assurance, technical support and technical publications operations.
Sales and Marketing Expenses
Sales and marketing expenses consist of personnel and related costs for
Portal's direct sales force, marketing staff and marketing programs, including
trade shows, advertising and costs associated with Portal's recruitment of new
and maintenance of existing strategic partnerships. Sales and marketing
expenses were $5.4 million in fiscal year 1998, an increase of $3.1 million or
129% over fiscal year 1997. The increase was primarily due to an increase in
the number of sales and marketing personnel, the opening of new sales offices
in the United States, Australia and the United Kingdom and expenses incurred in
connection with trade shows and additional marketing programs.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
legal, human resources and facilities and information system expenses not
allocated to other departments. General and administrative expenses were
$2.6 million in fiscal year 1998, representing an increase of $0.8 million or
44% over fiscal year 1997. The increase was primarily due to an increase in the
number of general and administrative personnel and to increased legal and
accounting costs incurred in connection with business activities.
26
<PAGE>
Quarterly Results of Operations
The following table presents Portal's operating results for each of the eight
quarters in the period ended January 31, 1999. The information for each of
these quarters is unaudited and has been prepared on the same basis as the
audited consolidated financial statements appearing elsewhere in this
prospectus. In the opinion of management, all necessary adjustments (consisting
only of normal recurring adjustments) have been included to present fairly the
unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of Portal and the financial statement
footnotes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------
April 30, July 31, Oct. 31, Jan. 31, April 30, July 31, Oct. 31, Jan. 31,
1997 1997 1997 1998 1998 1998 1998 1999
--------- -------- -------- -------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues:
License fees........... $ 1,480 $ 1,528 $ 1,831 $ 2,053 $ 2,185 $ 1,876 $ 3,817 $ 5,658
Services............... 284 299 906 1,035 1,881 2,411 3,414 5,427
------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 1,764 1,827 2,737 3,088 4,066 4,287 7,231 11,085
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of license fees... 230 233 246 261 60 86 143 169
Cost of services....... 103 252 654 1,143 1,201 1,673 2,232 4,319
Research and
development........... 894 1,148 1,470 2,116 2,207 2,460 3,148 3,437
Sales and marketing.... 1,065 1,083 1,453 1,835 2,000 3,141 4,016 4,955
General and
administrative........ 569 632 641 774 714 1,273 1,439 2,827
Amortization of
deferred stock
compensation.......... -- -- -- -- 36 194 497 1,233
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............ 2,861 3,348 4,464 6,129 6,218 8,827 11,475 16,940
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... $(1,097) $(1,521) $(1,727) $(3,041) $(2,152) $(4,540) $(4,244) $(5,855)
======= ======= ======= ======= ======= ======= ======= =======
As a Percentage of Total
Revenues:
Revenues:
License fees........... 84% 84% 67% 66% 54% 44% 53% 51%
Services............... 16 16 33 34 46 56 47 49
------- ------- ------- ------- ------- ------- ------- -------
Total revenues....... 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of license fees... 13 13 9 8 1 2 2 2
Cost of services....... 6 14 24 37 30 39 31 39
Research and
development........... 51 63 54 69 54 57 43 31
Sales and marketing.... 60 59 53 59 49 73 56 45
General and
administrative........ 32 34 23 25 18 30 20 25
Amortization of
deferred stock
compensation.......... -- -- -- -- 1 5 7 11
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............ 162 183 163 198 153 206 159 153
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (62)% (83)% (63)% (98)% (53)% (106)% (59)% (53)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Cost of license fees declined by $0.2 million or 77% between the fourth
quarter of fiscal year 1998 and the first quarter of fiscal year 1999 primarily
due to a reseller's commission expense associated with license fee revenue
recognized in fiscal year 1998, which was not an expense item in the first
quarter of fiscal year 1999. Cost of services increased by $2.1 million or 94%
from the third to the fourth quarter of fiscal year 1999, as Portal continued
to increase headcount necessary to provide consulting and implementation
services to its customers. Sales and marketing expenses increased by $1.1
million or 57% from the first to the second quarter of fiscal year 1999
primarily due to growth in sales headcount in the United States, the United
Kingdom and Hong Kong in the second quarter.
27
<PAGE>
Factors affecting quarterly operating results
Portal's operating results may fluctuate substantially in the future as a
result of a variety of factors, many of which are outside Portal's control.
These factors include: variations in demand for Infranet and Portal's services;
the timing of sales of Infranet, and the timing of individual contracts,
particularly large contracts that would materially affect Portal's operating
results in a given quarter; changes in the growth rate of Internet usage;
delays in introducing new products and services; competition; changes in
Portal's pricing policies; the mix of products and services sold, domestic and
international sales and the sales channels through which Portal's products are
sold; costs related to acquisitions; the timing of releases of new versions of
third-party software that work with Portal's products; continued development of
Portal's direct and indirect distribution channels, both in the United States
and abroad; Portal's ability to attract, integrate, train, retain and motivate
key personnel; Portal's ability to expand and the timing of expenditures
related to expansion; and global economic conditions.
In any given quarter, Portal's sales have involved and are expected to
continue to involve, large financial commitments from a relatively small number
of customers. The sales cycle for Infranet is long and varies a great deal from
customer to customer. As a result, the cancellation or deferral of even a small
number of licenses of Infranet would reduce Portal's expected revenues, which
would adversely affect its quarterly financial performance. In addition, Portal
has often booked a large amount of sales in the last month of a quarter and
often in the last week of that month. Accordingly, delays in the closing of
sales near the end of a quarter could cause quarterly
revenue to fall substantially short of anticipated levels. Significant sales
may also occur earlier than expected, which could reduce sales in subsequent
quarters and could cause operating results for later quarters to compare
unfavorably with operating results from earlier quarters.
Since Portal often enters into contracts that require features that are not
yet available or do not otherwise meet its revenue recognition policies, some
or all of the fees from these contracts are recorded as deferred revenues.
While a portion of Portal's revenue each quarter is recognized from deferred
revenue, Portal's quarterly performance will depend primarily upon entering
into new contracts to generate revenue for that quarter. New contracts that
Portal enters may not result in revenues in the quarter in which they are
signed, and Portal may not be able to predict when revenues from these
contracts will be recognized. In addition, since Portal determines its
operating expenses largely on the basis of anticipated revenue trends and since
a high portion of Portal's expenses are fixed, a delay in generating or
recognizing revenues could cause significant variations in Portal's operating
results from quarter-to-quarter and could result in substantial operating
losses.
Due to the foregoing factors, quarter-to-quarter comparisons of Portal's
operating results are not a good indication of future performance. It is likely
that in future quarters Portal's operating results could fall below the
expectations of public market analysts or investors. In this event, the price
of Portal's common stock may fall. See "'Risk Factors--You should expect that
our quarterly operating results may fluctuate in future periods".
Liquidity and Capital Resources
Cash and cash equivalents totaled $11.8 million at January 31, 1999, down
from $14.6 million at January 31, 1998. The decrease resulted primarily from
cash used for operations and the purchase of property and equipment, and was
partially offset by cash generated from Portal's $3.0 million capital lease
line facility.
Portal used $3.3 million in cash for operations in fiscal year 1999, an
increase of $0.6 million over the $2.7 million used in fiscal year 1998. Cash
used from operations was primarily comprised of a $17.1 million loss and an
$8.8 million increase in accounts receivable, partially offset by a $15.6
million increase in deferred revenue, and an increase in other accrued
liabilities of $4.1 million.
28
<PAGE>
In fiscal year 1999, cash used in investing activities was $2.8 million,
primarily for the purchase of computer servers, workstations, networking
equipment and other capital equipment. This amount was funded almost entirely
from its equipment lease line facility, primarily to further expand its product
capability, increase internal network communication, product demonstration and
service capability.
Portal has raised equity capital from outside investors to fund its
operations. In fiscal year 1997, Portal raised approximately $2.4 million from
the sale of preferred stock. In fiscal year 1998, Portal raised approximately
$15.0 million from the sale of preferred stock. In fiscal year 1999, Portal
raised $0.4 million from the exercise of warrants for preferred stock issued in
connection with its capital lease line facility and its term loan, and raised
an additional $0.4 million from sales of common stock, primarily upon exercise
of stock options by employees. In fiscal year 1998, Portal also raised an
additional $0.1 million from sales of common stock, primarily upon exercise of
stock options by employees.
Portal has used debt and leases to partially finance its operations and
capital purchases. Portal has a $3.0 million capital lease line facility with
an equipment lessor which it established in fiscal year 1998. The lease line
has a term of 48 months and bears interest at a rate of 8.5% per annum. At
January 31, 1999, Portal had utilized $2.8 million of available borrowing under
the capital lease line facility. At January 31, 1999, Portal had outstanding a
$3.0 million term loan with a finance company, which bears interest at the
bank's prime rate plus 2.25%. The term loan is collateralized by substantially
all of Portal's assets, with the exception of new equipment purchased using
funds provided by the capital lease line facility. Portal repaid $1.5 million
of the term loan in February 1999, and the term loan matures as to $0.5 million
in March 1999 and $1.0 million in April 1999. Portal also converted a customer
deposit for prepaid services into a $1.1 million short-term liability in fiscal
year 1999. This liability matures on November 30, 1999 and bears interest at a
rate of 10% per annum. The balance due in November may decline, as services
rendered for this customer are deducted from the outstanding principal.
The capital lease line facility, the term loan, and the customer debt
comprised the entire amount of the debt obligations on Portal's balance sheet
as of January 31, 1999. The capital lease line facility and term loan include
certain covenants requiring minimum liquidity, tangible net worth and
profitability over time.
Portal's capital requirements depend on numerous factors, including market
acceptance of Portal's products, the resources Portal devotes to developing,
marketing, selling and supporting its products, the timing and extent of
establishing international operations, and other factors. Portal expects to
devote substantial capital resources to hire and expand its sales, support,
marketing and product development organizations, to expand marketing programs,
to establish additional facilities worldwide and for other general corporate
activities. Although Portal believes that its current cash balances and the net
proceeds from this offering will be sufficient to fund its operations for at
least the next 12 months, Portal may require additional financing within this
time frame. Additional funding, if needed, may not be available on terms
acceptable to Portal, or at all.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
Portal has conducted a limited review of the products for which it currently
provides maintenance, including certain previous versions of Infranet. This
review included a search of the software code, and Portal believes that it has
identified all instances where date specific information is required. Based on
this limited review, Portal believes the products for which it currently
provides maintenance and support, when configured and
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used in accordance with its documentation, correctly recognize Year 2000 date
code and function properly. Portal has no plans to conduct further review of
its currently supported products.
Portal's software runs on several hardware platforms and operating systems,
including those provided by Compaq Computer Corporation, Hewlett-Packard
Company, Microsoft Corporation and Sun Microsystems, Inc. In addition, Portal's
software interfaces with third-party systems, such as credit card processing
services and customer-specific modifications that Portal service providers,
third-party integrators and customers have created to be used with Infranet.
Portal's software is, therefore, dependent upon the correct processing of dates
by these systems, interfaces and modifications.
Portal has undertaken an effort to gather information on the Year 2000
readiness of the majority of its systems integrator partners, service
providers, hardware platform partners and partner applications. However, Portal
has not conducted its own tests to determine to what extent Infranet fails to
properly recognize Year 2000 dates when running on any of its partners'
hardware platforms, or when interoperating with third-party systems or
customer-specific modifications.
Portal uses multiple software systems for its internal business purposes,
including accounting, human resources, e-mail, engineering development and
testing tools, customer service and support, professional services and sales
tracking applications. Portal is currently in the process of surveying and
gathering information from the vendors of these systems, but Portal has not
received affirmative documentation that the applications are Year 2000
compliant. Portal has not performed any operational tests on its internal
systems.
Portal is in the early stages of assessing its Year 2000 readiness. To date,
the costs for conducting its assessment have not been material. Portal
currently estimates that the costs of ensuring that its products and internal
systems are Year 2000 compliant will be approximately $500,000 to $750,000.
Portal is unable to predict to what extent its business may be affected if its
software or the systems that operate in conjunction with its software or its
internal systems experience a material Year 2000 failure. Known or unknown
errors or defects that affect the operation of Portal's software could result
in delay or loss of revenue, interruption of customer management and billing
services, cancellation of customer contracts, diversion of development
resources, damage to Portal's reputation, increased service and warranty costs,
and litigation costs, any of which could adversely affect Portal's business,
financial condition and results of operations.
Portal does not have a contingency plan to remediate any Year 2000 problems
that may arise and affect its products or internal systems in the future. If
such problems arise, Portal will need to make the necessary expenditures to
assess and remedy such problems. The nature, timing and extent of such
expenditures cannot be estimated. Such expenditures, if required, may have a
material adverse effect on its business, financial condition and results of
operations.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants or
AICPA issued Statement of Position No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
entities to capitalize certain costs related to internal-use software once
certain criteria have been met. Portal expects that the adoption of SOP
No. 98-1 will not have a material impact on its financial position or results
of operations. Portal will be required to implement SOP No. 98-1 for fiscal
year 2000.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. Portal expects that the adoption of SOP No. 98-5 will not have a
material impact on its financial position or results of operations. Portal will
be required to implement SOP No. 98-5 for fiscal year 2000.
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In June 1998, the Financial Accounting Standards Board issued FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. FAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because
Portal does not currently hold any derivative instruments and does not engage
in hedging activities, Portal expects that the adoption of FAS No. 133 will not
have a material impact on its financial position or results of operations.
Portal will be required to implement FAS No. 133 for fiscal year 2000.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions, or SOP 98-
9. SOP 98-9 amends SOP 98-4 to extend the deferral of the application of
certain passages of SOP 97-2 provided by SOP 98-4 through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999. Portal has not yet determined the effect of the final adoption of SOP
98-9 on its future revenues and results of operations.
Qualitative and Quantitative Disclosures about Market Risk
Portal develops products in the United States and sells in North America,
South America, Asia and Europe. As a result, Portal's financial results could
be affected by factors such as changes in foreign currency exchange rates or
weak economic conditions in foreign markets. As all sales are currently made in
U.S. dollars, a strengthening of the dollar could make Portal's products less
competitive in foreign markets. Portal's interest income is sensitive to
changes in the general level of U.S. interest rates, particularly since the
majority of its investments are in short-term instruments. Due to the nature of
Portal's short-term investments, Portal has concluded that there is no material
market risk exposure. Therefore, no quantitative tabular disclosures are
required.
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BUSINESS
Portal
Portal develops, markets and supports real-time, scalable customer management
and billing software, or CM&B software, for providers of Internet-based
services. Portal's Infranet software is a comprehensive solution that meets the
complex, mission-critical provisioning, accounting, reporting and marketing
needs of providers of Internet-based services. Portal's Real Time No Limits
Infranet solution enables the real-time provisioning and reporting of services,
including such functions as account creation, user authentication and
authorization, activity tracking, pricing and rating, billing and customer
service, including self-service, all on a scale of up to millions of users.
Portal has built Infranet using an open architecture with fully documented
APIs, which facilitate customization, integration with existing software
applications, and creation of new services by its customers, partners and third
parties.
Founded in 1985 as an on-line service and one of the first ISPs, Portal began
focusing in late 1993 on developing and marketing real-time CM&B software for
the Internet. This heritage has given Portal a unique perspective into the
needs of providers of Internet-based services. As Portal developed CM&B
software for its own use, its managers realized that a real-time, scalable CM&B
software solution offered significant potential advantages, relative to
existing solutions, in the areas of revenue enhancement, cost reduction and
customer service and satisfaction. Recognizing that all providers of Internet-
based services shared a set of common customer management and billing needs and
system requirements, Portal evolved its focus toward selling software
exclusively. Portal shipped the first generally available version of its
flagship product, Infranet, in May 1996. Portal's approximately 80 Infranet
customers include ISPs such as Concentric Network and UUNet Technologies; on-
line enterprises, such as Juno Online and Palm.net; and on-line divisions of
telecommunications carriers, such as BellSouth and U S West.
Industry Background
The Telecommunications Industry
Today's worldwide telecommunications industry, having undergone a radical
transformation that began with the deregulation wave of the early 1980's, is
becoming increasingly complex, distributed and competitive. The
telecommunications industry is being driven by a number of powerful global
trends such as the proliferation of service providers, an increase in the
number of services and marketing plans offered and an increased focus on
customer support.
New entrants, such as Level 3 Communications, Inc. and Qwest Communications
International Inc. now compete domestically with traditional providers such as
AT&T Corp., MCI Worldcom, Inc., Sprint, the Regional Bell Operating Companies
or RBOCs, and internationally with government-owned telecommunications
carriers. Competition has increased through the introduction of wireless
technologies, digital subscriber lines and cable technologies that have
lessened the dependence on monopoly-owned, "last mile" wired infrastructure. In
addition, new technologies and competitive forces have combined to produce a
wide array of new services. Finally, rather than being limited to one service
provider, the customer has gained relatively greater freedom of choice. This
has prompted service providers to focus increasingly on the various aspects of
customer management and billing as a means of competitive differentiation.
Customer Management and Billing Market
Traditionally, telecommunications carriers created their own in-house billing
systems or utilized outside billing service bureaus. These solutions have
generally proven inadequate to meet the demands of an increasingly competitive
and dynamic environment. In many cases, in-house systems have failed to keep
pace with improvements in computing technology, and are prone to the so-called
"Y2K problem". Service bureaus, on the other hand, remain focused on providing
a relatively limited set of high-volume,
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standardized services, and are generally not equipped to provide cost-
effective, customized solutions. In addition, many telecommunications service
providers downsized their in-house IT staffs in the early 1990's and
subsequently have encountered difficulty hiring skilled staff to upgrade and
maintain older, legacy systems. As carrier requirements have become more
complex and IT budgets more constrained, an increasing number of carriers have
sought third-party solutions for mission-critical CM&B functions, leading to
the growth of the customer management and billing software industry.
Today there are a multitude of CM&B solution providers, offering a wide range
of products and services to the telecommunica-tions market. According to
Chorleywood Consulting, a CM&B software research organization, the total market
for CM&B software and services was nearly $18 billion in 1998. Today, third-
party software handles billing and customer care for millions of phone calls
and subscribers worldwide on a daily basis. For the most part, however, each
vendor's solution is oriented toward supporting a limited set of services
provided by telecommunications carriers and cable system operators. Many
vendors specialize in particular sub-segments of the market, such as wireless
telephony, and are not designed for brand market applications.
On-line Services and the Internet
Since 1994, the Internet and the Worldwide Web have grown at an explosive
pace. International Data Corporation, or IDC, estimates that there were over 68
million Web users worldwide at the end of 1997. IDC projects this number to
increase to over 319 million by the end of 2002, implying an annual growth rate
of over 36%. The growth of the Internet is a global phenomenon that is
fundamentally changing the nature of the telecommunications industry. Web user
growth, coupled with the growth of new types of on-line and electronic
commerce, or e-commerce, services, has driven the emergence of new service
providers such as ISPs, on-line communities, Internet telephony providers and
many others. In addition, traditional telecommunications carriers have entered
the on-line market, providing Internet connections and e-commerce services to
businesses and consumers.
Existing third-party CM&B solutions have experienced significant difficulties
in adapting to the needs of providers of Internet-based services as well as the
Internet operations of traditional providers. Providers of Internet-based
services continually introduce new services and programs that address the
dramatically changing nature of the Internet. Consequently, they need flexible,
powerful CM&B software that is readily adaptable to a wide range of services
and smoothly scales from hundreds to millions of users. To be most effective,
Internet-compatible CM&B software must be capable of operating in real time,
handling high transaction volume, processing many different types of
transactions and tracking multiple flows of information associated with the
usage of various services.
The Internet service environment is dominated by technologies and interfaces
that are fundamentally different from a traditional telephone or cable network.
For example, Internet service providers tend to operate distributed networks of
UNIX or Windows NT-based Web servers, any or all of which may be servicing a
given customer at a given moment. Traditional CM&B systems were typically
designed to interface with and process data from the equipment and technologies
used in telephone and cable television networks rather than in Internet service
environments.
In addition, the growth of the Internet has led to a dramatic rise in data
transmission volume in all service provider networks. If current growth trends
continue, not only will both voice and data traffic continue to grow, but data
traffic will rapidly eclipse traditional, circuit-switched voice-traffic as the
fundamental type of information being transmitted. Data traffic has many
characteristics that are different from those of traditional voice
transmissions. Existing CM&B systems used by many traditional
telecommunications carriers are not oriented toward "always on", data-oriented
services such as digital subscriber line, Internet telephony and virtual
private networks. Many of these older systems will need to be upgraded or
replaced in order to adapt to the changing environment.
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Traditional CM&B solutions can generally be characterized as inflexible,
batch-oriented, proprietary, non-distributed and difficult to scale to meet the
complex requirements of providers of Internet-based services. In addition to a
general lack of Internet-based capability, traditional systems were typically
designed to service one particular type and size of service provider -- a
large, traditional RBOC-type carrier, for example, or a small competitive
cellular telephone provider. As a result, there is often no smooth migration
path; as the numbers of subscribers and services grow, a "forklift upgrade" to
an entirely different CM&B product is often required. Finally, existing CM&B
solutions are often not able to address one of the most fundamental
requirements facing providers of Internet-based services: minimizing the time
to market for new products and services.
Portal believes that providers of Internet-based services will increasingly
require a CM&B solution that is real-time, distributed, scalable, flexible and
easily adaptable to a vast number of emerging products and services. Providers
of Internet-based services and telecommunications carriers are demanding
enhanced capabilities from their CM&B systems as the relentless pace of change
and innovation mandates a new level of CM&B performance and functionality.
The Portal Software Solution
Portal develops, markets and supports CM&B software that is specifically
designed to meet the complex, mission-critical provisioning, accounting,
reporting and marketing needs of providers of Internet-based services. Portal's
Infranet software is a real-time, scalable solution that enables service
providers to address the critical business needs of customer management,
services support and accurate and timely billing. Portal believes that its
trademarked phrase, Real Time No Limits, accurately describes Infranet as the
only CM&B solution that provides these capabilities in real time, while also
providing a broad and flexible platform for both the integration of existing
products and services and the rapid development and deployment of new ones.
Infranet is designed to enable service providers to capture the business
benefits of increased revenues, reduced costs and improved customer service.
Increased Revenues. By helping to accelerate the time to market for new
services, Infranet enables service providers to offer a variety of services
quickly and to bundle and price these services in an optimal manner. Infranet
enables services to be activated immediately when ordered by a subscriber, so
that the service provider can immediately begin to collect revenue. Subscriber
activity can then be monitored in real time, which allows the service provider
to promote the consumption of more services through such means as targeted
offers or increased credit limits. In addition, Infranet enables a service
provider to analyze and "mine" subscribers' service usage data in real time,
which can in turn be used to measure the success of marketing and targeting
efforts and to identify new opportunities for subscriber revenue. Using
Infranet's data analysis features, a service provider can quickly determine
which offerings are not successful and easily make appropriate adjustments. For
example, an unsuccessful pricing offer can quickly be terminated or tuned for
better subscriber response. Finally, increased billing accuracy reduces the
incidence of uncollected revenue and fraud.
Reduced Costs. Infranet is designed to be an out-of-the-box solution that
works with all relevant Internet standards and minimizes the service provider's
software installation, maintenance and subscriber servicing costs. Through the
immediate validation of subscriber data and verification of credit, Infranet
reduces the need for data correction and the incidence of credit problems. In
addition, subscribers can access their billing and service information
directly, which reduces the degree of costly person-to-person service required
to satisfy the subscriber. Real-time monitoring and authentication
substantially reduce the opportunities for fraud by ensuring that access to the
service provider's network is granted only if the user has been properly
verified. Infranet's monitoring and data analysis capabilities can help the
service provider pinpoint unprofitable
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offerings or identify a degree of usage that justifies volume purchases of
specific resources such as high-speed data circuits at a lower cost.
Improved Customer Service. Infranet enables service providers to offer
improved billing accuracy, enhanced customer service quality and responsiveness
to their subscribers. Using Infranet, service providers can easily tailor their
offerings on a bundled or unbundled basis, substantially increasing customer
choice without incurring additional costs. Up-to-the-minute account balances
and status information can be made available to users on a 24x7 basis, either
over the Internet or via customer service representatives. Potential customer
account issues can be identified and resolved quickly, since there is no need
to wait for regular billing cycles to expose these issues. Infranet's real-time
capability enhances responsiveness to subscribers' needs, which can help reduce
subscriber "churn", or turnover.
Infranet is the culmination of the experience and insights gained through
Portal's years as an ISP, as well as Portal's five-year history as a software
developer. This experience has enabled Portal to design and develop Infranet to
meet the critical functional requirements sought by service providers. These
requirements include scalability, enterprise integration and interoperability,
comprehensive functionality and ease of use, flexibility and improved time to
market--all operating on a real-time basis.
Scalability and Reliability. Infranet will run on a wide range of systems,
from a laptop computer running Windows NT to a large cluster of UNIX-based
servers. Infranet has been designed, using object-oriented programming
methodologies, to scale from hundreds to millions of users through the
incremental addition of servers. This capability allows a service provider to
grow its CM&B infrastructure incrementally as the level of business grows
without the need for architecture redesign or large-scale system replacements.
For example, new servers can be added without taking the system offline,
eliminating costly system downtime. By running Infranet on multiple servers, a
service provider can reduce exposure to various types of failures, including
individual server failure, power failure and loss of physical facilities. This
level of reliability and redundancy, long present in the traditional telephone
network, is increasingly required in the Internet environment. Automatic load
balancing features smooth out usage spikes and ensure high availability.
Infranet's object-to-relational data model is optimized for high performance
on-line transaction processing and high reliability.
Enterprise Integration and Interoperability. Infranet has been designed with
fully documented, open APIs that allow Portal, its customers, partners and
third party software developers to integrate Infranet with existing
applications and services requiring minimal effort and programming overhead.
This capability enables new services to be deployed quickly and efficiently
while maintaining smooth interoperability with pre-established services. For
example, a telecommunications carrier might use Infranet to add Internet-
related services which then appear on a subscriber's monthly telephone bill.
Infranet runs on server operating systems from Hewlett-Packard, Microsoft and
Sun Microsystems and utilizes database software from Microsoft and Oracle.
Infranet also can be readily integrated with a variety of packaged software
applications, such as help desk, accounting, taxation and payment systems.
Comprehensive Functionality and Ease of Use. Portal has drawn on its own
experiences to develop a comprehensive suite of pre-defined, ready-to-use CM&B
functions, such as customer registration, business policies, pricing plans and
payment methods. Portal also seeks to provide upgrades and enhancements to
Infranet on a regular basis, with a strong emphasis on response to customer
feedback. Infranet employs a simple, intuitive Windows-based user interface for
efficient addition and deletion of services and functions, as well as a set of
templates for Web-based capabilities such as subscriber registration, password
changes and account balance inquiries. Infranet addresses the entire
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customer management and billing life cycle, from account creation to
monitoring and pricing to back-end management and reporting.
Flexibility and Improved Time to Market. Infranet is designed to be a
modular, extensible software product. This flexibility allows each Portal
customer to tailor its individual Infranet installation to meet the exact
needs of a particular environment, set of services and group of subscribers.
The service provider is thereby empowered to respond quickly to the rapidly
changing needs of the Internet marketplace. In addition, Infranet can
generally be customized to a service provider's needs relatively quickly,
enabling its customers to improve their time to market with new products and
services.
The Portal Software Strategy
Portal's strategy is to establish itself as the CM&B platform of choice for
providers of Internet-based services. Key elements of this strategy are:
Extend Market Leadership Position. Portal's objective is to extend its
position as a leader in the Internet-based CM&B market to establish itself as
the broad platform of choice for providers of Internet-based services. Portal
intends to take advantage of its technological leadership, strategic
partnerships, significant customer relationships, broad-based sales and
marketing efforts, and scalable business model to create a widespread customer
base that will be difficult for potential competitors to penetrate. Moreover,
Portal believes that its products enable each customer to design and deploy
new, profitable services, which in turn increase the customer's use of
Portal's products and services and generates additional opportunities for
Portal to grow.
Target Leading Providers of Advanced Communications Services Worldwide. The
scalability and flexibility of its Infranet products enables Portal to target
a broad range of providers of Internet-based services. Portal's targeted
customer segments, and some representative existing customers, include:
. on-line service divisions of traditional major telecommunications
providers worldwide, such as France Telecom SA, NTT Soft and U S West;
. on-line service providers, such as Concentric Network, Microsoft, UUNet
and Viag Interkom & CO. GmbH; and
. companies that use the Internet to provide entirely new types of
communications services, such as Juno Online, Palm.net and
USinternetworking, Inc.
The unique capabilities of Infranet enable Portal to take this portfolio
approach to targeting customers. Portal believes this approach offers the
greatest opportunity for sustained growth, as many of these companies are or
will be the market leaders in their respective industries.
Build a Long-Term, High Margin, Software-Driven Business Model. Portal's
business model is predicated on the sale of standard software products, rather
than the service-intensive, customer-specific solutions offered by many of its
competitors. The scalability, comprehensive functionality and extensibility of
Infranet, combined with Portal's strategic partnerships, are designed to allow
Portal to achieve and maintain a high margin, software-driven business model
without needing to provide an inordinate degree of consulting and integration
services.
Leverage Partnerships with Systems Integrators, and with Platform, Software
and Services Providers. Portal has established a series of partnerships with
systems integrators, such as Andersen Consulting, Cap Gemini, NTT Soft and
PricewaterhouseCoopers and hardware platform, software and services providers,
such as Cisco, Compaq, Hewlett-Packard, Microsoft, Oracle and Sun
Microsystems. These partners provide a global extension of Portal's direct
sales force and are a significant source of leads and referrals. This network
of partners also enables Portal to focus on being the CM&B software platform
provider while offering a complete customer solution using third-party
components that perform ancillary functions such as tax or payment processing.
In addition, Portal's systems integrator partners are trained to integrate
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Infranet with customers' existing legacy systems. Portal seeks "best of breed"
partners in each particular area, to associate Infranet with market-leading
technologies, products and systems integrators. Portal believes that this
partnership strategy is unique in breadth and scope within its market, provides
us with a competitive advantage and serves as a "force multiplier" which
leverages Portal's own internal capabilities.
Grow with Customers and the Internet. While initial sales to customers are
often substantial, Portal's strategy is to maximize its available opportunities
for long-term revenue growth by targeting service providers with excellent
growth prospects and capitalizing on additional sales opportunities with its
customers. Portal's subsequent revenue growth can then occur through the
addition of subscribers, add-on component sales, additional service revenues
and maintenance and support agreements. In turn, Portal intends to continue to
evolve and refine its business to track the growth of Internet-based services,
so that as these services proliferate, Portal's revenue growth opportunities
will also increase. Accordingly, Portal typically prices its products on a per-
subscriber basis so that they are more affordable for new, promising service
providers that may in time grow to be leaders in their market segments and
long-term, loyal customers.
Products and Services
Portal develops, markets and supports CM&B software specifically designed to
meet the complex, mission-critical provisioning, accounting, reporting and
marketing needs of providers of Internet-based services. Portal's Infranet
product is an easily integrated, highly flexible enterprise solution comprising
the critical elements necessary for registering, managing, monitoring and
billing users of Internet-based services. Infranet unifies the management of
core business operations and its Real Time No Limits solution differentiates it
from traditional, batch-oriented CM&B solutions.
Portal also offers Infranet IPT, a complete end-to-end CM&B software solution
based on the Infranet platform and specifically tailored to the needs of
Internet telephony service providers. Internet telephony is a growing industry
that uses Internet technologies to bring low-cost, flexible voice
communications services to customers worldwide. Since Internet telephony
providers tend to be startup businesses, they do not have a long history of
using legacy systems, unlike many traditional voice service providers.
Therefore, Portal has an opportunity to be first-to-market with a leading-edge
CM&B solution for this emerging market.
In addition to providing maintenance and support for Infranet, Portal
provides implementation planning and management, training and technical support
and development and customization support through its professional services
organization.
Infranet
Infranet integrates the functionality for each stage of customer interaction
with a single, unified customer database and a coordinated set of features and
functions. The database acts as the repository for all data collected in real
time during each stage of the customer life cycle, as follows:
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Diagram. A circle of arrows connected end to end enclosing a box containing the
word "Infranet." Around the outside are the areas of data which Infranet
tracks: Account Creation & Service Provisioning, Authentication &
Authorization, Activity Tracking, Rating/Pricing, Billing & Accounts
Receivable, Customer Management and Reporting.
Account Creation and Service Provisioning. Infranet supports a variety of
registration standards and has all of the features necessary to register
subscribers quickly. The Infranet registration process collects the data needed
to provision and bill the subscriber for service, while also allowing service
providers to collect additional subscriber profile information they may desire.
As the data is collected and verified, Infranet creates customer accounts and
activates the selected services in real time.
Authentication and Authorization. Infranet authenticates users based on user
name and password, checks account status and authorizes access to individual
services. Infranet can also check for duplicate user names and available credit
or resources, enabling service providers to more effectively detect and prevent
fraud and bad debt.
Activity Tracking. By recording all events in real time in its unified
customer database, Infranet gives service providers the ability to build a
detailed picture of individual customer behavior, either currently or
historically. This also provides a complete audit trail of customer usage to
resolve any issues that may subsequently arise.
Rating/Pricing. Infranet offers a powerful and flexible "rating engine",
which enables service providers to create a wide variety of pricing plans for a
broad array of services. Infranet can price any tracked event as it occurs, so
that customers and service representatives have real-time access to account
balances and available credit. Infranet's rating engine supports multiple
resource balances and limits, such as cash balances, free hours of usage,
megabytes of server storage or any other resource defined by the service
provider. The rating of a single event can update any or all existing balances.
Billing and Accounts Receivable. Infranet's billing and payment system has
been designed for flexibility from the ground up. Billing cycles can be any
multiple of a month and can begin on any day of the month. Because of
Infranet's real-time capability,
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accounts can be accurately closed at the end of the billing cycle, irrespective
of when the billing process actually takes place. Infranet also supports
multiple currencies and payment in real time, through interfaces with credit
card processing systems such as Paymentech and ICVerify, or by invoice. A
modular payment interface lets customers integrate additional payment methods
and a general ledger interface lets service providers allocate journal entries
using a general ledger code. Infranet supports both open item and balance
forward accounting.
Customer Management. Customer service representatives can access customer
data through an intuitive, Windows-based graphical user interface. Infranet
organizes customer information into a variety of standard screens, which can
also be readily customized. Service representatives can create, search and
modify customer accounts; view activity, balances and invoices; perform billing
operations; and view and modify account hierarchy. Infranet allows providers to
configure permissions and track customer service activity, ensuring a complete
audit trail on each account.
Infranet supplements these capabilities with a browser-based interface that
enables customers to view selected account information directly. This self-
service feature increases customer convenience and can help reduce customer
service costs.
Reporting. Using the data in the Infranet unified customer database, service
providers can create reports using a powerful, enterprise-wide reporting
infrastructure called Infranet Insite. Insite report templates provide business
intelligence to operations, finance, sales and marketing personnel. Insite
includes a full set of customizable reports, and also supports new report
development.
Portal has structured the pricing of Infranet to accommodate all of its
target customer segments, which range from startups to large on-line service
providers with millions of subscribers. Portal typically prices Infranet on a
per subscriber basis, with customary volume discounts for the upfront purchase
of a large number of licenses. Supplemental purchases of additional components
are also priced on a per subscriber basis, while annual maintenance and support
contracts are priced as a percentage of the associated license revenues.
Portal's initial sales of licenses and associated services, maintenance and
support generally range from the low hundreds of thousands to several million
dollars.
Infranet IPT
Introduced in September 1998, Infranet IPT incorporates Infranet's core
functionality to deliver the CM&B features needed by providers of Internet
telephony services, such as a real-time architecture, support for a broad range
of services and pricing plans, out-of-the-box gateway integration, prepaid
calling card support, and zone-based rating. Infranet IPT is designed to
optimize resources for each step of the Internet telephony process, such as
setting up calls, monitoring calls in progress, tracking usage and billing
users. Infranet IPT enables account creation, authentication and fraud
prevention, authorization and credit control, activity tracking, pricing and
billing, and customer management and reporting.
Customer Service and Support
Portal believes that a high level of customer service and support is critical
to the successful marketing and sale of Infranet. Portal provides support to
its customers through maintenance and support agreements. Support includes
assistance with technical problems related to the use of Portal's software and
software maintenance and upgrade releases. Portal generally provides its base
level of customer support via an Internet-based customer management system and
higher levels of support via telephone and on-site technical assistance. Portal
provides customer technical support for its products primarily from its
Cupertino, California location. Portal plans to establish additional customer
support sites domestically and internationally commensurate with customer
needs.
Portal also offers project implementation services to assist customers in the
project planning, installation, and implementation of the Portal solution.
Portal consulting services are
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also available for customers requiring additional software customization,
upgrade assistance, or other Infranet-related technical services. Portal
professional services consultants are located in several cities in the United
States and various countries outside the United States. Portal has a leveraged
business model based on using systems integrator partners to provide jointly or
separately a range of services, including first-line technical support and
project implementation services, in various locations around the world.
Partnerships
Portal has established a series of partnerships with systems integrators
such as Andersen Consulting, Cap Gemini, NTT Soft and PricewaterhouseCoopers
and hardware platform, software and services providers such as Cisco, Compaq,
Hewlett-Packard, Microsoft, Oracle and Sun Microsystems. Portal employs this
network of partnerships to both expand its sales, service and marketing
capabilities and to extend the technical and functional application of its
solution. Portal's network of partnerships allows Portal to maintain its focus
as a product company while simultaneously obtaining sales, technical and
service leverage through its partners.
The diagram below illustrates Portal's approach to partnerships by listing
certain of the markets it addresses and some of its current partners:
Diagram entitled "The Portal Market Partnership Model" consisting of a box
representing Portal's approach to partnerships. The middle of the diagram is an
arrow pointing left to right containing the word "Infranet." The arrow
separates Portal's two types of partners: Representative market partners and
representative platform partners.
There are five boxes across the top of the diagram, each representing a
different type of market partner. The first box on the left represents consumer
Internet service providers consisting of integrators, including Andersen, Cap
Gemini, Deloitte & Touche and NTT Soft, and services, including iPass,
Microsoft MCIS & Site Server and Software.Com. The second box represents
business Internet service providers consisting of integrators, including
Andersen, Deloitte & Touche, NTT Soft and PWC and services, including Cisco
NetFlow, HP SIU and XACCT. The third box represents Internet protocol telephony
consisting of integrators such as Finsiel and KPMG and services such as Cisco
and VocalTec. The fourth box represents content consisting of integrators such
as Andersen and PricewaterhouseCoopers and services as required. The fifth box
represents hosting consisting of integrators such as Deloitte & Touche and
Hewlett-Packard and services such as Microsoft MCIS & Site Server and Netscape
SuiteSpot.
There are six boxes across the bottom of the diagram, each representing a
different type of platform partner. The first box represents hardware partners
such as Compaq, Hewlett-Packard and Sun. The second box represents database
partners such as Microsoft and Oracle. The third box represents customer care
partners such as Clarity, Remedy and Vantive. The fourth box represents
accounting reporting partners such as Oracle and Seagate. The fifth box
represents payment partners such as FDC, Group I, Paymentech, Cybercash and
Veriphone. The sixth box represents tax partners such as Taxware and Vertex.
There are two types of partners in Portal's "Market Partnership Model":
Market Partners. Portal leverages its own sales and marketing efforts by
taking advantage of the marketing and lead generation capabilities of its
market partners. Market partners are specialized technology and services firms
that adapt Portal's products to the needs of a specified market segment. For
example, in the consumer ISP market, iPass, Inc., Microsoft and Software.com,
Inc. provide complementary services and technologies, which are fully
integrated with Infranet through Portal's open APIs. In turn, a set of systems
integrators, such as Andersen Consulting, Cap Gemini, NTT Soft and
PricewaterhouseCoopers, adapts this
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combination of Infranet and add-on technologies to the specific environment of
each provider of on-line services. This combination of add-on technology and
systems integration allows Portal to serve as the enabling technology for a
complete solution in each of its markets. This approach also provides a
mechanism for Portal to enter new markets as opportunities develop.
Platform Partners. Portal's technology strategy is to focus exclusively on
Infranet to enable real time, mission-critical, Internet-based services. Given
this focus, Portal partners with hardware platform providers, such as Cisco,
Compaq, Hewlett-Packard and Sun Microsystems, database software developers
such as Microsoft and Oracle, and software applications developers with best-
of-breed products to provide superior solutions to its customers. By providing
its platform partners with a fully documented set of open APIs, Portal ensures
that Infranet can interoperate with their products. This allows Portal to
partner with the leading-edge vendors in each area of functionality and
provides the flexibility to adopt new products and technologies rapidly.
Portal also seeks to generate referral sales from its platform partners' sales
forces.
Technology
Portal's software architecture consists of the Infranet platform, upon which
CM&B functionality is layered using fully documented open APIs. This approach,
designed from the start to use object-oriented programming techniques, enables
new processes and services to be readily incorporated, thus allowing an
evolving multi-service model to be built without the need to change the
underlying software foundations. Similarly, changes can be made in the object-
based platform without affecting the behavior of the CM&B functions.
Infranet's advanced, four-tier client-server architecture was designed from
the ground up to be scalable, reliable, secure and extensible. The four tiers
of Infranet's architecture are:
Diagram entitled "Four Tier Architecture" depicting the four tiers:
Application, Business Process, Object and Data. The application tier contains
the client applications. The business process tier contains the process
modules, the object request broker. The Object tier contains the object server
which consists of the payment and reporting engines. The data tier contains
the database where all the data is stored. Along the bottom of the four tiers
are several machines depicting the hardware infrastructure shown as operating
on either a network or single machine utilizing the four tier architecture.
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. Application Tier: includes client applications for registration,
customer service and billing, as well as interfaces to event sources
such as terminal, mail or Web servers.
. Business Process Tier: includes an object request broker, or ORB, that
arbitrates requests between this tier and the object tier and functional
modules that implement the core business operations supported by
Infranet. These modules are driven by business policies that are fully
customizable by the provider.
. Object Tier: manages all account, service, event and pricing information
using a high-level, objected-oriented data model that greatly enhances
the extensibility of the system.
. Data Tier: includes the relational database management systems such as
Oracle and Microsoft SQL Server where all Infranet data is stored, as
well as TCP/IP-based links to external systems such as payment, tax,
credit card authorization and directory-based systems.
Infranet's four-tier architecture has several advantages:
Scalability and Performance. Infranet easily scales to handle subscriber
growth and large numbers of subscribers while maintaining high levels of
performance. Providers can add multiple servers as needed to any or all levels
of the system, generally without incurring downtime. In addition, automatic
load balancing is used to minimize the effect of usage spikes on performance.
Reliability. Infranet provides 24x7 telecommunications-grade reliability with
features such as automatic reconnection in the event of a lost link and
automatic re-routing in case of a failed re-connect. Both features occur
without interrupting the client application. In addition, Infranet utilizes the
features of the underlying database management system to improve transactional
integrity and account reliability. Because Infranet is designed to take
advantage of redundancy, adding additional systems to the architecture
increases reliability.
Security. Firewalls, proxies and filters can be installed between every tier
of the Infranet architecture to prevent unauthorized access to programs and
data. Providers can determine and audit who has access to the system. Critical
business functions run at the most secure business process tier, and access
lists restrict the use of critical operations. Session monitoring, analysis and
control occur in real-time so that problems can be identified and stopped
rapidly.
Extensibility. Infranet offers fully documented open APIs at every level of
the system. These interfaces give providers the ability to integrate Infranet
with legacy and external software. Value-added services, even those developed
by third parties, can be rapidly customized as well.
Sales and Marketing
Sales
Portal's sales strategy is to pursue targeted accounts both directly through
its direct sales force and indirectly through its strategic partners. Portal
has to date targeted its sales efforts at medium and large ISPs, on-line
service divisions of traditional telecommunications providers and other
providers of Internet-based services.
Portal maintains direct sales personnel in fourteen states across the United
States, and internationally in Australia, China, Hong Kong and the United
Kingdom. The direct sales force is organized into individual account teams,
which include both sales representatives and systems engineers. Portal
generates leads from contacts made through marketing partners, seminars and
conferences, which are usually co-sponsored by marketing partners, market
research, its Web site, trade shows, customers and its ongoing public relations
program. The direct sales force is complemented by telemarketing
representatives based at Portal's headquarters in Cupertino, California. Portal
qualifies the leads and assigns an account team to prospective customers. The
account team then initiates the sales process, which generally involves
multiple presentations to
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information technology and business professionals within the prospective
customer's organization. Portal intends to increase the size of its direct
sales force and establish additional sales offices domestically and
internationally.
Portal complements its direct sales force with a series of partnerships with
systems integrators such as Andersen Consulting, Cap Gemini, NTT Soft and
PricewaterhouseCoopers, as well as with hardware platform and software
applications developers and service providers such as Cisco, Compaq, Hewlett-
Packard, Microsoft and Sun Microsystems. These partners provide a global
extension of Portal's direct sales force and are a significant source of leads
and referrals. Portal believes these relationships also serve to validate its
technology and facilitate broad market acceptance of Infranet services.
Portal's direct sales force works closely with its indirect distribution
partners. After a partner has introduced Portal's products to a potential
customer, an in-house account team is assigned to complete the sales process.
Portal has derived, and anticipates continuing to derive, a significant
portion of its revenues from customers that have significant relationships with
Portal's market and platform partners. Many of these partners also work with
competing software companies, and Portal's success will depend on their
willingness and ability to devote sufficient resources and efforts to marketing
Portal's products. Portal's agreements with these parties typically are in the
form of non-exclusive referral fee or reseller agreements that may be
terminated by either party without cause or penalty and with limited notice.
Therefore, there is no guarantee any single party will continue to market
Portal's products. If these relationships fail, Portal will have to devote
substantially more resources to the distribution, sales and marketing,
implementation and support of Infranet. Portal intends to establish additional
indirect channels in the future. However, there can be no assurance that Portal
will be able to establish relationships with additional partners on a timely
basis or at all, or that such relationships will be successful.
Marketing
Portal's marketing programs are targeted at providers of Internet-based
services and are currently focused on creating awareness of, and generating
interest in, Infranet. Portal engages in a variety of marketing activities,
including managing and maintaining its Web site, conducting direct mailings and
ongoing public relations campaigns, conducting seminars, creating and placing
advertisements, and establishing and maintaining close relationships with
recognized industry analysts. Portal is an active participant in technology-
related conferences and demonstrates its products at trade shows targeted at
providers of Internet-based services. Portal also focuses on a range of joint
marketing strategies and programs with its partners in order to leverage their
existing strategic relationships and resources.
Customers
Portal's typical customers are providers of Internet-based services that
benefit from a scalable CM&B software solution. As of January 31, 1999, Portal
had licensed Infranet to approximately 80 customers worldwide, including:
BellSouth, Concentric Network, CyberCash, Inc., FlashNet Communications, Inc.,
France Telecom, Grolier Incorporated, Juno Online, Microsoft, NTT Soft,
Palm.net, Sage Networks, Inc., SegaSoft Networks, Inc., Shanghai Online,
USinternetworking, U S West, UUNet and Viag Interkom.
In fiscal year 1999, no customer accounted for 10% or more of Portal's total
revenues. In the fiscal years 1998 and 1997, respectively, Compuserve and
Sprint each individually accounted for more than 10% of Portal's total
revenues.
Although Portal's customers include both small and large providers of
Internet-based services, a substantial portion of Portal's license and services
revenues in any given quarter has, and is expected to continue to be, generated
from a limited number of customers with large financial commitment contracts.
As a result, if a contract is cancelled or deferred or an anticipated contract
does not materialize, Portal's revenues would be materially adversely affected.
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Research and Development
Portal believes that strong product development capabilities are essential to
its strategy of enhancing its core technology, developing additional
applications incorporating that technology and maintaining the competitiveness
of its product and service offerings. Portal has invested significant time and
resources in creating a structured process for undertaking all product
development. This process involves several functional groups at all levels
within Portal and is designed to provide a framework for defining and
addressing the activities required to bring product concepts and development
projects to market successfully. In addition, Portal has recruited key
engineers and software developers with experience in the CM&B, enterprise,
database and operating system software markets and has complemented these
individuals by hiring senior management with experience in software used by
providers of Internet-based services.
Portal's research and development expenses totaled approximately $11.3
million for the fiscal year ended January 31, 1999, $5.6 million for the fiscal
year ended January 31, 1998 and $2.5 million for the fiscal year ended January
31, 1997. As of January 31, 1999, approximately 86 employees were engaged in
research and development activities.
Competition
Portal competes in markets that are new, intensely competitive, highly
fragmented and rapidly changing. Portal competes on the basis of performance,
scalability, extensibility, ease of integration and price. Portal faces
competition from providers of traditional CM&B software such as Amdocs, Kenan
Systems (recently acquired by Lucent), LHS Group and Saville Systems; emerging
providers of Internet-specific billing software, such as Belle Systems, Solect
Technology and TAI; and providers of Internet-based services that develop
proprietary systems. Portal also competes with systems integrators and with
internal MIS departments of large telecommunications carriers. Portal is aware
of numerous other major ISPs, software developers and smaller entrepreneurial
companies that are focusing significant resources on developing and marketing
products and services that will compete with Infranet.
Portal anticipates continued growth and competition in the telecommunications
industry and the entrance of new competitors into the CM&B software market, and
that the market for its products and services will remain intensely
competitive. Many of Portal's current and future competitors have significantly
more personnel and greater financial, technical, marketing and other resources
than Portal.
Intellectual Property
Portal relies upon a combination of patent, copyright, trade secret and
trademark law to protect its intellectual property. Portal currently has three
U.S. patent applications pending related to its relational database and real-
time billing technology. In addition, Portal has two U.S. registered trademarks
and four U.S. trademark applications pending. While Portal relies on patent,
copyright, trade secret and trademark law to protect its technology, Portal
believes that factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements and reliable
product maintenance are more essential to establishing and maintaining a
technology leadership position. There can be no assurance that others will not
develop technologies that are similar or superior to Portal's technology.
Portal generally enters into confidentiality or license agreements with its
employees, consultants and corporate partners, and generally controls access to
and distribution of its software, documentation and other proprietary
information. Despite Portal's efforts to protect proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use its
products or technology or to develop products with the same functionality as
Portal's products. Policing unauthorized use of its products is difficult, and
Portal cannot be certain that the steps it has taken will prevent
misappropriation of its technology, particularly
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in foreign countries where the laws may not protect proprietary rights as fully
as do the laws of the United States. In addition, certain of Portal's license
agreements require it to place the source code for Infranet into escrow. Such
agreements generally provide that these parties will have a limited, non-
exclusive right to use this code if (1) there is a bankruptcy proceeding by or
against Portal, (2) Portal ceases to do business without a successor or (3)
Portal discontinues providing maintenance and support.
Substantial litigation regarding intellectual property rights exists in the
software industry. Portal expects that software products may be increasingly
subject to third-party infringement claims as the number of competitors in its
industry segments grows and the functionality of products in different industry
segments overlaps. Some of Portal's competitors in the market for CM&B software
may have filed or may intend to file patent applications covering aspects of
their technology that they may claim Portal's technology infringes. Portal
cannot be certain that any of these competitors will not make a claim of
infringement against it with respect to its products and technology.
Portal's success and ability to compete are substantially dependent upon its
internally developed technology. However, portions of Infranet incorporate
software developed and maintained by third-party software vendors, such as
operating systems, tools and database vendors. Portal may have to rely on
third-party software vendors and developers to a larger degree in future
products. Although Portal believes it could find other sources for these
products, any significant interruption in the supply of these products could
adversely impact Portal's sales unless and until it can secure another source.
Employees
As of January 31, 1999, Portal had 242 full-time employees, 46 of whom were
engaged in customer service and support, 73 in sales and marketing, 86 in
engineering, and 37 in finance, administration and operations. Portal's future
performance depends in significant part upon the continued service of its key
technical, sales and senior management personnel, none of whom is bound by an
employment agreement requiring service for any defined period of time. The loss
of the services of one or more of Portal's key employees could harm its
business. Portal's future success also depends on its continuing ability to
attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, particularly in the San
Francisco Bay Area where Portal is headquartered, due to the limited number of
people available with the necessary technical skills and understanding of the
Internet, and there can be no assurance that Portal can retain or attract key
personnel in the future. None of Portal's employees are represented by a labor
union. Portal has not experienced any work stoppages and considers its
relations with its employees to be good.
Facilities
Portal leases an aggregate of approximately 47,000 square feet in two
separate offices in an office complex located in Cupertino, California. Portal
occupies these premises under two leases expiring in May 2000 and October 2003.
In addition to its principal office space in Cupertino, California, Portal also
leases facilities and offices domestically in Westport, Connecticut; Boston,
Massachusetts; New York, New York; McLean, Virginia; Dallas, Texas; Chicago,
Illinois and internationally in North Sydney, New South Wales, Australia;
Slough, United Kingdom; and Hong Kong. These leases are for terms expiring from
March 1999 to October 2003. Portal believes that the facilities it currently
leases are sufficient to meet its needs through at least the next twelve
months. However, Portal believes it will require up to 50,000 additional square
feet of office space after that time and is currently seeking facilities
totaling 100,000 square feet in the same geographic area as Cupertino,
California.
Legal Proceedings
Portal is not currently party to any legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the executive
officers and directors of Portal as of February 1, 1999:
<TABLE>
<CAPTION>
Name Age Position
---------------------------- --- --------------------------------------------
<C> <C> <S>
John E. Little.............. 41 Chief Executive Officer, President and
Chairman of the Board of Directors
Jack L. Acosta.............. 51 Chief Financial Officer, Vice President,
Finance and Secretary
David S. Labuda............. 35 Chief Technology Officer and Vice President,
Engineering
Steven R. Sommer............ 43 Vice President, Marketing and Business
Development
Kevin P. Mosher............. 42 Vice President, Sales
Annette D. Surtees.......... 43 Vice President, Human Resources
Arthur C. Patterson(1)(2)... 55 Director
Edward J. Zander(2)......... 52 Director
David C. 51 Director
Peterschmidt(1)(2).........
William T. Coleman III(2)... 51 Director
</TABLE>
- --------
(1) Member of audit committee
(2) Member of compensation committee
John E. Little. Mr. Little founded Portal in March 1985 and has been Chief
Executive Officer and a Director since its inception. In addition, Mr. Little
served as President from inception to March 1996 and has served as President
since November 1996. Prior to founding Portal, Mr. Little was an independent
consultant for a number of companies including Knight-Ridder Inc., AT&T Corp.,
Raytheon Company, Dow Jones News Retrieval, a subsidiary of Dow Jones &
Company, Inc., Victor Company of Japan (JVC) and Sun Microsystems, Inc.
Jack L. Acosta. Mr. Acosta joined Portal in February 1999 as Chief Financial
Officer, Vice President, Finance and Secretary. From July 1996 to January 1999,
Mr. Acosta served as Executive Vice President and Chief Financial Officer for
Sybase, Inc., a database company. From December 1994 until July 1996,
Mr. Acosta served as Vice President, Engineering Services, Integration and
Business Management of Sybase. From March 1993 until December 1994, Mr. Acosta
served as President, Chief Operating Officer and a director of Tanon
Manufacturing, Inc., a manufacturing and engineering services company. Prior to
March 1993, Mr. Acosta held various management positions at Ungermann-Bass
Inc., Atari, Inc., Diablo Systems, Inc. and Ford Motor Company.
David S. Labuda. Mr. Labuda joined Portal in March 1994 as Vice President,
Engineering and Chief Technology Officer. From June 1990 to March 1994, Mr.
Labuda was employed by Sun Microsystems, Inc., a network computing company, as
a Director of UNIX Development. From August 1985 to June 1990, Mr. Labuda
worked for Sun Microsystems as a Senior Engineer and Manager, including
managing the software development for the SparcStation 1 and SparcStation 2
projects. Mr. Labuda received the first Sun Presidential Award and holds three
patents from his tenure there.
Steven R. Sommer. Mr. Sommer joined Portal in July 1997 as Vice President,
Marketing and Business Development. From May 1993 to July 1997, Mr. Sommer
served as Vice President, Worldwide Marketing and Enterprise Solutions for
Informix Corporation, an enterprise database company. From February 1990 until
April 1993, Mr. Sommer served as Vice President, Marketing for Cognos, Inc., an
applications and tools
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development software company. Prior to February 1990, Mr. Sommer held various
other marketing positions at Digital Equipment Corporation, Scitex America
Corp., McKinsey & Company, Inc. and Procter and Gamble Company.
Kevin P. Mosher. Mr. Mosher joined Portal in March 1997 as Vice President,
Sales. From January 1996 to February 1997, Mr. Mosher served as Vice President
of Sales for Software Emancipation, Inc., a software development and testing
company. From May 1995 to November 1995, Mr. Mosher served as Vice President,
National Sales at Watermark Software, Inc., an enterprise software company.
From February 1991 to May 1995, Mr. Mosher served as Regional Vice President at
Interleaf, Inc., a software tool company. From 1985 to 1991, Mr. Mosher held
various senior sales management positions at Oracle Corporation.
Annette D. Surtees. Ms. Surtees joined Portal in August 1998 as Vice
President, Human Resources. From February 1998 through July 1998, Ms. Surtees
served as Director of Human Resources for VLSI Technology, Inc., an integrated
circuit design and manufacturing company. From February 1997 to February 1998,
Ms. Surtees was an independent consultant. From May 1988 until February 1997,
Ms. Surtees held various human resources management positions at Seagate
Technology, Inc., a data technology company, most recently as Vice President,
Human Resources for Corporate, U.S. and European Operations.
Arthur C. Patterson. Mr. Patterson has been a Director of Portal since March
1996. Mr. Patterson is a founder and General Partner of Accel Partners, a
venture capital firm. Mr. Patterson invests in enterprise software and
communications services companies. Mr. Patterson also serves as a director of
PageMart Wireless, Inc., a communications services company, Unify Corporation,
an enterprise software company, Actuate Software Corporation, an enterprise
reporting software company, Viasoft, Inc., a software tools company, as well as
several private enterprise software and communications companies.
Edward J. Zander. Mr. Zander has been a Director of Portal since August 1997.
Since January 1998, Mr. Zander has served as Chief Operating Officer of Sun
Microsystems. From February 1995 until January 1998, Mr. Zander served as
President of Sun Microsystems Computer Company, a subsidiary of Sun
Microsystems. From January 1991 to February 1995, Mr. Zander was President of
SunSoft, Inc., the software subsidiary of Sun Microsystems. From October 1987
to January 1991, Mr. Zander was Vice President of Marketing at Sun
Microsystems. Mr. Zander also serves as a director of Documentum, Inc., a
developer of Internet and client/server software-based solutions.
David C. Peterschmidt. Mr. Peterschmidt has served as a Director of Portal
since April 1998. Mr. Peterschmidt has been President, Chief Executive Officer
and a Director of Inktomi Corporation, an internet search engine company, since
July 1996. He was appointed Chairman of the Board of Directors of Inktomi in
December 1997. From 1991 through June 1996, he served as Chief Operating
Officer and Executive Vice President of Sybase. Mr. Peterschmidt also served as
a Captain in the United States Air Force for nine years, where he was Lead
Contract Negotiator on Rockwell International's B1 Bomber Program.
William T. Coleman III. Mr. Coleman has served as a Director of Portal since
April 1998. Mr. Coleman is a founder of BEA Systems, Inc., a software company,
and has been its President, Chief Executive Officer and Chairman of the Board
of Directors since BEA's inception in January 1995. From December 1985 to
January 1995, Mr. Coleman held various positions at Sun Microsystems, most
recently as Vice President and General Manager of the Sun Integration Division.
Board of Directors and Committees
Portal currently has authorized five directors. Following this offering, the
board will consist of five directors divided into three classes, with each
class serving for a term of three years. At each annual meeting of
stockholders, directors will be elected by the
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holders of common stock to succeed the directors whose terms are expiring.
Messrs. Patterson and Coleman are Class I directors whose terms will expire in
2000, Mr. Zander is a Class II director whose term will expire in 2001, and
Messrs. Little and Peterschmidt are Class III directors whose terms will expire
in 2002. The officers serve at the discretion of the board.
Portal has established an audit committee, which reviews and supervises
Portal's financial controls, including the selection of its auditors, reviews
the books and accounts, meets with its officers regarding its financial
controls, acts upon recommendations of auditors and takes further actions as
the audit committee deems necessary to complete an audit of Portal's books and
accounts, as well as other matters which may come before it or as directed by
the board. The audit committee currently consists of two directors, Messrs.
Patterson and Peterschmidt.
Portal has established a compensation committee, which reviews and approves
the compensation and benefits for Portal's executive officers, administers its
stock plans and performs other duties as may from time to time be determined by
the board. The compensation committee currently consists of four directors,
Messrs. Patterson, Zander, Peterschmidt and Coleman.
Compensation Committee Interlocks and Insider Participation
None of Portal's executive officers serve on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of Portal's board or compensation committee.
Director Compensation
Portal currently does not compensate any non-employee member of the board.
Members of the board will be eligible to receive discretionary option grants
and stock issuances under the 1999 Stock Incentive Plan. In addition, under the
1999 Stock Incentive Plan, non-employee directors will receive automatic option
grants on the date of each annual meeting of stockholders. The 1999 Stock
Incentive Plan also contains a director fee option grant program. Should this
program be activated in the future, each non-employee board member will have
the opportunity to apply all or a portion of any annual retainer fee otherwise
payable in cash to the acquisition of a below-market option grant. See
"Management--Benefit Plans".
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Executive Compensation
Summary Compensation Table. The following table sets forth certain
information with respect to the compensation of Portal's Chief Executive
Officer and Portal's four next most highly compensated executive officers who
earned more than $100,000 for the fiscal year ended January 31, 1999
(collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
Fiscal Year --------------------
Name and Principal Position Ended Salary ($) Bonus ($)
--------------------------- ----------- ---------- ---------
<S> <C> <C> <C>
John E. Little................................ 1999 $185,000 $ 40,000
Chief Executive Officer,
President and
Chairman of the Board of Directors
Richard C. Spalding(1)........................ 1999 160,000 6,000
Chief Financial Officer,
Vice President, Finance
and Secretary
David S. Labuda............................... 1999 208,000 52,000
Chief Technology Officer
and Vice President, Engineering
Steven R. Sommer.............................. 1999 180,000 50,000
Vice President, Marketing
and Business Development
Kevin P. Mosher............................... 1999 140,000 110,000
Vice President, Sales
Dong Joo (Karen) Ha(2)........................ 1999 150,000 43,000
Vice President, Client Services
</TABLE>
- --------
(1) Mr. Spalding resigned as Chief Financial Officer, Vice President, Finance
and Secretary effective January 31, 1999 but remains an employee of Portal.
(2) Ms. Ha resigned as Vice President, Client Services on October 31, 1998 and
remains an employee of Portal. Ms. Ha earned $150,000 in the fiscal year
ended January 31, 1999 based on an annual salary of $180,000.
Pursuant to a letter agreement dated as of December 24, 1998, Mr. Jack L.
Acosta, Portal's Chief Financial Officer, Vice President, Finance and
Secretary, is to receive an annual salary of $200,000 for the fiscal year
ending January 31, 2000, has received a one-time signing bonus of $25,000 and
is eligible to receive up to an aggregate of $80,000 upon the achievement of
certain performance milestones. Mr. Acosta was granted an option to purchase
360,000 shares of common stock, of which 72,000 shares will vest upon
consummation of this offering and the balance will vest monthly from the date
of grant over four years of Mr. Acosta's continued employment with Portal.
Option Grants. No option grants or stock appreciation rights were granted to
any Named Executive Officer during the fiscal year ended January 31, 1999.
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Aggregate Option Exercises and Option Values. The following table sets forth
information concerning option exercises and option holdings for the Named
Executive Officers as of January 31, 1999. No stock appreciation rights were
exercised during the fiscal year ended January 31, 1999 and no stock
appreciation rights were outstanding at the end of the fiscal year.
Option Exercises in the Fiscal Year Ended January 31, 1999 and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money
Shares Options at FY-End Options at FY-End(3)
Acquired on Value ---------------------------- ---------------------------------
Name Exercise Realized(1) Exercisable(2) Unexercisable Exercisable ($) Unexercisable ($)
- ---- ----------- ----------- -------------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
John E. Little.......... -- -- -- -- -- --
Richard C. Spalding..... -- -- -- -- -- --
David S. Labuda......... -- -- -- -- -- --
Steven R. Sommer........ -- -- -- -- -- --
Kevin P. Mosher......... -- -- -- -- -- --
Dong Joo (Karen) Ha..... 33,333 0 66,667 -- $666,670 --
</TABLE>
- --------
(1) Based on the fair market value of Portal's common stock on the date of
exercise, as determined by the board, less the exercise price payable for
such shares.
(2) The options are immediately exercisable for all the option shares, but any
shares purchased under the options will be subject to repurchase by Portal
at the original exercise price per share upon the optionee's cessation of
service prior to vesting in these shares. As of January 31, 1999, Portal's
repurchase right had lapsed as to all 33,333 shares which Ms. Ha has
exercised.
(3) Based on the fair market value of Portal's common stock on January 31,
1999, as determined by the board, less the option exercise price payable
for such shares.
Benefit Plans
1999 Stock Incentive Plan. Portal's 1999 Stock Incentive Plan is intended to
serve as the successor equity incentive program to its 1995 Stock Option/Stock
Issuance Plan. The 1999 Stock Incentive Plan was adopted by the board in
February 1999 and is expected to be approved by the stockholders in March 1999.
The 1999 Stock Incentive Plan will become effective upon the execution of the
underwriting agreement for the offering. All outstanding options under the 1995
Stock Option/Stock Issuance Plan will at that time be incorporated into the
1999 Stock Incentive Plan, and no further option grants will be made under the
1995 Stock Option/Stock Issuance Plan. The incorporated options will continue
to be governed by their existing terms, unless the plan administrator elects to
extend one or more features of the 1999 Stock Incentive Plan to those options.
Except as otherwise noted below, the incorporated options have substantially
the same terms as will be in effect for grants made under the Discretionary
Option Grant Program of the 1999 Stock Incentive Plan.
An initial reserve of 1,200,000 shares of common stock has been authorized
for issuance under the 1999 Stock Incentive Plan. This share reserve consists
of (i) the number of shares estimated to remain available for issuance under
the 1995 Stock Option/Stock Issuance Plan on the effective date of the new 1999
Stock Incentive Plan, including the shares subject to outstanding options
thereunder, plus (ii) an additional increase as necessary to bring the total
reserve to 1,200,000 shares. The number of shares of common stock reserved for
issuance under the 1999 Stock Incentive Plan will automatically increase on the
first trading day in February of each fiscal year, beginning in the fiscal
year ending January 31, 2001, by an amount equal to four percent (4%) of the
total number of shares of common stock outstanding on the last trading day in
January in the preceding fiscal year, but in no event will this annual increase
exceed 1,500,000 shares. In addition, no participant in the 1999 Stock
50
<PAGE>
Incentive Plan may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances for more than 1,000,000 shares
of common stock in the aggregate in any calendar year.
The 1999 Stock Incentive Plan is divided into five separate components:
. the Discretionary Option Grant Program, under which eligible individuals in
Portal's employ or service (including officers, non-employee board members
and consultants) may, at the discretion of the plan administrator, be
granted options to purchase shares of common stock at an exercise price not
less than 100% of the fair market value of those shares on the grant date;
. the Stock Issuance Program, under which eligible individuals may, in the
plan administrator's discretion, be issued shares of common stock directly,
upon the attainment of designated performance milestones or upon the
completion of a specified service requirement or as a bonus for past
services;
. the Salary Investment Option Grant Program, which may, at the plan
administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow executive officers and other highly
compensated employees the opportunity to apply a portion of their base
salary to the acquisition of special below-market stock option grants;
. the Automatic Option Grant Program, under which option grants will
automatically be made at periodic intervals to eligible non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
. the Director Fee Option Grant Program, which may, in the plan
administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow non-employee board members the
opportunity to apply a portion of the annual retainer fee otherwise payable
to them in cash each year to the acquisition of special below-market option
grants.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the compensation committee. The compensation committee as
plan administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when the grants or issuances are to be made, the
number of shares subject to each grant or issuance, the status of any granted
option as either an incentive stock option or a non-statutory stock option
under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted
option is to remain outstanding. However, the board acting by disinterested
majority will have the exclusive authority to make any discretionary option
grants or stock issuances to members of the compensation committee. The
compensation committee will also have the exclusive authority to select the
executive officers and other highly compensated employees who may participate
in the Salary Investment Option Grant Program in the event that program is
activated for one or more calendar years. Neither the compensation committee
nor the board will exercise any administrative discretion with respect to
option grants under the Salary Investment Option Grant Program or under the
Automatic Option Grant or Director Fee Option Grant Program for the non-
employee board members. All grants under those latter three programs will be
made in strict compliance with the express provisions of each program.
The exercise price for the shares of common stock subject to option grants
made under the 1999 Stock Incentive Plan may be paid in cash or in shares of
common stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day sale program without any cash outlay by
the optionee.
The plan administrator will have the authority to effect the cancellation of
outstanding options under the Discretionary
51
<PAGE>
Option Grant Program (including options incorporated from the 1995 Stock
Option/Stock Issuance Plan) in return for the grant of new options for the same
or different number of option shares with an exercise price per share based
upon the fair market value of the common stock on the new grant date.
Stock appreciation rights are authorized for issuance under the Discretionary
Option Grant Program. These rights will provide the holders with the election
to surrender their outstanding options for an appreciation distribution from
Portal equal to the excess of (i) the fair market value of the vested shares of
common stock subject to the surrendered option over (ii) the aggregate exercise
price payable for those shares. Such appreciation distribution may be made in
cash or in shares of common stock. None of the incorporated options from the
1995 Stock Option/Stock Issuance Plan contain any stock appreciation rights.
In the event that Portal is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate in full,
and all unvested shares under the Discretionary Option Grant and Stock Issuance
Programs will immediately vest, except to the extent Portal's repurchase rights
with respect to those shares are to be assigned to the successor corporation.
The plan administrator will have complete discretion to grant one or more
options under the Discretionary Option Grant Program which will vest and become
exercisable for all the option shares in the event those options are assumed in
the acquisition but the optionee's service with Portal or the acquiring entity
is involuntarily terminated within a designated period (not to exceed eighteen
months) following that acquisition. The vesting of outstanding shares under the
Stock Issuance Program may be accelerated upon similar terms and conditions.
The plan administrator is also authorized to grant options and structure
repurchase rights so that the shares subject to those options or repurchase
rights will immediately vest in connection with a change in ownership or
control of Portal (whether by successful tender offer for more than fifty
percent of the outstanding voting stock or by a change in the majority of the
board through one or more contested elections for board membership). Such
accelerated vesting may occur either at the time of such change or upon the
subsequent termination of the individual's service within a designated period
(not to exceed eighteen months) following the change.
The options to be incorporated from the 1995 Stock Option/Stock Issuance Plan
will immediately vest upon an acquisition of Portal by merger or asset sale,
unless Portal's repurchase rights with respect to the unvested shares subject
to those options are assigned to the successor entity. There are no other
change in control provisions currently in effect for those options. However,
the plan administrator will have the discretion to extend the acceleration
provisions of the 1999 Stock Incentive Plan to any or all of the options
outstanding under the 1995 Stock Option/Stock Issuance Plan.
In the event the plan administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer and
other highly compensated employee of Portal selected for participation may
elect, prior to the start of the calendar year, to reduce his or her base
salary for that calendar year by a specified dollar amount not less than
$10,000 nor more than $50,000. Each selected individual who timely files this
election will automatically be granted, on the first trading day in January of
the calendar year for which that salary reduction is to be in effect, a non-
statutory option to purchase that number of shares of common stock determined
by dividing the salary reduction amount by two-thirds of the fair market value
per share of common stock on the grant date. The option will be exercisable at
a price per share equal to one-third of the fair market value of the option
shares on the grant date. As a result, the total spread on the option shares at
the time of grant (the fair market value of the option shares on the grant date
less the aggregate exercise price payable for those shares) will be equal to
the amount of salary invested in that option. The option will vest and become
exercisable in a series of twelve equal monthly installments over the
52
<PAGE>
calendar year for which the salary reduction is to be in effect.
Under the Automatic Option Grant Program, each non-employee board member who
is to continue to serve as a non-employee board member after the annual meeting
will automatically be granted an option to purchase 6,000 shares of common
stock, provided the individual has served on the board for at least six months
prior to the annual meeting.
Each automatic grant will have a term of ten (10) years, subject to earlier
termination following the optionee's cessation of board service. Each automatic
grant shall vest immediately in full upon the date of grant.
If the Director Fee Option Grant Program is activated in the future, each
non-employee board member will have the opportunity to apply all or a portion
of any annual retainer fee otherwise payable in cash to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of common stock on the grant date. As a result,
the total spread on the option (the fair market value of the option shares on
the grant date less the aggregate exercise price payable for those shares) will
be equal to the portion of the retainer fee invested in that option. The option
will vest and become exercisable for the option shares in a series of twelve
equal monthly installments over the calendar year for which the election is to
be in effect. However, the option will become immediately exercisable and
vested for all the option shares upon (i) certain changes in the ownership or
control of Portal or (ii) the death or disability of the optionee while serving
as a board member.
The shares subject to each option under the Salary Investment Option Grant,
Automatic Option Grant and Director Fee Option Grant Programs will immediately
vest upon (i) an acquisition of Portal by merger or asset sale or (ii) the
successful completion of a tender offer for more than 50% of Portal's
outstanding voting stock or a change in the majority of the board effected
through one or more contested elections for board membership.
Limited stock appreciation rights will automatically be included as part of
each grant made under the Automatic Option Grant, Salary Investment Option
Grant and Director Fee Option Grant Programs and may be granted to one or more
officers of Portal as part of their option grants under the Discretionary
Option Grant Program. Options with this limited stock appreciation right may be
surrendered to Portal upon the successful completion of a hostile tender offer
for more than 50% of Portal's outstanding voting stock. In return for the
surrendered option, the optionee will be entitled to a cash distribution from
Portal in an amount per surrendered option share equal to the excess of (i) the
highest price per share of common stock paid in connection with the tender
offer over (ii) the exercise price payable for such share.
The board may amend or modify the 1999 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 1999 Stock Incentive Plan
will terminate on the earliest of (i) , 2009, (ii) the date on which
all shares available for issuance under the 1999 Stock Incentive Plan have been
issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with certain changes in control or ownership of Portal.
1999 Employee Stock Purchase Plan. Portal's 1999 Employee Stock 1999 Employee
Stock Purchase Plan was adopted by the board in February 1999 and is expected
to be approved by the stockholders in March 1999 and will become effective
immediately upon the execution of the Underwriting Agreement for this offering.
The 1999 Employee Stock Purchase Plan is designed to allow eligible employees
of Portal and participating subsidiaries to purchase shares of common stock, at
semi-annual intervals, through periodic payroll deductions under the 1999
Employee Stock Purchase Plan.
53
<PAGE>
600,000 shares of common stock will initially be reserved for issuance under
the 1999 Employee Stock Purchase Plan. The reserve will automatically increase
on the first trading in February each year, beginning with the fiscal year
ending January 31, 2001, by an amount equal to two percent (2%) of the total
number of outstanding shares of Portal common stock on the last trading day in
January in the immediately preceding fiscal year, but in no event will any such
annual increase exceed 750,000 shares.
The 1999 Employee Stock Purchase Plan will be implemented in a series of
successive offering periods, each with a maximum duration of 24 months.
However, the initial offering period will begin on the execution date of the
underwriting agreement for the offering and will end on the last business day
in July 2001. The next offering period will commence on the first business day
in August 2001, and subsequent offering periods will commence as designated by
the plan administrator.
Individuals who are eligible employees (scheduled to work more than 20 hours
per week for more than five calendar months per year) on the start date of any
offering period may enter the 1999 Employee Stock Purchase Plan on that start
date or on any subsequent semi-annual entry date (the first business day of
February or August each year). Individuals who become eligible employees after
the start date of the offering period may join the 1999 Employee Stock Purchase
Plan on any subsequent semi-annual entry date within that offering period.
Payroll deductions may not exceed 10% of the participant's cash earnings, and
the accumulated payroll deductions of each participant will be applied to the
purchase of shares on his or her behalf on each semi-annual purchase date (the
last business day in January and July each year) at a purchase price per share
equal to 85% of the lower of (i) the fair market value of the common stock on
the participant's entry date into the offering period or (ii) the fair market
value on the semi-annual purchase date. In no event, however, may any
participant purchase more than 7,500 shares on any semi-annual purchase date
nor may all participants in the aggregate purchase more than 7,500 shares on
any semi-annual purchase date.
If the fair market value per share of Portal common stock on any purchase
date is less than the fair market value per share on the start date of the two-
year offering period, then that offering period will automatically terminate,
and a new two-year offering period will begin on the next business day, with
all participants in the terminated offering to be automatically transferred to
the new offering period.
Should Portal be acquired by merger, sale of substantially all its assets or
sale of securities possessing more than fifty percent of the total combined
voting power of Portal's outstanding securities, then all outstanding purchase
rights will automatically be exercised immediately prior to the effective date
of the acquisition. The purchase price will be equal to 85% of the lower of (i)
the fair market value per share of common stock on the participant's entry date
into the offering period in which an acquisition occurs or (ii) the fair market
value per share of common stock immediately prior to the acquisition.
The 1999 Employee Stock Purchase Plan will terminate on the earlier of (i)
the last business day of July 2009, (ii) the date on which all shares available
for issuance under the 1999 Employee Stock Purchase Plan shall have been sold
pursuant to purchase rights exercised thereunder or (iii) the date on which all
purchase rights are exercised in connection with an acquisition of Portal by
merger or asset sale.
The board may at any time alter, suspend or discontinue the 1999 Employee
Stock Purchase Plan. However, certain amendments may require stockholder
approval.
Employment Contracts,
Termination of Employment Agreements
and Change in Control Arrangements
Portal does not currently have any employment agreements or severance
programs in effect for any of the Named
54
<PAGE>
Executive Officers. Portal provides incentives such as salary, cash bonuses and
option grants (which typically vest over a four-year period) to attract and
retain qualified executives and other members of senior management.
Pursuant to a letter agreement with Portal dated as of December 24, 1998, in
the event that the employment of Mr. Acosta, Portal's Chief Financial Officer,
Vice President, Finance and Secretary, is terminated by Portal or its successor
for any reason other than for cause, Mr. Acosta will receive one year of
severance pay based on his base salary for that year. In addition, if Mr.
Acosta is terminated, or his role is materially diminished, within 18 months of
a change in control or acquisition of Portal, all of his unvested options will
vest in full.
In connection with an acquisition of Portal by merger or asset sale, Portal's
repurchase right with respect to the shares of common stock acquired by Mr.
Spalding (pursuant to an incentive stock issuance) and Mr. Mosher (pursuant to
the exercise of stock options) issued under the 1995 Stock Option/Stock
Issuance Plan will automatically lapse and the shares will vest in full, unless
the repurchase right is assigned to the successor entity. In addition, Mr.
Sommer, Portal's Vice President, Marketing and Business Development, will vest
in the lesser of (i) twenty-five percent (25%) of the purchased shares or (ii)
fifty percent (50%) of his unvested shares upon a merger or asset sale. In
addition, the compensation committee as plan administrator of the 1999 Stock
Incentive Plan will have the authority to grant options and to structure
repurchase rights under that plan so that the shares subject to those options
or repurchase rights will immediately vest in connection with a change in
control of Portal (whether by merger, asset sale, successful tender offer for
more than fifty percent (50%) of the outstanding voting stock or by a change in
the majority of the board by reason of one or more contested elections for
board membership), with this vesting to occur either at the time of this change
in control or upon the subsequent involuntary termination of the individual's
service within a designated period (not to exceed 18 months) following a change
in control.
Limitation of Liability and Indemnification
Portal's certificate of incorporation eliminates to the maximum extent
allowed by the Delaware General Corporation Law, subject to certain exceptions,
directors' personal liability to Portal or its stockholders for monetary
damages for breaches of fiduciary duties. The certificate of incorporation does
not, however, eliminate or limit the personal liability of a director for the
following:
. any breach of the director's duty of loyalty to Portal or its stockholders;
. acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or redemptions
as provided in Section 174 of the Delaware General Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
Portal's bylaws provide that Portal shall indemnify its directors and
executive officers to the fullest extent permitted under the Delaware General
Corporation Law and may indemnify its other officers, employees and other
agents as set forth in the Delaware General Corporation Law. In addition,
Portal has entered into an indemnification agreement with each of its directors
and officers. The indemnification agreements contain provisions that require
Portal, among other things, to indemnify its directors and executive officers
against certain liabilities (other than liabilities arising from intentional or
knowing and culpable violations of law) that may arise by reason of their
status or service as directors or executive officers of Portal or other
entities to which they provide service at the request of Portal and to advance
expenses they may incur as a result of any proceeding against them as to which
they could be indemnified. Portal believes that these bylaw provisions and
indemnification agreements are necessary to attract and retain qualified
directors and officers. Prior to the consummation of the offering, Portal will
obtain an insurance policy covering directors and officers for claims they may
otherwise be required to pay or for which Portal is required to indemnify them,
subject to certain exclusions.
55
<PAGE>
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of Portal where indemnification will be
required or permitted, and Portal is not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.
56
<PAGE>
CERTAIN TRANSACTIONS
Sales of Preferred Stock
Since March 1996, Portal has raised capital primarily through the sale of its
preferred stock. In March 1996, Portal sold an aggregate of 4,514,965 shares of
Series A Preferred Stock at a price of $0.50 per share (after giving effect to
a 5-for-1 stock split effected by Portal in June 1996) to entities affiliated
with Accel Partners. In January 1997, upon the exercise of Series A Preferred
Stock Warrants, Portal issued 1,025,000 shares of Series A Preferred Stock for
an aggregate consideration of $512,500 to entities affiliated with Accel
Partners. In January, May and August 1998, Portal sold an aggregate of
3,411,999 shares of Series B Preferred Stock at a price of $4.50 per share. The
following table summarizes the shares of preferred stock purchased by Portal's
executive officers, directors and 5% percent stockholders and persons
associated with them since March 1996.
<TABLE>
<CAPTION>
Total Shares
Series A Series B on an As-
Preferred Preferred Converted
Investor Stock Stock Basis(1)
- -------- --------- --------- ------------
<S> <C> <C> <C>
Entities affiliated with Accel Partners(2).... 5,539,965 1,000,000 6,539,965
David C. Peterschmidt......................... -- 22,222 22,222
Edward J. Zander.............................. -- 22,222 22,222
William T. Coleman III........................ -- 22,222 22,222
</TABLE>
- --------
(1) Reflects a one-to-one conversion to common stock ratio for each share of
Series A and Series B Preferred Stock.
(2) Represents shares held by Accel Internet/Strategic Technology Fund LP,
Accel Investors '96 LP, Accel Keiretsu V LP, Accel V LP and Ellmore C.
Patterson Partners. Mr. Arthur C. Patterson, a director of Portal, is a
general partner of Accel Partners.
Holders of shares of preferred stock are entitled to certain registration
rights with respect to the common stock issued or issuable upon conversion
thereof. See "Description of Capital Stock--Registration Rights".
Other Related Party Transactions
Portal has also granted options and issued common stock to certain of its
executive officers and directors. See "Management--Director Compensation", and
"Principal Stockholders".
Portal has entered into an Indemnification Agreement with each of its
executive officers and directors containing provisions that may require it,
among other things, to indemnify its officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a culpable
nature) and to advance expenses incurred as a result of any proceeding against
them as to which they could be indemnified. See "Management--Limitation on
Liability and Indemnification Matters".
Portal believes that all of the transactions set forth above were made on
terms no less favorable to Portal than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between Portal and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the board of directors, including
a majority of the independent and disinterested outside directors of the board
of directors and will be on terms no less favorable to Portal than could be
obtained from unaffiliated third parties.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to Portal with respect to
the beneficial ownership of its common stock as of January 31, 1999 by (i) each
stockholder known by Portal to own beneficially more than 5% of common stock,
(ii) each director of Portal, (iii) each of the Named Executive Officers and
(iv) all current directors and executive officers of Portal as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws, where applicable. As of January 31, 1999, there were 22,611,910
shares of common stock outstanding.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned(2)
Number of Shares ------------------------
Name and Address of Beneficial Beneficially Prior to After the
Owner(1) Owned(2) Offering Offering
- ------------------------------ ---------------- ---------- ----------
<S> <C> <C> <C>
Entities affiliated with Accel
Partners(3)
One Palmer Square
Princeton, NJ 08542.............. 7,046,252 31.2%
John E. Little.................... 6,327,860 28.0
David S. Labuda(4)................ 2,167,752 9.6
Steven R. Sommer(5)............... 359,932 1.6
Kevin P. Mosher(6)................ 225,000 1.0
Arthur C. Patterson(3)............ 7,046,252 31.2
Edward J. Zander(7)............... 100,000 *
David C. Peterschmidt(8).......... 72,222 *
William T. Coleman III(9)......... 72,222 *
Richard C. Spalding(10)........... 502,812 2.2
Dong Joo (Karen) Ha(11)........... 300,000 1.3
All directors and executive
officers as a group
(ten (10) persons)(12)........... 16,771,240 72.9%
</TABLE>
- --------
* Less than 1%.
(1) Except as otherwise noted, the address of each person listed on the table
is c/o Portal Software, Inc., 20883 Stevens Creek Boulevard, Cupertino,
California 95014.
(2) Assumes no exercise of the underwriters' over-allotment option. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options currently
exercisable or exercisable within sixty (60) days of the date of this
prospectus are deemed to be outstanding and to be beneficially owned by
the person holding these options for the purpose of computing the number
of shares beneficially owned and the percentage of this person or entity
holding these securities but are not outstanding for the purpose of
computing the percentage of any other person or entity.
(3) Represents 760,994 shares held by Accel Internet/Strategic Technology Fund
LP, 338,222 shares held by Accel Investors '96 LP, 112,741 shares held by
Accel Keiretsu V LP, 5,679,277 shares held by Accel V LP, and
155,018 shares held by Ellmore C. Patterson Partners (collectively the
"Accel Partnerships"). Mr. Patterson is a managing member of Accel
Partners, the General Partner of each of the Accel Partnerships, and a
director of Portal. However, Mr. Patterson disclaims beneficial ownership
of all these shares, except to the extent of his pecuniary interest in the
Accel Partnerships.
(4) Includes 1,544,290 shares held in trust by Mr. Labuda as trustee of the
David S. Labuda Separate Property Trust U/D/T dated December 30, 1998.
Also includes 500,000 shares held in trust by Mr. Labuda and Cindy A.
Labuda, Mr. Labuda's wife, as trustees of the Labuda Community Trust U/D/T
dated December 30, 1998. Also includes 73,462 shares of common stock held
by Cindy A. Labuda, trustee of the Cindy A. Labuda Separate Property Trust
U/D/T dated December 30, 1998 and 50,000 shares held in the name of the
Kira Anne Labuda Trust dated 12/31/97. Mr. Labuda disclaims beneficial
ownership of all of these 123,462 shares.
(5) Includes 25,000 shares held in trust for Allison Sommer, 25,000 shares
held in trust for Julia Sommer and 25,000 shares held in trust for Rachel
Sommer. Mr. Sommer disclaims beneficial ownership of all of these
75,000 shares. Includes 224,958 shares of common stock subject to Portal's
right of repurchase. This repurchase right lapses with respect to 7,499
shares per month.
(6) Includes 121,870 shares of common stock subject to Portal's right of
repurchase. This repurchase right lapses with respect to 4,688 shares per
month.
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<PAGE>
(7) Includes 50,233 shares of common stock subject to Portal's right of
repurchase. This repurchase right lapses with respect to 1,620 shares per
month.
(8) Includes 50,000 shares of common stock which are subject to Portal's right
of repurchase. Such repurchase right lapses as to 12,500 shares on April
16, 1999 and as to 1,042 shares per month from April 17, 1999 through
April 16, 2002.
(9) Includes 50,000 shares of common stock which are subject to Portal's right
of repurchase. Such repurchase right lapses as to 12,500 shares on April
16, 1999 and as to 1,042 shares per month from April 17, 1999 through
April 16, 2002.
(10) Includes 261,881 shares of common stock subject to Portal's right of
repurchase. This repurchase right lapses with respect to 10,475 shares per
month. Also includes 80,000 shares held by Francis A. Martin, III,
trustee, for the benefit of Charles T. Spalding, 80,000 shares held by
Francis A. Martin, III, trustee, for the benefit of Patrick M. Spalding
and 80,000 shares held by Francis A. Martin, III, trustee, for the benefit
of Consuelo Tobin and Martin Spalding. Mr. Spalding disclaims beneficial
ownership of these 240,000 shares.
(11) Includes 180,000 shares held by Young Soo Ha and Dong Joo (Karen) Ha,
trustees of the Ha Family 1997 Trust, dated December 22, 1997. Also
includes 20,000 shares held by Linda Chang, trustee of the Perry Joo-Hyup
Ha 1997 Trust, dated December 22, 1997. Also includes 66,667 shares of
common stock issuable upon exercise of immediately exercisable options.
(12) Includes 400,000 shares of common stock issuable upon exercise of
immediately exercisable options, and 497,061 shares of common stock
subject to Portal's right of repurchase. This repurchase right lapses with
respect to 13,807 shares per month.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
At the closing of this offering, the authorized capital stock of Portal will
consist of 200,000,000 shares of common stock, $0.001 par value, and 5,000,000
shares of preferred stock, $0.001 par value, after giving effect to the
amendment of Portal's certificate of incorporation to delete references to the
preferred stock following conversion of the stock. The following description of
capital stock gives effect to the certificate of incorporation to be filed upon
closing of this offering. Immediately following the completion of this
offering, and assuming no exercise of the underwriters' over-allotment option,
an aggregate of shares of common stock will be issued and outstanding,
and no shares of preferred stock will be issued and outstanding.
The following description of Portal's capital stock does not purport to be
complete and is subject to and qualified in its entirety by Portal's
certificate of incorporation and bylaws and by the provisions of the applicable
Delaware law.
Common Stock
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 that may come into existence, the
holders of common stock are entitled to receive ratably those dividends, if
any, as may be declared from time to time by the board of directors out of
funds legally available for dividends. See "Dividend Policy". In the event of
liquidation, dissolution or winding up of Portal, the holders of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be outstanding
upon completion of this offering will be fully paid and nonassessable.
Preferred Stock
Portal's board of directors is authorized to issue from time to time, without
stockholder authorization, in one or more designated series, any or all of the
authorized but unissued shares of preferred stock of Portal with any dividend,
redemption, conversion and exchange provisions as may be provided in the
particular series. Any series of preferred stock may possess voting, dividend,
liquidation and redemption rights superior to that of the common stock. The
rights of the holders of 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. Issuance of a new series of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of entrenching Portal's board
of directors and making it more difficult for a third party to acquire, or
discourage a third party from acquiring, a majority of the outstanding voting
stock of Portal. Portal has no present plans to issue any shares of or
designate any series of preferred stock.
Warrants
At January 31, 1999, there were warrants outstanding to purchase a total of
194,566 shares of Common Stock on an as-converted basis. Warrants to purchase
4,167 shares of common stock at $0.05 per share will expire in January 2003.
Warrants to purchase 113,700 shares of Series A Preferred Stock at $0.50 per
share will expire in April 1999. Warrants to purchase 76,699 shares of Series B
Preferred Stock at $4.50 per share will expire in September 2003.
Registration Rights
Pursuant to the Amended and Restated Investor Rights Agreement dated as of
January 29, 1998, as amended on March 3, 1998 and April 17, 1998, among Portal
and certain holders of its securities, the holders of approximately 10,057,316
shares of common
60
<PAGE>
stock, or Registrable Securities, after this offering will be entitled to
certain rights with respect to the registration of the Registrable Securities
under the Securities Act. Under the Investor Rights Agreement, if Portal
proposes to register any of its securities under the Securities Act, either for
its own account or the account of other stockholders, the holders of
Registrable Securities are entitled to notice of such registration and are
entitled to include their Registrable Securities in the registration. In
addition, if at any time beginning three months after the date of this
prospectus, Portal receives a request from certain holders of at least 20% of
the Registrable Securities, Portal is obligated to cause these shares to be
registered under the Securities Act (provided that the offering size would
exceed $10,000,000). Certain holders of Registrable Securities have the right
to cause three demand registrations. Further, holders of Registrable Securities
may require Portal to register all or a portion of their Registrable Securities
on Form S-2 or Form S-3 under the Securities Act (provided that the offering
size would exceed $1,000,000), when these forms become available for use by
Portal, and subject to certain other conditions and limitations. The holders'
rights with respect to all these registrations are subject to certain
conditions, including the right of the underwriters of any of these offerings
to limit the number of shares included in any of these registrations. Portal
has agreed to pay all expenses related to certain of these registrations,
except for underwriting discounts and commissions, to effect the registration
and sale of the Registrable Securities.
Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws
and Delaware Law
Portal's certificate of incorporation authorizes the board to establish one
or more series of undesignated preferred stock, the terms of which can be
determined by the board at the time of issuance. See "--Preferred Stock". The
certificate of incorporation also provides that all stockholder action must be
effected at a duly called meeting of stockholders and not by a consent in
writing. In addition, the certificate of incorporation and bylaws do not permit
stockholders of Portal to call a special meeting of stockholders. Only Portal's
Chief Executive Officer, President, Chairman of the Board or a majority of the
board are permitted to call a special meeting of stockholders. The certificate
of incorporation also provides that the board is divided into three classes,
with each director assigned to a class with a term of three years, and that the
number of directors may only be determined by the board of directors. The
bylaws also require that stockholders give advance notice to Portal's Secretary
of any nominations for director or other business to be brought by stockholders
at any stockholders' meeting, and that the Chairman has the authority to
adjourn any such meeting. The bylaws also require a supermajority vote of
stockholders or a majority vote of the board of directors to amend the bylaws.
These provisions of the restated certificate of incorporation and the bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control of Portal. These provisions also may have the effect of
preventing changes in the management of Portal. See "Risk Factors--Control by
existing stockholders; effects of certain anti-takeover provisions".
Portal is subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
(i) prior to that date, the board of directors of the corporation
approved either the business combination or the transaction that resulted
in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned:
61
<PAGE>
(x) by persons who are directors and also officers; and
(y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
(iii) on or subsequent to that date, the business combination is approved
by the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include the following:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholder;
. any transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is EquiServe.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the common
stock. Future sales of substantial amounts of common stock (including shares
issued upon exercise of outstanding options or warrants) in the public market
could adversely affect prevailing market prices from time to time. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale
(as described below), sales of a substantial amount of common stock in the
public market after the restrictions lapse could adversely affect the
prevailing market price and the ability of Portal to raise equity capital in
the future.
Upon completion of this offering, Portal will have shares of
common stock outstanding assuming the issuance of shares of common stock
offered, no exercise of the underwriters' over-allotment option and no exercise
of options after January 31, 1999. Of the total outstanding shares of common
stock, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except
that any shares purchased by "affiliates" of Portal, as that term is defined in
Rule 144 under the Securities Act, may generally only be sold pursuant to an
effective registration statement under the Securities Act or in compliance with
the limitations of Rule 144 as described below.
The remaining 22,611,910 shares of common stock are "Restricted Securities"
as that term is defined in Rule 144. The restricted shares will be available
for sale in the public market following the expiration of the one hundred
eighty (180) day lock-up agreement further described below. In addition, the
holders of warrants for 194,566 shares of common stock can exercise these
warrants at any time, but these shares cannot be sold until the expiration of
the 180 day lockup period following the date of this prospectus. Beginning six
months after the date of this prospectus the holders of 22,611,910 restricted
shares and the holders of warrants for 194,566 shares of common stock are
entitled to certain rights with respect to registration of these shares for
sale in the public market. If these holders sell in the public market these
sales would have a material adverse effect on the market price of the common
stock
All of the officers and directors and certain stockholders and optionholders
of Portal have entered into lock-up agreements generally providing that they
will not offer, pledge, sell, offer to sell, contract to sell, sell any option
or contract to purchase, purchase any option to sell, grant any option, right
or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the shares of common stock or any securities convertible
into, or exercisable or exchangeable for, common stock owned by them, or enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of Goldman, Sachs & Co. subject to certain limited exceptions. Goldman,
Sachs & Co. may, in its sole discretion and at any time without notice, release
all or any portion of the securities subject to lock-up agreements. Goldman,
Sachs & Co. currently has no plans to release any portion of the securities
subject to lock-up agreements. When determining whether to release shares from
the lock-up agreements, Goldman, Sachs & Co. will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at the
time. Following the expiration of the 180-day lock-up period, all 22,611,910
shares of common stock will be available for sale in the public market subject
to compliance with Rule 144 or Rule 701.
In general, under Rule 144 as currently in effect, an affiliate of Portal or
a person (or persons whose shares are aggregated) who has beneficially owned
Restricted Shares for at least one year, (including the holding period of any
prior owner other than a person who may be deemed an Affiliate of Portal) is
entitled to
63
<PAGE>
sell within any three-month period a number of shares of common stock that does
not exceed the greater of 1% of the then-outstanding shares of common stock
(approximately shares after giving effect to this offering) and the
average weekly trading volume of the common stock on The Nasdaq National Market
during the four calendar weeks preceding the filing of a Form 144 notice with
respect to this sale. Sales under Rule 144 of the Securities Act are subject to
certain restrictions relating to manner of sale, notice and the availability of
current public information about Portal. Under Rule 144(k), a person who is not
an Affiliate of Portal at any time during the ninety days preceding a sale, and
who has beneficially owned shares for at least two years (including the holding
period of any prior owner other than a person who may be deemed an Affiliate of
Portal), would be entitled to sell these shares immediately following this
offering without regard to the volume limitations, manner of sale provisions or
notice or other requirements of Rule 144 of the Securities Act. However, the
transfer agent may require an opinion of counsel that a proposed sale of shares
comes within the terms of Rule 144 of the Securities Act prior to effecting a
transfer of these shares.
Portal intends to file, after consummation of this offering, a registration
statement on Form S-8 under the Securities Act covering all shares of common
stock reserved for issuance under its 1999 Stock Incentive Plan and its 1999
Employee Stock Purchase Plan. See "Management-Benefit Plans". Shares registered
under such registration statement would be available for sale in the open
markets in the future unless these shares are subject to vesting restrictions
with Portal or the contractual restrictions described above.
Lock-up Agreements
Holders of substantially all shares of common stock have agreed that they
will not, without the prior written consent of Goldman, Sachs & Co. offer,
sell, contract to sell or otherwise dispose of any shares of common stock
beneficially owned by them or any shares issuable upon exercise of stock
options for a period of 180 days from the effective date of this offering. See
"Underwriting".
LEGAL MATTERS
The validity of the common stock offered will be passed upon for Portal by
Brobeck, Phleger & Harrison LLP, Palo Alto, California. Members of the firm
Brobeck, Phleger & Harrison LLP beneficially own an aggregate of 4,000 shares
of Portal's common stock. Certain legal matters in connection with the offering
will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Portal's consolidated
financial statements at January 31, 1998 and 1999 and for each of the three
years in the period ended January 31, 1999, as set forth in their report, which
is included in this prospectus. Portal's consolidated financial statements are
included in this prospectus in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
64
<PAGE>
ADDITIONAL INFORMATION
We have filed with the SEC, Washington, D.C. 20549, under the Securities Act,
as amended, a registration statement on Form S-1 relating to the common stock
offered in this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and its exhibits and
schedules. For further information with respect to Portal and the shares we are
offering pursuant to this prospectus you should refer to the registration
statement, including its exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and you should refer to the copy of
that contract or other document filed as an exhibit to the registration
statement or any other document. You may inspect a copy of the registration
statement without charge at the Public Reference Section of the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at the SEC's
regional offices at 5670 Wilshire Boulevard, 11th Floor, Los Angeles,
California 90036. The SEC maintains an Internet site that contains reports,
proxy information statements and other information regarding registrants that
file electronically with the SEC. The SEC's world wide Web address is
www.sec.gov.
Portal intends to furnish holders of its common stock with annual reports
containing, among other information, audited consolidated financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. Portal intends to furnish these other reports as
it may determine or as may be required by law.
65
<PAGE>
PORTAL SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Net Capital Deficiency)... F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Portal Software, Inc.
We have audited the accompanying consolidated balance sheets of Portal
Software, Inc. as of January 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity (net capital deficiency), and
cash flows for the three years in the period ended January 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Portal Software, Inc. at January 31, 1998 and 1999 and the consolidated
results of its operations and its cash flows for the three years in the period
ended January 31, 1999 in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Palo Alto, California
February 24, 1999
F-2
<PAGE>
PORTAL SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity (Net
January 31, Capital Deficiency)
------------------ at January 31,
1998 1999 1999
-------- -------- -------------------
(unaudited)
Assets
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 14,646 $ 11,809
Accounts receivable, net of allowance
for doubtful accounts of $50 and $940
at January 31, 1998 and 1999......... 5,697 14,474
Other current assets.................. 100 1,440
-------- --------
Total current assets................. 20,443 27,723
Property and equipment, net............ 2,537 4,417
Other assets........................... 145 204
-------- --------
$ 23,125 $ 32,344
======== ========
Liabilities and Stockholders' Equity
(Net Capital Deficiency)
Current liabilities:
Accounts payable...................... $ 1,542 $ 2,567
Accrued compensation.................. 903 1,147
Other accrued liabilities............. 1,076 5,214
Current portion of long-term debt..... 1,500 4,122
Current portion of capital lease
obligations.......................... -- 479
Deferred revenue...................... 8,841 23,344
-------- --------
Total current liabilities............ 13,862 36,873
Long-term debt......................... 1,500 --
Long-term portion of capital lease
obligations........................... -- 2,022
Commitments
Stockholders' equity (net capital
deficiency):
Convertible preferred stock, no par
value, issuable in series: 20,000
shares authorized at January 31, 1998
and 1999 (5,000 pro forma); 9,437 and
9,551 shares issued and outstanding
at January 31, 1998 and 1999 (none
pro forma); aggregate liquidation
preference of $18,423 at January 31,
1999 (none pro forma)................ 18,117 18,482 --
Common stock, no par value, 35,000
shares authorized (200,000 pro
forma); 13,582 and 14,198 shares
issued and 12,724 and 13,061 shares
outstanding at January 31, 1998 and
1999 (22,612 pro forma).............. 177 927 19,409
Additional paid-in capital............ -- 14,136 14,136
Notes receivable from stockholders.... -- (318) (318)
Deferred stock compensation........... -- (12,176) (12,176)
Accumulated deficit................... (10,531) (27,602) (27,602)
-------- -------- --------
Total stockholders' equity (net
capital deficiency)................. 7,763 (6,551) $ (6,551)
-------- -------- ========
$ 23,125 $ 32,344
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PORTAL SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenues:
License fees..................................... $ 3,944 $ 6,892 $ 13,536
Services......................................... 1,101 2,524 13,133
------- ------- --------
Total revenues.................................. 5,045 9,416 26,669
------- ------- --------
Costs and expenses:
Cost of license fees............................. 62 970 458
Cost of services................................. 518 2,152 9,425
Research and development......................... 2,527 5,628 11,252
Sales and marketing.............................. 2,371 5,436 14,112
General and administrative....................... 1,821 2,616 6,253
Amortization of deferred stock compensation...... -- -- 1,960
------- ------- --------
Total costs and expenses........................ 7,299 16,802 43,460
------- ------- --------
Loss from operations.............................. (2,254) (7,386) (16,791)
Interest and other income, net.................... 20 39 540
Gain on sale of investment........................ -- -- 311
Interest expense.................................. (40) (240) (416)
------- ------- --------
Loss before income taxes.......................... (2,274) (7,587) (16,356)
Provision for income taxes........................ -- -- (715)
------- ------- --------
Net loss.......................................... $(2,274) $(7,587) $(17,071)
======= ======= ========
Basic and diluted net loss per share.............. $ (0.57) $ (1.07) $ (1.75)
======= ======= ========
Shares used in computing basic and diluted net
loss per share................................... 3,972 7,092 9,754
======= ======= ========
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (0.89)
========
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........... 19,272
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PORTAL SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Total
Convertible Note Stockholders'
Preferred Stock Common Stock Additional Receivable Deferred Equity
----------------- ----------------- Paid-In From Stock Accumulated (Net Capital
Shares Amount Shares Amount Capital Stockholder Compensation Deficit Deficiency)
--------- ------- ---------- ------ ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January
31, 1996............. -- $ -- 8,774,035 $ 19 $ -- $ -- $ -- $ (670) $ (651)
Issuance of Series A
preferred stock for
cash and note
receivable........... 3,840,000 1,920 -- -- -- (20) -- -- 1,900
Conversion of
convertible
promissory notes and
accrued interest into
Series A preferred
stock................ 1,205,530 603 -- -- -- -- -- -- 603
Issuance of Series A
preferred stock upon
exercise of
warrants............. 1,025,000 512 -- -- -- -- -- -- 512
Issuance of common
stock upon exercise
of stock options..... -- -- 75,500 4 -- -- -- -- 4
Issuance of common
stock for cash, net
of repurchases....... -- -- 538,837 17 -- -- -- -- 17
Issuance of common
stock upon exercise
of warrants.......... -- -- 500,000 1 -- -- -- -- 1
Net loss............. -- -- -- -- -- -- -- (2,274) (2,274)
--------- ------- ---------- ---- ------- ----- -------- -------- -------
Balances at January
31, 1997............. 6,070,530 3,035 9,888,372 41 -- (20) -- (2,944) 112
Payment received on
notes receivable..... -- -- -- -- -- 20 -- -- 20
Issuance of Series A
preferred stock upon
exercise of
warrants............. 33,350 17 -- -- -- -- -- -- 17
Issuance of Series B
preferred stock net
of issuance costs of
$39.................. 3,333,333 14,961 -- -- -- -- -- -- 14,961
Issuance of common
stock upon exercise
of options, net of
repurchases.......... -- -- 2,835,533 136 -- -- -- -- 136
Issuance of Series B
preferred stock
warrants in
connection with long-
term debt............ -- 104 -- -- -- -- -- -- 104
Net loss............. -- -- -- -- -- -- -- (7,587) (7,587)
--------- ------- ---------- ---- ------- ----- -------- -------- -------
Balances at January
31, 1998............. 9,437,213 18,117 12,723,905 177 -- -- -- (10,531) 7,763
Issuance of Series A
preferred stock upon
exercise of
warrants............. 34,850 17 -- -- -- -- -- -- 17
Issuance of Series B
preferred stock...... 78,666 348 -- -- -- -- -- -- 348
Issuance of common
stock upon exercise
of stock options, net
of repurchases....... -- -- 330,989 749 -- (318) -- -- 431
Issuance of common
stock upon exercise
of warrants.......... -- -- 6,287 1 -- -- -- -- 1
Deferred stock
compensation......... -- -- -- -- 14,136 -- (14,136) -- --
Amortization of
deferred stock
compensation......... -- -- -- -- -- -- 1,960 -- 1,960
Net loss............. -- -- -- -- -- -- -- (17,071) (17,071)
--------- ------- ---------- ---- ------- ----- -------- -------- -------
Balances at January
31, 1999............. 9,550,729 $18,482 13,061,181 $927 $14,136 $(318) $(12,176) $(27,602) $(6,551)
========= ======= ========== ==== ======= ===== ======== ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
PORTAL SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................... $(2,274) $(7,587) $(17,071)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 236 525 940
Amortization of deferred stock compensation....... -- -- 1,960
Issuance of preferred stock upon conversion of
interest payable................................. 56 -- --
Changes in operating assets and liabilities:
Accounts receivable, net......................... (682) (4,966) (8,777)
Other current assets............................. (35) (52) (1,340)
Other assets..................................... (10) (39) (59)
Accounts payable................................. 193 1,222 1,025
Accrued compensation............................. (1) 569 244
Other accrued liabilities........................ 724 232 4,138
Deferred revenue................................. 1,420 7,421 15,625
------- ------- --------
Net cash used in operating activities........... (373) (2,675) (3,315)
------- ------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment............... (943) (1,855) --
------- ------- --------
FINANCING ACTIVITIES:
Payment received on stockholder note receivable... -- 20 --
Repayment of convertible notes.................... (250) -- --
Issuance of long-term debt........................ 400 3,000 --
Repayment of long-term debt....................... (56) (498) --
Principal payments under capital lease
obligations...................................... -- -- (319)
Proceeds from issuance of common stock, net of
repurchases...................................... 22 136 432
Proceeds from issuance of preferred stock......... 2,412 14,978 365
------- ------- --------
Net cash from financing activities.............. 2,528 17,636 478
------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 1,212 13,106 (2,837)
Cash and cash equivalents at beginning of year..... 328 1,540 14,646
------- ------- --------
Cash and cash equivalents at end of year........... $ 1,540 $14,646 11,809
======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest............ $ 40 $ 43 361
======= ======= ========
Supplemental disclosures of noncash financing
activity:
Conversion of principal portion of convertible
notes into shares of Series A preferred stock.... $ 547 $ -- $ --
======= ======= ========
Issuance of Series A preferred stock for
stockholder note receivable....................... $ 20 $ -- $ --
======= ======= ========
Issuance of Series B preferred stock warrants in
connection with long-term debt.................... $ -- $ 104 $ --
======= ======= ========
Issuance of debt upon conversion of customer
deposit included in deferred revenue.............. $ -- $ -- $ 1,122
======= ======= ========
Equipment acquired under capital lease
obligations....................................... $ -- $ -- $ 2,820
======= ======= ========
Deferred stock compensation related to options
granted........................................... $ -- $ -- $ 14,136
======= ======= ========
Issuance of common stock for stockholder notes
receivable........................................ $ -- $ -- $ 318
======= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1999
(1) Significant Accounting Policies:
Nature of Business and Basis of Presentation
Portal Software, Inc. or Portal, formerly Portal Information Network, Inc., a
California corporation, was incorporated in 1994. Portal markets and supports
real-time customer management and billing software, or CM&B software, for
providers of Internet-based services. Portal's software is a comprehensive
solution that is designed to meet the complex, mission-critical provisioning,
accounting, reporting and marketing needs of providers of Internet-based
services. Portal markets its products worldwide through a combination of a
direct sales force and distribution partners. Substantially all of Portal's
license revenues are derived from sales of its Infranet product.
Portal has incurred operating losses to date and, at January 31, 1999, had an
accumulated deficit of $27.6 million and a working capital deficit of $9.2
million. Portal's activities have been primarily financed through private
placements of equity securities. Portal may need to raise additional capital
through the issuance of debt or equity securities. Such financing may not be
available on terms satisfactory to Portal, if at all.
Principles of Consolidation
The consolidated financial statements include the accounts of Portal and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Revenue Recognition
License revenues are comprised of perpetual or multiyear license fees which
are primarily derived from contracts with corporate customers and resellers.
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Portal
obligations with regard to implementation remain, the fee is fixed or
determinable and collectibility is probable. For electronic delivery, the
software is considered to have been delivered when Portal has provided the
customer with the access codes that allow for immediate possession of the
software. If the fee due from the customer is not fixed or determinable,
revenue is recognized as payments become due from the customer. If
collectibility is not considered probable, revenue is recognized when the fee
is collected. Revenue on arrangements with customers who are not the ultimate
users (primarily resellers) is not recognized until the product is delivered to
the end user.
Services revenues are primarily comprised of revenue from systems integration
or other consulting fees, maintenance agreements and training. Arrangements
that include software services are evaluated to determine whether those
services are essential to the functionality of other elements of the
arrangement. When software services are considered essential, revenue under the
arrangement is recognized using contract accounting. When software services are
not considered essential, the revenue allocable to the software services is
recognized as the services are performed. Portal generally considers software
services essential, unless the software is paid for before the services
commence and the services are limited to training or minimal installation.
Maintenance agreements provide technical support and include the right to
unspecified upgrades on an if-and-when-available basis. Maintenance revenue is
deferred and recognized on a straight-line basis as services revenue over the
life of the related agreement, which is typically one year. Customer advances
and billed amounts due from customers in excess of revenue recognized are
recorded as deferred revenue.
F-7
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Significant Accounting Policies (continued)
Revenue Recognition (continued)
Portal adopted Statement of Position 97-2, Software Revenue Recognition, or
SOP 97-2, and Statement of Position 98-4, Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition, or SOP 98-4, as of
February 1, 1998. SOP 97-2 and SOP 98-4 provide guidance for recognizing
revenue on software transactions and supersede SOP 91-1, Software Revenue
Recognition. The adoption of SOP 97-2 and SOP 98-4 did not have a material
impact on Portal's financial results. However, full implementation guidelines
for this standard have not yet been issued. Once available, the current revenue
accounting practices may need to change and such changes could affect Portal's
future revenues and results of operations.
In December 1998, the American Institute of Certified Public Accountants or
AICPA issued Statement of Position 98-9, Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions, or SOP 98-9. SOP 98-
9 amends SOP 98-4 to extend the deferral of the application of certain passages
of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before
March 15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in fiscal years beginning after March 15, 1999. Portal has not yet
determined the effect of the final adoption of SOP 98-9 on its future revenues
and results of operations.
Research and Development
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. Based on Portal's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by Portal between the completion
of the working model and the point at which the product is ready for general
release have been insignificant. Therefore, through January 31, 1999, Portal
has charged all such costs to research and development expense in the period
incurred.
Concentration of Credit Risk
Portal sells its software and services to customers consisting mainly of
North American and European Internet service providers and enhanced service
developers. Portal performs ongoing credit evaluations of its customers and
does not require collateral. Portal maintains an allowance for potential credit
losses and such losses have been within management's expectations. During the
years ended January 31, 1998 and 1999, Portal added approximately $50,000 and
$1.4 million to its bad debt reserves. Write-offs of uncollectible accounts
totaled $0.6 million for the year ended January 31, 1999. There were no bad
debt charges or credits during the year ended January 31, 1997.
Two different customers accounted for 36% and 47% of total revenue during the
years ended January 31, 1997 and 1998. No individual customer accounted for
greater than 10% of total revenue for the year ended January 31, 1999.
Segment Information
In June 1997, the Financial Accounting Standards Board or FASB issued
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information," or FAS 131, effective for
financial statements for periods beginning after December 15,
F-8
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Significant Accounting Policies (continued)
Segment Information (continued)
1997. FAS 131 establishes standards for the way that public business
enterprises report financial and descriptive information about reportable
operating segments in annual financial statements and interim financial reports
issued to stockholders. Portal adopted FAS 131 effective February 1, 1998.
Portal operates solely in one segment, the development and marketing of CM&B
software, and therefore Portal is not impacted by the adoption of FAS 131.
Portal's foreign offices consist of sales, marketing and support activities
through its foreign subsidiaries and an overseas reseller network. Operating
losses generated by the foreign operations of Portal and their corresponding
identifiable assets were not material in any period presented.
Portal's export revenue represented 13%, 15% and 27% of total revenues in the
years ending January 31, 1997, 1998 and 1999. All of the export sales to date
have been denominated in U.S. dollars and were derived from sales to Europe and
Asia-Pacific. Total export revenues for these years were $0.4 million, $1.1
million and $4.4 million to customers in Europe and $0.3 million, $0.4 million
and $2.7 million to customers in the Asia-Pacific region.
Fair Value of Financial Instruments
The fair value of notes receivable is estimated by discounting the future
cash flows using the current interest rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. The carrying value of the notes receivable approximated its fair
value.
The fair value of short-term and long-term capital lease obligations is
estimated based on current interest rates available to Portal for debt
instruments with similar terms, degrees of risk, and remaining maturities. The
carrying values of these obligations approximate their respective fair values.
Cash and Cash Equivalents
Portal considers all highly liquid, low-risk debt instruments with an
original maturity at the date of purchase of three months or less to be cash
equivalents. The carrying amount for cash and cash equivalents approximates
their fair value at January 31, 1998 and 1999. Portal generally invests its
cash in money market accounts with major financial institutions.
Portal classifies, at the date of acquisition, its marketable securities into
available-for-sale categories in accordance with the provisions of the FASB's
Statement of Financial Accounting Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities". Currently, Portal classifies its
securities as available-for-sale, which are reported at fair market value, with
the related unrealized gains and losses included in stockholders' equity.
Unrealized and realized gains and losses were not material in the periods
presented.
Depreciation and Amortization
Depreciation on office and computer equipment and furniture is computed using
the straight-line method over estimated useful lives of five to seven years.
Leasehold improvements are amortized using the straight-line method over the
shorter of the related lease term or their estimated useful lives, typically
four years.
F-9
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ materially from those estimates.
Net Loss Per Common Share
Basic net loss per common share and diluted net loss per common share are
presented in conformity with the FASB's Statement of Financial Accounting
Standards No. 128, "Earnings Per Share", or FAS 128, for all periods presented.
Following the guidance given by the Securities and Exchange Commission Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock that
has been issued or granted for nominal consideration prior to the anticipated
effective date of the initial public offering must be included in the
calculation of basic and diluted net loss per common share as if these shares
had been outstanding for all periods presented. To date, Portal has not issued
or granted shares for nominal consideration.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per common share, as presented in the consolidated
statements of operations, has been computed for the year ended January 31, 1999
as described above, and also gives effect, under Securities and Exchange
Commission guidance, to the conversion of the convertible preferred stock
(using the if-converted method) from the original date of issuance.
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share (in thousands, except per share
data):
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss........................................... $(2,274) $(7,587) $(17,071)
======= ======= ========
Basic and diluted:
Weighted-average shares of common stock
outstanding...................................... 9,059 11,526 12,936
Less: Weighted-average shares subject to
repurchase....................................... (5,087) (4,434) (3,182)
------- ------- --------
Weighted-average shares used in computing basic and
diluted net loss per share........................ 3,972 7,092 9,754
======= ======= ========
Basic and diluted net loss per share............... $ (0.57) $ (1.07) $ (1.75)
======= ======= ========
Pro forma:
Net loss.......................................... $ 17,071
========
Shares used above................................. 9,754
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred stock
(unaudited)...................................... 9,518
--------
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........... 19,272
========
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (0.89)
========
</TABLE>
F-10
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Significant Accounting Policies (continued)
Net Loss Per Common Share (continued)
Portal has excluded all convertible preferred stock, warrants for convertible
preferred stock, outstanding stock options, and shares subject to repurchase
from the calculation of diluted loss per common share because all such
securities are antidilutive for all periods presented. The total numbers of
shares excluded from the calculations of diluted net loss per share was
11,873,000, 12,691,972, and 13,666,926 for the years ended January 31, 1997,
1998 and 1999. Such securities, had they been dilutive, would have been
included in the computations of diluted net loss per share using the treasury
stock method. See Note 6 for further information on these securities.
Unaudited Pro Forma Stockholders' Equity
If the offering contemplated by this prospectus is consummated, all of the
redeemable convertible preferred stock outstanding will automatically be
converted into common stock. Unaudited pro forma stockholders' equity at
January 31, 1999, as adjusted for the assumed conversion of convertible
preferred stock based on the shares of convertible preferred stock outstanding
at January 31, 1999, is disclosed on the consolidated balance sheet.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation", or FAS 123, encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. Portal has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations, in accounting for its stock options plans. See the pro forma
disclosures of applying FAS 123 included in Note 6.
Comprehensive Loss
Portal adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", or FAS 130, at January 31, 1999. Under FAS
130, Portal is required to display comprehensive income and its components as
part of the financial statements. Other comprehensive income includes certain
changes in equity that are excluded from net income (loss). Specifically, FAS
130 requires unrealized holding gains and losses on available-for-sale
securities, to be included in accumulated other comprehensive income. Portal
has no material components of other comprehensive loss and, accordingly, the
comprehensive loss is the same as net loss for all periods presented.
Recently Issued Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities", or FAS
133. Portal is required to adopt FAS 133 for the year ending January 31, 2001.
FAS 133 establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments as well as other hedging
activities. Because Portal currently holds no derivative financial instruments
and does not currently engage in hedging activities, adoption of FAS 133 is
expected to have no material impact on Portal's financial condition or results
of operations.
F-11
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Significant Accounting Policies (continued)
Recently Issued Accounting Standards (continued)
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", or SOP 98-1. SOP 98-
1 requires that entities capitalize certain costs related to internal use
software once certain criteria have been met. Portal is required to implement
SOP 98-1 for the year ending January 31, 2000. Adoption of SOP 98-1 is expected
to have no material impact on financial condition or results of operations.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities," or SOP 98-5, SOP 98-5 requires that all start-up costs
related to new operations must be expensed as incurred. In addition, all start-
up costs that were capitalized in the past must be written off when SOP 98-5 is
adopted. Portal expects that the adoption of SOP 98-5 will not have a material
impact on its financial position or results of operations. Portal will be
required to implement SOP 98-5 for the year ending January 31, 2000.
(2) Property and Equipment
Property and equipment is recorded at cost and consists of the following (in
thousands):
<TABLE>
<CAPTION>
January 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Office and computer equipment............................... $2,947 $4,970
Furniture................................................... 576 1,237
Leasehold improvements...................................... 212 348
------ ------
3,735 6,555
Less accumulated depreciation and amortization.............. 1,198 2,138
------ ------
Property and equipment, net................................. $2,537 $4,417
====== ======
</TABLE>
Included in property and equipment at January 31, 1998 and 1999 were assets
acquired under capital lease obligations with a cost of approximately $25,000
and $2.8 million. Accumulated depreciation related to the assets acquired under
capital lease totaled $3,000 and $0.3 million at January 31, 1998 and January
31, 1999.
(3) Long-Term Debt
In July 1997, Portal entered into a $3.0 million note payable agreement with
a financial institution to finance working capital. The agreement was
subsequently amended in February 1999 to change the installment payment dates.
The note, bearing an interest rate at 10.75% per annum, is payable in three
installments of $1.5 million, $0.5 million, and $1.0 million on February 19,
1999, March 31, 1999, and April 30, 1999. In connection with these notes,
Portal issued warrants to the lender to purchase 76,699 shares of Series B
preferred stock at an exercise price of $4.50 per share (see Note 6).
(4) Convertible Promissory Notes
In February through December 1995, Portal issued convertible promissory notes
in the aggregate principal amount of $0.8 million to private investors. In
April through June 1996, convertible notes in the amount of $0.5 million plus
accrued interest of $55,765 were exchanged for
F-12
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4) Convertible Promissory Notes (continued)
1,205,530 shares of Series A preferred stock at a price of $0.50 per share and
convertible notes in the amount of $0.3 million plus accrued interest of
$16,163 were repaid.
Warrants to purchase 500,000 shares of common stock at an exercise price of
$0.002 per share were issued in connection with the original issuance of the
convertible notes in 1995 (see Note 6).
In December 1998, Portal entered into an agreement with a customer to convert
$1.1 million from a deposit into a note payable. The note, bearing an interest
rate of 10% per annum, is due on November 30, 1999.
(5) Commitments
Operating Leases
Portal leases eight office facilities under noncancelable operating leases
that expire at various dates through March 2000. Portal also rents certain
property and equipment under operating leases. Rental expense for all operating
leases was $386,000, $740,000, and $1,610,000 for fiscal 1997, 1998, and 1999.
Future minimum lease payments as of January 31, 1999 are as follows (in
thousands):
<TABLE>
<S> <C>
Year ending January 31,
2000................................................................ $1,474
2001................................................................ 1,049
2002................................................................ 1,044
2003................................................................ 1,070
2004................................................................ 732
------
Total minimum lease payments......................................... $5,369
======
</TABLE>
Capital Lease Obligations
Portal leases certain furniture, computers, and equipment under noncancelable
capital leases. Obligations under capital leases represent the present value of
future noncancelable rental payments under various lease agreements.
Future minimum lease payments under capital leases are as follows (in
thousands):
<TABLE>
<S> <C>
Year ending January 31,
2000................................................................ $ 668
2001................................................................ 856
2002................................................................ 902
2003................................................................ 496
------
Total minimum payments............................................... 2,922
Less amount representing interest.................................... (421)
------
Present value of future payments..................................... 2,501
Less current portion................................................. (479)
------
Long-term portion.................................................... $2,022
======
</TABLE>
F-13
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Stockholders' Equity
Convertible Preferred Stock
A summary of convertible preferred stock is as follows:
<TABLE>
<CAPTION>
January 31, 1998 January 31, 1999
---------------------------------- ----------------------------------
Liquidation Liquidation
Authorized Outstanding Preference Authorized Outstanding Preference
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series A................ 6,300,000 6,103,880 $ 3,051,940 6,300,000 6,138,730 $ 3,069,365
Series B................ 3,600,000 3,333,333 14,999,998 3,600,000 3,411,999 15,353,995
--------- --------- ----------- --------- --------- -----------
9,900,000 9,437,213 $18,051,938 9,900,000 9,550,729 $18,423,360
========= ========= =========== ========= ========= ===========
</TABLE>
The holders of Series A and B preferred stock are entitled to noncumulative
dividends of 8% of original issue price per share, per annum in preference and
priority to any payment of any dividend on common stock, when and as declared
by the board of directors. The holders of Series A and B preferred stock are
also entitled to liquidation preferences of $0.50 and $4.50 per share and all
declared but unpaid dividends in preference to common stock in the event of any
liquidation, dissolution, or winding up of Portal. No dividends have been
declared as of January 31, 1999.
Each share of preferred stock is convertible into one share of common stock,
subject to certain antidilution provisions, and will automatically convert upon
a public offering of Portal's common stock if the aggregate proceeds exceed
$7.5 million and the offering price is at least $10.00 per share.
Each share of preferred stock votes equally with shares of common stock on an
as-converted basis. Under certain protective provisions, a majority vote of the
existing preferred stockholders, voting together as one class, is required to
make certain capitalization adjustments, such as modifying the authorization,
preference, or class of stock or to effect a significant corporate transaction
such as a merger or dissolution of Portal.
Common Stock
Portal has issued shares of common stock which are subject to Portal's right
to repurchase at the original issuance price upon the occurrence of certain
events, as defined in the agreement relating to the sale of such stock. The
repurchase rights lapse ratably over a period of one to four years from the
date of issuance. At January 31, 1998 and 1999, approximately 4,606,551 and
1,756,630 shares were subject to repurchase. Of the shares subject to
repurchase, 2,565,151 and 2,845,372 shares were issued upon the exercise of
options under the 1995 Stock Option Plan. In the event that a stockholder
negotiates to sell all or part of the stock to a third party, Portal has a
right of first refusal to repurchase that stock at the negotiated price.
At January 31, 1999, common stock was reserved for issuance as follows:
<TABLE>
<S> <C>
Conversion of preferred stock................................. 9,550,729
Exercise of outstanding stock options......................... 2,082,168
Shares of common stock available for grant under the 1995
Stock Option/Stock Issuance Plan............................. 304,614
Exercise of preferred and common stock warrants outstanding... 194,566
----------
12,132,077
==========
</TABLE>
F-14
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Stockholders' Equity (continued)
Warrants
Warrants to purchase 10,454 shares of common stock for a price of $0.05 per
share were issued in connection with bridge loan financing in December 1995. As
of January 31, 1998, warrants to purchase 6,287 shares were exercised and
warrants to purchase 4,167 shares are outstanding. The warrants expire in
January 2003 and the value ascribed to the warrants is immaterial for financial
statement purposes.
Warrants to purchase 1,206,900 shares of Series A preferred stock at a price
of $0.50 per share were issued in connection with the issuance of Series A
preferred stock in March 1996. During the years ended January 31, 1998 and
1999, 33,350 and 34,850 shares were exercised. At January 31, 1999, there were
warrants outstanding to purchase 113,700 shares of Series A preferred stock
which expire in April 1997 through April 1999. The value ascribed to these
warrants is immaterial for financial statement purposes.
Warrants to purchase 76,699 shares of Series B preferred stock for a price of
$4.50 per share were issued in connection with the issuance of notes payable in
July 1997. None of these warrants have been exercised and all shares were
outstanding at January 31, 1999. The Series B preferred stock warrants expire
in September 2003. The warrants were appraised at the date of issuance and
additional interest expense of $104,000 was recorded. This amount was deferred
and is being amortized to interest expense over the term of the notes. During
the year ended January 31, 1999, $38,310 of the additional interest expense was
amortized.
Stock Options
During the year ended January 31, 1996, Portal adopted its 1995 Stock
Option/Stock Issuance Plan, or the Plan which authorizes the board of directors
to grant incentive stock options or nonqualified stock options to purchase up
to 2,610,000 shares of common stock to employees, officers, and directors of
Portal. The Plan allows for the grant of incentive stock options to employees
and grant of nonstatutory stock options to eligible participants.
The option price is not less than 100% or 85% of the fair value on the date
of the grant as determined by the board of directors for incentive stock
options and nonqualified stock options, respectively, except for options
granted to a person owning greater than 10% of the total voting power of
Portal, for which the exercise price of the options must not be less than 110%
of the fair value at the time of grant. Options generally become exercisable
upon grant subject to repurchase rights in favor of Portal until vested. Shares
generally vest over a period of no more than five years. Options may be granted
with different vesting terms at the discretion of the board of directors.
Options are exercisable for a term of ten years after the date of grant except
those options granted to a person owning greater than 10% of the total voting
power of stock of Portal, which are exercisable for a term of five years after
the date of grant. In the event of a change in control in which options granted
under the Plan are not assumed, the options will accelerate and vest in full
and existing repurchase rights will lapse.
F-15
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Stockholders' Equity (continued)
Stock Options (continued)
A summary of Portal's stock option activity and related information follows:
<TABLE>
<CAPTION>
January 31, 1998 January 31, 1999
---------------------- --------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.. 578,100 $0.04 332,728 $0.05
Options granted................... 3,100,305 $0.05 2,285,000 $4.06
Options exercised................. (3,057,658) $0.05 (478,060) $1.24
Options canceled.................. (288,019) $0.05 (57,500) $3.18
----------- ----- --------- -----
Outstanding at end of year........ 332,728 $0.05 2,082,168 $4.09
=========== ===== ========= =====
Exercisable at end of year........ 332,728 $0.05 2,082,168 $4.09
=========== ===== ========= =====
Weighted-average fair value of
options granted.................. $0.01 $1.52
===== =====
</TABLE>
At January 31, 1998 and 1999, 2,565,151 and 1,756,636 shares which had been
issued upon exercise of options were subject to repurchase. At January 31, 1998
and 1999, options to acquire 6,611 and 52,491 shares were vested but not
exercised.
Exercise prices for options outstanding as of January 31, 1999 and the
weighted-average remaining contractual life are as follows:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
------------------------------------
Weighted-
Number Average Weighted-
Range of Outstanding at Remaining Average
Exercise January 31, Contractual Exercise
Prices 1999 Life Price
-------- -------------- ----------- ---------
(In years)
<S> <C> <C> <C> <C>
$0.002-$0.05 151,581 8.7 $0.05
$0.06-$1.00 178,972 9.2 $1.00
$1.01-$2.00 580,541 9.3 $2.00
$2.01-$4.00 288,128 9.5 $4.00
$4.01-$5.00 133,592 9.7 $5.00
$5.01-$8.00 749,354 9.8 $8.00
--------- ---
2,082,168 9.5
========= ===
</TABLE>
During the year ended January 31, 1999, in connection with the grant of
certain share options to employees, Portal recorded deferred stock compensation
of $14.1 million representing the difference between the exercise price and the
deemed fair value of Portal's common stock on the date such stock options were
granted. Such amount is included as a reduction of stockholders' equity (net
capital deficiency) and is being amortized by charges to operations on a graded
vesting method. In fiscal 1999, Portal recorded amortization of deferred stock
compensation expense of approximately $2.0 million. At January 31, 1999, Portal
had a total of approximately $12.2 million remaining to be amortized over the
corresponding vesting period of each respective option, generally four years.
The amortization expense relates to options awarded to employees in all
operating expense categories. This amount has not been separately allocated to
these categories.
F-16
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Stockholders' Equity (continued)
Accounting for Stock-Based Compensation
As discussed in Note 1, Portal has elected to follow APB Opinion No. 25 and
related interpretations in accounting for its employee and director stock-based
awards because, as discussed below, the alternative fair value accounting
provided for under SFAS 123 requires use of option valuation models that were
not developed for use in valuing employee stock-based awards. Under APB Opinion
No. 25, Portal does not recognize compensation expense with respect to such
awards if the exercise price equals or exceeds the fair value of the underlying
security on the date of grant and other terms are fixed.
The fair value for these awards was estimated at the date of grant using the
minimum value options pricing model. This model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because Portal's stock-based awards have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock-based awards. The fair value of
options granted during the years ended January 31, 1997, 1998, and 1999 was
determined using the minimum value method with a risk-free interest rate of
6.0%, an expected life of six years, and a dividend yield of zero.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. Portal's pro
forma information follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss:
As reported..................................... $(2,274) $(7,587) $(17,071)
Pro forma ...................................... (2,275) (7,593) (17,692)
Basic and diluted net loss per share:
As reported..................................... $ (0.57) $ (1.07) $ (1.75)
Pro forma....................................... (0.57) (1.07) (1.81)
</TABLE>
(7) Income Taxes
Portal's provision for income taxes of approximately $0.7 million for the
year ended January 31, 1999 consists of alternative minimum taxes, foreign
withholding and local income taxes. The reconciliation of income tax expense
(benefit) attributable to continuing operations computed at the U.S. federal
statutory rates to income tax expense (benefit) for the fiscal years ended
January 31, 1997, 1998, and 1999 is as follows (in thousands):
F-17
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Income Taxes (continued)
<TABLE>
<CAPTION>
Year Ended January
31,
-----------------------
1997 1998 1999
----- ------- -------
<S> <C> <C> <C>
Tax provision (benefit) at U.S. statutory rate.... $(773) $(2,579) $(5,561)
Loss for which no tax benefit is currently
recognizable..................................... 773 2,579 5,561
Alternative minimum tax........................... -- -- 500
Foreign income and withholding taxes.............. -- -- 215
----- ------- -------
Total............................................. $ -- $ -- $ 715
===== ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of Portal's deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
January 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 1,275 $ --
Tax credit carryforwards................................ 396 1,053
Deferred revenue........................................ 2,437 8,980
Accruals and reserves not currently deductible.......... 292 1,679
Other, net.............................................. -- 848
------- --------
Total deferred tax assets................................ 4,400 12,560
Valuation allowance...................................... (4,400) (12,560)
------- --------
Net deferred tax assets.................................. $ -- $ --
======= ========
</TABLE>
Realization of deferred tax assets is dependent on future earnings, if any,
the timing and the amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the deferred tax assets as of January 31, 1999
and 1998, has been established to reflect these uncertainties. The change in
the valuation allowance was a net increase of approximately $8.2 million and
$3.1 million for the years ended January 31, 1999 and 1998.
As of January 31, 1999, Portal had federal research and development tax
credit carryforwards of approximately $0.5 million, which will expire at
various dates from 2012 through 2019, if not utilized. In addition, Portal had
federal alternative minimum tax credit carryforwards of approximately $0.5
million which have an unlimited carryforward period.
Utilization of tax credit carryforwards may be subject to a substantial
annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986, as amended, and similar state provisions. The
annual limitation may result in expiration of tax credit carryforwards before
full utilization.
F-18
<PAGE>
PORTAL SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Subsequent Events (Unaudited)
1999 Stock Incentive Plan
In February 1999, the board of directors approved the adoption of the 1999
Stock Incentive Plan, subject to stockholder approval. A total of 1,200,000
shares of common stock has been reserved for issuance under the 1999 Stock
Incentive Plan. The price at which the options to purchase common stock may be
issued is the fair market value of Portal's common stock at the close of the
previous business day.
1999 Employee Stock Purchase Plan
In February 1999, the board of directors approved the adoption of Portal's
1999 Employee Stock Purchase Plan, subject to stockholder approval. A total of
600,000 shares of common stock has been reserved for issuance under the 1999
Purchase Plan. The 1999 Purchase Plan permits eligible employees to acquire
shares of Portal's common stock through periodic payroll deductions of up to
15% of total compensation. No more than 625 shares may be purchased on any
purchase date per employee. Each offering period will have a maximum duration
of 12 months. The price at which the common stock may be purchased is 85% of
the lesser of the fair market value of Portal's common stock on the first day
of the applicable offering period or on the last day of the respective purchase
period. The initial offering period will commence on the effectiveness of the
initial public offering and will end on .
Reincorporation, Amendment to the Articles of Incorporation
During February 1999, Portal's board of directors authorized the
reincorporation of the Company in the state of Delaware. This reincorporation
is to be effective upon shareholder approval which is anticipated to occur
prior to Portal's initial public offering. Upon reincorporation, Portal will be
authorized to issue 200,000,000 shares of common stock, $0.001 par value and
5,000,000 shares of undesignated preferred stock, $0.001 par value. The board
of directors will have the authority to determine the price, rights,
preferences, privileges and restrictions of the preferred stock.
F-19
<PAGE>
UNDERWRITING
Portal and the underwriters named below will enter into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter will severally agree to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Credit Suisse
First Boston Corporation, BancBoston Robertson Stephens Inc. and Hambrecht &
Quist LLC are the representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co. ..............................................
Credit Suisse First Boston Corporation.............................
BancBoston Robertson Stephens Inc. ................................
Hambrecht & Quist LLC..............................................
-----
Total............................................................
=====
</TABLE>
----------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Portal to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by Portal. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
Paid by Portal
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price.
Any of these securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount of up to
$ per share from the initial public offering price. If all the shares
are not sold at the initial offering price, the representatives may change the
offering price and the other selling terms.
Portal has agreed with the underwriters not to dispose of or hedge any of
their common stock or securities convertible into or exchangeable for shares of
common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of the representatives. This agreement does not apply to
any existing employee benefit plans. See "Shares Available for Future Sale" for
a discussion of certain transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Portal and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Portal's historical performance, estimates of the business
potential and earnings prospects of Portal, an assessment of Portal's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
The Common Stock will be quoted on the Nasdaq National Market under the
symbol "PRSF".
U-1
<PAGE>
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
At the request of Portal, the underwriters have reserved up to
shares of common stock for sale, at the initial public offering price, to
directors, officers, employees and friends of Portal through a directed share
program. The number of shares of common stock available for sale to the general
public in the public offering will be reduced to the extent these persons
purchase these reserved shares.
Portal estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Portal has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
<PAGE>
[DESCRIPTION OF ARTWORK]
[FAST TIME-TO-MARKET WITH NEW SERVICES DIAGRAM]
[A diagram, in the shape of steps, depicting Portal's Infranet Platform
representing Object APIs; Access Services, including Basic Dial-Up, ISDN,
xDSL, Roaming, Dedicated Internet Protocol Access, ATM and Frame Relay and
Cable Modem; Consumer Services, including Personal Web Pages, Online Gaming,
IP Telephony, Information Services and Content and Personal Finance Services;
and Business Services, including Web Site Hosting, VPN, IP Fax, Audio/Video
Conference and Application Hosting.]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 32
Management............................................................... 46
Certain Transactions..................................................... 57
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 63
Legal Matters............................................................ 64
Experts.................................................................. 64
Additional Information................................................... 65
Index to Consolidated Financial Statements............................... F-1
Underwriting............................................................. U-1
</TABLE>
----------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to an unsold allotment or
subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
Portal Software, Inc.
Common Stock
----------------
----------------
Goldman, Sachs & Co.
Credit Suisse First Boston
BancBoston
Robertson Stephens
Hambrecht & Quist
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Portal in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $19,600
NASD Filing Fee..................................................... $ 7,500
Nasdaq National Market Listing Fee.................................. *
Printing and Engraving Expenses..................................... *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Blue Sky Fees and Expenses.......................................... *
Transfer Agent Fees................................................. *
Miscellaneous....................................................... *
Total............................................................. *
</TABLE>
- --------
*To be filed by amendment
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6 of Portal's Amended
and Restated Bylaws provides for mandatory indemnification of its directors and
officers and permissible indemnification of employees and other agents to the
maximum extent permitted by the Delaware General Corporation Law. Portal's
Second Amended and Restated Certificate of Incorporation provides that, subject
to Delaware law, its directors shall not be personally liable for monetary
damages for breach of the directors' fiduciary duty as directors to Portal and
its stockholders. This provision in the Second Amended and Restated Certificate
of Incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to Portal or its stockholders for acts or omissions
not in good faith or involving intentional misconduct, for knowing violations
of law, for actions leading to improper personal benefit to the director, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws. Portal has entered into
indemnification agreements with its officers and directors, a form of which was
previously filed with the Securities and Exchange Commission as an Exhibit to
the Registrant's Registration Statement on Form S-1 (No. 333- ) (the
"Indemnification Agreements"). The Indemnification Agreements provide Portal's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. Reference is also made to
Section 7 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of Portal against certain liabilities, and
Section 1.10 of the Amended and Restated Investor Rights Agreement contained in
Exhibit 4.2 and 4.3 hereto, indemnifying certain of Portal's stockholders,
including controlling stockholders, against certain liabilities.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below.
(a)The Registrant issued and sold 3,685,986 shares of its Common Stock to
employees and consultants for an aggregate purchase price of $1,079,991
pursuant to direct stock issuances and the exercise of options under its
1995 Stock Option/Stock Issuance Plan.
(b)From March 1996 through January 1997, the Registrant issued and sold an
aggregate of 5,045,530 shares of Series A Preferred Stock at a per share
price of $0.50, for an aggregate of $2,522,765 to several investors.
(c)In June 1996, the Registrant issued and sold 844,850 shares of its
Common Stock at a per share price of $0.02 for an aggregate purchase price
of $16,890 to an officer of the Registrant.
(d)In April 1996, the Registrant issued warrants to purchase 182,200 shares
of Series A Preferred Stock at a per share price of $0.50 to several
investors.
(e)In October 1996, the Registrant issued and sold 500,000 shares of Common
Stock to entities affiliated with Accel Partners upon exercise of warrants
for an aggregate purchase price of $1,000.
(f)In January 1997, the Registrant issued and sold 1,025,000 shares of
Series A Preferred Stock to entities affiliated with Accel Partners upon
exercise of warrants for an aggregate purchase price of $512,500.
(g)In April 1997, the Registrant issued 33,350 shares of Series A Preferred
Stock to an investor upon exercise of warrants for an aggregate purchase
price of $16,825.
(h)In September 1997, in connection with an equipment leasing transaction,
the Registrant issued warrants to purchase 43,366 shares of its Series B
Preferred Stock, at an exercise price of $4.50 per share, to Lighthouse
Capital.
(i) In September 1997, in connection with a line of credit, the Registrant
issued a warrant to purchase 4,167 shares of its Common Stock, at an
exercise price of $0.05 per share, to Imperial Bank.
(j)In November 1997, in connection with a bridge loan, the Registrant
issued warrants to purchase 6,287 shares of its Common Stock, at an
exercise price of $0.05 per share, to entities affiliated with Accel
Partners.
(k)In January 1998, in connection with an equipment leasing transaction,
the Registrant issued warrants to purchase 33,333 shares of its Series B
Preferred Stock, at an exercise price of $4.50 per share, to Comdisco, Inc.
(l)From January through August 1998, the Registrant issued and sold an
aggregate of 3,411,999 shares of Series B Preferred Stock at a per share
price of $4.50, for an aggregate of $15,353,996 to several investors.
(m)In May 1998, the Registrant issued 34,850 shares of Series A Preferred
Stock to an investor upon exercise of warrants for an aggregate purchase
price of $17,425.
(n)In June 1998, the Registrant issued and sold 6,287 shares of Common
Stock to entities affiliated with Accel Partners upon exercise of warrants
for an aggregate purchase price of $314.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the Registrant believes
that each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated
thereunder or Rule 701 pursuant to compensatory benefit plans and contracts
relating to
II-2
<PAGE>
compensation as provided under such Rule 701. The recipients in these
transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with the Registrant or otherwise,
to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.1* Form of Underwriting Agreement among the Registrant, Goldman Sachs &
Co., Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens and Hambrecht & Quist LLC.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement, among the Registrant
and the investors and founders named therein, dated January 29, 1998.
4.3 Amendment No. 1 to the Amended and Restated Investors' Rights
Agreement, dated March 3, 1998.
4.4 Reference is made to Exhibits 3.1 and 3.2.
5.1* Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Registrant, with respect to the common stock being registered.
10.1 Lease Agreement between Registrant and Stevens Creek Office Center
Associates for office facilities at Stevens Creek Office Center,
Cupertino, California, dated November 4, 1991, as amended.
10.2 Lease Agreement between Registrant and Stevens Creek Office Center
Associates for office facilities at 20833 Stevens Creek Boulevard,
Cupertino, California, dated as of September 8, 1998.
10.3 Loan and Security Agreement by and between Registrant and Lighthouse
Capital Partners, L.P., dated as of July 24, 1997, as amended.
10.4* Registrant's 1995 Stock Option/Stock Issuance Plan and exhibits.
10.5* Registrant's 1999 Stock Incentive Plan.
10.6* Registrant's 1999 Employee Stock Purchase Plan.
10.7 Form of Directors' and Officers' Indemnification Agreement.
10.8 Form of Registrant's Software License and Support Agreement.
10.9 Form of Registrant's Business Alliance Agreement.
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in its opinion
filed as Exhibit 5.1).
24.1 Power of Attorney. Reference is made to Page II-5.
27.1 Financial Data Schedule. (In EDGAR format only)
</TABLE>
- --------
* To be filed by amendment
II-3
<PAGE>
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information required
to be set therein is not applicable or is shown in the financial statements or
notes thereto.
Item 17. Undertakings
Portal 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 may be permitted to directors, officers and controlling persons of
Portal pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of Portal, Indemnification Agreements entered into
between Portal and its officers and directors, the Underwriting Agreement, or
otherwise, Portal 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 Portal of
expenses incurred or paid by a director, officer, or controlling person of
Portal 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, Portal will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by Portal pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cupertino, State of California, on this 26th
day of February, 1999.
PORTAL SOFTWARE, INC.
By: /s/ John E. Little
----------------------------------
John E. Little
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, John E. Little and Jack
L. Acosta, and each one of them, his true and lawful attorneys-in-fact and
agents, each with full power of substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, as amended, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that each of said attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the persons whose signatures appear
below, which persons have signed such Registration Statement in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John E. Little President, Chief Executive February
____________________________________ Officer (Principal 26, 1999
John E. Little Executive Officer) and
Chairman of the Board of
Directors
/s/ Jack L. Acosta Chief Financial Officer, February 26,
____________________________________ Vice President, Finance 1999
Jack L. Acosta (Principal Financial and
Accounting Officer) and
Secretary
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Arthur C. Patterson Director February 26,
____________________________________ 1999
Arthur C. Patterson
/s/ Edward J. Zander Director February 26,
____________________________________ 1999
Edward J. Zander
/s/ David C. Peterschmidt Director February 26,
____________________________________ 1999
David C. Peterschmidt
/s/ William T. Coleman III Director February 26,
____________________________________ 1999
William T. Coleman III
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.1* Form of Underwriting Agreement among the Registrant, Goldman Sachs &
Co., Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens and Hambrecht & Quist LLC.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement, among the Registrant
and the investors and founders named therein, dated January 29, 1998.
4.3 Amendment No. 1 to the Amended and Restated Investors' Rights
Agreement, dated March 3, 1998.
4.4 Reference is made to Exhibits 3.1 and 3.2.
5.1* Opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Registrant, with respect to the common stock being registered.
10.1 Lease Agreement between Registrant and Stevens Creek Office Center
Associates for office facilities at Stevens Creek Office Center,
Cupertino, California, dated November 4, 1991, as amended.
10.2 Lease Agreement between Registrant and Stevens Creek Office Center
Associates for office facilities at 20833 Stevens Creek Boulevard,
Cupertino, California, dated as of September 8, 1998.
10.3 Loan and Security Agreement by and between Registrant and Lighthouse
Capital Partners, L.P., dated as of July 24, 1997, as amended.
10.4* Registrant's 1995 Stock Option/Stock Issuance Plan and exhibits.
10.5* Registrant's 1999 Stock Incentive Plan.
10.6* Registrant's 1999 Employee Stock Purchase Plan.
10.7 Form of Directors' and Officers' Indemnification Agreement.
10.8 Form of Registrant's Software License and Support Agreement.
10.9 Form of Registrant's Business Alliance Agreement.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion
filed as Exhibit 5.1).
24.1 Power of Attorney. Reference is made to Page II-5.
27.1 Financial Data Schedule (In EDGAR format only).
</TABLE>
- --------
* To be filed by amendment
<PAGE>
EXHIBIT 4.2
PORTAL SOFTWARE, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
January 29, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights................................................ 1
1.1 Definitions.................................................. 1
1.2 Request for Registration..................................... 2
1.3 Company Registration......................................... 4
1.4 Obligations of the Company................................... 4
1.5 Furnish Information.......................................... 6
1.6 Expenses of Demand Registration.............................. 6
1.7 Expenses of Company Registration............................. 7
1.8 Underwriting Requirements.................................... 7
1.9 Delay of Registration........................................ 8
1.10 Indemnification.............................................. 8
1.11 Reports Under Securities Exchange Act of 1934................ 10
1.12 Form S-2 or S-3 Registration................................. 10
1.13 Assignment of Registration Rights............................ 11
1.14 Limitations on Subsequent Registration Rights................ 12
1.15 "Market Stand-Off" Agreement................................. 12
1.16 Termination of Registration Rights........................... 13
2. Covenants of the Company........................................... 13
2.1 Delivery of Financial Statements............................. 13
2.2 Inspection................................................... 14
2.3 Termination of Information and Inspection Covenants.......... 14
2.4 Right of First Offer......................................... 15
2.5 Board Representation; Amendment of Charter................... 16
2.6 Positive Covenants........................................... 17
2.7 Termination of Certain Covenants............................. 18
3. Rights of First Refusal and Co-Sale................................ 18
3.1 Definition of "Shares"....................................... 19
3.2 Restrictions on Transfer..................................... 19
3.3 Transfers Not Subject to Restrictions........................ 19
3.4 Offer of Sale; Notice of Proposed Sale....................... 19
3.5 The Company's Option to Purchase............................. 20
3.6 Other Founder's and the Investors' Option to Purchase........ 20
3.7 Investor's Right of Co-Sale.................................. 21
3.8 Termination of Section 3..................................... 22
3.9 Amendment of Section 3....................................... 23
4. Miscellaneous...................................................... 23
4.1 Successors and Assigns....................................... 23
4.2 Governing Law................................................ 23
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.3 Counterparts................................................. 23
4.4 Titles and Subtitles......................................... 23
4.5 Notices...................................................... 23
4.6 Expenses..................................................... 24
4.7 Amendments and Waivers....................................... 24
4.8 Severability................................................. 24
4.9 Aggregation of Stock......................................... 24
4.10 Entire Agreement; Amendment; Waiver.......................... 24
</TABLE>
Schedule A Schedule of Series A Investors
Schedule B Schedule of Series B Investors
Schedule C Schedule of Founders
Exhibit A Amended and Restated Articles of Incorporation to be filed
pursuant to Section 2.5
<PAGE>
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of
the 29th day of January 1998, by and between Portal Software, Inc., a California
corporation (the "Company"), the investors listed on Schedule A hereto (the
----------
"Series A Investors"), the investors listed on Schedule B hereto (the "Series B
----------
Investors" and, together with the Series A Investors, the "Investors") and the
founders listed on Schedule C hereto (the "Founders").
----------
RECITALS
--------
WHEREAS, certain of the Investors hold shares of the Company's Series
A Preferred Stock (the "Series A Preferred Stock") and/or shares of Common Stock
issued upon conversion thereof and possess registration rights, information
rights, rights of first offer, and other rights pursuant to that certain
Investors' Rights Agreement dated March 22, 1996, between the Company and such
Investors (the "Prior Agreement");
WHEREAS, the undersigned Investors who hold more than a majority of
the shares of Series A Preferred Stock desire to terminate the Prior Agreement
and to accept the rights created pursuant hereto in lieu of the rights granted
to them under the Prior Agreement;
WHEREAS, certain Investors and the Company are parties to the Series B
Preferred Stock Purchase Agreement of even date herewith (the "Series B Purchase
Agreement") providing for the sale and issuance to such Investors of the
Company's Series B Preferred Stock (the "Series B Preferred Stock");
WHEREAS, in order to induce the Company to enter into the Series B
Purchase Agreement and to induce the Investors to invest funds in the Company
pursuant to the Series B Purchase Agreement, the Investors and the Company
hereby agree that this Agreement shall govern the rights of the Investors as to
the matters set forth herein, and the Investors who are parties to the Prior
Agreement hereby agree that the Prior Agreement shall be superseded, rendered
void and replaced in its entirety by this Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company convenant and agrees as
-------------------
follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-2" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission (the "SEC") which permits inclusion or
incorporation of substantial
<PAGE>
information by reference to other documents filed by the Company with the SEC.
(c) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(e) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(f) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock and Series B
Preferred Stock, including the Common Stock issuable or issued upon conversion
of the Series A Preferred Stock or the Series B Preferred Stock that is issuable
or issued upon the exercise of any warrants to purchase Series A Preferred Stock
or Series B Preferred Stock and Common Stock issued or issuable upon exercise of
warrants to purchase Common Stock, and (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of the shares referenced in (i) above,
excluding in all cases, however, any Registrable Securities sold by a person in
a transaction in which his rights under this Section 1 are not assigned or when
sold to the public pursuant to an effective registration statement or Rule 144.
(h) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then-
exercisable or convertible securities which are, Registrable Securities.
(i) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of (i)
the third anniversary of the date hereof, or (ii) three (3) months after the
effective date of the first registration statement for a public offering of
securities of the Company (other than a registration statement relating either
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or an SEC Rule 145 transaction), a
written request from the Holders of at least 20% of the Registrable Securities
then outstanding that the Company file a registration statement under the Act
covering the registration of the Registrable Securities
<PAGE>
then outstanding (or a lesser percent if the anticipated aggregate offering
price, net of underwriting discounts and commissions, would exceed $10,000,000),
then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any event within
ninety (90) days of the receipt of such request, the registration under the Act
of all Registrable Securities which the Holders request to be registered,
subject to the limitations of subsection 1.2(b), within twenty (20) days of the
mailing of such notice by the Company in accordance with Section 3.5.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities held by
shareholders of the Company other than Holders are first entirely excluded from
the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
(d) In addition, the Company shall not be obligated to effect, or to
take any
<PAGE>
action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected three (3) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) If the Company has, within the twelve (12) month period
preceding the date of such request, already effected a registration pursuant to
this Section 1.2;
(iii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iv) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.12 below; provided the Company pays all
expenses therefor as if such registration was pursuant to this Section 1.2, and
the underwriters, if any, agree to use such Form S-3 for such registration.
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 4.5, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such one hundred twenty (120) day
period shall be extended for a period of time equal to the period the Holder
refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other
<PAGE>
securities) of the Company; and (ii) in the case of any registration of
Registrable Securities on Form S-2 or S-3 which are intended to be offered on a
continuous or delayed basis, such one hundred twenty (120) day period shall be
extended, if necessary, to keep the registration statement effective until all
such Registrable Securities are sold, provided that Rule 415, or any successor
rule under the Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation to
file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (I) includes any prospectus required by Section 10(a)(3) of the
Act or (II) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities
<PAGE>
registered pursuant hereunder and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.
(i) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
1.5 Furnish Information.
-------------------
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
<PAGE>
1.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of one (1) counsel for the selling Holders,
which counsel shall be selected by Holders holding a majority of the Registrable
Securities to be so registered) shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 1.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered (in which case all participating
holders shall bear such expenses), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 1.2; provided further, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay
--------------------------------
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the reasonable fees and disbursements of one counsel for the selling
Holders selected by Holders holding a majority of the Registrable Securities to
be so registered, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling Shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering, unless such
offering is the initial public offering
<PAGE>
of the Company's securities in which case the selling shareholders may be
entirely excluded if the underwriters make the determination described above and
no other shareholder's securities are included or (ii) notwithstanding (i)
above, any shares being sold by a shareholder exercising a demand registration
right similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders of
such holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling shareholder", and any pro-rata reduction with
respect to such "selling shareholder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "selling shareholder", as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification.
---------------
In the event any Registrable Securities are included in a registration
statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
or the 1934 Act, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, or any
rule or regulation promulgated under the Act, or the 1934 Act; and the Company
will pay to each such Holder, underwriter or controlling person any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder severally but
not jointly will indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the registration statement, each person, if
any, who controls the Company within
<PAGE>
the meaning of the Act, any underwriter, any other Holder selling securities in
such registration statement and any controlling person of any such underwriter
or other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, or the 1934 Act insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.10(b), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.10(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this subsection 1.10(b)
exceed the proceeds from the offering received by such Holder (net of
underwriting discounts and commissions).
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
<PAGE>
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided that in no event shall any contribution made by
any Holder hereunder exceed the proceeds from the offering received by such
Holder, net of underwriting discounts and commissions.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-2 or S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-2 or S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-2 or S-3 (at any
time after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-2 or S-3 Registration. In case the Company shall
----------------------------
receive from any Holder or Holders a written request or requests that the
Company effect a registration on Form S-2 or S-3 and any related qualification
or compliance
<PAGE>
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.12: (1) if Form S-2 and
S-3 are not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such Registration to be effected at such time, in which
event the Company shall have the right to defer the filing of the Form S-2 or S-
3 registration statement for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve (12)
month period; (4) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected a registration on Form S-2
or S-3 for the Holders pursuant to this Section 1.12; or (5) in any particular
jurisdiction in which the Company would be required to qualify to do business or
to execute a general consent to service of process in effecting such
registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 1.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, and any underwriters' discounts or commissions
associated with Registrable Securities, shall be borne pro rata by the Holder or
Holders participating in the Form S-2 or S-3 Registration. Registrations
effected pursuant to this Section 1.12 shall not be counted as demands for
registration or registrations effected pursuant to Sections 1.2 or 1.3,
respectively.
<PAGE>
1.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 20% of the shares of Registrable Securities originally purchased by such
Holder (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.15 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act. For the purposes of
determining the number of shares of Registrable Securities held by a transferee
or assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership or of a limited liability
company who are members or retired members of such limited liability company
(including spouses and ancestors, lineal descendants and siblings of such
partners or members or spouses who acquire Registrable Securities by gift, will
or intestate succession) shall be aggregated together and with the partnership
or limited liability company; provided that all assignees and transferees who
would not qualify individually for assignment of registration rights shall have
a single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.
1.14 Limitations on Subsequent Registration Rights.
---------------------------------------------
From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of a majority of the
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to include such securities in any registration
filed under Section 1.2 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
reduce the amount of the Registrable Securities of the Holders which is included
or (b) to make a demand registration which could result in such registration
statement being declared effective prior to the earlier of either of the dates
set forth in subsection 1.2(a) or within one hundred twenty (120) days of the
effective date of any registration effected pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
----------------------------
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration
<PAGE>
statement of the Company which covers common stock (or other securities) to be
sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements; and
(c) such market stand-off time period shall not exceed 180 days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-14 or Form S-15 or similar forms which may be promulgated
in the future.
1.16 Termination of Registration Rights.
----------------------------------
(a) No Holder shall be entitled to exercise any right provided for in
this Section 1 after five (5) years following the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public.
(b) In addition, the right of any Holder to request registration or
inclusion in any registration pursuant to Section 1.3 shall terminate on the
closing of the first Company-initiated registered public offering of Common
Stock of the Company if all shares of Registrable Securities held or entitled to
be held upon conversion by such Holder may immediately be sold under Rule 144
during any ninety (90) day period, or on such date after the closing of the
first Company-initiated registered public offering of Common Stock of the
Company as all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any
ninety (90) day period; provided, however, that the provisions of this Section
1.16(b) shall not apply to any Holder who owns more than two percent (2%) of the
Company's outstanding stock until such time as such Holder owns less than two
percent (2%) of the outstanding stock of the Company.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver
--------------------------------
to each Investor:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule
<PAGE>
as to the sources and applications of funds for such year, such year-end
financial reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles ("GAAP"), and audited and certified by
independent public accountants of nationally recognized standing selected by the
Company;
(b) if Investor holds at least 500,000 shares of Preferred Stock, then
(i) as soon as practicable, but in any event within forty-
five (45) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, an unaudited profit or loss statement, schedule as
to the sources and application of funds for such fiscal quarter and an unaudited
balance sheet and a statement of shareholder's equity as of the end of such
fiscal quarter.
(ii) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and application of
funds and balance sheet for and as of the end of such month, in reasonable
detail and a comparison of such statement for the corresponding periods of the
Company's previous fiscal year;
(iii) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(iv) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this subsection
(iv) or any other subsection of Section 2.1 to provide information which it
deems in good faith to be a trade secret or similar confidential information.
(v) with respect to the financial statements called for in
subsections (i) and (ii) of this Section 2.1(b), an instrument executed by the
Chief Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
2.2 Inspection. The Company shall permit each Investor, at such
----------
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants.
------------------------------------
The covenants set forth in subsections 2.1(b)(ii), (b)(iii) and
(b)(iv) and Section 2.2 shall terminate as to Investors and be of no further
force or effect when the sale of securities pursuant to a registration statement
filed by the Company under
<PAGE>
the Act in connection with the firm commitment underwritten offering of its
securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur, or, in any event, with
respect to a particular Investor when such Investor holds less than 500,000
shares of Preferred or Common Stock issued upon conversion thereof.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this paragraph 2.4, the Company hereby grants to each Investor a
pro-rata right, based on their percentage equity ownership of Common Stock on a
fully diluted basis, to participate in future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.4, Investor includes
any general partners and affiliates of an Investor. An Investor shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice") to
the Investors stating (i) its bona fide intention to offer such Shares, (ii) the
number of such Shares to be offered, and (iii) the price and terms, if any, upon
which it proposes to offer such Shares.
(b) By written notification received by the Company within twenty (20)
calendar days after giving of the Notice, the Investor may elect to purchase or
obtain, at the price and on the terms specified in the Notice, up to that
portion of such Shares which equals the proportion that the number of shares of
common stock issued and held, or issuable upon conversion of the Series A or
Series B Preferred Stock then held, by such Investor bears to the total number
of shares of common stock of the Company then outstanding (assuming full
conversion and exercise of all convertible or exercisable securities). The
Company shall promptly, in writing, inform each Investor which purchases all the
shares available to it ("Fully-Exercising Investor") of any other Investor's
failure to do likewise. During the ten (10) day period commencing after such
information is given, each Fully-Exercising Investor shall be entitled to obtain
that portion of the Shares not subscribed for by the Investors which is equal to
the proportion that the number of shares of common stock issued and held, or
issuable upon conversion of Series A and Series B Preferred Stock then held, by
such Fully-Exercising Investor bears to the total number of shares of common
stock issued and held, or issuable upon conversion of the Series A and Series B
Preferred Stock then held, by all Fully-Exercising Investors who wish to
purchase some of the unsubscribed shares.
<PAGE>
(c) If all Shares referred to in the Notice are not elected to be
obtained as provided in subsection 2.4(b) hereof, the Company may, during the
thirty (30) day period following the expiration of the period provided in
subsection 2.4(b) hereof, offer the remaining unsubscribed portion of such
Shares to any person or persons at a price not less than, and upon terms no more
favorable to the offeree than those specified in the Notice. If the Company does
not enter into an agreement for the sale of the Shares within such period, or if
such agreement is not consummated within thirty (30) days of the execution
thereof, the right provided hereunder shall be deemed to be revived and such
Shares shall not be offered unless first reoffered to the Investors in
accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable to (i) the issuance of the Series B Preferred Stock to be purchased
at the Closing and the Common Stock issuable upon conversion thereof, (ii) the
issuance or sale of any shares of common stock (or options therefor) to
employees, directors or other service providers for the primary purpose of
soliciting or retaining their services, provided such issuances are approved by
the Company's Board of Directors, (iii) or after consummation of a bona fide,
firmly underwritten public offering of shares of common stock, registered under
the Act pursuant to a registration statement on Form S-1, at an offering price
of at least $10.00 per share (appropriately adjusted for any stock split,
dividend, combination or other recapitalization) and $7,500,000 in the
aggregate, (iv) the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities outstanding as of the date
hereof, (v) the issuance of securities in connection with a stock split,
dividend or other recapitalization of the Company, (vi) the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, (vii) the issuance of stock, warrants or other securities or
rights to persons or entities with which the Company has strategic business
relationships, provided such issuances are approved by the Company's Board of
Directors and are for other than primarily equity financing purposes, or (viii)
to the issuance of stock, warrants, or other securities or rights in connection
with equipment leasing or bank financing transactions, provided that such
issuances are for other than financing purposes.
(e) The right of first offer set forth in this Section 2.4 may not be
assigned or transferred, except that (i) such right is assignable by each Holder
to any wholly owned subsidiary or parent of, or to any corporation or entity
that is, within the meaning of the Act, controlling, controlled by or under
common control with, any such Holder, and (ii) such right is assignable between
and among any of the Holders.
2.5 Board Representation; Amendment of Charter.
------------------------------------------
(a) Immediately after the date hereof, the Company shall take all
actions necessary or appropriate, and each of the Investors and the Founders
hereby votes all shares of capital stock held by him or it in favor of such
actions, to amend and restate the Company's Amended and Restated Articles of
Incorporation as set forth on Exhibit A hereto.
---------
(b) The Company's Board of Directors, immediately after the date
hereof, shall consist of Arthur Patterson (who shall serve as the Series A
Director), John Little (who shall serve as the first of the two (2) Common
Directors) and Ed Zander (who shall serve as the
<PAGE>
first Remaining Director, as such term is defined in the Amended and Restated
Articles of Incorporation attached as Exhibit A hereto). There shall be two (2)
---------
vacancies on the Company's Board of Directors and it is the expectation of the
parties that the first such vacancy to be filled shall be a Remaining Director.
(c) The Company shall pay all reasonable expenses incurred by the
Series B Director in attending the Company Board meetings and conducting other
business on behalf of the Company.
2.6 Positive Covenants. The Company agrees as follows:
------------------
(a) The Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments, and
governmental charges or levies imposed upon the income, profits, property, or
business of the Company or any subsidiary; provided, however, that any such tax,
assessment, charge, or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereof, and provided further, that the Company will pay all such taxes,
assessments, charges, or levies forthwith upon the commencement of proceedings
to foreclose any lien that may have attached as security therefor. The Company
will promptly pay or cause to be paid when due, or in conformity with customary
trade terms, all other indebtedness incident to the operations of the Company;
(b) The Company will keep its properties and those of its subsidiaries
in good repair, working order, and condition, reasonable wear-and-tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions, and improvements thereto; and the Company and its
subsidiaries will at all times comply with the provisions of all material leases
to which any of them is a party or under which any of them occupies property so
as to prevent any loss or forfeiture thereof or thereunder;
(c) Except as otherwise decided in accordance with policies adopted by
the Company's Board of Directors, the Company will keep its assets and those of
its subsidiaries that are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, extended coverage, and
explosion insurance in amounts customary for companies in similar businesses
similarly situated; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards, risks, and liabilities to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated;
(d) The Company will keep true records and books of account in which
full, true, and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with GAAP applied on a
consistent basis;
(e) The Company and all its subsidiaries shall duly observe and
conform to all valid requirements of governmental authorities relating to the
conduct of their businesses or to their property or assets;
<PAGE>
(f) The Company shall maintain in full force and effect its corporate
existence, rights, and franchises and all licenses and other rights to use
patents, processes, licenses, trademarks, trade names, or copyrights owned or
possessed by it or any subsidiary and deemed by the Company to be necessary to
the conduct of its business;
(g) The Company will retain independent public accountants of
recognized national standing who shall certify the Company's financial
statements at the end of each fiscal year. In the event the services of the
independent public accountants so selected, or any firm of independent public
accountants hereafter employed by the Company are terminated, the Company will
promptly thereafter notify the Holders and will request the firm of independent
public accountants whose services are terminated to deliver to the Holders a
letter from such firm setting forth the reasons for the termination of their
services. In the event of such termination, the Company will promptly thereafter
engage another firm of independent public accountants of recognized national
standing. In its notice to the Holders the Company shall state whether the
change of accountants was recommended or approved by the Board of Directors of
the Company or any committee thereof;
(h) The Company and all its subsidiaries shall duly observe and
conform to all valid requirements of governmental authorities relating to the
conduct of their businesses or to their properties or assets;
(i) The Company will cause each person now or hereafter employed by it
or any subsidiary with access to confidential information to enter into a
proprietary information and inventions agreement substantially in the form
approved by the Board of Directors;
(j) All stock option or stock issuance plans of the Company and any
grants thereunder must be approved by a majority of the Board of Directors or a
duly appointed committee thereof;
(k) The Company will enter into a Management Rights Letter dated as of
the date hereof with Chancellor LGT Private Capital Partners III, L.P.
("Capital") pursuant to which Capital will be granted certain inspection,
consultation and Board observer rights; and
(l) Compensation and Audit Committees. The compensation for the
---------------------------------
members of the of the management team will be at a reasonable level (industry
standard), and if in dispute, will be referred to a committee of the Board of
Directors, comprised of one management team member, the Series B Director, and a
third-party director to be agreed upon. The Series B Director shall have the
right to participate in any other board committees, including any audit
committee.
2.7 Termination of Certain Covenants. The convenants set forth in
--------------------------------
Sections 2.4, 2.5 and 2.6 shall terminate and be of no further force or effect
upon the consummation of the sale of Common Stock pursuant to a registration
statement filed by the Company under the Act in connection with the firm
commitment underwritten offering of its securities to the general public.
3. Rights of First Refusal and Co-Sale.
-----------------------------------
<PAGE>
Each Founder hereby grants the Investors the rights of first refusal
and co-sale set forth in this Section 3.
3.1 Definition of "Shares". As used in this Section 3, the term
----------------------
"Shares" shall include all shares of voting capital stock of the Company held by
the Founders or the Investors, whether now owned or hereafter acquired. For
purposes of calculating the "pro-rata" ownership of the Company's voting capital
stock held by a Founder or any Investor, all shares of convertible preferred
stock of the Company shall be deemed to have been converted into shares of
Common Stock.
3.2 Restrictions on Transfer.
------------------------
(a) Any sale or other disposition of any of the Shares by the
Founders, other than according to the terms of this Section 3, shall be void and
transfer no right, title or interest in or to any of such Shares to the
purported transferee.
(b) The Founders agree to present the certificates representing the
Shares presently owned or hereafter acquired by them to the Secretary of the
Company and cause the Secretary to stamp on the certificates in a prominent
manner the following legend:
"The sale or other disposition of any of the shares represented by
this certificate is subject to certain restrictions as set forth in an
Amended and Restated Investors' Rights Agreement by and among the
registered owner of this certificate, the Company and certain other
shareholders of the Company, a copy of which is available for
inspection at the offices of the Secretary of the Company."
3.3 Transfers Not Subject to Restrictions.
-------------------------------------
(a) A Founder or a Permitted Transferee may sell, assign or transfer
Shares to such Founder's spouse, children or grandchildren or to a trust
established for the benefit of such Founder's spouse, children, grandchildren or
himself, or dispose of them under such Founder's will, without compliance with
Sections 3.4 through 3.7 hereof, which purchaser, assignee, transferee, legatee,
devisee or heir is referred to herein as a "Permitted Transferee", provided that
such Permitted Transferee shall be subject to the terms of this Section 3 and
must, prior to the receipt of any Shares, agree in writing to be bound by the
terms of this Section 3 to the same extent as the transferor is bound hereby.
(b) The rights of the Company, the Founders and the Investors under
Sections 3.5, 3.6 and 3.7 hereof shall not apply to any pledge of Shares by a
Founder which creates a mere security interest, provided the pledgee provides
the Company, the Founders and the Investors with a written agreement to be bound
hereby to the same extent as the pledging Founder.
3.4 Offer of Sale; Notice of Proposed Sale. If a Founder desires
--------------------------------------
to sell, transfer or otherwise dispose of any of his Shares, or
<PAGE>
of any interest in such Shares, whether voluntarily or by operation of law, in
any transaction other than pursuant to Section 3.3 of this Agreement, such
Founder (the "Selling Founder") shall first deliver written notice of his desire
to do so (the "First Notice") to the Company, the other Founders, and to each
Investor, in the manner prescribed in Section 4.5 of this Agreement. The First
Notice must specify: (i) the name and address of the party to which the Selling
Founder proposes to sell or otherwise dispose of the Shares or an interest in
the Shares (the "Offeror"), (ii) the number of Shares the Selling Founder
proposes to sell or otherwise dispose of (the "Offered Shares"), (iii) the
consideration per Share to be delivered to the Selling Founder for the proposed
sale, transfer or disposition, and (iv) all other material terms and conditions
of the proposed transaction.
3.5 The Company's Option to Purchase.
--------------------------------
(a) The Company shall have the first option to purchase all of the
Offered Shares for the consideration per share and on the terms and conditions
specified in the First Notice. The Company must exercise such option in whole
and not in part, if at all, no later than fifteen (15) days after such First
Notice is deemed under Section 4.5 hereof to have been delivered to it, by
written notice to the Selling Founder.
(b) In the event the Company does not exercise its option within such
fifteen (15) day period with respect to all of the Offered Shares, the Secretary
of the Company shall, by the last day of such period, give written notice of
that fact to the other Founder and each Investor (the "Second Notice").
(c) In the event the Company duly exercises its option to purchase all
of the Offered Shares, the closing of such purchase shall take place at the
offices of the Company on the date five (5) business days after the expiration
of such fifteen (15) day period.
(d) To the extent that the consideration proposed to be paid by the
Offeror for the Offered Shares consists of property other than cash or a
promissory note, the consideration required to be paid by the Company and/or the
other Founder and/or the Investors exercising their options under Sections 3.5
and 3.6 hereof may consist of cash equal to the value of such property, as
determined in good faith by agreement of the Selling Founder and the Company
and/or the other Founder and/or the Investors acquiring such Offered Shares.
<PAGE>
3.6 Other Founder's and the Investors' Option to Purchase.
-----------------------------------------------------
(a) Subject to Section 3.5, the other Founder and each Investor shall
have an option, exercisable for a period of fifteen (15) days from the date of
delivery of the Second Notice, to purchase, on a pro-rata basis according to the
number of Shares owned by such other Founder and such Investor, the Offered
Shares for the consideration per share and on the terms and conditions set forth
in the First Notice. Such options shall be exercised by delivery of written
notice to the Secretary of the Company and to the Selling Founder.
Alternatively, each Investor may within the same fifteen (15) day period,
pursuant to Section 3.7, notify the Secretary of the Company of its desire to
participate in the sale of the Shares on the terms set forth in the First
Notice, and the number of Shares it wishes to sell (which shall not exceed its
pro rata share as determined in the preceding sentence).
(b) In the event options to purchase have been exercised by the other
Founder and/or the Investors with respect to some but not all of the Offered
Shares, the Founder and/or Investors who have exercised their options within the
fifteen (15) day period specified in Section 3.6(a) and indicated at that time
that they wished to purchase more than their pro rata portion of the Offered
Shares, if available, shall have an additional option, for a period of five (5)
business days immediately following the expiration of such fifteen (15) day
period, to purchase all or any part of the balance of such Offered Shares on the
terms and conditions set forth in the First Notice, which option shall be
exercised by the delivery of written notice to the Secretary of the Company and
to the Selling Founder. In the event the other Founder and/or the Investors
choose to exercise the last-mentioned option for a total number of Shares in
excess of the number available, the total number of Shares available for each
such other Founder and/or the Investors' option shall be allocated pro rata
based on the number of Shares owned by the other Founder and/or the Investors so
electing. In the event (i) the other Founder and all other Investors do not
exercise the option to purchase the Offered Shares pursuant to 3.6(a), or (ii)
one or more of them chooses to exercise the option pursuant to Section 3.6(b)
for a total number of shares less than the number of Offered Shares, subject to
the provisions of Section 3.7 below, the Selling Founder shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Offered
Shares to the Offeror identified in the First Notice upon terms and conditions
(including the purchase price) no more favorable to such Offeror than those
specified in the First Notice. In the event the Selling Founder does not effect
such sale or disposition of the Offered Shares within the specified thirty (30)
day period, the rights of the Company, the Other Founder, and the Investors
provided under Section 3 shall continue to be applicable to any subsequent
disposition of the Offered Shares by the Selling Founder until such rights lapse
in accordance with paragraph 3.8.
(c) If the options to purchase the Offered Shares are exercised by the
Founders and/or the other Investors, the Secretary of the Company shall
immediately notify the other Founder and the Investors of that fact. The closing
of the purchase of the Offered Shares shall take place at the offices of the
Company no later than five (5) business days after the date of such notice to
the other Founder and/or the Investors.
<PAGE>
3.7 Investor's Right of Co-Sale.
---------------------------
(a) Subject to Sections 3.5 and 3.6, if any Investor has expressed a
desire to sell Shares within the period and in the transaction described in
Section 3.6(a) of this Agreement (the "Option Period") then such Investor shall
be entitled to sell such shares pursuant to this Section 3.7. The Secretary of
the Company shall promptly, on expiration of the Option Period, notify the
Selling Founder of the aggregate number of Shares the Investors wish to sell.
The Selling Founder shall use his best efforts to interest the Offeror in
purchasing, in addition to the Offered Shares, the Shares the Investors wish to
sell. If the Offeror does not wish to purchase all of the Shares made available
by the Selling Founder and the Investors, then each such Investor and the
Selling Founder shall be entitled to sell, at the price and on the terms and
conditions set forth in the First Notice, a portion of the Shares being sold to
the Offeror, in the same proportion as the Selling Founder's or such Investor's
ownership of Shares bears to the combined total number of Shares owned by the
Selling Founder and the Investors exercising the rights under this Section 3.7.
The transaction contemplated by the First Notice shall be consummated, if at
all, not later than sixty (60) days after the expiration of the Option Period.
(b) If the Investors do not elect to sell the full number of Shares
which they are entitled to sell pursuant to Section 3.7(a), the Selling Founder
shall be entitled to sell to the Offeror, according to the terms set forth in
the First Notice, that number of his own Shares which equals the difference
between the number of Shares desired to be purchased by the Offeror and the
number of Shares the Investors wish to sell. If the Selling Founder wishes to
sell, transfer or otherwise dispose of any such Shares at a price per Share
which differs from that set forth in the First Notice, upon terms different from
those previously offered to the Company, the other Founder and the Investors, or
more than sixty (60) days after the expiration of the Option Period, as a
condition precedent to such transaction, such Shares must first be offered to
the Company, the other Founder and the Investors on the same terms and
conditions as given the Offeror, and in accordance with the procedures and time
periods set forth in Sections 3.5, 3.6 and 3.7(a).
(c) The proceeds of any sale made by the Selling Founder without
compliance with the provisions of this Section 3.7 shall be deemed to be held in
constructive trust in such amount as would have been due the Investors if the
Selling Founder had complied with this Section 3, and such proceeds shall
forthwith be delivered to the Investors against delivery to the Selling Founder
of a certificate representing the Shares that would have been so sold by the
Investors.
3.8 Termination of Section 3.
------------------------
(a) The provisions of this Section 3 shall terminate, and be of no
further force or effect, upon the earliest of the following events:
(1) The written agreement of holders of at least 2/3 of the total
Registrable Securities held by the Investors and all transferees of the
Investors to whom rights hereunder have been transferred in accordance with this
Agreement (treating any securities convertible into Common Stock as if such
conversion had occurred) to terminate the Agreement;
(2) the conversion of all shares of Preferred Stock into Common
<PAGE>
Stock.
(3) The sale of all or substantially all of the assets or
business of the Company, by merger, sale of assets or otherwise; or
(4) A firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offering and sale of the Company's Common Stock at an offering
price of at least $10.00 per share and with aggregate proceeds to the Company in
excess of $7,500,000.
(5) The provisions of Sections 3.4, 3.5 and 3.6 hereof shall not
apply to any sale of Shares pursuant to a transaction referred to in Sections
3.8(a)(2) or 3.8(a)(3) above.
(6) The provisions of this Section 3 shall terminate with respect
to any Shares sold by a Founder or Investor pursuant to an effective
Registration Statement or a sale to the public pursuant to Rule 144 under the
Act.
3.9 Amendment of Section 3. Any term of this Section 3 may be
----------------------
amended and the observance of any term of this Section 3 may waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of each of the Founders and the holders
of at least 2/3 of the Registrable Securities held by the Investors and all
transferees of the Investors to whom rights hereunder have been transferred in
accordance with this Agreement (treating any securities convertible into Common
Stock as if such conversion had occurred).
4. Miscellaneous
-------------
4.1 Successors and Assigns. Expect as otherwise provided herein,
----------------------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
4.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
4.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 Titles and Subtitles. This titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
<PAGE>
4.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified, (ii)
when sent by confirmed telex or facsimile if sent during normal business hours
of the recipient; if not, then on the next business day, (iii) five (5) days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All notices shall be addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' written
notice to the other parties.
4.6 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
4.7 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
2/3 of the Registrable Securities then outstanding. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
4.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
4.9 Aggregation of Stock. All shares of Registrable Securities held
--------------------
or acquired by affiliated entities (including entities whose general partners
and/or investment managers are affiliated entities) or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
4.10 Entire Agreement; Amendment; Waiver. This Agreement (including
-----------------------------------
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PORTAL SOFTWARE, INC.
By: /s/ John E. Little
_______________________________________
John E. Little, Chief Executive Officer
and President
Address: 20863 Stevens Creek Boulevard
Suite 200
Cupertino, CA 95014
<PAGE>
INVESTORS:
CHANCELLOR LGT PRIVATE CAPITAL
PARTNERS III, L.P.
By: CPCP Associates, L.P.
Its: General Partner
By: Chancellor LGT Venture Partners, Inc.
Its: General Partner
By: /s/ Chancellor L.P.
______________________________________
Its: ______________________________________
Address; ______________________________________
______________________________________
______________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
INVESTORS:
CHANCELLOR LGT PRIVATE CAPITAL
PARTNERS III, L.P.
By: CPCP Associates, L.P.
Its: General Partner
By: Chancellor LGT Venture Partners, Inc.
Its: General Partner
By: /s/ Chancellor L.P.
_____________________________________
Its: _____________________________________
Address: _______________________________________________
_______________________________________________
_______________________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
CHANCELLOR LGT PRIVATE CAPITAL
OFFSHORE PARTNERS I, C.V.
By: Chancellor LGT KME IV Partner, L.P.
Its: Investment General Partner
By: Chancellor LGT Venture Partners, Inc.
Its: General Partner
By: /s/ Chancellor L.P.
_____________________________________
Its: _____________________________________
Address: _______________________________________________
_______________________________________________
_______________________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
CHANCELLOR LGT PRIVATE CAPITAL
OFFSHORE PARTNERS II, L.P.
By: CPCO Associates II, L.P.
Its: Investment General Partner
By: Chancellor LGT Venture Partners, Inc.
Its: General Partner
By: /s/ Chancellor L.P.
_____________________________________
Its: _____________________________________
Address: _______________________________________________
_______________________________________________
_______________________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
Its: Investment Advisor
By: /s/ Randall A. Hack
_____________________________________
Randall A. Hack
Its: Member
_____________________________________
Address: _______________________________________________
_______________________________________________
_______________________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
NAS PARTNERS I L.L.C.
By: /s/ Randall A. Hack
_____________________________________
Randall A. Hack
Its: Member
Address: _______________________________________________
_______________________________________________
_______________________________________________
NASSAU CAPITAL PARTNERS II L.P.
By: /s/ Randall A. Hack
___________________________________
Randall A. Hack
Its: Member
Address: _____________________________________________
_____________________________________________
_____________________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
ACCEL V L.P.
By: /s/ Accell Partners
___________________________________
Its: ___________________________________
Address: _____________________________________________
_____________________________________________
_____________________________________________
ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
By: /s/ Accell Partners
___________________________________
Its: ___________________________________
Address: _____________________________________________
_____________________________________________
_____________________________________________
ACCEL INVESTORS '96 L.P.
By: /s/ Accell Partners
____________________________________
Its: ____________________________________
Address: ______________________________________________
______________________________________________
______________________________________________
ACCEL KEIRETSU V L.P.
By: /s/ Accell Partners
___________________________________
Its: ___________________________________
Address: _____________________________________________
_____________________________________________
_____________________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
ELLMORE C. PATTERSON PARTNERS
By: /s/ Arthur Patterson
___________________________________
Its: ___________________________________
Address: _____________________________________________
_____________________________________________
_____________________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
BEACON FUNDS
By: /s/ Sam Kim
___________________________________
Sam Kim
Its: Director
Address: 72 Greenacres Avenue
Scarsdale
New York, NY 10583
AMERINDO TECHNOLOGY GROWTH FUND II
By: /s/ Gary Tanaka
___________________________________
Gary Tanaka
Its: Vice President
Address: Sucre Building
Calle 48 Este Bella Vista
P.O. Box 5168
Panama 5, Panama
JAMES STABLEFORD
/s/ James Stableford
_____________________________________________
Address: C/O Amerindo Investment Advisors (UK) Ltd.
43 Upper Grosvenor Street
London W1X 9PG
England
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
FOUNDER:
By: /s/ John E. Little
___________________________________
John E. Little
Address: _____________________________________________
_____________________________________________
_____________________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
FOUNDER:
By: /s/ David Labuda
___________________________________
David Labuda
Address: _____________________________________________
_____________________________________________
_____________________________________________
I, Cindy Larson, spouse of David Labuda, hereby acknowledge and agree
that, to the extent that I acquire shares of the capital stock of Portal
Software, Inc. as community property under the laws of the State of California
by reason of my marriage to David Labuda or to the extent that I receive shares
from David Labuda pursuant to the terms of any Will or trust, the laws of
intestate succession, or by way of settlement or order of the court in any
divorce or dissolution proceeding or by operation of law or otherwise, such
shares shall be subject in all respect to the terms and conditions of this
Amended and Restated Investors' Rights Agreement to the full extent applicable
if such shares were held by David Labuda.
FOUNDER'S SPOUSE
/s/ Cindy Larsen
_____________________________________________
Address: _____________________________________________
_____________________________________________
_____________________________________________
[SIGNATURE PAGE FOR AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
SCHEDULE B
Schedule of Investors
Beacon Funds
Amerindo Technology Growth Fund II
James Stableford
Accel V L.P.
Accel Internet/Strategic
Technology Fund L.P.
Accel Investors '96 L.P.
Accel Keiretsu V L.P.
Ellmore C. Patterson Partners
Chancellor LGT Private Capital
Partners III, L.P.
Citiventure 96 Partnership, L.P.
Chancellor LGT Private Capital
Offshore Partners II, L.P.
Chancellor LGT Private Capital
Offshore Partners I, C.V.
Nassau Capital Partners II L.P.
NAS Partners I L.L.C.
<PAGE>
SCHEDULE C
Schedule of Founders
John E. Little
David Labuda
<PAGE>
EXHIBIT 4.3
AMENDMENT #1
TO THE
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This Amendment Agreement (the "Agreement") is made as of this 3rd day
of March, 1998, by and among Portal Software, Inc., a California corporation
(the "Company"), the investors listed on Schedule A hereto (the "Series A
----------
Investors"), the investors listed on Schedule B hereto (the "Series B Investors"
----------
and, together with the Series A Investors, the "Investors") and the founders
listed on Schedule C hereto (the "Founders").
----------
WHEREAS, the Company, the Investors and the Founders entered into that
certain Amended and Restated Investors' Rights Agreement (the "Investors' Rights
Agreement") dated January 29, 1998;
WHEREAS, the Company, the Investors and the Founders wish to amend the
Investors' Rights Agreement to amend the provisions of Section 2.5(a) therein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Section 2.5(a) of the Investors' Rights Agreement is hereby
deleted in its entirety and amended to read as follows:
"2.5 Board Representation; Amendment of Charter.
------------------------------------------
"(a) Immediately after the date hereof, the Company shall take all
actions necessary or appropriate, and each of the Investors and the
Founders hereby votes all shares of capital stock held by him or it in
favor of such actions, to (i) amend and restate the Company's Amended
and Restated Articles of Incorporation and (ii) amend and restate the
Amended and Restated Voting Agreement among the Company, the Series A
Investors, the Series B Investors and the Founders of even date
herewith, as set forth on Exhibit A-1 and Exhibit A-2, respectively."
----------- -----------
2. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3. Except as otherwise provided for herein, the existing terms of the
Amended and Restated Investors' Rights Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PORTAL SOFTWARE, INC.
<PAGE>
By: /s/ John E. Little
John E. Little, Chief Executive Officer
and President
Address: 20863 Stevens Creek Boulevard
Suite 200
Cupertino, CA 95014
<PAGE>
INVESTORS:
CHANCELLOR LGT PRIVATE CAPITAL PARTNERS III, L.P.
By: CPCP Associates, L.P.
Its: General Partner
By: Chancellor LGT Venture Partners, Inc.
Its: General Partner
By: /s/ Chancellor
Its:
Address: c/o Chancellor LGT Asset Management
1166 Avenue of the Americas
Twenty-Seventh Floor
New York, NY 10036
CHANCELLOR LGT PRIVATE CAPITAL OFFSHORE PARTNERS
I, C.V.
By: Chancellor LGT KME IV Partner, L.P.
Its: Investment General Partner
By: Chancellor LGT Venture Partners, Inc.
Its: General Partner
By: /s/ Chancellor
Its:
Address: c/o Chancellor LGT Asset Management
1166 Avenue of the Americas
Twenty-Seventh Floor
New York, NY 10036
CHANCELLOR LGT PRIVATE CAPITAL OFFSHORE PARTNERS
II, L.P.
By: CPCO Associates II, L.P.
Its: Investment General Partner
By: Chancellor LGT Venture Partners, Inc.
Its: General Partner
<PAGE>
By: /s/ Chancellor
Its:
Address: c/o Chancellor LGT Asset Management
1166 Avenue of the Americas
Twenty-Seventh Floor
New York, NY 10036
CITIVENTURE 96 PARTNERSHIP, L.P.
By: Chancellor LGT Asset Management, Inc.
Its: Investment Advisor
By: /s/ Chancellor
Its:
Address: c/o Chancellor LGT Asset Management
1166 Avenue of the Americas
Twenty-Seventh Floor
New York, NY 10036
<PAGE>
NAS PARTNERS I L.L.C.
By: /s/ John Quigley
John G. Quigley
Its: Member
Address: 22 Chambers Street
Princeton, NJ 08542
NASSAU CAPITAL PARTNERS II L.P.
By: /s/ John Quigley
John G. Quigley
Its: Member
Address: 22 Chambers Street
Princeton, NJ 08542
<PAGE>
ACCEL V L.P.
By: /s/ Accell Partners
Its:
Address: c/o Accel Partners
428 University Avenue
Palo Alto, CA 94301
ACCEL INTERNET/STRATEGIC
TECHNOLOGY FUND L.P.
By: /s/ Accell Partners
Its:
Address: c/o Accel Partners
428 University Avenue
Palo Alto, CA 94301
ACCEL INVESTORS `96 L.P.
By: /s/ Accell Partners
Its:
Address: c/o Accel Partners
428 University Avenue
Palo Alto, CA 94301
ACCEL KEIRETSU V L.P.
By: /s/ Accell Partners
Its:
Address: c/o Accel Partners
428 University Avenue
Palo Alto, CA 94301
ELLMORE C. PATTERSON PARTNERS
<PAGE>
By: /s/ Arthur Patterson
Its:
Address: c/o Accel Partners
One Palmer Square
Princeton, NJ 08542
<PAGE>
BEACON FUNDS
By: /s/ Sam Kim
Sam Kim
Its: Director
Address: 72 Greenacres Avenue
Scarsdale
New York, NY 10583
AMERINDO TECHNOLOGY GROWTH FUND II
By: /s/ Gary Tanaka
Gary Tanaka
Its: Vice President
Address: Sucre Building
Calle 48 Este Bella Vista
P.O. Box 5168
Panama 5, Panama
JAMES STABLEFORD
/s/ James Stableford
Address: c/o Amerindo Investment Advisors (UK) Ltd.
43 Upper Grosvenor Street
London W1X 9PG
England
<PAGE>
FOUNDER:
By: /s/ John E. Little
John E. Little
Address: 20863 Stevens Creek Boulevard
Suite 200
Cupertino, CA 95014
<PAGE>
FOUNDER:
By: /s/ David Labuda
David Labuda
Address: 20863 Stevens Creek Boulevard
Suite 200
Cupertino, CA 95014
I, Cindy Larson, spouse of David Labuda, hereby acknowledge and agree
that, to the extent that I acquire shares of the capital stock of Portal
Software, Inc. as community property under the laws of the State of California
by reason of my marriage to David Labuda or to the extent that I receive shares
from David Labuda pursuant to the terms of any Will or trust, the laws of
intestate succession, or by way of settlement or order of the court in any
divorce or dissolution proceeding or by operation of law or otherwise, such
shares shall be subject in all respect to the terms and conditions of this
Amended and Restated Investors' Rights Agreement to the full extent applicable
if such shares were held by David Labuda.
FOUNDER'S SPOUSE
/s/ Cindy Larsen
Address:
<PAGE>
SCHEDULE A
Schedule of Series A Investors
Accel V L.P.
Accel Internet/Strategic Technology Fund L.P.
Accel Investors `96 L.P.
Accel Keiretsu V L.P.
Charles E. Little and Mildred W. Little, as Joint Tenants with a Right of
Survivorship
Ellmore C. Patterson Partners
Jeff Rothschild
<PAGE>
SCHEDULE B
Schedule of Series B Investors
Beacon Funds
Amerindo Technology Growth Fund II
James Stableford
Accel V L.P.
Accel Internet/Strategic
Technology Fund L.P.
Accel Investors `96 L.P.
Accel Keiretsu V L.P.
Ellmore C. Patterson Partners
Chancellor LGT Private Capital
Partners III, L.P.
Citiventure 96 Partnership, L.P.
Chancellor LGT Private Capital
Offshore Partners II, L.P.
Chancellor LGT Private Capital
Offshore Partners I, C.V.
Nassau Capital Partners II L.P.
NAS Partners I L.L.C.
<PAGE>
SCHEDULE C
Schedule of Founders
John E. Little
David Labuda
<PAGE>
EXHIBIT 10.1
OFFICE LEASE
between
STEVENS CREEK OFFICE CENTER ASSOCIATES,
as LANDLORD
and
PORTAL COMMUNICATIONS COMPANY
as TENANT
<PAGE>
BASIC LEASE INFORMATION
OFFICE LEASE
<TABLE>
<CAPTION>
<S> <C>
LEASE DATE: November 4, 1991
LANDLORD: STEVENS CREEK OFFICE CENTER ASSOCIATES, A California Limited
Partnership
20863 Stevens Creek Blvd, #50
Cupertino, CA
ADDRESS OF LANDLORD: 20863 Stevens Creek Blvd.
Suite #500
Cupertino, CA 95014
TENANT: John Little
(dba Portal Communications Company)
ADDRESS OF TENANT: 20863 Stevens Creek Blvd.
Suite #260
Cupertino, CA 95014
CONTACT: John Little TELEPHONE: 973-9111
BUILDING: 20863 SUITE: 200
FLOOR: First
RENTABLE AREA OF PREMISES: 2,773 rentable square feet (includes a 4% Load Factor)
*Measured n accordance with BOMA Standards
PARAGRAPH 3: Term: 60 Months Commencing on 1/15/92 and ending on 1/14/97
PARAGRAPH 5: Rent: Months 00-24 Three thousand five hundred no/dollars
($3,500.00) per month
25-36 Four thousand three hundred twenty
no/dollar ($4,320.00) per month
37-60 Five thousand two hundred sixty-eight
70/dollars ($5,268.70) per month
PARAGRAPH 7: Base tax Year. 1992
PARAGRAPH 7: Base Expense Year: 1992
PARAGRAPH 6: Security Deposit: Four thousand three hundred twenty no/dollar ($4,320.00)
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Addenda: 32. Right of First Refusal on 20863 Stevens Creek Blvd.
Addenda: 33. Right to Renew Lease Agreement for three (3) years at 95% of
market
RENTABLE AREA OF PROJECT: 107,179
TENANT PERCENTAGE SHARE: 259%
SHARE:
</TABLE>
2
<PAGE>
OFFICE BUILDING LEASE
1. PARTIES. This Lease, dated, form reference purposes only, November 4, 1991,
is made by and between STEVENS CREEK OFFICE CENTER ASSOCIATES (herein called
"Landlord") and PORTAL COMMUNICATION COMPANY (herein called "Tenant").
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord that certain office space (herein called "Premises") indicated on
Exhibit "A" attached hereto and incorporated herein by reference, said Premises
being agreed, for the purpose of this Lease, to have an area of approximately
2,773 square feet and being situated on the first floor of that certain Building
known as 20863 Stevens Creek Blvd., Cupertino, California.
Said Lease is subject to the terms, covenants and conditions herein
set forth and the Tenant covenants as a material part of the consideration for
this Lease to keep and perform each and all of said terms, covenants and
conditions by it to be kept and performed and that this Lease is made upon the
condition of said performance, The premises may include a proportionate share of
common area.
3. TERM. The term of this Lease shall be for 60 months, commencing on the 15
day of January, 1991 and ending on the 14th day of January 1997.
4. POSSESSION.
4.a. If the Landlord, for any reason whatsoever, cannot deliver
possession of the said Premises to the Tenant at the commencement of the term
hereof, this Lease shall not be void or voidable, nor shall Landlord be liable
to Tenant for any loss or damage resulting therefrom, nor shall the expiration
date of the above term be in any way extended, but in that event, all rent shall
be abated during the period between the commencement of said term and the time
when Landlord delivers possession.
4.b. In the event that Landlord shall permit Tenant to occupy the
Premises prior to the commencement date of the term, such occupancy shall be
subject to all the provisions of this Lease. Said early possession shall not
advice the termination date hereinabove provided.
5. RENT. Tenant agrees to pay to Landlord as rental, without prior notice or
demand, for the Premises the sum of:
**SEE BASIC LEASE INFORMATION PAGE FOR RENT SCHEDULE
--------------------------------------------------
on or before the first day of the first full calendar month of the term hereof
and a like sum on or before the first day of each and every successive calendar
month thereafter during the term hereof, except that the first month's rent
shall be paid upon the execution hereof. Rent for any period during the term
hereof which is for less than one (1) month shall be a prorated portion of the
monthly installment herein, based upon a thirty (30) day month. Said rental
shall be paid to Landlord, without deduction or offset in lawful money of the
United States of America, which shall be legal tender at the time of payment at
the Office of the Building, or to such other person or at such other place as
Landlord may from time to time designate in writing.
<PAGE>
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of Four
thousand three hundred twenty no/dollars ($4,320.00). Said sum shall be held
by Landlord as security for the faithful performance by Tenant of all 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, Landlord may (but shall not be required to) use, apply
or remain all or any part of this security deposit for the payment of any rent
or any other sum in default, or for the payment of any amount which Landlord
may Spend or become obligated to 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 five (5) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the security
deposit to its original amount and 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 shall fully and faithfully
perform 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. In the event of termination of Landlord's interest in this
Lease, Landlord shall transfer said deposit to Landlord's successor in
interest.
7. RENT ADJUSTMENTS. For the purposes of this Article, the following terms are
defined as follows:
<TABLE>
<S> <C>
Base Year: The calendar year in which this lease term commences.
Comparison Year: Each calendar year of the term after the Base Year.
Direct Expenses: *SEE ATTACHED INSERT #1*
</TABLE>
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INSERT #1
Direct Expenses:
"Notwithstanding the foregoing, Direct Expenses shall not include, and
Tenant shall not be required to pay, any of the following: (a) legal fees,
brokerage commissions, advertising costs, or other related expenses incurred in
connection with the leasing of the Building of which the Premises are a part;
(b) repairs, alterations, additions, improvements or replacements made to
rectify or correct any defect in the design, materials or workmanship of the
Building; (c) any improvements, alterations or expenditures of a capital nature,
except as expressly allowed; (d) damage and repairs attributable to fire or
other casualty; (e) damage land repairs covered under any insurance policy
carried by Landlord in connection with the Building; (f) damage and repairs
necessitated by the negligence or willful misconduct of Landlord or Landlord's
agents, employees, contractors or invitees; (g) executive salaries or salaries
of service personnel to the extent that such service personnel perform services
other than in connection with the management, operation, repair or maintenance
of the Building and its common areas; (h) Landlord's general overhead expenses
not related to the Building; (i) payments of principal or interest on any
mortgage or other encumbrance; (j) legal fees, accountants fees and other
expenses incurred in connection with disputes with tenants or other occupants of
the Building or associated with the enforcement of any leases or defense of
Landlord's title to or interest in the Building or any part thereof; (k) costs
(including permit, license and inspection fees) incurred in renovating or
otherwise improving, decorating, painting or altering space for tenants or other
occupants or vacant space in the Building; (l) cost incurred due to violation by
Landlord or any other tenant in the Building of the terms and conditions of any
lease; (m) services or installations furnished to any tenant in the Building
which are not furnished to Tenant or quantities of such services furnished to
any tenant in the Building which are also furnished to Tenant but are furnished
to other tenants in an amount materially in excess of that which would represent
a fair proportion of such services; (n) the cost of any service provided to
Tenant or other occupants of the Building for which Landlord is entitled to be
reimbursed; (o) any cost or expense related to the removal, transportation or
storage of hazardous materials from the Premises, Building or land on which the
Building is located; and (p) any other expense which under generally accepted
accounting principles and practice, would not be considered a normal maintenance
and operating expense."
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<TABLE>
<S> <C>
7b Additional Rent: The Tenant shall, pay to the Landlord Rent "additional
rent" which shall consist of a pro rata portion of the
Direct Expenses. Paragraph 5b reflects Tenant's pro rata
portion of the Direct Expenses based on Landlord's current
Direct Expenses. If the Direct Expenses paid or I
incurred by the Landlord for the Base Year or the
Comparison Year on account of the operation and
maintenance of the Property, of which the Premises are a
part, are in excess of the estimated expenses for the Base
Year (see BASIC LEASE, PAGE) , then the Tenant shall pay
259% of the increase. This percentage is that portion of
the total rentable area of the Property which is the
Tenant's Premises. Landlord shall endeavor to give to
Tenant on or before the first day of March of each year
following the Base Year a statement of the increase in
additional rent payable by Tenant hereunder, but failure
by Landlord to give such statement by said date shall not
constitute a waiver by Landlord of its right to require an
increase in rent. Upon receipt of the statement, Tenant
shall pay in full the total amount of the increase, if
any, due for the past year and, in addition, the amount of
any such increase shall be used as an estimate of increase
for said current year; this amount shall be divided into
twelve (12) equal monthly installments and Tenant shall
pay to Landlord, concurrently with the regular monthly
rent payment next due following the receipt of such
statement, an amount equal to one (1) monthly installment
multiplied by the number of months from January in the
calendar year in which said statement is submitted to the
month of such payment, both months inclusive. Subsequent
installments shall be payable concurrently with the
regular monthly rent payments for the balance of that
calendar year and shall continue until the next Comparison
Year's statement is rendered. If the next or any
succeeding Comparison Year results in a greater increase
in Direct Expenses, then upon receipt of a statement from
Landlord, Tenant shall pay a lump sum equal to such total
increase in Direct Expenses over the estimate for the Base
Year, less the total of the monthly installments of
estimated increases paid in the previous calendar year for
which comparison is then being made to the Base Year; and
the estimated monthly installments to be paid for the next
year, following said Comparison Year shall be adjusted to
reflect such increase. If in any Comparison Year the
Tenant's share of Direct Expenses is
</TABLE>
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<TABLE>
<S> <C>
less than the preceding year, then upon receipt of
Landlord's statement, any overpayment made by Tenant on
the monthly installment basis provided above shall be
credited towards the next monthly rent falling due and the
estimated monthly installments of Direct Expenses to be
paid shall be adjusted to reflect such lower Direct
Expenses for the most recent Comparison Year. If this
Lease terminates during a calendar year, the rental
adjustment shall be payable for the portion of the Calendar
Year covered by the lease term.
*Tenant shall incur a maximum 5% increase per year for
direct expenses.
</TABLE>
8. USE.
8.a. Tenant shall use the Premises for general office purposes and shall
not use or permit the Premises to be used for any other purposes without the
prior written consent of Landlord.
8.b. Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire or other insurance upon the Building or any
of its contents, or cause cancellation of any insurance policy covering said
Building or any part thereof or any of its contents. Tenant shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building 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. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises.
8.c. Tenant shall not bring, store, deposit or use any Hazardous
Material (as defined herein) on the Premises, nor shall Tenant allow or permit
its agents, employees, or contractors to bring, store, deposit or use any
Hazardous Material on the Premises, except incidental quantities of household
chemicals commonly used for office and janitorial purposes. "Hazardous Material"
as used herein shall mean any hazardous, toxic or radioactive substance now or
hereafter regulated by federal, state or local governmental or other authority,
including, but not limited to, any "hazardous substance" as defined in Section
101 of the Comprehensive Environmental Response, Compensation and Liability Act.
9. COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything to
be done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may hereafter be in force, and
with the requirements of any board of fire insurance underwriters or other
similar bodies now or hereafter constituted, relating to, or affecting the
condition, use or occupancy of the Premises, excluding structural changes not
related to or affected by Tenant's improvements or acts. 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
law, statute, ordinance or governmental rule, regulation or requirement, shall
be conclusive of that fact as between the Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without the
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written consent of Landlord first had and obtained and any alterations,
additions or improvements to or of said Premises, including, but not limited to,
wall covering, paneling and built-in cabinet work, but excepting movable
furniture and trade fixtures, shall on the expiration of the term become a part
of the realty and belong to the Landlord and shall be surrendered with the
Premises. In the event Landlord consents to the making of any alterations,
additions or improvements to the Premises by Tenant, the same shall be made by
Tenant at Tenant's sole cost and expense, and any contractor or person selected
by Tenant to make the same must first be approved of in writing by the Landlord.
Upon the expiration or sooner termination of the term hereof, Tenant shall, upon
written demand by Landlord, given at least thirty (30) days prior to the end of
the term, at Tenant's sole cost and expense, forthwith and with all due
diligence remove any alterations, additions, or improvements made by Tenant,
designated by Landlord to be removed, and Tenant shall, forthwith and with all
due diligence at its sole cost and expense, repair any damage to the Premises
caused by such removal. *Landlord consent shall not be unreasonably withheld and
shall be responded to in a timely manner.
11. REPAIRS
11.a. By taking possession of the Premises, Tenant shall be deemed to
have accepted the Premises as being in good, sanitary order, condition and
repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises and
every part thereof in good condition and repair, damage thereto from causes
beyond the reasonable control of Tenant and ordinary wear and tear excepted.
Tenant shall upon the expiration or sooner termination of this Lease surrender
the Premises to the Landlord in good condition, ordinary wear and tear and
damage from causes beyond the reasonable control of Tenant excepted. Except as
specifically provided in an addendum, if any, to this Lease, Landlord shall have
no obligation whatsoever to alter, remodel, improve, repair, decorate or paint
the Premises or any part thereof and the parties hereto affirm that Landlord has
made no representations to Tenant respecting the condition of the Premises or
the Building except as specifically herein set forth. *Except latent defects.
11.b. Notwithstanding the provisions of Article 11.a. hereinabove,
Landlord shall repair and maintain the structural portions of the Building,
including the basic plumbing, air conditioning, heating, and electrical systems,
installed or furnished by Landlord, unless such maintenance and repairs are
caused in part or in whole by the act, neglect, fault or omission of any duty by
the Tenant, its agents, servants, employees or invitees, in which case Tenant
shall pay to Landlord the reasonable cost of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need of such repairs or maintenance is given to
Landlord by Tenant. Except as provided in Article 22 hereof, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and equipment therein. *Except Landlords
gross negligence or willful misconduct or breach of contract of Landlord,
Landlord's agent or contractor. Tenant waives the right to make repairs at
Landlord's expense under any law, statute or ordinance now or hereafter in
effect.
12. LIENS. Tenant shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or obligations
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<PAGE>
incurred by Tenant. Landlord may require, at landlord's sole option, that Tenant
shall provide to Landlord, at Tenant's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half (1 1/2) times any and all
estimated cost of any improvements, additions, or alterations in the Premises,
to insure Landlord against any liability for mechanics' and materialmen's liens
and to insure completion of the work.
13. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily or by
operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber
this lease or any interest therein, and shall not sublet the said Premises or
any part thereof, or any right or privilege appurtenant thereto, or suffer any
other person (the employees, agents, servants and invitees of Tenant excepted)
to occupy or use the said Premises, or any portion thereof, without the Written
consent of Landlord first had and obtained, which consent shall not be
unreasonably withheld, and a consent to one assignment, subletting, occupation
or use by any other person shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation or use by another person. Any such assignment
or subletting without such consent shall be void, and shall, at the option of
the Landlord, constitute a default under this Lease. An assignment for purposes
of this paragraph shall include any sale or transfer, including by
consolidation, merger or reorganization, of a majority of the voting stock of
Tenant, if Tenant is a corporation, or any sale or other transfer of a majority
of the partnership interest in Tenant, if Tenant is a partnership, in a single
transaction or a series of related transactions. If tenant shall assign, sublet
or otherwise transfer this Lease or the Premises, or any portion thereof, with
Landlord's consent, Tenant shall pay to Landlord as additional rent, as and when
received, one-half of all amounts received by Tenant from such assignment,
subletting or transfer, in excess of the amounts required to be paid by Tenant
to Landlord pursuant to this Lease. *SEE ATTACHED INSERT #2
14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord against
and from any and all claims arising from Tenant's use of the Premises for the
conduct of its business or from any activity, work, or other thing done,
permitted by the Tenant in or about the Building, and shall further indemnify
and hold harmless Landlord against and from any and all claims arising from any
breach or default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease, or arising from any act or negligence 0
the Tenant, or any officer, agent, employee, guest, or invitee of Tenant, and
from all and against all costs, attorney's fees, expenses and liabilities
incurred in or about any such claim Dr any action or proceeding brought thereon,
and, in any case, action or proceeding be brought against Landlord by reason of
any such claim, Tenant upon notice from Landlord shall defend the same at
Tenant's expense by counsel reasonably satisfactory to Landlord. Tenant as a
material part of the consideration to Landlord hereby, assumes all risk of
damage to property or injury to persons, ill, upon or about the Premises, from
any cause other than Landlord's and Landlord's Agents gross negligence, and
Tenant hereby waives all claims in respect thereof against Landlord.
Landlord or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any property
by theft or otherwise, nor for any injury to or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any
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<PAGE>
other place resulting from dampness or any other cause whatsoever, unless caused
by or due to the negligence of Landlord, its agents, servants or employees.
Landlord or its agents shall not be liable for interference with the light or
other incorporeal hereditaments, loss of business by Tenant, nor shall Landlord
be liable for any latent defect in the Premises or in the Building. Tenant shall
give prompt notice to Landlord in case of fire or accidents in the Premises or
in the Building or of defects therein or in the fixtures or equipment.
INSERT #2
Notwithstanding anything to the contrary hereinabove, Tenant may assign this
Lease, or sublet any portion thereof, without Landlord's consent to any of the
following:
(i) any corporation or other entity which controls, is controlled by, or is
under common control with Tenant; (ii) any corporation or other entity resulting
from the merger or consolidation of Tenant; and (iii) any corporation,
partnership, other entity or person which acquires a controlling interest in the
corporate stock of Tenant or acquires substantially all of the assets of Tenant
as a going concern of the business that is being conducted on the Premises
provided that in case of any of the foregoing transfers said assignees assumes
in full the obligations of Tenant under the Lease.
15. WAIVER OF SUBROGATION. Landlord and Tenant shall each obtain from their
respective insurers under all policies of fire and other casualty insurance
maintained by either of them at any time during the term, insuring or covering
the Premises or any portion thereof or operations therein, a waiver of all
rights of subrogation which the insurer of one party might otherwise have
against the other party, and Landlord and Tenant shall each indemnify the other
against any loss or expense, including reasonable attorney's fees, resulting
from the failure to obtain such waiver.
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep in
force during the term of this Lease a policy of comprehensive public liability
insurance insuring Landlord and Tenant against any liability arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. The limit of said insurance shall not, however, limit the
liability of the Tenant hereunder. Tenant may carry said insurance under a
blanket policy, providing, however, said insurance by Tenant shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall
fail to procure and maintain said insurance, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder, shall be in companies rated A+ AAA or better in "Best's
Insurance Guide". Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be cancellable or
subject to reduction of coverage except after ten (10) days' prior written
notice to Landlord. The minimum acceptable amount of comprehensive liability
insurance is $2,000,000.00 to indemnify against the claim of one person and
$2,000,000.00 against the claims of two or more persons in any occurrence, and
property damage insurance in amount of not less than $2,000,000.00 per
occurrence or combined single limit of $1,000,000.00 comprehensive liability and
property damage insurance. Tenant shall also obtain and keep in
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force fire and property damage insurance insuring Tenant's personal property in
the Premises for the full actual replacement cost thereof.
17. SERVICES AND UTILITIES.
17.a. Provided that Tenant is not in default hereunder, Landlord agrees to
furnish to the Premises 24 hours per day except in the case of emergencies and
repairs and subject to Paragraph 17.b. and subject to the rules and regulations
of the Building of which the Premises are a part, electricity for normal
lighting and fractional horsepower office machines, heat and air conditioning
required in Landlord's judgment for the comfortable use and occupation of the
Premises, and janitorial service. Landlord shall also maintain and keep lighted
the common stairs, common entries and toilet rooms in the Building of which the
Premises are a part. Landlord shall not be liable for, and Tenant shall not be
entitled to, any reductions of rental by reason of Landlord's failure to furnish
any of the foregoing when such failure is caused by accident, breakage, repairs,
strikes, lockouts or other labor disturbances or labor disputes of any
character, or by any other cause, similar or dissimilar beyond the reasonable
control of Landlord. Landlord shall not be liable under any circumstances for a
loss of or injury to property, however occurring, through or in connection with
or incidental to failure to furnish any of the foregoing. Wherever heat
generating machines or equipment are used in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord
reserves the right to install supplementary air conditioning 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.
17.b. Tenant will not, without written consent of Landlord, use any
apparatus or device in the Premises, using in excess of 120 volts, which will
in any way increase the amount of electricity usually furnished or supplied
for the use of the Premises as general office space; nor connect with electric
current except through existing electrical outlets in the premises, any
apparatus or device, for the purpose of using electric current. If Tenant
shall require water or electric current in excess of that usually furnished or
supplied for the use of the Premises as general office space, Tenant shall
first procure the written consent of Landlord, which Landlord may refuse, to
the use thereof and Landlord may cause a water meter or electrical current
meter to be installed in the Premises, so as to measure the amount of water
and electric current consumed for any such use. The cost of any such meters
and of installation, maintenance and repair thereof shall be paid for by the
Tenant and Tenant agrees to pay to Landlord promptly upon demand therefor by
Landlord for all such water and electric current consumed as shown by said
meters, at the rates charged for such services by the local public utility
furnishing the same, plus any additional expense incurred in keeping account
of the water and electric current so consumed. If a separate meter is not
installed, such excess cost for such water and electric current will be
established by an estimate made by a utility company or electrical engine.
18. PROPERTY TAXES. Tenant shall Pay, or cause to be paid, before delinquency,
any and all taxes levied or assessed and which become payable during the term
hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures
and personal property located in the Premises; except that which has been paid
for by Landlord, and is the standard of the
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Building. In the event any or all of the Tenant's leasehold improvements,
equipment, furniture, fixtures and personal property shall be assessed and taxed
with the Building, Tenant shall pay to Landlord its share of such taxes within
ten (10) days after delivery to Tenant by Landlord of a statement in writing
setting forth the amount of such taxes applicable to Tenant's property. No
property taxes due to sale of property shall be passed through should property
be sold before the end of the 24th month of the lease.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the
rules and regulations that Landlord shall from time to time promulgate. Landlord
reserves the right from time to time to make all reasonable modifications to
said rules. The additions and modifications to those rules shall be binding upon
Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any said rules by any other
tenants or occupants. *And shall be subordinate to the Lease.
20. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the term hereof, with the express written
consent of LANDLORD, SUCH OCCUPANCY SHALL BE A TENANCY FROM MONTH TO MONTH AT A
RENTAL IN THE AMOUNT EQUAL TO ONE HUNDRED FIFTY (150%) PERCENT OF THE RENT IN
EFFECT DURING THE LAST MONTH OF THE TERM, PLUS ALL OTHER CHARGES PAYABLE
HEREUNDER, AND UPON ALL THE TERMS HEREOF APPLICABLE TO A MONTH TO MONTH TENANCY.
21. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times have
the right to enter the Premises, inspect the same, supply janitorial service and
any other service to be provided by Landlord to Tenant hereunder, to submit said
Premises to prospective purchasers or tenants, to post notices of non-
responsibility, and to alter, improve or repair the Premises and any portion of
the Building of which the Premises are a part that Landlord shall give Tenant
24 hour notice except in an emergency. *Landlord may deem necessary or
desirable, without abatement of rent and may for that purpose erect scaffolding
and other necessary structures where reasonably required by the character of the
work to be performed, always providing that the entrance to the Premises shall
not be blocked thereby, and further providing that the business of the Tenant
shall not be interfered with unreasonably. Tenant hereby waives any claim for
damages or for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby. for each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding tenant's vaults, safes and files, and
Landlord shall have the right to use any and all means which Landlord may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises without liability to Tenant except for any failure to exercise due care
for Tenant's property. 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 of Tenant from the Premises or any portion thereof. *except for
Landlords gross neglegence or willfull misconduct.
22. RECONSTRUCTION.
22.a. In the event the Premises or the Building of which the Premises are a
part are damaged by fire or other perils covered by extended coverage insurance,
Landlord agrees to
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forthwith repair the same; and this Lease shall remain in full force and effect,
except that Tenant shall be entitled to a proportionate reduction of the rent
while such repairs are being made, such proportionate reduction to be based upon
the extent to which the making of such repairs shall materially interfere with
the business carried on by the Tenant in the Premises. If the damage is due to
the fault or neglect of Tenant or its employees, there shall be no abatement of
rent.
22.b. In the event the Premises or the Building of which the Premises are a
part are damaged as a result of any cause other than the perils covered by fire
and extended coverage insurance, then Landlord shall forthwith repair the same,
provided the extent of the destruction be less than ten (10%) percent of the the
full replacement cost of the Premises or the Building of which the Premises are
a part. In the event the destruction of the Premises or the Building is to an
extent greater than ten (10%) percent of the full replacement cost, then
Landlord shall have the option; (1) to repair or restore such damage, this Lease
continuing in full force and effect, but the rent to be proportionately reduced
as hereinabove in this Article provided; or (2) give notice to Tenant at any
time within sixty (60) days after such damage terminating this Lease as of the
date specified in such notice, which date shall be no less than thirty (30) and
no more than sixty (60) days after the giving of such notice. In the event of
giving such notice, this Lease shall expire and all interest of the Tenant in
the Premises shall terminate on the date so specified in such notice and the
Rent, reduced by a proportionate amount, based upon the extent, if any, to which
such damage materially interfered with the business carried on by the Tenant in
the Premises, shall be paid up to date of such termination. *SEE INSERT #3
INSERT #3
If the Premises are damaged or destroyed or if the Building is damaged and if
such damage materially interferes with Tenant's use of the Premises, and the
Premises or the Building cannot be rebuilt and made fit for the purposes of
Tenant within one hundred twenty (120) days of the damage or destruction, or if
Landlord fails to proceed with reasonable diligence to rebuild the Premises or
Building, or if the Premises or Building are not rebuilt within one hundred
twenty (120) days, Tenant may, at its option, terminate this Lease by notice of
such termination to Landlord within thirty (30) days after such damage or
destruction, or failure of Landlord to proceed with reasonable diligence.
22.c. Notwithstanding anything to the contrary contained in this Article,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Article occurs during the last twelve (12) months of the term of this Lease
or any extension thereof.
22.d. Landlord shall not be required to repair any injury or damage by fire
or other cause, or to make any repairs or replacements of any panels,
decoration, office fixtures, railings, floor covering, partitions, or any other
property installed in the Premises by Tenant.
22.e. The Tenant shall not be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises, Tenant's
personal property or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration.
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23. DEFAULT. The occurrence of anyone or more of the following events shall
constitute a default and breach of this Lease by Tenant.
23.a. The vacating or abandonment of the Premises by Tenant;
23.b. The failure by Tenant to make any payment of rent required to be
made by Tenant hereunder, as and when due, where such failure shall continue
for a period of three (3) business days after written notice thereto by
Landlord to Tenant;
*The failure by Tenant to make any payment as and when due, other
than rent, where such failure shall continue for a period of ten (10) business
days after written notice thereof by Landlord to Tenant;
23.c. The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in Article 23.b. above, within the time period
therefor specified herein, or if no time period is specified, where such failure
shall continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default is
such that more than thirty (30) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion; or
23.d. The making by Tenant of any general assignment or general arrangement
for the benefit of creditors; or the filing by or against Tenant of a petition
to have Tenant adjudged a bankrupt, or a petition or reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days); or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days.
24. REMEDIES IN DEFAULT. In the event of any such material default or breach by
tenant, Landlord may at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of a right or remedy which
Landlord may have by reason of such default or breach:
24.a. Terminate Tenant's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Premises to Landlord. In such event Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord shall be
entitled to recover from Tenant all damages incurred by landlord by reason of
Tenant's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, any real
estate commission actually paid; the worth at the time of award by the court
having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Tenant proves could be reasonably avoided,
that portion of the
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leasing commission paid by Landlord and applicable to the unexpired term of this
Lease. Unpaid installments of rent or other sums shall bear interest from the
date due at the maximum legal rate. In the event Tenant shall have abandoned the
Premises, Landlord shall have the option of (a) taking possession of the
Premises and recovering from Tenant the amount specified in this paragraph, or
(b) proceeding under the provisions of the following Article 24.b.
24.b. Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises. In
such event landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
24.c. Pursue any other remedy now or hereafter available to landlord under
the laws or judicial decision of the State in which the Premises located.
25. EMINENT DOMAIN. If more than twenty-five (25%) percent of the Premises
shall be taken or appropriated by any public or quasi-public authority under the
power of eminent domain, either party hereto shall have the right, at its
option, to terminate this Lease, and Landlord shall be entitled to any and all
income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such public or quasi-public use or purpose, and Tenant
shall have no claim against Landlord for the value of any unexpired term of this
Lease. If either less than or more than twenty-five (25%) percent of the
Premises is taken, and neither party elects to terminate as herein provided, the
rental thereafter to be paid shall be equitably reduced. If any part of the
Building other than the Premises may be so taken or appropriated, Landlord shall
have the right at its option to terminate this Lease and shall be entitled to
the entire award as above provided,
*SEE INSERT #4
26. OFFSET STATEMENT. Tenant shall at any time and from time to time upon not
less than ten (10) days' prior written notice from Landlord execute, acknowledge
and deliver to Landlord a statement in writing, (a) certifying that this lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this lease as so modified, is in full
force and effect), and the date to which the rental and other charges are paid
in advance, if any; (b) acknowledging that there are not, to Tenant's actual
knowledge, any uncured defaults on the part of the Landlord hereunder, or
specifying such defaults if any are claimed; and (c) setting forth any other
matters which Landlord may reasonably request. Any such statement may be relied
upon by any prospective purchaser or encumbrancer of all or any portion of the
real property of which the Premises are a part.
27. PARKING. Tenant shall have the right to use in common with other tenants or
occupants of the Building the parking facilities of the Building, if any,
subject to the monthly rates, rules and regulations, and any other charges of
Landlord for such parking facilities as a result of Government Legislation which
may be established or altered by Landlord at any time or from time to time
during the term hereof.
28. AUTHORITY OF PARTIES.
28.a. Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of said
corporation, in accordance
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with a duly adopted resolution of the board of directors of said corporation or
in accordance with the by-laws of said corporation, and that this Lease is
binding upon said corporation in accordance with its terms.
INSERT #4
Notwithstanding anything to the contrary in this Section 25, Tenant shall have
the right to recover from the condemning authority such Compensation as may be
separately awarded to Tenant as compensation for (i) the value of Tenant's
personal property, trade fixtures, alterations, and additions; (ii) the value of
leasehold improvements paid for by Tenant; (iii) Tenant's relocation costs; (iv)
the value of Tenant's leasehold interest in the Premises; (v) Tenant's loss of
business and business interruption; and (vi) all other provable damages.
28.b. Limited Partnerships. If the Landlord herein is a limited
partnership, it is understood and agreed that any claims by Tenant on Landlord
shall be limited to Landlord's interest in the Building and furthermore, Tenant
expressly waives any and all rights to proceed against the individual partners
or the officers, directors or shareholders of any corporate partner, except to
the extent of their interest in the Building.
29. GENERAL PROVISIONS.
(i) Plats and Riders. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a part
hereof.
(ii) Waiver. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition on any subsequent breach of the same or any other term, covenant or
condition herein contained. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of the
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of the acceptance of such rent.
(iii) Notices. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage prepaid, addressed to the Tenant at the Premises, or
to such other place as Tenant may from time to time designate in a notice to the
Landlord. All notices and demands by the Tenant to the Landlord shall be
sufficient if delivered in person or sent by United States Mail, postage
prepaid, addressed to the Landlord at the Office of the Building, or to such
other person or place as the Landlord may from time to time designate in a
notice to the Tenant. Any such notice is effective at the time of delivery.
(iv) Joint Obligation. If there be more than one Tenant the obligations
hereunder imposed upon Tenants shall be joint and several.
(v) Marginal Headings. The marginal headings and Article titles to the
Articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
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(vi) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(vii) Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(viii) Recordation. Neither Landlord nor Tenant shall record this Lease or
a short form memorandum hereof without the prior written consent of the other
party.
(ix) Quiet Possession. Upon Tenant paying the rent reserved hereunder
and observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) Late Charges. Tenant hereby acknowledges that late payment by
Tenant to Landlord of rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not be
received by Landlord or Landlord's designee within ten (10) days after written
notice that said amount is past due, then Tenant shall pay to Landlord a late
charge equal to ten (10%) percent of such overdue amount. The parties hereby
agree that such late charges represent a fair and reasonable estimate of the
cost that Landlord will incur by reason of the late payment by Tenant.
Acceptance of such late charges by the Landlord shall in no event constitute a
waiver or Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any of the other rights and remedies granted hereunder.
(xi) Prior Agreements. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this Lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
on any party until fully executed by both parties hereto.
(xii) Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because the Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of God,
or any other cause beyond the reasonable control of the Landlord.
(xiii) Attorneys' Fees. In the event of any action or proceeding brought
by either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees of its attorneys
in such action or proceeding in such amount as the court may adjudge reasonable
as attorneys' fees.
(xiv) Sale of Premises by Landlord. In the event of any sale of the
Building, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its
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covenants and obligations contained in or derived from this Lease arising out of
any act, occurrence or omission occurring after the consummation of such sale;
and the purchaser, at such sale or any subsequent sale of the Premises shall be
deemed, without any further agreement between the parties or their successors in
interest or between the parties and any such purchaser, to have assumed and
agreed to carry out any and all of the covenants and obligations of the Landlord
under this Lease.
(xv) Subordination, Attornment. Subject to Tenants non-disturbance
rights set forth in this Section (XV). Upon request of the Landlord, Tenant will
in writing subordinate its rights hereunder to the lien of any mortgage, or deed
of trust to any bank, insurance company or other lending institution, now or
hereafter in force against the land and Building of which the Premises are a
part, and upon any buildings hereafter placed upon the land of which the
Premises are a part, and to all advances made or hereafter to be made upon the
security thereof.
In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of trust
make by the Landlord covering the Premises, provided such purchaser shall be
deemed to recognize Tenants non-disturbance right set forth in this Section
(XV), the Tenant shall attorn to the purchaser upon any such foreclosure or sale
and recognize such purchaser as the Landlord under this Lease.
The provisions of this Article to the contrary notwithstanding, and
so long as there exists no uncured defaults under Section (23) by Tenant,
hereunder, this Lease and Tenants rights hereunder shall remain in full force
and effect for the full term hereof. Tenant hereby agrees to modify the Lease as
may reasonably be required from time to time by any lending institution
obtaining a security interest in the Building, so long as such modification does
not materially increase the obligations of Tenant hereunder.
In the event of any default on the part of Landlord, Tenant shall
use reasonable efforts to give notice by registered mail to any lender holding a
security interest in the Building whose name has been provided to Tenant and
shall offer such lender a reasonable opportunity to cure the default, including
time to obtain possession of the Premises by power of sale or judicial
foreclosure or other appropriate legal proceedings, if such should prove
necessary to effect a cure.
(xvi) Name. Tenant shall not use the name of the Building or of the
development in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
(xvii) Separability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof of such other provision shall remain in full force and effect.
(xviii) Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
(xix) Choice of Law. This Lease shall be governed by the laws of the
State in which the premises are located.
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(xx) Signs and Auctions. Tenant shall not place any sign upon the
Premises or Building or conduct any auction thereon without Landlord's prior
written consent.
30. BROKERS. Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this Lease excepting only
Grubb & Ellis and it knows of no other real estate broker or agent who is
entitled to a commission in connection with this Lease.
31. LEASEHOLD IMPROVEMENTS. The Landlord shall provide, prior to delivery of
possession, the following leasehold improvements in addition to improvements
already made to the Premises. Including the addition of one (1) conference room
with built-in lower cabinets on one wall.
32. FIRST RIGHT OF REFUSAL. See attached Addendum
33. OPTION TO RENEW. See attached Addendum
Any other improvements are the responsibility of Tenant, subject to
Landlord's approval, as provided in Paragraph 10.
The parties hereto have executed this Lease at the place and on the
dates specified immediately adjacent to their respective signatures.
If this Lease has been filled in, it has been prepared for submission
to your attorney for his approval. No representation or recommendation is made
by the real estate broker or its agents or employees as to the legal
sufficiency, legal effect, or tax consequences of this Lease or the transactions
relating thereto.
______________________________________________
By ___________________________________________
Address __________________ By ___________________________________________
__________________________ "LANDLORD"
______________________________________________
By ___________________________________________
Address ___________________ By ___________________________________________
___________________________ "TENANT"
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ADDENDUM TO THE LEASE
32. RIGHT OF FIRST REFUSAL Tenant shall have a Right of First Refusal for the
contiguous space, upon written notice from Landlord containing the business
parameters of a legitimate offer, subject to the rights of existing tenants.
Tenant shall have four (4) business days to respond in writing to Landlord. In
the event Tenant elects not to exercise this right within specified period
Landlord has the right to lease space in substantial accordance with the terms
and conditions presented to Tenant to tenant and this grant shall become null
and void.
33. OPTION TO RENEW
a) Landlord hereby grants to Tenant one option (the "Option") to renew the
term of this Lease, for an additional term of three (3) years, commencing when
the initial Term expires, upon the terms and conditions set forth in this
paragraph.
b) Provided Tenant is not in default pursuant to this Lease, Tenant may
exercise such option by giving Landlord written notice of its intention not less
than six (6) months prior to the expiration of the then existing term of this
Lease.
c) If this option is exercised, the basic monthly Rent for the Premises
shall become ninety-five (95%) percent of the then current fair market monthly
rent ("Fair Market Rent") for the Premises as of the option period commencement
date, as determined by the agreement of the parties or, if the parties cannot
agree, within sixty (60) days prior to the latest date on which Tenant shall be
entitled to exercise the Option, then by an appraisal. Notwithstanding the
foregoing, the basic monthly Rent for the Premises during the Option period
shall not be less than the basic monthly Rent for the last month of the initial
Term. All other terms and conditions contained in the Lease and this Addendum,
as the same may be amended from time to time by the parties in accordance with
the provisions of the Lease, shall remain in full force and effect and shall
apply during the Option term, except that Tenant shall have no further option to
extend the Term hereof.
d) If it becomes necessary to determine the fair market rental value of
the Premises by appraisal, real estate appraiser(s), all of whom shall be
members of the American Institute of Real Estate Appraisers and who have at
least five (5) years experience appraising office space located in the vicinity
of the Premises shall be appointed and shall act in accordance with the
following procedures.
(i) If the parties are unable to agree on the Fair Market Rent
within the allowed time, either party may demand an appraisal by giving written
notice to the other party, which demand to be effective must state the name,
address 3, and qualifications of an appraiser selected by the party demanding an
appraisal with (the "Notifying Party"). Within ten (10) days following the
Notifying Party's appraisal demand, the other party (the "Non-Notifying Party")
shall either approve the appraiser selected by the notifying party or select a
second properly qualified appraiser by giving written notice of the name,
address and qualification of said appraiser to the Notifying Party. If the Non-
Notifying Party fails to select an appraiser within the ten (10) day period, the
appraiser selected by the Notifying Party shall be deemed selected by both
parties and no other appraiser shall be selected. If two appraisers are
selected, they shall
<PAGE>
select a third appropriately qualified appraiser, the third appraiser shall be
appointed by the then presiding judge of the county where the Premises are
located upon application by either party.
(ii) If only one appraiser is selected, that appraiser shall notify the
parties in simple letter form of its determination of the Fair Market Rent for
the Premises within fifteen (15) days following his selection, which appraisal
shall be conclusively determinative and binding on the parties as the appraised
Fair Market Rent.
(iii) If multiple appraisers are selected, the appraisers shall meet not
later than ten (10) days following the selection of the last appraiser. At such
meeting, the appraisers shall attempt to determine the Fair Market Rent for the
Premises as of the commencement date of the Option period by the agreement of at
least two (2) of the appraisers.
(iv) If two (2) or more of the appraisers agree on the Fair Market Rent
for the Premises at the initial meeting, such agreement shall be determinative
and binding upon the parties hereto and the agreeing appraisers shall, in simple
letter form executed by the agreeing appraisers, forthwith notifying both
Landlord and Tenant of the amount set by such agreement. If multiple appraisers
are selected and two (2) appraisers are unable to agree on the Fair Market Rent
for the Premise all appraisers shall submit to Landlord and Tenant an
independent appraisal of the Fair Market Rent for the Premises in simple letter
form within twenty (20) days following appointment of the final appraiser. The
parties shall then determine the Fair Market Rent for the Premises by averaging
the appraisers; provided that any high or low appraisal, differing from the
middle appraisal by more than ten percent (10%) of the middle appraisal, shall
be disregarded in calculating the average.
(v) The appraisers' determination of Fair Market Rent shall be based on
rental space of similar age, construction, size and location as the Premises
with the improvements installed therein at Landlord's expense and shall take
into account Tenant's obligations to pay additional rent under this Lease. In
determining Fair Market Rent, the appraisers shall not consider any alterations
installed in the Premises at Tenant's expense.
(vi) If only one appraiser is selected, then each party shall pay one-
half of the fees and expenses of that appraiser. If three appraisers are
selected, each party shall bear the fees and expenses of the appraiser it
selects and one-half of the fees and expenses of the third appraiser.
Notwithstanding anything to the contrary contained in this paragraph, if the
rent during an Option period is determined by appraisal and if Tenant does not,
in its sole discretion, approve the rental amount established by such appraisal,
Tenant may rescind its exercise of the Option by giving Landlord written notice
of such election within ten (10) days of receipt of all appraisals, provided
such notice is delivered to Landlord no later than one hundred twenty (120) days
before the end of the then current Term of the Lease. If Tenant rescinds its
exercise of the Option, then (i) the Lease shall terminate on the thirtieth
(30th) day after Tenant's notice of rescission or on the date of the Lease would
have otherwise terminated absent Tenant's exercise of the Option, whichever date
is later, and (ii) Tenant shall pay all costs and expenses of the appraisal.
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RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be inscribed,
displayed or printed or affixed on or to any part of the outside or inside of
the Building 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.
All approved signs or lettering on doors shall be printed, painted, affixed or
inscribed at the expense of Tenant by a person approved by Landlord.
Tenant shall not place anything or allow anything to be placed neat the glass of
any window, door, partition or wall which may appear unsightly from outside the
Premises; provided, however, that Landlord may furnish and install a Building
standard window covering at all exterior windows. Tenant shall not without
prior written consent of Landlord cause or otherwise sunscreen any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any purpose
other than for ingress and egress from their respective Premises.
3. Tenant shall not alter any lock, or install any new or additional locks or
any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown therein and the of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by the Tenant who, or whose employee or invitees shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface the
Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all moving of the same into or
out of the Building shall be done at such time and in such manner as Landlord
shall designate. Landlord shall have the right to prescribe time weight, size
and position of all safes and other heavy equipment brought into the Building
and also the times and manner of moving the same in and out of the Building.
Safes or other heavy objects shall, if considered necessary by Landlord, stand
on supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property from any cause and all damage done to the building by moving or
maintaining any such safe or other property shall repaired at the expense of
Tenant.
7. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of the noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
<PAGE>
8. No cooking shall be done or permitted by any Tenant on the Premises except
the use of a microwave oven, coffee maker, toaster oven, nor shall the
Premises be used for the storage of merchandise, for washing clothes, for
lodging, or for any improper, objectionable or immoral purposes.
9. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other than that supplied by Landlord.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of the Landlord. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 11:00 a.m. the following day, access to the Building, or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement, or other commotion, the Landlord
reserves the right to prevent access to the Building during the continuance of
the same by closing of the doors or otherwise, for the safety of the tenants and
protection of property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Building.
13. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord. Excluding standard office equipment for normal office use.
14. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building of
which the Premises are a part.
15. Tenant shall not disturb, solicit, or canvass any occupant of the Building
and shall cooperate to prevent same.
16. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business of
Tenant Except as Tenant's address.
17. Landlord shall have the right to control and operate the public portions of
the Building, and the public facilities, and heating and air conditioning, as
well as facilities furnished for the common use of the tenants, in such manner
as it deems best for the benefit of the tenants generally.
2
<PAGE>
18. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept closed
except for normal ingress and egress from the Premises.
3
<PAGE>
FIRST AMENDMENT TO THE LEASE DATED NOVEMBER 4, 1991 BETWEEN PORTAL
COMMUNICATIONS AND STEVENS CREEK OFFICE CENTER ASSOCIATES
31. LEASEHOLD IMPROVEMENTS. In lieu of the original agreement to provide a
conference room with built-in lower cabinets on one wall, Landlord will provide
Tenant as per Exhibit B:
1. Upper and lower cabinets in the existing office marked as "a" build.
2. Cipher lock for computer room notes as "f" according to Tenant approved shop
drawings dated February 10, 1992.
3. Electrical outlets noted as "b", "c", "d", and "e".
4. Door and directory signage with building standard typestyle and sizes.
5. 8 by 8 foot hottub, to be installed per Tenant request. [crossed out and
initialed "KMM" and "JA"]
6. Countertop in open area marked as "g" build according to Tenant approved
shop drawings dated February 19, 1992.
READ AND APPROVED:
STEVENS CREEK OFFICE PORTAL COMMUNICATIONS COMPANY
CENTER ASSOCIATES,
a California Limited Partnership
By: /s/ Katherine M. McLane By: /s/ John Little
________________________________ ________________________________
Katherine M. McLane John Little
Managing Agent-Controller President
Date: ______________________________ Date: ______________________________
<PAGE>
SECOND AMENDMENT TO LEASE
This Amendment dated May 27,1994, amends that certain Lease, dated November
4,1991, and previously amended by the First Amendment to Lease, dated March 5,
1992, by and between Stevens Creek Office Center Associates, a California
limited partnership (therein called "Landlord") and Portal Communications
Company (herein called "Tenant"). The leased Premises is defined as 20863
Stevens Creek Blvd., Suite 200, Cupertino, California 94014 which is
approximately 2,773 rentable square feet.
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (2) PREMISES: The Premises is increased to include an
additional 554 rentable contiguous square feet (herein called "Suite 200 B-2"
and/or "Additional Premises"). The Initial Premises, together with the
Additional Premises, comprise an area of approximately 3,327 rentable square
feet (herein called "Revised Premises").
Paragraph (3) TERM: The term of this Lease for the Revised Premises
will commence on June 16, 1994 and will terminate on January 14, 1997.
Paragraph (6) SECURITY DEPOSIT: The Security Deposit for the Revised
Premises will be increased to an amount equal to one month's rent, or five
thousand two hundred seventy-eight and 42/100 dollars ($5,278.42).
Paragraph (7b) ADDITIONAL RENT: Based upon the ratio between the
rentable square footage of the Revised Premises (approximately 3,327 square
feet) and the rentable square footage of the Office Center, as defined in the
Basic Lease Information (approximately 107,179 square feet), the Tenant's pro
rata share is increased to 3.10%.
Paragraph (5) BASE RENT: Tenant will pay to Landlord monthly, without
demand, a Base Rent payment of five thousand three hundred forty-four and 90/1
00 dollars ($5,278.42) for the Revised Premises.
Paragraph (31) LEASEHOLD IMPROVEMENTS: Landlord will make necessary
improvements to demise the additional premises. Tenant will accept the space
"as is" with all the mechanical equipment and fixtures in good working
condition.
Except as herein amended, all covenants, terms and conditions of the Lease
stated above remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL COMMUNICATIONS COMPANY
CENTER ASSOCIATES,
a California Limited Partnership
By: /s/ John Volckmann By: /s/John Little
_______________________________ _______________________________
John Volckmann John Little
General Partner President
Date: _____________________________ Date: _____________________________
2
<PAGE>
THIRD AMENDMENT TO LEASE
This Amendment, dated October 19, 1994, amends that certain Lease, dated
November 4, 1991, and previously amended by the First Amendment to Lease, dated
March 5, 1992, and the Second Amendment to Lease dated May 27, 1994 by and
between Stevens Creek Office Center Associates, a California limited partnership
(herein called "Landlord") and Portal Communications Company (herein called
"Tenant"). The leased Premises is commonly referred to as 20863 Stevens Creek
Blvd., Suite 200, Cupertino, California 95014 which is approximately 3,327
rentable square feet.
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (2) PREMISES: The Premises is increased to include an
additional 1,998 rentable square feet commonly referred to as 20863 Stevens
Creek Boulevard, Suite 300 (herein called "Additional Premises") further defined
as Exhibit A. The Initial Premises, together with the Additional Premises,
comprise an area of approximately 5,325 rentable square feet (herein called
"Revised Premises").
Paragraph (3) TERM: The term of the Lease for the Additional Premises
will commence upon substantial completion of the Tenant Improvements for the
Additional Premises and will terminate coterminous with Initial Premises on
January 14, 1997.
Upon determination of the Commencement Date of the Additional
Premises, the parties shall execute the Commencement Date Memorandum for the
Revised Premises attached hereto as Exhibit C. Failure to execute the
Commencement Date Memorandum, however, shall not affect Landlord or Tenant's
obligations hereunder.
Paragraph (5) BASE RENT: For the purpose of defining the Base Rent for
the Additional Premises only, Tenant will pay to Landlord without demand, a Base
Rent payment of three thousand two hundred ninety-six and 60/100 dollars
($3,296.70). Effective January 14, 1995, the Base Rent for the Additional
Premises will increase to three thousand three hundred ninety-six and 60/100
dollars ($3,396.70). The Base Rent payment for the Additional Premises will also
be subject to a CPI adjustment at the beginning of the twelfth and twenty-fourth
month of the term of the Additional Premises as defined in Paragraph 7a below.
Paragraph (6) SECURITY DEPOSIT: Upon execution hereof, the Security
Deposit for the Revised Premises will be increased to an amount equal to one
month's rent, or eight thousand five hundred seventy-five and 12/100 dollars
($8,575.12).
Paragraph (7a) RENT ADJUSTMENTS:
At the times set forth in Paragraph 5 of the Basic Lease, the monthly
Base Rent payable under paragraph 5 of this Lease shall be adjusted by the
increase, if any, in the Consumer Price Index of the Bureau of Labor Statistics
of the Department of labor for All Urban Consumers (1982-84=100), "All Items,"
for the city nearest the location of the Office Center Project, herein referred
to as "C.P.I.," since the date of this Lease.
<PAGE>
The monthly base rental shown in Paragraph 5 shall be adjusted
annually on the anniversary date of the Lease by adjusting the "base rent"
upward in the same percentage proportion that the Consumer Price Index, selected
large cities, under the heading, "San Francisco-Oakland-San Jose" using 1994 as
the reference base year for the retail prices of consumer goods and services, as
compiled by the Bureau of Labor Statistics, United States Department of Labor,
shall be increased or decreased over the price index of September 1994. The
monthly rental shall not, in any event, be adjusted downward or decreased by
reason of this paragraph. If at any time required for the determination of the
adjustment to the base rent as provided in this paragraph, the above-mentioned
index is no longer published or issued, or if the Landlord or Tenant is of the
opinion that said index does not accurately reflect, in relationship to the date
of execution of this Lease, the purchasing power of one dollar ($1.00), the
parties shall use such other index as is then generally recognized and accepted
for similar determinations of purchasing power.
In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the C.P.I., as reasonably
determined by Landlord, shall be used to make such calculations.
Tenant shall continue to pay rent at the rate previously in effect
until the increase, if any, is determined. Within five (5) days following the
date on which the increase is determined, Tenant shall make such payment to
Landlord as will bring the increased rental current, commencing with the
effective date through the date of any rental installments then due.
Thereafter, the rental shall be at the increased rate.
At such time as the amount of any chains in rental required by this
Lease is known or determined, Landlord and Tenant shall execute all amendment to
this Lease setting forth such change.
Paragraph (7b) ADDITIONAL RENT: Based upon the ratio between the
rentable square footage of the Revised Premises (approximately 5,325 square
feet) and the rentable square footage of the Office Center, as defined in the
Basic Lease Information (approximately 107,179 square feet), the Tenant's pro
rata share is increased to 4.97%.
Paragraph (31) LEASEHOLD IMPROVEMENTS: Landlord agrees to perform
certain work and to provide a Tenant Improvement Allowance for the Additional
Premises as deemed in accordance with the attached Exhibit B.
Whereas, Landlord and Tenant have agreed to replace the existing paragraph in
the Lease with the following:
Paragraph (32) RIGHT OF FIRST OFFER: Tenant shall have a Right of
First Offer for space contiguous to the Initial Premises at Fair Market Rent
(FMR). Landlord hereby grants to Tenant a continuing Right of First Offer to
lease at FMR, additional premises within the 300 building of the 20863 Stevens
Creek Boulevard portion of the Office Center complex (herein called "First Right
Space"), subject to the pre-existing rights and/or options granted to current
Tenants which shall take precedence. When First Right Space becomes available,
Landlord shall
2
<PAGE>
provide Tenant with written notice ninety (90) days in advance of such
availability, stating the available square footage, location within the
building, the date upon which the First Right Space would become available, and
the FMR. If Tenant desires to exercise its right to lease said First Right
Space, Tenant shall respond in writing to Landlord within ten (10) business
days. Failure of Tenant to so respond in writing shall be deemed a rejection of
Tenant's rights to lease the First Right Space.
Except as herein amended or replaced, all covenants, terms and conditions of the
Lease stated above remain in full force and effect.
In witness whereof, the parties hereto have executed this Amendment as of the
date written below.
STEVENS CREEK OFFICE CENTER ASSOCIATES
A California limited partnership (Landlord)
By: /s/ John Volkman Date: _____________________
_______________________________
John Volkman
General Partner
PORTAL COMMUNICATIONS COMPANY (Tenant)
By: /s/ John Little Date: _____________________
_______________________________
John Little
President
3
<PAGE>
FOURTH AMENDMENT TO LEASE
This Amendment, dated December 13, 1996, amends that certain Lease, dated
November 4, 1991, and previously amended by the First Amendment to Lease, dated
March 5, 1992, the Second Amendment to Lease dated May 27, 1994 and the Third
Amendment dated October 19, 1994 by and between Stevens Creek Office Center
Associates, a California limited partnership (herein called "Landlord") and
Portal Communication Company (herein called "Tenant"). The leased Premises is
commonly referred to as 20863 Stevens Creek Blvd., Suite 200 and 300, Cupertino,
California 95014 which comprise approximately 5,325 rentable square feet (herein
called the "Initial Premises").
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (1) PARTIES: Tenant is redefined as Portal Information
Network, Inc., a California corporation.
Paragraph (2) PREMISES: The Premises is increased to include an
additional 3,796 rentable square feet commonly referred to as 20863 Stevens
Creek Boulevard, Suite 260 (herein called "Additional Premises") further defined
on Exhibit A. The Initial Premises, together with the Additional Premises,
comprise an area of approximately 9,121 rentable square feet (herein called
"Revised Premises").
Paragraph (3) TERM: The Term of this Lease for the Additional Premises
commence on April 1, 1997 and terminate on March 31, 2000. The Tern for the
Initial Premises will be from January 15, 1997 and terminate March 31, 2000.
Paragraph (5) BASE RENT: For the purpose of defining the Base Rent for
the Initial Premises and the Additional Premises, Tenant will pay to Landlord,
without demand, a Base Rent payment as follows:
<TABLE>
<CAPTION>
Initial Premises Additional Premises
--------------------- -----------------------
<S> <C> <C>
1-15-97 thru 3-31-97 $11,661.75
4-1-97 thru 3-31-98 $11,661.75 $ 9,490.00
4-1-98 thru 3-31-99 $12,247.50 $ 9,869.60
4-1-99 thru 3-31-2000 $12,886.50 $10,249.20
</TABLE>
The original paragraph 32 is deleted and the following language inserted:
Paragraph (32) RIGHT OF FIRST OFFER: Landlord hereby grants to Tenant
a Continuing Right of First Offer to lease at Fair Market Rent (FMR), additional
premises specifically within the Stevens Creek Office Center complex 20863
Stevens Creek Boulevard, buildings 100, 300 and 400 (herein called "First Right
Space"), subject to the preexisting rights and/or options granted to current
Tenants which shall take precedence. When First Right Space becomes available,
Landlord shall provide Tenant with written notice ninety (90) days in advance of
such availability, stating the available square footage, location within the
building, the date upon which the First Right Space would become available, and
the FMR. If Tenant desires to exercise its right to lease said First Right
Space, Tenant shall respond in writing to Landlord within five (5) business
days. Failure of Tenant to so respond in writing shall be deemed a rejection of
Tenant's rights to lease the First Right Space.
<PAGE>
The original paragraph 33 is deleted and the following language inserted:
Paragraph (33) OPTION TO RENEW: Provided that Tenant is not in
default under the Lease either at the time of exercise or at the time the Option
Term commences, Tenant shall have the option to extend term of this Lease for
one additional period of three (3) years ("Option Term") on the same terms,
covenants and conditions provided in the Lease, except that there shall be no
further options to extend, and upon such renewal the Base Rent due hereunder
shall be equal to the FMR of the Revised Premises as reasonably determined by
Landlord. Tenant shall exercise the option by giving Landlord written notice
("Option Notice") six (6) months prior to the expiration of the Term of this
Lease. Landlord shall notify Tenant of the Base Rent for the Revised Premises
within thirty (30) days of receipt of the Option Notice from Tenant. Tenant has
ten (10) days to accept in writing the Base Rent for the Revised Premises.
Failure to Exercise Option. If Tenant shall fail to exercise the
--------------------------
option herein provided, the option shall terminate, and shall be null and void
and of no further force and effect. Tenant's exercise of the option shall not
operate to cure any default by the Tenant of any of the terms or provisions in
the Lease, nor to extinguish or impair any rights or remedies of Landlord
arising by virtue of such default. If the Lease or Tenant's right to possession
of the Revised Premises shall terminate in any manner whatsoever before Tenant
shall exercise the option herein provided, then immediately upon such
termination, the option herein granted to extend the Term, shall simultaneously
terminate and become null and void. If Tenant does not timely exercise the
option granted herein, Tenant shall promptly, following demand by Landlord,
execute, acknowledge and deliver to Landlord a release of option, quitclaim
deed, or other such document as may be required or requested by Landlord to
verify the termination of such option. Time is of the essence of this
provision.
Except as herein amended or replaced, all covenants terms and conditions of the
Lease stated above remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date
first above written.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL INFORMATION NETWORK, INC.
CENTER ASSOCIATES, a California Corporation
a California Limited Partnership
By: Lalanne\Volckmann
Its Managing Agent By: /s/ John Little
_____________________________
Title: CEO
_________________________
By: /s/ Susan C. Kammerer
_____________________________ Date: __________________________
Susan C. Kammerer
Chief Operating Officer
Date: ___________________________
2
<PAGE>
FIFTH AMENDMENT TO LEASE
This Amendment, dated January 13, 1997 amends that certain Lease, dated November
4, 1991, and previously amended by the First Amendment to Lease, dated March 5,
1992, the Second Amendment to Lease dated May 27, 1994, the Third Amendment
dated October 19, 1994 and the Fourth Amendment to Lease dated December 13, 1996
by and between Stevens Creek Office Center Associates, a California limited
partnership (herein called "Landlord") and Portal Information Network, Inc., a
California corporation (herein called "Tenant"). The leased Premises is
commonly referred to as 20863 Stevens Creek Blvd., Suite 200, 260 and 300,
Cupertino, California 95014 which comprise approximately 9,121 rentable square
feet (herein called the "Initial Premises").
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (2) PREMISES: The Premises is increased to include an
additional 4,447 rentable square feet commonly referred to as 20863 Stevens
Creek Boulevard, Suite 100 (herein called "Additional Premises") further defined
on Exhibit A. The Initial Premises, together with the Additional Premises,
comprise an area of approximately 13,568 rentable square feet (herein called
"Revised Premises").
Paragraph (3) TERM: The Term for the Additional Premises will commence
upon Landlord's delivery of the Premises to Tenant, anticipated to be January
27, 1997 for Suite 100. The suite will be coterminous with the Initial Premises
and terminate on March 31, 2000.
Upon determination of the Commencement Date of the Additional
Premises, the parties shall execute the Commencement Date Memorandum for the
Revised Premises attached hereto as Exhibit C. Failure to execute the
Commencement Date Memorandum, however, shall not affect Landlord or Tenant's
obligations hereunder.
Paragraph (5) BASE RENT: For the purpose of defining the Base Rent for
the Additional Premises, Tenant will pay to Landlord, without demand, a Base
Rent payment as follows for the Additional Premises to be added to the Base Rent
payable for the Initial Premises:
<TABLE>
<CAPTION>
Rent/SF Monthly Rent Due
-------------------- ----------------------
<S> <C> <C>
Months 1-12 $2.60 $11,562.20
Months 13-24 $2.70 $12,006.90
Months 25-3/31/2000 $2.80 $12,451.60
</TABLE>
Paragraph (31) LEASEHOLD IMPROVEMENTS: Landlord agrees to perform
certain work for the Additional Premises as defined in accordance with the
attached Exhibit B.
Except as herein amended or replaced, all covenants, terms and conditions of the
Lease stated above remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date written below.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL INFORMATION NETWORK, INC.
CENTER ASSOCIATES, a California corporation
a California Limited Partnership
By: Lalanne\Volckmann
Its Managing Agent
By: /s/ John Little
____________________________
John Little
President
By: /s/ Susan C. Kammerer
__________________________ Date: __________________________
Chief Operating Officer
Date: ________________________
2
<PAGE>
SIXTH AMENDMENT TO LEASE
This Amendment, dated February 26, 1997, amends that certain Lease, dated
November 4, 1991, and previously amended by the First Amendment to Lease, dated
March 5, 1992, the Second Amendment to Lease dated May 27, 1994, the Third
Amendment dated October 19, 1994, the Fourth Amendment to Lease dated December
13, 1996 and the Fifth Amendment to Lease dated January 13, 1997 by and between
Stevens Creek Office Center Associates, a California limited partnership (herein
called "Landlord") and Portal Information Network, Inc., a California
corporation (herein called "Tenant"). The leased Premises is commonly referred
to as 20863 Stevens Creek Blvd., Suite 200, 260 and 300, Cupertino, California
95014 which comprise approximately 13,568 rentable square feet (herein called
the "Initial Premises").
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (2) PREMISES: The Premises is increased to include an
additional 1,878 rentable square feet commonly referred to as 20863 Stevens
Creek Boulevard., Suite 410 (herein called "Additional Premises") further
defined on Exhibit A. The Initial Premises, together with the Additional
Premises, comprise an area of approximately 15,446 rentable square feet (herein
called "Revised Premises").
Paragraph (3) TERM: The Term for the Additional Premises will commence
upon execution of this Amendment The Additional Premises will be coterminous
with the Initial Premises which will terminate March 31, 2000.
Upon determination of the Commencement Date of the Additional
Premises, the parties shall execute the Commencement Date Memorandum for the
Revised Premises attached hereto as Exhibit C. Failure to execute the
Commencement Date Memorandum, however, shall not affect Landlord or Tenant's
obligations hereunder.
Paragraph (5) BASE RENT: For the purpose of defining the Base Rent for
the Additional Premises, Tenant will pay to Landlord, without demand, a Base
Rent payment as follows for the Additional Premises to be added to the Base Rent
payable for the Initial Premises. Rent will commence for the Additional
Premises on February 15, 1997.
<TABLE>
<CAPTION>
Rent/SF Monthly Rent Due
---------- --------------------
<S> <C> <C>
Months 1-12 $2.60 $4,882.80
Months 13-24 $2.70 $5,070.60
Months 25-3/31/2000 $2.80 $5,258.40
</TABLE>
Paragraph (31) LEASEHOLD IMPROVEMENTS: Landlord agrees to perform
certain work for the Additional Premises as defined in accordance with the
attached Exhibit B. If the Tenant Improvements are not completed by March 31,
1997, rent shall be abated from then until the Commencement Date.
Except as herein amended or replaced, all covenants, terms and conditions of the
Lease as stated remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Memorandum as of the date
first above written.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL INFORMATION NETWORK, INC.
CENTER ASSOCIATES, a California corporation
a California Limited Partnership
By: Lalanne\Volckmann
Its Managing Agent By: /s/ John Little
_______________________________
John Little
By: /s/ Susan C. Kammerer President
______________________________
Susan C. Kammerer
Chief Operating Officer Date: _____________________________
Date: ____________________________
2
<PAGE>
SEVENTH AMENDMENT TO LEASE
This Amendment, dated July 8, 1997, amends that certain Lease, dated November 4,
1991, and previously amended by the First Amendment to Lease, dated March 5,
1992, the Second Amendment to Lease dated May 27, 1994, the Third Amendment
dated October 19, 1994, the Fourth Amendment to Lease dated December 13, 1997,
Fifth Amendment to Lease dated January 13, 1997 and the Sixth Amendment to Lease
dated February 26, 1997 by and between Stevens Creek Office Center Associates, a
California limited partnership (herein called "Landlord") and Portal Information
Network, Inc., a California corporation (herein called "Tenant"). The leased
premises is commonly referred to as 20863 Stevens Creek Blvd., Suite 100, 200,
260, 300 and 410, Cupertino, California 95014 which comprise approximately
15,446 rentable square feet (herein called the "Initial Premises").
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (2) PREMISES: The Initial Premises is increased to include
two additional suites: 1,965 rentable square feet commonly referred to as 20863
Stevens Creek Boulevard, Suite 320 and 1,225 rentable square feet commonly
referred to as 20863 Stevens Creek Blvd., Suite 340 (herein combined and called
the "Additional Premises") further defined on Exhibit A-1 and Exhibit A-2. The
Initial Premises together with the Additional Premises, comprise an area of
approximately 18,636 rentable square feet (herein called the "Revised
Premises").
Paragraph (3) TERM: The Term for the Additional Premises shall
commence as indicated in Paragraph 5 below and be coterminous with the Initial
Premises, terminating March 31, 2000.
Upon determination of the Commencement Date of the Additional
Premises, the parties shall execute a Commencement Date Memorandum for each
suite comprising the Additional Premises.
Paragraph (5) BASE RENT: For the purpose of defining the Base Rent for
the Additional Premises, Tenant will pay to Landlord, without demand, a Base
Rent payment as follows for the Additional Premises to be added to the Base Rent
payable for the Initial Premises. Rent will commence when Landlord delivers
possession of the Additional Premises. Base Rent for the Additional Premises
will be as follows:
Suite 320 Anticipated to commence July 9, 1997
<TABLE>
<CAPTION>
Rent/SF Monthly Rent Due
-------------- ---------------------
<S> <C> <C>
Months 1-12 $2.65 $5,207.25
Months 13-24 $2.75 $5,403.75
Months 25-3/31/2000 $2.85 $5,600.25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Suite 340 Anticipated to commence August 4,1997
Rent/SF Monthly Rent Due
------------ ----------------------
<S> <C> <C>
Months 1-12 $2.65 $3,246.25
Months 13-24 $2.75 $3,368.74
Months 25-3/31/2000 $2.85 $3,491.25
</TABLE>
Paragraph (13) ASSIGNMENT AND SUBLETTING: will be deleted in its
entirety and replaced with the following:
Tenant shall neither voluntarily nor by operation of law, assign,
transfer, mortgage, pledge, hypothecate or encumber this Lease or any interest
therein, and shall not sublet the said Premises or any part thereof, or any
right or privilege appurtenant thereto, or suffer any other person (the
employees, agents, servants and invitees of Tenant excepted) to occupy or use
the Premises, or any portion thereof, without the prior written consent of
Landlord. No subletting or assignment, including by operation of law, shall be
allowed without Ninety (90) days prior written consent of Landlord and such
written consent may be withheld or denied for any reason or for no reason. Upon
any requested assignment or subletting of 36 % or more of the Premises, Landlord
may elect to terminate this lease upon not less than thirty (30) days written
notice, and recover possession of the premise at the expiration of such time.
Landlord upon receipt of such notice will respond within five (5) business days
whether or not it intends to consent to the assignment or subletting or whether
it intends to terminate the Lease. Tenant may sublet a portion of the leased
Premises, with Landlord's consent, which consent will not be unreasonably
withheld, for a period not to exceed twelve (12) months as long as the portion
of the sublet space does not exceed thirty-five (35%) of the total square
footage of the leased Premises.
A consent to one assignment, subletting, occupation or use by any
other person shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another person. If Tenant shall assign, sublet
or otherwise transfer this Lease or the Premises, or any portion thereof, with
Landlord's consent, Tenant shall pay to Landlord as additional rent, as and when
received, one-half of all amounts received by Tenant from such assignment,
subletting or transfer, in excess of the amounts required to be paid by Tenant
to Landlord pursuant to this Lease.
Notwithstanding anything to the contrary herein above, Tenant may
assign this Lease, or sublet a portion thereof as defined above, without
Landlord's consent to any of the following: i) any corporation or other entity
which controls, is controlled by, or is under common control with Tenant; ii)
any corporation or other entity resulting from the merger or consolidation of
Tenant; iii) any corporation, partnership, other entity or person which acquires
a controlling interest in the corporate stock of Tenant or acquires
substantially all of the assets of Tenant as a going concern of the business
that is being conducted on the Premises provided that in case of any of the
foregoing transfers said assignee assumes in full the obligations of Tenant
under the Lease.
Paragraph (31) LEASEHOLD IMPROVEMENTS: Tenant accepts the space in its
current configuration and "as is" condition except that in Suite 320 Landlord
will at its sole
2
<PAGE>
cost and expense install new carpet and paint and repair the walls. Landlord
will cause to be built for Tenant, at its sole cost and expense, an access
between suites 300 and 320 as identified on Exhibit B. Landlord will not require
Tenant to remove this improvement upon expiration of the Term. Landlord warrants
that the electrical, plumbing and major building systems will be in good
operating conditions upon Tenant occupying the space.
Except as herein amended or replaced, all covenants, terms and conditions of the
Lease stated above remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date written below.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL INFORMATION NETWORK, INC.
CENTER ASSOCIATES, a California corporation
a California Limited Partnership
By: Lalanne\Volckmann
Its Managing Agent
/s/ Susan C. Kammerer /s/ John Little
__________________________________ ___________________________________
Susan C. Kammerer John Little
Chief Operating Officer President
Date: ____________________________ Date: _____________________________
3
<PAGE>
EIGHTH AMENDMENT TO LEASE
This Amendment, dated July 10, 1997, amends that certain Lease, dated November
4, 1991, previously amended by the First Amendment to Lease, dated March 5,
1992, the Second Amendment to Lease dated May 27, 1994, the Third Amendment. to
Lease dated October 19, 1994, the Fourth Amendment to Lease dated December 13,
1996, the Fifth Amendment to Lease dated January 13, 1997, the Sixth Amendment
to Lease dated February 26, 1997 and the Seventh Amendment to Lease dated July
8, 1997 by and between Stevens Creek Office Center Associates, a California
limited partnership (herein called "Landlord") and Portal Information Network,
Inc., a California corporation (herein called "Tenant"). The leased premises is
commonly referred to as 20863 Stevens Creek Blvd., Suite 100, 200, 260, 300,
320, 340 and 410, Cupertino, California 95014 which comprise approximately
18,636 rentable square feet (herein called the "Initial Premises").
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (2) PREMISES: The Initial Premises is increased to include
2,173 rentable square feet commonly referred to as 20863 Stevens Creek
Boulevard, Suite 456, Cupertino, CA 95014 (herein called the "Additional
Premises") further defined on Exhibit A. The Initial Premises, together with the
Additional Premises, comprise an area of approximately 20,809 rentable square
feet (herein called the "Revised Premises").
Paragraph (3) TERM: The Term for the Additional Premises shall
commence as indicated in Paragraph 5 below and be coterminous with the Initial
Premises, terminating March 31, 2000.
Upon determination of the Commencement Date of the Additional
Premises, the parties shall execute a Commencement Date Memorandum far each
suite comprising the Additional Premises.
Paragraph (5) BASE RENT: For the purpose of defining the Base Rent for
the Additional Premises, Tenant will pay to Landlord, without demand, a Base
Rent payment as follows for the Additional Premises to be added to the Base Rent
payable for the Initial Premises. Rent will commence when Landlord delivers
possession of the Additional Premises. Base Rent for the Additional Premises
will be as follows:
Suite 456 Anticipated to commence July 22, 1997
Rent/SF Monthly Rent Due
----------- ------------------------
Months 1-12 $2.65 $5,758.45
Months 13-24 $2.75 $5,975.75
Months 25-3/31/2000 $2.85 $6,193.05
Paragraph (31) LEASEHOLD IMPROVEMENTS: Tenant accepts the space in its
current configuration and "as is" condition except Landlord, at its sole cost
and expense, will have the carpets cleaned. Landlord warrants that the
electrical, plumbing and major building systems will be in good operating
conditions upon Tenant occupying the space.
<PAGE>
Landlord will cause to be built for Tenant, at Tenant's sole cost and expense,
an access between suites 456 and 410 as identified on Exhibit B. Landlord will
allow Tenant to remove existing improvements in the middle of the space as
indicated on the Attached Exhibit B. Landlord will not require Tenant to
restore these improvements upon expiration of the Lease. Tenant acknowledges
that a final improvement plan must be submitted to Landlord for approval before
work commences.
Except as herein amended or replaced, all covenants, terms and conditions of the
Lease stated above remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date written below.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL INFORMATION NETWORK, INC.
CENTER ASSOCIATES, a California corporation
a California Limited Partnership
By: Lalanne\Volckmann
Its Managing Agent
/s/ Susan C. Kammerer /s/ John Little
__________________________________ ________________________________
Susan C. Kammerer John Little
Chief Operating Officer President
Date: ____________________________ Date: __________________________
2
<PAGE>
NINTH AMENDMENT TO LEASE
This Amendment, dated November 18, 1997, amends that certain Lease, dated
November 4, 1991, previously amended by the First Amendment to Lease, dated
March 5, 1992, the Second Amendment to Lease dated May 27, 1994, the Third
Amendment to Lease dated October 19, 1994, the Fourth Amendment to Lease dated
December 13, 1996, the Fifth Amendment to Lease dated January 13, 1997, the
Sixth Amendment to Lease dated February 26, 1997, the Seventh Amendment to Lease
dated July 8, 1997 and the Eighth Amendment to Lease dated July 10, 1997 by and
between Stevens Creek Office Center Associates, a California limited partnership
(herein called "Landlord") and Portal Information Network, Inc., a California
corporation (herein called "Tenant"). The leased premises is commonly is
commonly referred to as 20863 Stevens Creek Blvd., Suite 100, 200, 260, 300, 320
340, 410 and 456, Cupertino, California 95014 which comprise approximately
20,809 rentable square feet (herein called the "Premises").
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
The original paragraph 32 is deleted and the following language inserted:
Paragraph (32) RIGHT OF FIRST OFFER: Landlord hereby grants to Tenant
a continuing Right of First Offer to lease at Fair Market Rent (FMR) all or a
portion of 20883 Stevens Creek Blvd., ("ACI Space"), and 20863 Stevens Creek
Blvd., Buildings 100, 300 and 400 all situated in Cupertino, CA (herein called
"First Right Space"). As soon as Landlord is notified that the First Right
Space will become available, but no later than ninety (90) days in advance of
such availability, Landlord shall notify Tenant in writing, stating the
available square footage, location within the Property, the date upon which
the First Right Space will become available and the FMR (based upon a minimum
of five (5) years for the ACI Space) (the "Terms"). Tenant shall either accept
or reject the Terms within seven (7) business days. Failure of Tenant to so
respond in writing within seven business (7) days shall be deemed a rejection
of Tenant's rights to lease the First Right Space.
Paragraph (34) Landlord's Work: If Tenant should lease or sublease
space in 20883 Stevens Creek Blvd., Cupertino, CA, then Landlord will provide
Tenant with an allowance ("Allowance") to be used to reimburse the cost to
install conduit between 20883 Stevens Creek Blvd., Cupertino, CA and 20863
Stevens Creek Blvd, (Suite 100), Cupertino, CA. Landlord will not be obligated
to advance more thin 50% of the total cost of the work with a maximum Allowance
of Five Thousand Dollars ($5,000,00). Tenant will provide Landlord with a copy
of the scope of work and cost for Landlord's approval prior to the commencement
of such work.
Except as herein amended or replaced, all covenants, terms and conditions of the
Lease stated above remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL INFORMATION NETWORK, INC.
CENTER ASSOCIATES, a California Corporation
a California Limited Partnership
By: Lalanne\Volckmann
Its Managing Agent By: /s/ Richard C. Spalding
____________________________
Vice President,
Chief Financial Officer
By: /s/ Susan C. Kammerer
______________________________
Susan C. Kammerer Date: __________________________
Chief Operating Officer
Date: ____________________________
2
<PAGE>
TENTH AMENDMENT TO LEASE
This Amendment, dated February 2, 1998, amends that certain Lease, dated
November 4, 1991, previously amended by the First Amendment to Lease dated March
5, 1992, the Second Amendment to Lease dated May 27, 1994, the Third Amendment
to Lease dated October 19, 1994, the Fourth Amendment to Lease dated December
13, 1996, the Fifth Amendment to Lease dated January 13, 1997, the Sixth
Amendment to Lease dated February 26, 1997, the Seventh Amendment to Lease dated
July 8, 1997, the Eighth Amendment to Lease dated July 10, 1997 and the Ninth
Amendment to Lease dated November 18, 1997 by and between Stevens Creek Office
Center Associates, a California limited partnership (herein called "Landlord")
and Portal Information Network, Inc., a California corporation (herein called
"Tenant"). The leased premises is commonly referred to as 20863 Stevens Creek
Blvd., Suites 100, 200, 260, 300, 320, 340, 410 and 456, Cupertino, California
95014 which comprise approximately 20,809 rentable square feet (herein called
the "Premises").
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (2) PREMISES: The Premises is increased to include 1,098
rentable square feet commonly referred to as 20863 Stevens Creek Boulevard,
Suite 330, Cupertino, CA 95014 (herein called the "Additional Premises") further
defined on Exhibit A. The Premises, together with the Additional Premises,
comprise an area of approximately 21,907 rentable square feet (herein called the
"Revised Premises").
Paragraph (3) TERM: The Term for the Additional Premises shall
commence as indicated in Paragraph 5 below and be coterminous with the Premises,
terminating March 31, 2000.
Upon determination of the Commencement Date of the Additional
Premises, the parties shall execute a Commencement Date Memorandum for each
suite comprising the Additional Premises. [crossed out and initialed in
original]
Paragraph (5) BASE RENT: Tenant will pay to Landlord, without demand,
a Base Rent payment for the Additional Premises as follows to be added to the
Base Rent payable for the Premises. Rent for the Additional Premises will
commence March 1, 1998.
Suite 330
<TABLE>
<CAPTION>
Rent/SF Monthly Rent Due
------- ----------------
<S> <C> <C>
March 1, 1998 to January 31, 1999 $3.00 $3,294.00
February 1, 1999 to January 31, 2000 $3.12 $3,425.76
February 1, 2000 to March 31, 2000 $3.24 $3,557.52
</TABLE>
<PAGE>
Paragraph (31) LEASEHOLD IMPROVEMENTS: Tenant accepts the space in
its current configuration and "as is" condition. Landlord warrants that the
electrical, plumbing and major building systems will be in good operating
condition upon Tenant's acceptance of the Additional Premises.
Landlord acknowledges that Tenant at its sole cost and expense will install a
passage way between Suite 320 and Suite 330 (including the demolition of the
room in suite 320 adjacent to the passageway) and replace the carpet with
Tenant's standard carpet (as previously installed in suite 320). Landlord will
not require Tenant to restore these improvements upon expiration of the Least
unless damaged beyond normal wear and tear.
Except as herein amended or replaced, all covenants, terms and conditions of the
Lease stated above remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL INFORMATION NETWORK, INC.
CENTER ASSOCIATES, a California Corporation
a California Limited Partnership
BY: Lalanne\Volckmann
Its Managing Agent
By: /s/ Susan C. Kammerer By: /s/ John Little
__________________________ ____________________________
Chief Operating Officer President
Date: _________________________ Date: __________________________
2
<PAGE>
ELEVENTH AMENDMENT TO LEASE
This Amendment, dated May 6, 1998, amends that certain Lease, dated November 4,
1991, previously amended by the First Amendment to Lease March 5, 1992, the
Second Amendment to Lease dated May 27, 1994, the Third Amendment to Lease dated
October 19, 1994, the Fourth Amendment to Lease dated December 13, 1996, the
Fifth Amendment to Lease dated January 13, 1997, the Sixth Amendment to Lease
dated February 26, 1997, the Seventh Amendment to Lease dated July 8, 1997, the
Eighth Amendment to Lease dated July 10, 1997, the Ninth Amendment to Lease
dated November 18, 1997 and the Tenth Amendment to Lease dated February 2, 1998
by and between Stevens Creek Office Center Associates, a California limited
partnership (herein called "Landlord") and Portal Information Network, Inc., a
California corporation (herein called "Tenant"). The leased premises is
commonly referred to as 20863 Stevens Creek Blvd., Suites 100, 200, 260, 300,
320, 330, 340, 410 and 456, Cupertino, California 95014 which comprise
approximately 21,907 rentable square feet (herein called the "Premises").
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (2) PREMISES: The Premises is increased to include 1,230
rentable square feet commonly referred to as 20863 Stevens Creek Boulevard,
Suite 400, Cupertino, CA 95014 (herein called the "Additional Premises") further
defined on Exhibit A. The Premises, together with the Additional Premises,
comprise an area of approximately 23,137 rentable square feet (herein called the
"Revised Premises").
Paragraph (3) TERM: The Term for the Additional Premises shall
commence on May 1, 1998 and be coterminous with the Premises, terminating March
31, 2000.
Paragraph (5) BASE RENT: Tenant will pay to Landlord, without demand,
a Base Rent payment for the Additional Premises as follows to be added to the
Base Rent payable for the Premises. Rent for the Additional Premises will
commence May 1, 1998.
<TABLE>
<CAPTION>
TERM RATE MONTHLY RENT DUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
5/1/98 through 4/30/99 $3.00 per square foot $3,690.00
5/1/99 through 3/31/00 $3.12 per square foot $3,837.60
</TABLE>
Paragraph (6) SECURITY DEPOSIT: Upon execution hereof, Tenant shall
increase its Security Deposit for the Revised Premises to include an additional
amount equal to one month's rent for Suite 330 ($3,294.00) and Suite 400
($3,690.00) or a total increase of six thousand nine hundred eighty-four and
00/100 dollars ($6,984.00).
Paragraph (31) LEASEHOLD IMPROVEMENTS: Tenant accepts the space in
its current configuration and "as is" condition except that the parties agree
that Tenant may install, at its sole cost and expense, the improvements
described on the attached Exhibit A. Tenant agrees that it will bear the cost of
enclosing the proposed kitchen as well as the
<PAGE>
construction of one (1) additional private office, at Landlord's discretion,
upon termination of the Lease. Landlord warrants that the electrical, plumbing
and major building systems will be in good operating condition upon Tenant's
acceptance of the Additional Premises.
Except as herein amended or replaced, all covenants, terms and conditions of the
Lease stated above remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL INFORMATION NETWORK, INC.,
CENTER ASSOCIATES, a Calilfornia corporation
a California Limited Partnership
BY: Lalanne\Volckmann
Its Managing Agent By: /s/ John Little
____________________________
John Little
By: /s/ Susan C. Kammerer President
________________________________
Susan C. Kammerer
Vice President Date: __________________________
Date: ______________________________
2
<PAGE>
TWELFTH AMENDMENT TO LEASE
This Amendment, dated May 31, 1998 for reference purposes only, amends that
certain Lease, dated November 4, 1991, previously amended by the First Amendment
to Lease dated March 5, 1992, the Second Amendment to Lease dated May 27, 1994,
the Third Amendment to Lease dated October 19, 1994, the Fourth Amendment to
Lease dated December 13, 1996, the Fifth Amendment to Lease dated January 13,
1997, the Sixth Amendment to Lease dated February 26, 1997, the Seventh
Amendment to Lease dated July 8, 1997, the Eighth Amendment to Lease dated July
10, 1997, the Ninth Amendment to Lease dated November 18, 1997, the Tenth
Amendment to Lease dated February 2, 1998, and the Eleventh Amendment to Lease
dated May 5, 1998 by and between Stevens Creek Office Center Associates, a
California limited partnership (herein called "Landlord") and Portal Information
Network, Inc., a California corporation (herein called "Tenant"). The leased
premises is commonly referred to as 20863 Stevens Creek Blvd., Suites 100, 200,
260, 300, 320, 330, 340, 400, 410 and 456, Cupertino, California 95014 which
comprise approximately 23,137 rentable square feet (herein called the
"Premises").
Whereas, Landlord and Tenant have agreed to amend the Lease as follows:
Paragraph (2) PREMISES: The Premises is increased to include
approximately 3,857 rentable square feet commonly referred to as 20853 Stevens
Creek Boulevard, Suite 540 (expanded to include approximately 525 square feet of
Suite 560), Cupertino, CA 95014 (herein called the "Additional Premises")
further defined on Exhibit A. The Premises, together with the Additional
Premises, comprise an area of approximately 26,994 rentable square feet (herein
called the "Revised Premises").
Paragraph (3) TERM: The Term for the Additional Premises shall
commence On June 8, 1998 and be coterminous with the Premises, terminating March
31, 2000.
Paragraph (5) BASE RENT: Tenant will pay to Landlord, without demand,
a Base Rent payment for the Additional Premises as follows to be added to the
Base Rent payable for the Premises. Rent for the Additional Premises will
commence June 8, 1998.
<TABLE>
<CAPTION>
TERM MONTHLY RENT DUE
- --------------------------------------------------------------------------
<S> <C>
6/1/98 through 5/31/99 $11,820.30
6/1/99 through 3/31/00 $12,293.11
</TABLE>
Paragraph (6) SECURITY DEPOSIT: Upon execution hereof, Tenant shall
increase its Security Deposit for the Revised Premises to include an additional
amount equal to one month's rent for the Additional Premises Twelve thousand two
hundred ninety-three and 11/100 dollars ($12,293.11).
Paragraph (31) LEASEHOLD IMPROVEMENTS: Landlord warrants that the
electrical, plumbing and major building systems will be in good operating
condition upon
<PAGE>
Tenant's acceptance of the Additional Premises. Tenant. shall reimburse Landlord
for the cost to remove the carpet in Suite 540 and the demising wall between
Suite 530 and 540 and shall, at its sole cost and expense, recarpet the
Additional Premises with Tenant's standard carpet. Landlord will construct a
minimum of three (3) new perimeter offices along the rear window wall in Suite
540 and demise the Additional Premises by the installation of a full height wall
adjacent to Suite 560.
Except as herein amended or replaced, all covenants, terms and conditions of the
Lease stated above remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LANDLORD: TENANT:
STEVENS CREEK OFFICE PORTAL INFORMATION NETWORK, INC.,
CENTER ASSOCIATES, a California corporation
a California Limited Partnership
BY: Lalanne\Volckmann
Its Managing Agent By: /s/ John Little
____________________________
John Little
By: /s/ Susan C. Kammerer President
_________________________
Susan C. Kammerer
Vice President Date: __________________________
Date: _______________________
2
<PAGE>
EXHIBIT 10.2
BASIC LEASE INFORMATION
OFFICE LEASE
------------
LEASE DATE: September 8, 1998
LANDLORD: Stevens Creek Office Center Associates,
A California limited partnership
ADDRESS OF LANDLORD: 20833 Stevens Creek Blvd., Suite 101
Cupertino CA 95042
TENANT: Portal Software, Inc.
ADDRESS OF TENANT: 20863 Stevens Creek Blvd., Suite 200
Cupertino, CA 95014
TELEPHONE/FACSIMILE: (408) 343-4400
CONTACT: Richard Spalding Vice President & CFO
BUILDING: 20883
FLOOR: Floors 1 & 2
RENTABLE AREA: 24,455 rentable square feet
PARAGRAPH (3): TERM: 5 years
ANTICIPATED
COMMENCEMENT DATE: October 1, 1998
ANTICIPATED
EXPIRATION DATE: September 30, 2003
PARAGRAPH (5):
<PAGE>
BASE RENT WITH ANNUAL 4% INCREASES
AS FOLLOWS:
YRS RENT PER SF MONTHLY BASE RENT
--- ----------- -----------------
1 $ 3.20 $78,256.00
2 $ 3.33 $81,435.15
3 $ 3.46 $84,614.30
4 $:3.60 $88,038.00
5 $ 3.74 $91,461.70
PARAGRAPH (6): SECURITY DEPOSIT: $78,256.00
PARAGRAPH (7): BASE EXPENSE YEAR: 1999
PARAGRAPH (7B): TENANT'S PERCENTAGE SHARE: 22.82 % BASED
ON 107,179 SQUARE FEET TOTAL RENTABLE AREA
OF PROJECT
2
<PAGE>
EXHIBITS EXHIBIT A - SITE PLAN
EXHIBIT B - IMPROVEMENT AGREEMENT
EXHIBIT C - COMMENCEMENT DATE
EXHIBIT D - RULES AND REGULATIONS
EXHIBIT E - JANITORIAL SPECIFICATIONS
3
<PAGE>
OFFICE BUILDING LEASE
---------------------
1. PARTIES. This Lease, dated, for reference purposes only, September
-------
9, 1998, is made by and between Stevens Creek Office Center Associates, a
California limited partnership (herein called "Landlord") and Portal Software,
Inc., a California Corporation (herein called "Tenant").
2. PREMISES.
--------
(a) Demise of Premises. Landlord does hereby lease to Tenant and
------------------
Tenant hereby leases from Landlord that certain office space ( the "Premises")
indicated on Exhibit "A" attached hereto and incorporated herein by reference,
said Premises being agreed, for the purpose of this Lease, to have an area of
approximately the number of rentable square feet indicated in the Basic Lease
Information and being situated on the floor of that certain building identified
in the Basic Lease Information (the "Building")
(b) Terms and Conditions. Said Lease is subject to the terms,
--------------------
covenants and conditions herein set forth and the Tenant covenants as a material
part of the consideration for this Lease to keep and perform each and all of aid
terms, covenants and conditions by it to be kept and performed and that this
Lease is made upon the condition of said performance.
3. TERM.
----
(a) Initial Term. The term of this Lease shall be for the period
------------
indicated in the Basic Lease Information, commencing on the date (the
"Commencement Date") which is the later of (i) October 1, 1998 or (ii) the date
that Landlord delivers possession of the Premises to Tenant with the
improvements described in Exhibit "B" substantially completed. As soon as the
Commencement Date is determined, the parties shall execute a memorandum in the
form attached hereto as Exhibit "C" (the "Commencement Date Memorandum") setting
forth the Commencement and the Expiration Date. Failure to execute the
Commencement Date Memorandum' however, shall not affect Tenant's obligations
hereunder.
4. POSSESSION. If the Landlord, for any reason whatsoever, cannot
----------
deliver possession of the said Premises to the Tenant on the anticipated
commencement date noted in the Basic Lease Information (the "Anticipated
Commencement Date"), this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting therefrom, but in
that event, all rent shall be abated during the period between the Anticipated
Commencement Date and the Commencement Date. Subject to Landlord's obligations
elsewhere in this Lease and Exhibits, by taking possession of the Premises,
Tenant shall be conclusively deemed to have accepted the Premises in their then
existing condition, acknowledging that all obligations of Landlord have been met
as of such date.
4
<PAGE>
5. RENT. Upon the Commencement Date, Tenant agrees to pay to Landlord as
----
rental, without prior notice or demand, for the Premises the Base Rent indicated
in the Basic Lease Information, on or before the first day of the first full
calendar month of the term hereof and a like sum on or before the first day of
each month thereafter during the term hereof, except that the first full month's
rent shall be paid upon the execution hereof. Rent for any period during the
during the term hereof which is for less than one (1) month shall be a prorated
portion of the monthly installment herein, based upon a thirty (30) day month.
Said rental shall be paid, without deduction or offset in lawful money of the
United States of America, which shall be legal tender at the time of payment, to
Landlord, at the address of Landlord indicated in the Basic Lease Information,
or to such other person or at such other place as Landlord may from time to time
designate in writing.
6. SECURITY DEPOSIT. Tenant shall deposit with Landlord upon execution
----------------
of this Agreement the security deposit (the 'Security Deposit") in the amount as
indicated in the Basic Lease Information. The Security Deposit shall be held by
Landlord as security for the faithful performance by Tenant of all 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, Landlord may (but shall not be required to) use, apply or retain all or
any part of this Security Deposit for the payment of any rent or any other sum
in default, or for the payment of any amount which Landlord may spend or become
obligated to 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 Security Deposit is so used or applied, Tenant
shall immediately deposit cash with Landlord in an amount sufficient to restore
the Security Deposit to its original amount and Tenant's failure to do so shall
be a material breach of this Lease. Landlord shall not be required to keep the
Security Deposit separate from, its general funds, and Tenant shall not be
entitled to interest on such deposit. If Tenant shall fully and faithfully
perform 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) within twenty-one
(21) days of the expiration of the Lease term. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer said deposit to
Landlord's successor in interest Landlord shall deposit and maintain the
Security Deposit in a separate, interest bearing account earning an interest
rate equal to a standard savings account (the "Account") in Landlord's current
property bank trust account, or such other national bank as Landlord reasonably
selects (the "Bank") and Tenant shall have no rights to the money in the Account
except for (i) the return rights specified herein and (ii) the right to receive
interest on the Account, as specified herein. Landlord shall pay to Tenant the
interest Landlord receives on each anniversary of the lease commencement date
from the Bank on the Account, and Landlord shall have the right to report to the
appropriate state and federal taxing authorities that such income is the income
of Tenant. Tenant represents to Landlord that Federal Taxpayer Identification
Number is 77-0369737.
5
<PAGE>
7. RENT ADJUSTMENTS.
----------------
(a) Definitions. For the purposes of this Article, the following
-----------
terms are defined as follows:
(i) Base Year. The calendar year of 1999
(ii) Comparison Year. Each calendar year of the term after the Base
Year.
(iii) Direct Expense. All direct costs of operation and maintenance
as determined by generally accepted accounting principles,
which shall include the following costs by way of illustration,
but not limitation: real property taxes and assessments; rent
taxes, gross receipt taxes (whether assessed against the
Landlord or assessed against the Tenant and collected by the
Landlord, or both); water and sewer charges; insurance
premiums; utilities; janitorial services; labor; costs incurred
in the management of the Project, if any; air-conditioning and
heating; elevator maintenance; supplies; materials; equipment;
tools; and maintenance repair, and upkeep of all parking and
common areas. Direct Expenses shall not include, and Tenant
shall not be required to pay, any of the following: (a)
depreciation on the Building of which the Premises are a part,
legal fees, real estate brokers' commissions, advertising
costs, or other related expenses incurred in connection with
the leasing of the Building of which the Premises are a part;
(b) repairs, alterations, additions, improvements or
replacements made to rectify or correct any defect in the
design, materials or workmanship of the Building; (c) any
improvements, alterations or expenditures of a capital nature,
except as expressly allowed; (d) damage and repairs
attributable to fire or other casualty; (e) damage and repairs
covered under any insurance policy carried by Landlord in
connection with the building; (f) damage and repairs
necessitated by the gross negligence or willful misconduct of
Landlord or Landlord's agents, employees, contractors or
invitees; (g) executive salaries or salaries of service
personnel to the extent that such service personnel perform
services other than in connection with the management,
operation, repair or maintenance of the Building and its common
areas; (h) Landlord's general overhead expenses not related to
the Building; (i) payments of principal or interest on any
mortgage or other encumbrance; (j) legal fees, accountants fees
and other expenses incurred in connection with disputes with
tenants or other occupants of the Building or associated with
the enforcement of any leases or defense of Landlord's title to
or interest in the Building or renovating or otherwise
improving, decorating, painting or altering space for tenants
or other occupants or vacant space in the Building; (l) cost
incurred due to violation by Landlord or any other tenant in
the Building of the terms and conditions of any lease; (m)
services or installations furnished to any tenant in the
Building which are not furnished to Tenant or quantities of
such services furnished to any tenant in the Building which are
also furnished to Tenant but are
6
<PAGE>
furnished to other tenants in an amount materially in excess of that
which would represent a fair proportion of such services; (n) the
cost of any service provided to Tenant or other occupants of the
Building for which Landlord is entitled to be reimbursed; (o) any
cost or expense related to the removal, transportation or storage of
hazardous building or land on which the Building is located; and (p)
any other expense which under generally accepted premises accounting
principles and practice, would not be considered a normal
maintenance and operating expense.
Direct Expenses that vary with occupancy and that are attributable
to any part of the term in which less than ninety-five percent (95%)
of the rentable area of the Project is occupied by tenants will be
adjusted by Landlord to the amount that Landlord reasonably believes
such Direct Expenses would have been if ninety-five percent (95 %)
of the rentable area of the Project had been so occupied, provided
that in no event shall Tenant's additional rent include Direct
Expenses not actually incurred by Landlord.
(b) Additional Rent. Tenant shall pay to the Landlord additional rent
---------------
which shall consist of a prorata portion of the Direct Expenses. Paragraph 7b
reflects Tenant's prorata portion of the Direct Expenses. If the Direct
Expenses paid or incurred by the Landlord for the Comparison Year on account of
the operation and maintenance of the Property, of which the Premises are a part,
are in excess of the expenses the Base Year (see Basic Lease Page), then the
Tenant shall pay 22.82% of the increase. This percentage is that portion of the
total rentable area of the Property which is the Premises. Tenant shall pay to
Landlord as "Additional Rent" Tenant's Percentage Share of the amount of any
increase in Direct Expenses incurred in any Comparison Year over Direct Expenses
incurred in the Base Year. Landlord shall endeavor to give to Tenant on or
before the first day of March of each year following the Base Year a statement
of the Additional Rent payable by Tenant hereunder, but failure by Landlord to
give such statement by said date shall not constitute a waiver by Landlord of
its right to require payment of such amount. Upon receipt of the statement,
Tenant shall pay in full the total amount of the increases if any, due for the
past year. In addition, unless Landlord reasonably estimates that the amount of
any increase in Direct Expenses for the succeeding Comparison Year over the
Direct Expenses for the Base Year will differ, an amount equal to any Su I @@,i
increase shall be divided into twelve (12) equal monthly installments and Tenant
shall pay to Landlord, concurrently with the regular monthly rent payment next
due following receipt of such statement, an amount equal to one (1) monthly
installment multiplied by the number of months from January in the calendar year
in which said statement is submitted to the month of such payment, both months
inclusive. Subsequent installments shall be payable concurrently with the
regular monthly rent payments for the balance of that calendar year and shall
continue until the next Comparison Year's statement is rendered. If a greater
increase in Direct Expenses occurs in the next or any succeeding Comparison
Year, then upon receipt of a statement from Landlord, Tenant shall pay a lump
sum equal to such total increase in Direct Expenses, less the total of the
monthly installments of estimated increases paid in the previous calendar year;
and the estimated monthly installments to be paid for the next year, following
said Comparison Year, shall be
7
<PAGE>
adjusted to reflect such increase. If in any Comparison Year the total of the
estimated payments of Tenant's Percentage Share of the increase in Direct
Expenses is less than the amount owed, then upon receipt of Landlord's
statement, any overpayment made by Tenant on the monthly installment basis
provided above shall be credited towards the next monthly rent falling due and
the estimated monthly installments of Direct Expenses to be paid shall be
adjusted to reflect such lower Direct Expenses for the most recent Comparison
Year. If this Lease terminates during a calendar year, the rental adjustment
shall be payable for the portion of the calendar year included in the Lease
term. *Tenant shall incur a maximum 5 % increase per year for Direct Expenses.
(c) Record Review. Within sixty (60) days of Tenant's receipt of
-------------
Landlord's year end statement of Direct Expenses for the previous year, Tenant
may have a certified public accountant review Landlord's records, at the office
where such records are normally kept, for the purpose of determining the
accuracy of Landlord's statement. Upon expiration of such sixty (60) day period,
Landlord's figures shall be deemed conclusive and final.
8. USE.
---
(a) Permitted Use. Tenant shall use the Premises for general office
-------------
purposes and shall not use or permit the Premises to be used for any other
purposes without the prior written consent of Landlord.
(b) Prohibited Uses. Tenant shall not do or permit anything to be
---------------
done in or about the Premises, nor bring or keep anything therein, which will in
any way increase the existing rate of or affect any fire or other insurance upon
the Building or any of its contents, or cause cancellation of any insurance
policy covering said Building or any part thereof or any of its contents. Tenant
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of other tenants or occupants
of the Building 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. Tenant
shall not commit or suffer to be committed any waste in or upon the
Premises.
(c) Hazardous Materials. Tenant shall not bring, store, deposit or
-------------------
use any Hazardous Material (as defined herein) on or about the Premises or the
Project, nor shall Tenant allow or permit its agents, employees, or contractors
to bring, store, deposit or use any Hazardous Material on or about the Premises
or the Project, except incidental quantities of household chemicals commonly
used for office and janitorial purposes. "Hazardous Material" as used herein
shall mean any hazardous toxic or radioactive substance now or hereafter
regulated by federal, state or local governmental or other authority, including,
but not limited to, any "hazardous substance as defined in Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
it may be amended or supplemented, and any crude oil, petroleum product, natural
gas product or related materials.
8
<PAGE>
9. COMPLIANCE WITH LAW/PRIVATE I RESTRICTIONS. Tenant shall not use the
------------------------------------------
Premises or Project or permit anything to be done in or about the Premises or
Project which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated and any and all private restrictions that are of record, but only
in the event that a copy of such private restrictions of record has been
provided to Tenant (collectively, "Laws"). Tenant shall, at its sole cost and
expense, promptly comply with all Laws, and with the requirements of any board
of fire insurance underwriters or other similar bodies now or hereafter
constituted, relating to, or affecting the condition, use or occupancy of the
Premises or the Project, excluding structural changes not related to or affected
by Tenant's improvements or acts. The judgment by 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 Law shall be
conclusive of that fact as between the Landlord and Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be
-------------------------
made any alterations, additions or improvements ("Alterations") to or of the
Premises or any part thereof without the prior written consent of Landlord in
Landlord's reasonable discretion and any Alterations to or of said Premises,
including, but not limited to, wall covering, paneling and built-in cabinet
work, but excepting movable furniture and trade fixtures installed at the sole
cost and expense of Tenant, shall on the expiration of the term and belong to
the Landlord and shall be surrendered with the Premises. In the event Landlord
consents to the making of any Alterations to the Premises by Tenant, the same
shall be made by Tenant at Tenant's sole cost and expense. All Alterations to
be constructed by Tenant shall be constructed in accordance with all Laws using
new materials of good quality, by a licensed contractor reasonably approved by
Landlord. Tenant shall not commence construction of any Tenant's Alterations
until (i) all required governmental approvals and permits have been obtained,
(ii) all requirements regarding insurance imposed by this Lease have been
satisfied, (iii) Tenant has given Landlord at least five days' prior written
notice of its intention to commence such construction, and (iv) if reasonably
requested by Landlord, Tenant has obtained contingent liability and broad form
builders' risk insurance in an amount reasonably satisfactory to Landlord. Upon
the expiration or sooner termination of the term hereof, Tenant shall, upon
written demand by Landlord, at Tenant's sole cost and expense, forthwith and
with all due diligence remove any Alterations made by Tenant and designated by
Landlord to be removed, and Tenant shall, forthwith and with all due diligence
at its sole cost and expense, repair any damage to the Premises caused by such
removal. Landlord's consent shall not be unreasonably withheld and shall be
responded to in a timely manner.
11. REPAIRS.
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(a) Tenant's Obligation. Except as provided elsewhere in this Lease
-------------------
and Exhibits, by taking possession of the Premises, Tenant shall be deemed to
have accepted the Premises as being in good, sanitary order, condition and
repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises and
every part thereof in good condition and repair, damage thereto from causes
beyond the reasonable control of Tenant and ordinary wear and tear excepted.
9
<PAGE>
Tenant shall surrender the Premises to Landlord upon the expiration or sooner
termination of this Lease in such condition, ordinary wear and tear and from
causes beyond the reasonable control of Tenant excepted. Except as specifically
provided in this Lease, Landlord shall have no obligation whatsoever to alter,
remodel, improve, repair, decorate or paint the Premises any part thereof and
the parties hereto affirm that Landlord has made no representations to Tenant
respecting the condition of the Premises, the Building or the Project except as
specifically herein set forth, except latent defects.
(b) Landlord's Obligation. Notwithstanding the provisions of
---------------------
Article 11 (a) hereinabove, Landlord shall repair and maintain the structural
portions of the Building, including plumbing, air conditioning, heating and
electrical systems, installed or furnished by Landlord, unless such maintenance
and repairs are caused in part or in whole by the act, neglect, fault or
omission of any duty by the Tenant, its agents, servants, employees or invitees,
in which case Tenant shall pay to Landlord the reasonable cost of such
maintenance and repairs. Landlord shall not be liable for any failure to make
any such repairs or to perform any maintenance unless such failure shall persist
for an unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant. Except as provided in Article 22
hereof, there shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations or improvements in or to any portion of the
Building or the Premises or in or to fixtures, appurtenances and equipment
therein, except Landlord's gross negligence or willful misconduct or breach of
contract of Landlord's agent or contractor., Tenant waives the right to make
repairs at Landlord's expense under any Law now or hereafter in effect. Tenant
waives the provisions of Sections 1932 (1), 1941, and 1942 of the Civil Code
and/or any similar or successor law regarding Tenant's right to terminate this
Lease (including the right to assert constructive eviction) or to repairs and
deduct such expenses from the Rent due under the Lease.
12. LIENS. Tenant shall keep the Project free from any liens arising out
-----
of any work performed, materials furnished or obligations incurred by Tenant.
Landlord may, require, at Landlord's sole option, that Tenant shall provide to
Landlord, at Tenant's sole cost and expense, a lien and completion bond in an
amount equal to one and one-half (1-1/2) times any and all estimated cost of any
Alterations in the Premises, to insure Landlord against any liability for
mechanics' and materialmen's liens and to insure completion of the work.
13. ASSIGNMENT AND SUBLETTING. Tenant shall neither voluntarily nor by
-------------------------
operation of law, assign, transfer, mortgage, pledge, hypothecate or encumber
this Lease or any interest therein, and shall not sublet the said Premises or
any part thereof, or any right or privilege appurtenant thereto, or suffer any
other person (the employees, agents, servants and invitees of Tenant excepted)
to occupy or use the Premises, or any portion thereof, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld.
Any such assignment or subletting without such consent shall be void, and shall,
at the option of the Landlord, constitute a default under this Lease. An
assignment for purposes of this
10
<PAGE>
paragraph shall include any sale or transfer including by consolidation, merger
or reorganization, of a majority of the voting stock of Tenant, if Tenant is a
corporation, or any sale or other transfer of a majority of the partnership
interest in Tenant, if Tenant is a partnership, in a single transaction or a
series of related transactions. A consent to one assignment, subletting,
occupation or use by any other person shall not be deemed to be a consent to any
subsequent assignment, subletting, occupation or use by another person. If
Tenant shall assign, sublet or otherwise transfer this Lease or the Premises, or
any portion thereof, with Landlord's consent, Tenant shall pay to Landlord as
additional rent, as and when received, one-half of all amounts received by
Tenant from such assignment, subletting or transfer, in excess of the amounts
required to be paid by Tenant to Landlord pursuant to this Lease.
Notwithstanding anything to the contrary hereinabove, Tenant may assign this
Lease, or sublet any portion thereof, without Landlord's consent to any of the
following: (i) any corporation or other entity which controls, is controlled by,
or is under common control with Tenant, (ii) any corporation or other entity
resulting from the merger or consolidation of Tenant; and (iii) any corporation,
partnership, other entity or person which acquires a controlling interest in the
corporate stock of Tenant or acquires substantially all of the assets of Tenant
as a going concern of the business that is being conducted on the Premises
provided that in case of any of the foregoing transfers said assignees assumes
in full the obligations of Tenant under the Lease.
14. HOLD HARMLESS. Tenant shall indemnify and hold harmless Landlord
-------------
against and from any and all claims arising from Tenant's use of the Premises or
from any activity, work, or other thing done, permitted by Tenant in or about
the Project, and shall further indemnify and hold harmless Landlord against and
from any and all claims arising from any breach or default in the performance of
any obligation on Tenant's part to be performed under the terms of this Lease,
or arising from any act or negligence of Tenant, or any officer, agent,
employee, guest, or invitee of Tenant, and from and against all costs,
attorney's fees, expenses and liabilities incurred in or resulting from any such
claim or any action or proceeding brought thereon, and, in any case, if any
action or proceeding is brought against Landlord by reason of any such claim,
Tenant upon notice from Landlord shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord. Tenant as a material part of the
consideration to Landlord hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises, from any cause other than
Landlord's and Landlord's Agent's gross negligence, and Tenant hereby waives all
claims in respect thereof against Landlord. Landlord or its agents shall not be
liable for any damage to property entrusted to employees of the Building, nor
for loss or damage to any property by theft or otherwise, nor for any injury to
or damage to persons or property or to the business of Tenant resulting from
fire, explosion, falling plaster, steam, gas, electricity, water or rain which
may leak from part of the Building or from the pipes, appliances or plumbing
works therein or from the roof, street or subsurface or from any other place
resulting from dampness or any other cause whatsoever, unless caused by or due
to the gross negligence of Landlord, its agents, servants or employees. Neither
Landlord nor its agents shall be liable for interference with the light or other
incorporeal hereditaments, loss of business by Tenant, or any latent defect in
the Premises or in the Project. Tenant shall give prompt notice to Landlord in
case of fire or accidents in the Premises or in the Project or of defects
therein or in the fixtures or equipment.
11
<PAGE>
15. WAIVER OF SUBROGATION. Landlord and Tenant shall each obtain from
---------------------
their respective insurers under all policies of fire and other casualty
insurance maintained by either of them at any time during the term, insuring or
covering the Premises, or any portion thereof, or operations or property
contained therein, a waiver of all rights of subrogation which the insurer of
one party might otherwise have against the other party, and Landlord and Tenant
shall each indemnify the other against any loss or expense, including reasonable
attorney's fees, resulting from the failure to obtain such waiver.
16. LIABILITY AND PROPERTY INSURANCE.
--------------------------------
(a) Required Coverage. Tenant shall, at Tenant's expense, obtain and
-----------------
keep in force during the term of this Lease the following insurance coverage:
(i) commercial general liability insurance insuring Landlord and Tenant against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. The minimum acceptable amount of
comprehensive liability insurance is a combined single limit of $2,000,000 for
each occurrence of bodily injury liability and/or property damage liability;
(ii) "all risk" fire and extended coverage property damage insurance insuring
Tenant's personal property in the Premises for the full replacement cost
thereof; (iii) workers' compensation coverage and any other benefit insurance
sufficient to comply with all Laws; and (iv) with respect to construction of
Alterations or the like undertaken by Tenant, contingent liability and broad
form builder's risk insurance in an amount reasonably satisfactory to Landlord.
(b) Terms of Coverage. The limits of said insurance shall not limit
-----------------
the liability of the Tenant hereunder. Tenant may carry said insurance under a
blanket policy, providing, however, said insurance by Tenant shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall
fail to procure and maintain said insurance, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder shall be in companies rated A-7 or better in "Best's
Insurance Guide." Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or,
certificates evidencing the existence and amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be cancelable or
subject to reduction of coverage except after ten (10) days prior written notice
to Landlord. Each policy of insurance required to be carried by Tenant shall
name Landlord and such other parties in interest as Landlord reasonably
designates as additional insureds.
17. SERVICES AND UTILITIES.
--- ----------------------
(a) Services and Utilities Provided. So long as Tenant is not in
--- -------------------------------
default hereunder, Landlord agrees to furnish to the Premises, at no expense
whatsoever to Tenant (subject to the provisions of Paragraph 7 (b) hereof), 24
hours per day except in the case of emergencies and repairs and subject to
Paragraph 17 b, and subject to the Rules and Regulations of the Building,
electricity for normal lighting and fractional horsepower office machines, heat
and air conditioning required for the comfortable use and occupation of the
Premises, and janitorial
12
<PAGE>
service in accordance with the services listed in Exhibit "E" Landlord shall
also maintain and keep lighted, at all times after dark, the common stairs
(including the exterior stairs of the Premises), the underground garage, common
entries and toilet rooms in the Building of which the Premises are a part.
Landlord shall not be liable for, and Tenant shall not be entitled to, any
reduction of rental by reason of Landlord's failure to furnish any of the
foregoing when such failure is caused by accident, breakage, repairs, strikes,
lockouts or other labor disturbances or labor disputes of any character, or by
any other cause, similar or dissimilar, beyond the reasonable control of
Landlord. Landlord shall not be liable under any circumstances for a loss of or
injury to property, however occurring, through or in connection with or
incidental to failure to furnish any of the foregoing, or as a result of the
failure or interruption of any utility or other service provided to the Premises
for any reason beyond the reasonable control of Landlord, including any failure
of telephone cabling or telecommunications facilities. Wherever heat generating
machines or equipment are used in the Premises which affect the temperature
otherwise maintained by the air conditioning system, Landlord reserves the right
to install supplementary air conditioning 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.
(b) Additional Services. Tenant will not, without written consent
--- -------------------
of Landlord, use any apparatus or device in the Premises using in excess of one
hundred twenty (120) volts, which will in any way increase the amount of
electricity usually furnished or supplied for the use of the Premises as
general office space; nor connect with electric current except through existing
electrical outlets in the Premises, any apparatus or device, for the purpose of
using electric current. If Tenant shall require water or electric current in
excess of that usually furnished or supplied for the use of the Premises as
general office space, Tenant shall first procure the written consent of
Landlord, which Landlord may refuse in Landlord's sole discretion, to the use
thereof and Landlord may cause a water meter or electrical current meter to be
installed in the Premises, so as to measure the amount of water and electric
current consumed for any such use. The cost of any such meters and of
installation, maintenance and repair thereof shall be paid by the Tenant and
Tenant agrees to pay to Landlord, promptly upon demand therefor, for all such
water and electric current consumed as shown by said meters, at the rates
charged for such services by the local public utility furnishing the same, plus
any additional expense incurred in keeping account of the water and electric
current so consumed. If a separate meter is not installed, such excess cost for
such water and electric current will be established by an estimate made by a
utility company or electrical engineer. Tenant shall be billed monthly for
consumption of heat and air conditioning for after hours usage beyond the
"Normal Business Hours" of 8 am to 6 pm on weekdays, legal holidays excepted,
at the estimated rate of twenty-five ($25.00) per hour, which rate may be
adjusted annually to reflect any increase or decrease in the actual cost of
providing such additional service.
(a) Landlord represents and warrants that the Building systems and
subsystems are in good working order.
13
<PAGE>
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before
--- --------------
delinquency, any and all taxes levied or assessed and which become payable
during the term hereof upon all Tenant's leasehold improvements, equipment,
furniture, fixtures and personal property located in the Premises, except that
which has been paid for by Landlord, and is the standard of the Building. In the
event any or all of the Tenant's leasehold improvements, equipment, furniture,
fixtures and personal property shall be assessed and taxed with the Building,
Tenant shall pay to Landlord its share of such taxes within ten (10) days after
delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's property. No Property Taxes due to
sale of Property shall be passed through should Property be sold before the end
of the 24th month of the Lease.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply
--- ---------------------
with the Rules and Regulations attached hereto as Exhibit "D" and such other
Rules and Regulations as Landlord may from time to time promulgate. Landlord
reserves the right from time to time to make all reasonable modifications to
said rules. The additions and modifications to those rules shall be binding upon
Tenant upon delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any said rules by any other
tenants or occupants. Notwithstanding any of the foregoing to the contrary,
Exhibit "D" and any other such Rules and Regulations or modifications thereof
promulgated by Landlord from time to time shall all be subordinate to the Lease.
20. HOLDING OVER. If Tenant remains in possession of the Premises or any
--- ------------
part thereof after the expiration of the term hereof, with the express written
consent of Landlord, such occupancy shall be a tenancy from month to month at a
rental in an amount equal to one hundred fifty percent (150%) of the rent in
effect during the last month of the term, plus all other charges payable
hereunder, and upon all the terms hereof applicable to a month-to-month tenancy.
21. ENTRY BY LANDLORD. Landlord reserves, with 24 hour notice to Tenant,
--- -----------------
except for an emergency, the right to enter the Premises, inspect the same,
supply janitorial service and any other service to be provided by Landlord to
Tenant hereunder, to submit said Premises to prospective purchasers or tenants,
to post notices of nonresponsibility, and to alter, improve or repair the
Premises and any portion of the Building of which the Premises are a part that
Landlord may deem necessary or desirable, without abatement of rent and may for
that purpose erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, always providing that the
entrance to the Premises shall not be blocked thereby, and further providing
that the business of the Tenant shall not be interfered with unreasonably.
Tenant hereby waives any claim for damages or for any injury or inconvenience to
or interference with Tenant's business, any loss of occupancy or quiet enjoyment
of the Premises, and any other loss occasioned thereby. For each of the
aforesaid purposes, Landlord shall at all times have and retain a key with which
to unlock all of the doors in, upon and about the Premises, excluding Tenant's
vaults, safes and files, and Landlord shall have the right to use any and all
means which Landlord may deem proper to open said doors in an emergency, in
order to obtain entry to the Premises without liability to Tenant except for any
failure to exercise due care for Tenant's property. Any entry to the Premises
obtained by Landlord by any of said
14
<PAGE>
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 of Tenant from the Premises or any portion thereof, except for
Landlord's gross negligence or willful misconduct.
22. RECONSTRUCTION.
--- --------------
(a) Insured Damage. In the event the Premises or the Building of
--- --------------
which the Premises are a part are damaged by fire or other perils fully
covered by the proceeds of fire and extended coverage insurance received by
Landlord, Landlord agrees to forthwith repair the same; and this Lease
shall remain in full force and effect, except that Tenant shall be entitled
to a proportionate reduction of the rent while such repairs are being made,
such proportionate reduction to be based upon the extent to which the
making of such repairs shall materially interfere with the business carried
on by the Tenant in the Premises. If the damage is due to the fault or
neglect of Tenant or its employees, there shall be no abatement of rent.
(b) Uninsured Damage. In the event the Premises or the Building is
--- ----------------
damaged as a result of any cause other than the perils covered by fire and
extended coverage insurance, then Landlord shall forthwith repair the same,
provided the extent of the destruction is less than ten percent (10%) of
the then full replacement cost of the Premises or the building of which the
Premises are a part. In the event the destruction of the Premises or the
Building is to an extent greater than ten percent (10%) of the full
replacement cost of the Premises, then Landlord shall have the option: (i)
to repair or restore such damage, this Lease continuing in full force and
effect, but the rent to be proportionately reduced as provided in this
Article; or (ii) give notice to Tenant at any time within sixty (60) days
after such damage terminating this Lease as of the date specified in such
notice, which date shall be no less than thirty (30) and no more than sixty
(60) days after giving of such notice. In the event of giving such notice,
this Lease shall expire and all interest of the Tenant in the Premises
shall terminate on the date so specified in such notice and the Rent,
reduced by a proportionate amount, based upon the extent, if any, to which
such damage materially interfered with the business carried on by the
Tenant in the Premises, shall be paid up to date of such termination. If
the Premises are damaged or destroyed or if the Building is damaged and if
such damage materially interferes with Tenant's use of the Premises, and
the Premises or the Building cannot be rebuilt and made fit for the
purposes of Tenant within one hundred twenty (120) days of the damage or
destruction, or if Landlord fails to proceed with reasonable diligence to
rebuild the Premises or Building, or if the Premises or Building are not
rebuilt within one hundred twenty (120) days, Tenant may, at is option,
terminate the Lease by written notice of such termination to Landlord
within thirty (30) days after such damage or destruction, or failure of
Landlord to proceed with reasonable diligence.
(c) Damage at End of Lease Term. Notwithstanding anything to the
--- ---------------------------
contrary contained in this Article, Landlord shall not have any obligation
whatsoever to repair, reconstruct or restore the Premises when the damage
resulting from any casualty covered under this Article occurs during the
last twelve months of the term of this Lease or any extension thereof.
15
<PAGE>
(d) Property of Tenant. Landlord shall not be required to repair
------------------
any injury or damage by fire or other cause, or to make any repairs or
replacements of any panels, decoration, office fixtures, railings, floor
covering, partitions, or any other property installed in the Premises by
Tenant.
(e) Interruption of Use. The Tenant shall not be entitled to any
-------------------
compensation or damages from Landlord for loss of the use of the whole or
any part of the Premises, Tenant's personal property or any inconvenience
or annoyance occasioned by such damage, repair, reconstruction or
restoration.
23. DEFAULT. The occurrence of any one or more of the following events
-------
shall constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant;
(b) The failure by Tenant to make any payment of rent required to be
made by Tenant hereunder, as and when due; where such failure shall continue for
a period of three (3) business days after written notice thereof by Landlord to
Tenant. The failure by Tenant to make any payment as and when due, other than
rent, where such failure shall continue for a period of ten (10) business days
after written notice thereof by Landlord to Tenant;
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Tenant, other than described in Article 23(b) above, within the time period
therefore specified herein, or if no time period is specified, where such
failure shall continue for a period of thirty (30) days after written notice
thereof by Landlord to Tenant; provided, however, that if the nature of Tenant's
default is such that more than thirty (30) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if Tenant commences such
cure within said thirty (30) day period and thereafter diligently prosecutes
such cure to completion. The notice referenced herein may be a notice pursuant
to Code of Civil Procedure 1161, or any successor statute, providing for thirty
(30) days to cure or quit the premises and a separate notice shall not be
required to comply with California's unlawful detainer statutes; or
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt, or a petition or reorganization
or arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days); or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days.
16
<PAGE>
24. REMEDIES ON DEFAULT. In the event of any default or breach of this
-------------------
Lease by Tenant, Landlord may at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of any other right or
remedy which Landlord may have by reason of such default or breach:
(a) Termination of Lease. Terminate this Lease and all rights of
--------------------
Tenant hereunder by any lawful means, in which case this Lease shall terminate
and Tenant shall immediately surrender possession of the Premises to the
Landlord. In such event Landlord shall be entitled to recover from Tenant all
damages incurred by Landlord by reason of Tenant' s default including, but not
limited to, (i) the worth at the time of award of any unpaid rent which had been
earned at the time of such termination; plus (ii) the worth at the time of award
of the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; plus (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's failure
to perform Tenant's obligations under this Lease or which in the ordinary course
of events would be likely to result therefrom, including, but not limited to,
the cost of recovering possession of the Premises, expenses of reletting,
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commissions actually paid. The "worth at the time of award" for
purposes of subsections (i) and (ii) above is computed by allowing interest at
the maximum legal rate, and the "worth at the time of award" for purposes of
subsection (iii) is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one percent
(1 %). In the event Tenant shall have abandoned the Premises, Landlord shall
have the option of (x) taking possession of the Premises and recovering from
Tenant the amount specified in this paragraph, (y) proceeding under the
provisions of the following Article 24(b), and/or (z) exercise any other remedy
allowed by law;
(b) Continuation of Lease. Maintain Tenant's right to possession,
---------------------
in which case this Lease shall continue in effect whether or not Tenant shall
have abandoned the Premises. In such event Landlord shall be entitled to enforce
all of Landlord's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder; or
(c) Remedies Cumulative. Pursue any other remedy now or hereafter
-------------------
available to Landlord. All rights, options and remedies of Landlord contained in
this Lease shall be construed, and held to be, cumulative and no one of them
shall be exclusive of the other, and Landlord shall have the right to pursue any
one or all of such remedies or any other remedy or relief which may now or
hereafter be provided by law or in equity, whether or not stated in this Lease.
No act or omission by any party shall be construed as an election to terminate
this Lease unless a written notice of such intention is given to Tenant.
17
<PAGE>
25. EMINENT DOMAIN. If more than twenty-five percent (25%) of the
--------------
Premises shall be taken or appropriated by any public or quasi-public authority
under the power of eminent domain, either party hereto shall have the right, at
its option, to terminate this Lease, and Landlord shall be entitled to any and
all income, rent, award, or any interest therein whatsoever which may be paid or
made in connection with such public or quasipublic use or purpose, and Tenant
shall have no claim against Landlord for the value of any unexpired term of this
Lease. If either less than or more than twenty-five percent (25%) of the
Premises is taken, and neither party elects to terminate as herein provided, the
rental thereafter to be paid shall be equitably reduced. If any part of the
Building or real property, which is a part of the project upon which the
Premises are located, other than the Premises, may be so taken or appropriated,
Landlord shall have the right at its option to terminate this Lease and shall be
entitled to the entire award as above provided. Notwithstanding anything to the
contrary in this Section 25, Tenant shall have the right to recover from the
condemning authority such compensation as may be separately awarded to Tenant as
compensation for (i) the value of Tenant's personal property, trade fixtures,
alterations, and additions; (ii) the value of leasehold improvements paid for by
Tenant; (iii) Tenant's loss of business and business interruption; and (iv) all
other provable damages.
26. OFFSET STATEMENTS/FINANCIAL STATEMENTS. Tenant shall at any time
--------------------------------------
and from time to time upon not less than ten (10) days prior written notice from
Landlord execute, acknowledge and deliver to Landlord a statement in writing (a)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this Lease
as so modified, is in full force and effect), and the date to which the rental
and other charges are paid in advance, if any; (b) acknowledging that there are
not, to Tenant's actual knowledge, any uncured defaults on the part of the
Landlord hereunder, or specifying such defaults if any are claimed; and (c)
setting forth any other matters which Landlord may reasonably request. In
addition, at any time during the Lease Term, Tenant shall, upon ten (10) days
prior written notice from Landlord, provide Tenant's most recent financial
statement for submission to any existing Lender, potential Lender, or potential
Purchaser of the Property, based on the condition that such Lender or Purchaser
shall execute a confidentiality agreement with Tenant. Such statements shall be
prepared in accordance with generally accepted accounting principles and, if
such is the normal practice of Tenant, shall be audited by an independent
certified public accountant. Any such statements may be relied upon by any
prospective purchaser or encumbrance of all or any portion of the real property
of which the Premises are a part.
18
<PAGE>
27. PARKING. Tenant shall have the right to use in common with other
-------
tenants of the Building or occupants of the Building the parking facilities of
the Building, subject to the monthly rates, rules and regulations, and any other
charges by Landlord for such parking facilities, as a result of Government
Legislation, which may be established or altered by Landlord at any time or from
time to time during the term hereof. Tenant understands that there are four (4)
parking spaces per one thousand (1,000) square feet leased, including the
underground parking, available for Tenant's use. Notwithstanding any of the
foregoing to the contrary, Tenant shall have the right to utilize (and mark with
Tenant's name) the five (5) reserved parking spaces located in front of the
lobby of the Premises.
28. INTENTIONALLY DELETED.
---------------------
29. AUTHORITY OF PARTIES: LIMITATION OF LIABILITY.
---------------------------------------------
(a) Corporate Authority. If Tenant or Landlord is a corporation, each
-------------------
individual executing this Lease on behalf of said corporation, represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation, in accordance with a duly adopted resolution of the board
of directors of said corporation or in accordance with the bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
(b) Limited Liability of Landlord. It is understood and agreed that
any claims by Tenant against Landlord and collection efforts enforced against
Landlord shall be limited to direct enforcement against Landlord's interest in
the building. Tenant expressly waives any and all rights to proceed directly
against individual partners of Landlord if Landlord is a partnership, or the
officers, directors or shareholders of Landlord if Landlord is a corporation.
30. BROKERS. Tenant and Landlord warrant that they have had no dealings
-------
with any real estate broker or agents in connection with' he negotiation of this
Lease except CB Richard Ellis Inc., and Lalanne\Volckmann. Landlord agrees to
pay CB Richard Ellis, Inc., the sum of $50,000, 50% upon execution of this Lease
and the remaining balance upon delivery of the Premises to Tenant by Landlord.
Landlord agrees that Tenant does not owe any brokerage fee to Lalanne\Volckmann.
31. TENANT IMPROVEMENTS. Landlord agrees to provide Tenant Improvements
-------------------
in the Premises in accordance with the attached Exhibit "B".
32. GENERAL PROVISIONS.
------------------
(a) Plats and Riders. Clauses, plats and riders, if any, signed by
----------------
the Landlord and the tenant and endorsed on or affixed to this Lease' are a part
hereof.
19
<PAGE>
(b) Waiver. The waiver by Landlord of any term, covenant or
------
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition on any subsequent breach of the same or any other term,
covenant or, condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of the Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of the acceptance of
such rent.
(c) Notices. All notices and demands which may or are to be
-------
required or permitted to be given by either party to the other hereunder shall
be in writing. All notices and demands shall be: (i) personally delivered, and
considered effective upon receipt, (ii) sent by United States Mail, postage
prepaid, addressed as set forth in the Basic Lease Information, or in the case
of Tenant, to the Premises, and shall be considered effective upon delivery; or
(iii) sent by facsimile to the number contained in the 'Basic Lease Information,
and shall be considered effective upon confirmation of receipt. Either party may
specify a different address for notice purposes by written notice to the other.
(d) Joint Obligation. If there be more than one Tenant the
----------------
obligations hereunder imposed upon Tenants shall be joint and several.
(e) Marginal Headings. The marginal headings and titles to the
-----------------
Articles of this Lease are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part hereof.
(f) Time. Time is of the essence of this Lease and each and all of
----
its provisions in which performance is a factor.
(g) Successors and Assigns. The covenants and conditions herein
----------------------
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(h) Recordation. Neither Landlord nor Tenant shall record this
-----------
Lease or a short form memorandum hereof without the prior written consent of the
other party.
(i) Quiet Possession. Upon Tenant paying the rent reserved
----------------
hereunder and observing and performing all of the covenants, conditions and
provisions on Tenant' part to be observed and performed hereunder Tenant shall
have quiet possession of the Premises for the entire term hereof, subject to all
the provisions of this Lease.
(j) Surrender of the Leased Premises. Immediately prior to the
--------------------------------
expiration or upon the earlier termination of this Lease, Tenant shall remove
all of Tenant's trade fixtures and other personal property, repair all damage
caused by the installation and removal of such property, and
20
<PAGE>
vacate and surrender the Leased Premises to Landlord in the same condition as
existed at the Commencement Date, reasonable wear and tear, damage by casualty
and Landlord's obligations excepted, with (a) all interior walls clean, (b) all
interior painted surfaces to be repainted in the existing color if any walls
require patching because of removal of trade fixtures and personal property,
all holes in walls and floor repaired unless they existed at the Commencement
Date, (d) all carpets, shampooed and cleaned and (e) all floors cleaned; all to
the reasonable satisfaction of Landlord.
(k) Late Charges. Tenant hereby acknowledges that late payment by
------------
Tenant to Landlord of rent or other sums due hereunder, will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from Tenant shall not be
received by Landlord or Landlord's designee within ten (10) days after such
amount is due, then Tenant shall pay to Landlord a late charge equal to ten
percent (10%) of such overdue amount. The parties hereby agree that such late
charges represent a fair and reasonable estimate of the cost that Landlord will
incur by reason of the late payment by Tenant. Acceptance of such late changes
by the Landlord shall in no event constitute a waiver of Tenant's default with
respect to such Overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder.
(l) Inability to Perform. This Lease and the obligations of the
--------------------
Tenant hereunder shall not be affected or impaired because the Landlord is
unable to fulfill any of its obligations hereunder or is delayed in doing so, if
such inability or delay is caused by reason of strike, labor troubles, acts of
God, or any other cause beyond the reasonable control of the Landlord.
(m) Attorneys Fees. In the event of any action or proceeding
---------------
brought by either party against the other under this Lease the prevailing party
shall be entitled to recover all cost and expenses including the fees of its
attorneys in such action or proceeding in such amount as the court may adjudge
reasonable as attorneys' fees.
(n) Sale of Premises by Landlord. In the event of any sale of the
----------------------------
Building, Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained in or
derived from this Lease, arising out of any act, occurrence or omission
occurring after the consummation of such sale; and the purchaser at such sale or
any subsequent sale of the Premises shall be deemed, without any further
agreement between the parties of their successors in interest or between the
parties and any such purchaser, to have assumed and agreed to carry out any
and all of the covenants and obligations of the Landlord under this Lease.
(o) Subordination, Attornment. Subject to Tenants non-disturbance
-------------------------
rights set forth in this Section 32 (o), upon request of the Landlord, Tenant
will in writing subordinate its rights hereunder to the lien of any mortgage,
deed of trust, ground lease or similar instrument now or
21
<PAGE>
hereafter affecting all or any portion of the Project, and upon any buildings
hereafter placed upon the Project, and to all advances made or hereafter to be
made upon the security thereof. In the event any proceedings are brought for
foreclosure, or in the event of the exercise of the power of Sale under any
mortgage or deed of trust made by the Landlord covering the Premises, provided
such purchaser shall be deemed to recognize Tenant's non-disturbance right set
forth in this Section (n), and, at the election of the purchaser, the Tenant
shall attorn to the purchaser upon any such foreclosure or sale and recognize
such purchaser as the Landlord under this Lease. Landlord represents and
warrants that if there is any loan agreement in existence for the Project it
recognizes Tenant's non-disturbance right as set forth in this section 32 (n).
The provisions of this Section 32 (n) to the contrary notwithstanding, and so
long as there exists no uncured defaults under Section 23 by Tenant hereunder,
this Lease and Tenant's rights hereunder shall remain in full force and effect
for the full term hereof. Tenant hereby agrees to modify the Lease as may
reasonably be required from time to time by any lending institution obtaining a
security interest in the Building, so long as such modification does not
materially increase the obligations of Tenant hereunder.
(p) Mortgagee Modification. The provisions of this Article to the
----------------------
contrary, notwithstanding, and so long as there exist no uncured defaults under
Section (23b) by Tenant hereunder, this Lease, and Tenant's rights hereunder,
shall remain in full force and for the full term hereof. Tenant hereby agrees to
modify the Lease as may reasonably be required from time to time by the holder
of a security interest in the Project or portion thereof, so long as such
modification does not materially increase the obligations of Tenant hereunder.
(q) Default by Landlord. In the event of any default on the part of
-------------------
Landlord, Tenant shall give notice by registered mail to any holder of a
security interest in the Project whose name has been provided to Tenant and
shall offer such party a reasonable opportunity to cure the default, including
time to obtain possession a of the Premises by power of sale or judicial
foreclosure or other appropriate legal proceedings, if such should prove
necessary to effect a cure.
(r) Name. Tenant shall not use the name of the Building or of
----
Project for any purpose other than as an address of the business to be conducted
by the Tenant in the Premises.
(s) Separability. Any provision of this Lease which shall prove to
------------
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof of such other provision shall remain in full force and
effect.
(t) Cumulative Remedies. No remedy or election hereunder shall be
-------------------
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
(u) Choice of Law. This Lease shall be governed by the laws of the
-------------
State in which the Premises are located.
22
<PAGE>
(v) Signs and Auctions. Tenant shall not place any sign upon the
------------------
Premises or Building or conduct any auction thereon without Landlord's prior
written consent. Tenant may place with Landlord's written approval, a reasonable
sign in front of the Building at Tenant's expense. Landlord shall provide a
light located in the landscaping to illuminate Tenant's sign at the expense of
Landlord, with Tenant sharing in 50% of the expense to be reimbursed to
Landlord.
(w) Entire Agreement. This Lease contains the entire agreement of
----------------
the parties hereto with respect to any matter covered or mentioned in this
Lease, and no prior agreements, understanding or representation pertaining to
any such matters shall be effective for any purpose. No provision of this Lease,
may be amended or added to except by an agreement in writing signed by the
parties hereto or their respective successors in interest.
(x) Interpretation. The language of all parts of this Lease shall
--------------
in all cases be construed as a whole, according to its fair meaning, and not
strictly for or against either Landlord or Tenant, regardless of which party
drafted the language.
(y) Waiver of Jury Trial. Tenant hereby waives the right to have
--------------------
any dispute relating to this Agreement or in any way relating to Tenant's
occupancy of the Leased premises, tried before a jury.
33. COMMON STOCK. Tenant is to issue to Landlord 6,000 shares of Common
------------
Stock at the fair market value set by the Board upon the next issuance of Common
Stock.
34. OPTION TO RENEW.
---------------
(a) Option to Extend: Landlord hereby grants to Tenant one option
----------------
(the "Option") to renew the term of this Lease, for a additional term of three
(3) years, commencing when the initial term expires, upon the terms and
conditions set forth below.
(b) Provided Tenant is not in default pursuant to this Lease, Tenant
may exercise such option by giving Landlord written notice of its intention not
less than six (6) months prior to the expiration of the then existing term of
this Lease.
(c) If this option is exercised, the basic monthly Rent for the
Premises shall become ninety-five (95 %) of the then current fair market monthly
rent ("Fair Market Rent") for the Premises as of the option period commencement
date, as determined by the agreement of the parties or, if the parties cannot
agree within sixty (60) days prior to the latest date on which Tenant shall be
entitled to exercise the Option, then by an appraisal. Notwithstanding the
foregoing, the basic monthly Rent for the Premises during the Option period
shall not be less than the basic monthly Rent for the last month of the initial
Term. All other terms and conditions contained in the Lease and this Addendum,
as the same may be amended from time to time by the parties in accordance with
the provisions of the Lease, shall remain in full force and
23
<PAGE>
effect and shall apply during the Option term, except that Tenant shall have no
further option to extend the Term hereof.
(d) If it becomes necessary to determine the fair market rental value
of the Premises by appraisal, real estate appraiser(s), all of whom shall be
members of the American Institute of Real Estate Appraisers and who have at
least five (5) years experience appraising office space located in the vicinity
of the Premises shall be appointed and shall act in accordance with the
following procedures.
(i) If the parties are unable to agree on the Fair Market Rent
within the allowed time, either party may demand an appraisal
by giving written notice to the other party, which demand to be
effective must state the name, address and qualifications of an
appraiser selected by the party demanding an appraisal (the
"Notifying Party"). Within ten (10) days following the
Notifying Party's appraisal demand, the other party (the "Non-
Notifying Party") shall either approve the appraiser selected by
the notifying party or select a second properly qualified
appraiser by giving written notice of the name, address, and
qualification of said appraiser to the Notifying Party. If the
Non-Notifying Party fails to select an appraiser within the ten
(10) day period, the appraiser selected by the Notifying Party
shall be deemed selected by both parties and no other appraiser
shall be selected. If two appraisers are selected, they shall
select a third appropriately qualified appraiser, the third
appraiser shall be appointed by the then presiding judge of the
county where the Premises are located upon application by either
party.
(ii) If only one appraisers is selected, that appraiser shall notify
the parties in simple letter form of its determination of the
Fair Market Rent for the Premises within fifteen (15) days
following his selection which appraisal shall be conclusively
determinative and binding on the parties as the appraised Fair
Market Rent.
(iii) If multiple appraisers are selected, the appraisers shall meet
not later than ten (10) days following the selection of the last
appraiser. At such meeting, the appraisers shall attempt to
determine the Fair Market Rent for the Premises as of the
commencement date of the Option period by the agreement of at
least two (2) of the appraisers.
(iv) If two (2) or more of the appraisers agree on the Fair Market
Rent for the Premises at the initial meeting, such agreement
shall be determinative and binding upon the parties hereto and
the agreeing appraisers shall, in simple letter form executed by
the agreeing appraisers, forthwith notifying both Landlord and
Tenant of the amount set by such agreement. If multiple
appraisers are selected and two (2) appraisers are unable to
agree on the Fair Market Rent for the Premises, all appraisers
shall submit to Landlord and Tenant an independent
24
<PAGE>
appraisal of the Fair Market Rent for the Premises in simple
letter form within twenty (20) days following appointment of the
final appraiser. The parties shall then determine the Fair
Market Rent for the Premises by averaging the appraisers;
provided that any high or low appraisal, differing from the
middle appraisal by more than ten percent (10%) of the middle
appraisal, shall be disregarded in calculating the average.
(v) The appraisers determination of Fair Market Rent shall be based
on rental space of similar age, construction, size and location
as the Premises with the improvements installed therein at
Landlord's expense and shall take into account Tenant's
obligations to pay additional rent under this Lease. In
determining Fair Market Rent, the appraisers shall not consider
any alteration in the Premises at Tenant's expense.
(vi) If only one appraiser, is selected, then each party shall pay
one-half (1/2) of the fees and expenses of that appraiser. If
three (3) appraisers selected each party shall bear the fees and
expenses of the appraiser it selects and one-half (1/2) of
the fees and expenses of the third appraiser. Notwithstanding
anything to the contrary contained in this paragraph, if the
rent during an Option period is determined by appraisal and if
Tenant does not, in its sole discretion, approve the rental
amount established by such appraisal, Tenant may rescind its
exercise of the Option by giving Landlord written notice of
such election within ten (10) days of receipt of all appraisals,
provided such notice is delivered to Landlord no later than one
hundred twenty (120) days before the end of the then current
Term of the Lease. If Tenant rescinds its exercise of the
Option, then (i) the Lease shall terminate on the thirtieth
(30th) day after Tenant's notice of rescission or on the date of
the Lease would have otherwise terminated absent Tenant's
exercise of the Option, whichever date is later, and (ii) Tenant
shall pay all costs and expenses of the appraisal.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease intending to be
bound as of the last date set forth below.
LANDLORD:
Stevens Creek Office Center Associates,
a California Limited Partnership
BY: LALANNE\VOLCKMANN
Its Managing Agent
By: /s/ John Volckmann
---------------------
John Volckmann
General Partner
Date:
--------------------
TENANT:
Portal Software, Inc.
a California corporation
BY: /s/ Portal
---------------------
Date:
--------------------
- -------------------------------------------------------------------------------
If this Lease has been filled in, it has been prepared for submission to your
attorney for approval. No representation or recommendation is made by the real
estate broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Lease or the transactions relating thereto.
This Lease shall not be effective or binding on any party until fully executed
by both parties hereto.
- -------------------------------------------------------------------------------
26
<PAGE>
EXHIBIT 10.3
LOAN AND SECURITY AGREEMENT
(Blanket Lien)
Agreement No. 18001 Dated as of July 24, 1997
by and between
LIGHTHOUSE CAPITAL PARTNERS II, L.P.,
as lender
and
PORTAL INFORMATION NETWORK, INC.
a California corporation
20863 Stevens Creek Boulevard, Suite 200
Cupertino, CA 95014,
as borrower
TOTAL COMMITMENT: $3,000,000
Repayment Period: 18 months from the date of each Loan
Warrant: Number of shares: Per Summary of Warrant Terms Agreement
Class of stock: Per Summary of Warrant Terms Agreement
The terms and information set forth on this cover page are a part of
the attached Loan and Security Agreement, dated as of the date first written
above (this "Agreement"), entered into by and between Lighthouse Capital
Partners, L.P. ("Lender") and the borrower ("Borrower") set forth above. The
terms and conditions of the Loan Agreement agreed to between Lender and Borrower
are as follows:
<PAGE>
THIS LOAN AND SECURITY AGREEMENT is entered into as of July 24, 1997,
by and between LIGHTHOUSE CAPITAL PARTNERS II, L.P. ("Lender"), as lender and
PORTAL INFORMATION NETWORK, INC., a California corporation ("Borrower").
RECITALS
Borrower wishes to borrow money from time to time from Lender and
Lender desires to lend money to Borrower. This Agreement sets forth the terms
on which Lender will lend to Borrower and Borrower will repay the loan to
Lender.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Affiliate" means any Person that owns or controls directly or
indirectly five percent or more of the stock of another entity, any Person that
controls or is controlled by or is under common control with such Persons or any
Affiliate of such Persons or each of such Person's officers, directors, joint
venturers or partners.
"Basic Rate" means a per annum rate of interest (based on a year of
360 days and actual days elapsed) equal to the Prime Rate as quoted in the
western edition of the Wall Street Journal on the date of determination plus 225
basis points.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Code" means the Uniform Commercial Code as adopted and in effect in
the State of California, as amended from time to time.
"Collateral" means the Property described on Exhibit A attached
hereto.
"Commitment" means $3,000,000.
"Commitment Termination Date" means March 31, 1998.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including any such obligation directly or
<PAGE>
indirectly guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business), co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable. The amount of any Contingent Obligation shall be equal to the
amount of the obligation so guaranteed or otherwise supported.
"Default" means any event which with the passing of time or the giving
of notice or both would become an Event of Default hereunder.
"Default Rate" means the per annum rate of interest equal to the Basic
Rate plus 2%, but such rate shall in no event be more than the highest rate
permitted by applicable law to be charged on commercial loans.
"Event of Default" has the meaning given to such term in Section 8.
"Funding Date" means any date on which a Loan is made to or on account
of Borrower under this Agreement.
"Governmental Authority" means (a) any federal, state, county,
municipal or foreign government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, (c) any court or administrative
tribunal or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of Property or services, including reimbursement and
other obligations with respect to surety bonds and letters of credit, (b) all
obligations evidenced by notes, bonds, debentures or similar instruments, (c)
all capital lease obligations, and (d) all Contingent Obligations.
"Landlord Consent" means a consent in the form of Exhibit C or such
other form as Lender may agree to accept.
"Lender's Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Lender's reasonable attorneys' fees and expenses incurred in amending,
modifying, enforcing or defending the Loan Documents, including in the exercise
of any rights or remedies afforded hereunder or under applicable law, whether or
not suit is brought.
"Lien" means any pledge, bailment, lease, mortgage, hypothecation,
conditional sales and title retention agreement, charge, claim, encumbrance or
other lien in favor of any Person.
"Loan" means each advance of credit by Lender to Borrower under this
Agreement.
<PAGE>
"Loan Agreement Supplement" means a supplement to this Agreement in
substantially the form of Exhibit D.
"Loan Commencement Date" means, with respect to each Loan, the first
Business Day of the calendar month following the Funding Date of such Loan.
"Loan Documents" means, collectively, this Agreement, the Warrant, the
Landlord Consent(s) and all other documents, instruments and agreements entered
into between Borrower and Lender in connection with this Agreement, all as
amended or extended from time to time.
"Loan Terms Schedule" means, with respect to each Loan, the "Loan
Terms Schedule" attached to the Loan Agreement Supplement prepared by Lender in
connection with such Loan.
"Maturity Date" means, with respect to each Loan, the last day of the
Repayment Period for such Loan, or if earlier, the date of acceleration of such
Loan by Lender following an Event of Default
"Minimum Funding Amount" means $250,000.
"Negative Pledge Agreement" means the Negative Pledge Agreement in the
form of Exhibit E hereto.
"Obligations" means all debt, principal, interest, fees, charges,
expenses and attorneys' fees and costs and other amounts, obligations,
covenants, and duties owing by Borrower to Lender of any kind and description
(whether pursuant to or evidenced by the Loan Documents, or by any other
agreement between Lender and Borrower, and whether or not for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, including the principal and interest due
with respect to the Loans, and including any debt, liability, or obligation
owing from Borrower to others that Lender may have obtained by assignment or
otherwise, and further including all interest not paid when due and all Lender's
Expenses that Borrower is required to pay or reimburse by the Loan Documents, by
law, or otherwise.
"Payment Date" has the meaning given to that term in Section 2.4(a).
"Permitted Liens" means the following:
(a) The Lien created by this Agreement;
(b) Any Liens existing as of the date hereof and disclosed in
Schedule 1;
(c) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no superior priority over Lender's Lien in
the Collateral;
<PAGE>
(d) Liens (i) upon or in any equipment acquired by the Borrower or
any of its subsidiaries after the date of this Agreement, to secure the purchase
price of such equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such equipment or (ii) existing on such equipment
at the time of its acquisition, provided that the Lien is confined solely to the
Property so acquired and improvements thereon, and the proceeds of such
equipment;
(e) Liens to secure payment of worker's compensation, employment
insurance, old age pensions or other social security obligations of Borrower in
the ordinary course of business of Borrower; and
(f) Liens to secure judgments of less than $50,000 individually or in
the aggregate, so long as there is no Event of Default.
(g) Liens to secure other Indebtedness not to exceed $100,000 in the
aggregate at any time.
(h) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in clause
(b) above, provided that any extension, renewal or replacement Lien shall be
limited to the Property encumbered by the existing Lien and the principal amount
of the indebtedness being extended, renewed or refinanced does not increase.
"Person" means and includes any individual, any partnership, any
corporation, any business trust, any joint stock company, any limited liability
company, any unincorporated association or any other entity and any domestic or
foreign national, state or. local government, any political subdivision
thereof, and any department, agency, authority or bureau of any of the
foregoing.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, whether tangible or intangible.
"Repayment Period" means the period beginning on the first Payment
Date and continuing for the number of calendar months set forth following such
term on the cover page of this Agreement.
"Responsible Officer" means each of the President and the Chief
Financial Officer of Borrower.
"Scheduled Payments" has the meaning given to such term in Section
2.4(a).
"Subsidiary" means any corporation of which a majority of the
outstanding capital stock entitled to vote for the election of directors
(otherwise than as the result of a default) is owned by Borrower directly or
indirectly through Subsidiaries.
"Term" means the period from and after the date hereof until the
payment in full of all amounts and liabilities payable under this Agreement and
the other Loan Documents, including principal and interest on the Loans.
<PAGE>
"Warrant" means the warrant in favor of Lender to purchase securities
of Borrower substantially in the form of Exhibit B.
1.2 Other Interpretive Provisions. References in this Agreement to
"Articles," "Sections," "Exhibits," "Schedules" and "Annexes" are to recitals,
articles, sections, exhibits, schedules and annexes herein and hereto unless
otherwise indicated. References in this Agreement and each of the other Loan
Documents to any document, instrument or agreement shall include (a) all
exhibits, schedules, annexes and other attachments thereto, (b) all documents,
instruments or agreements issued or executed in replacement thereof, and (c)
such document, instrument or agreement, or replacement or predecessor thereto,
as amended, modified and supplemented from time to time and in effect at any
given time. The words "hereof," "herein" and "hereunder' and words of similar
import when used in this Agreement or any other Loan Document shall refer to
this Agreement or such other Loan Document, as the case may be, as a whole and
not to any particular provision of this Agreement or such other Loan Document,
as the case may be. The words "include" and "including" and words or similar
import when used in this Agreement or any other Loan Document shall not be
construed to be limiting or exclusive. Unless otherwise indicated in this
Agreement or any other Loan Document, all accounting terms used in this
Agreement or any other Loan Document shall be construed, and all accounting and
financial computations hereunder or thereunder shall be computed, in accordance
with generally accepted accounting principles as in effect in the United States
of America from time to time.
2. LOAN AND TERMS OF PAYMENT
2.1 Commitment. Subject to the terms and conditions of this Agreement and
relying upon the representations and warranties herein set forth as and when
made or deemed to be made, Lender agrees to lend to Borrower, from time to time
prior to the Commitment Termination Date, the Loans; provided that the aggregate
principal amount of the Loans shall not exceed the Commitment at such time. If
prepaid, the principal of the Loans may not be re-borrowed.
2.2 Use of Proceeds; The Loan.
Use of Proceeds. The proceeds of the Loan shall be used solely for
working capital purposes.
The Loans. The Loans shall be repayable in consecutive monthly
installments in accordance with the terms of Section 2.4. Lender may, and is
hereby authorized by Borrower to, endorse in its books and records appropriate
notations regarding Lender's interest in the Loans; provided however, that the
failure to make, or an error in making, any such notation shall not limit or
otherwise affect the Obligations of Borrower hereunder.
2.3 Procedure for Making Loan.
(a) Notice. Whenever Borrower desires that Lender make a Loan,
Borrower shall so notify Lender in writing (or by telephone with prompt
confirmation in writing) at least seven Business Days in advance of the desired
Funding Date, which notice shall be irrevocable. Lender's obligation to make
Loans shall be expressly subject to the satisfaction of the conditions
<PAGE>
set forth in Sections 3.1 and 3.2. Lender shall have the right, exercisable at
any time, to request that Borrower famish Lender with such additional
information with respect to the Loans as Lender shall reasonably request.
(b) Loan Interest Rate. Borrower shall pay interest on the unpaid
principal amount of each Loan from the Loan Commencement Date until such Loan
until such Loan has been paid in full, at a per annum rate of interest equal to
the Basic Rate. All computations of interest on each Loan shall be based on a
year of 360 days for actual days elapsed. Notwithstanding any other provision
hereof, the amount of interest payable hereunder shall not in any event exceed
the maximum amount permitted by the law applicable to interest charged on
commercial loans.
(c) Disbursement. Subject to the satisfaction of the conditions set
forth in Sections 3.1 and 3.2 with respect to the initial Loan and the
satisfaction of the conditions set forth in Section 3.2 with respect to each
subsequent Loan, Lender shall disburse the Loans.
(d) Termination of Commitment to Lend. Notwithstanding anything in
the Loan Documents, Lender's obligation to lend the undisbursed portion of the
Commitment to Borrower hereunder shall terminate on the earlier of (i) at the
Lender's sole election, the occurrence and continuance of any Default or Event
of Default hereunder, and (ii) the Commitment Termination Date. Notwithstanding
the foregoing, Lender's obligation to lend the undisbursed portion of the
Commitment to Borrower shall terminate if, in Lender's sole reasonable judgment,
there has been a material adverse change in the general affairs, management,
results of operations or condition (financial or otherwise) of Borrower, whether
or not arising from transactions in the ordinary course of business, or there
has been any material adverse deviation by Borrower from the business plan of
Borrower presented to and not disapproved by Lender, since the date of this
Agreement.
2.4 Amortization of Principal and Interest; Interim Payment.
(a) Interest Payments On Payment Dates. Borrower shall make payments
of interest monthly in advance for each Loan (collectively, "Scheduled
Payments"), commencing on the Loan Commencement Date (or commencing on the
Funding Date if the Funding Date is the first Business Day of the month) with
respect to such Loan and continuing thereafter during the Repayment Period on
the first Business Day of each month (each a "Payment Date"), calculated using
the Basic Rate determined as of the last day of the preceding month. In any
event, all unpaid principal and accrued interest shall be due and payable in
full on the last Payment Date with respect to such Loan.
(b) Interim Payment. In addition to the Scheduled Payments, on the
Funding Date for the Loan (unless the Funding Date is the first Business Day of
the month) Borrower shall pay to Lender in advance an amount (the "Interim
Payment") equal to interest on the original principal amount of the Loan
calculated at the Basic Rate from the Funding Date until the first Payment Date
with respect to the Loan.
<PAGE>
(c) Final Payment. Unless a Loan is prepaid in full, on the Maturity
Date with respect to such Loan, Borrower shall pay the unpaid principal and
accrued interest and all other amounts due on such date with respect to such
Loan.
2.5 Prepayments.
(a) Mandatory Prepayment Upon an Acceleration. If the Loans are
accelerated following the occurrence of an Event of Default or otherwise, then
Borrower shall immediately pay to Lender (i) all unpaid Scheduled Payments with
respect to the Loans due prior to the date of prepayment, (ii) the outstanding
principal amount of each Loan, and (iii) all other sums, if any, that shall have
become due and payable hereunder with respect to the Loans.
(b) Optional Prepayment. Borrower may prepay the Loan in whole or in
part at any time, without premium or penalty.
2.6 Other Payment Terms.
(a) Place and Manner. Borrower shall make all payments due to Lender
by payments to Lender at the address specified in Section 11, in lawful money of
the United States and in same day or immediately available funds.
(b) Date. Whenever any payment due hereunder shall fall due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.
(c) Default Rate. If either (i) any amounts required to be paid by
Borrower under this Agreement or the other Loan Documents (including principal,
interest, and any fees or other amounts) remain unpaid after such amounts are
due, or (ii) an Event of Default has occurred and is continuing, Borrower shall
pay interest on the aggregate, outstanding balance hereunder from the date due
or from the date of the Event of Default, as applicable, until such past due
amounts are paid in full or until all Events of Defaults are cured, as
applicable, at a per annum rate equal to the Default Rate. All computations of
such interest shall be based on a year of 360 days for actual days elapsed.
2.7 Minimum Funding Amount. Except with the prior consent of Lender, in
Lender's sole discretion, the amount of the requested Loan shall not be less
than the Minimum Funding Amount.
2.8 Crediting Payments. The receipt by Lender of any wire transfer of
funds, check, or other item of payment shall be immediately applied
conditionally to reduce Obligations, but shall not be considered a payment on
account unless such wire transfer is of immediately available federal funds and
is made to the appropriate deposit account of Lender or unless and until such
check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or
payment received by Lender after 12:00 noon California time shall be deemed to
have been received by Lender as of the opening of business on the immediately
following Business Day.
<PAGE>
2.9 Term. This Agreement shall become effective upon acceptance by Lender
and shall continue in full force and effect for a term ending on the Maturity
Date for the last Loan made hereunder. Notwithstanding the foregoing, Lender
shall have the right to terminate this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Loan. The obligation of Lender to
make the initial Loan is subject to the condition precedent that Lender shall
have received, in form and substance satisfactory to Lender, all of the
following:
(a) This Agreement duly executed by Borrower.
(b) The Negative Pledge Agreement duly executed by Borrower.
(c) The Warrant to be issued to Lender duly executed by Borrower.
(d) On a date not later than August 15, 1997, Borrower shall provide
a Landlord Consent from the owner of the building in which Collateral is to be
located.
(e) A certificate of the secretary or assistant secretary of Borrower
with copies of the following documents attached: (i) the articles of
incorporation and bylaws of Borrower certified by Borrower as being in full
force and effect on the Funding Date, (ii) incumbency and representative
signatures, and (iii) resolutions authorizing the execution and delivery of this
Agreement and each of the other Loan Documents.
(f) A good standing certificate from Borrower's state of
incorporation and the state in which Borrower's principal place of business is
located, together with certificates of the applicable governmental authorities
stating that Borrower is in compliance with the franchise tax laws of each such
state, each dated as of a recent date.
(g) Evidence of the insurance coverage required by Section 6.8 of
this Agreement.
(h) All necessary consents of shareholders and other third parties
with respect to the execution, delivery and performance of this Agreement, the
Wan-ant and the other Loan Documents.
(i) Such other documents, and completion of such other matters, as
Lender may deem necessary or appropriate.
3.2 Conditions Precedent to all Loans. The obligation of Lender to make
each-Loan, including the initial Loan, is further subject to the following
conditions:
(a) Evidence that no Default or Event of Default shall have occurred
and be continuing.
<PAGE>
(b) Borrower and Lender shall have executed a Loan Agreement
Supplement with respect to the proposed Loan.
(c) Lender shall have received such documents, instruments and
agreements, including UCC financing statements or amendments to UCC financing
statements, as Lender shall reasonably request to evidence the perfection and
priority of the security interests granted to Lender pursuant to Section 4.
(d) Borrower shall have delivered to Lender a subordination
agreement, release, or estoppel letter, as appropriate, from any Person having
an existing Lien superior to the Lien of Lender on any item of Collateral, other
than a Permitted Lien as described in Paragraph (d) of the definition of
Permitted Liens.
(e) Such other documents, and completion of such other matters, as
Lender may reasonably deem necessary or appropriate.
3.3 Covenant to Deliver. Borrower agrees (not as a condition but as a
covenant) to deliver to Lender each item required to be delivered to Lender as a
condition to the Loan, if such Loan is advanced. Borrower expressly agrees that
the extension of such Loan prior to the receipt by Lender of any such item shall
not constitute a waiver by Lender of Borrower's obligation to deliver such item.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants to Lender a valid,
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt, full and complete payment of any
and all Obligations and in order to secure prompt, full and complete performance
by Borrower of each of its covenants and duties under each of the Loan
Documents. Such security interest shall at all times be a first priority
security interest subject only to Permitted Liens of the type described in
Paragraphs (b) and (d) of the definition of Permitted Liens.
4.2 Duration of Security Interest. Lender's security interest in the
Collateral shall continue until the payment in full and the satisfaction of all
Obligations, whereupon such security interest shall terminate. Lender shall, at
Borrower's sole cost and expense, execute such further documents and take such
further actions as may be necessary to effect the release contemplated by this
Section 4.2, including duly executing and delivering termination statements for
filing in all relevant jurisdictions under the Code.
4.3 Possession of Collateral. So long as no Event of Default has occurred
and is continuing, Borrower shall remain in full possession, enjoyment and
control of the Collateral (except only as may be otherwise required by Lender
for perfection of its security interest therein) and shall be entitled to
manage, operate and use the same and each part thereof with the rights and
franchises appertaining thereto; provided, however, that the possession,
enjoyment, control and use of the Collateral shall at all times be subject to
the observance and performance of the terms of this Agreement.
<PAGE>
4.4 Markings on the Collateral. At Lender's request at any time during
the Term of the Loan (including any extension thereof), Borrower shall place in
a conspicuous location on each item of Collateral, other than that subject to
Permitted Liens, a plaque or other marking to be supplied by Lender which reads
substantially as follows:
Lighthouse Capital Partners II, L.P. has a first priority security
interest in this item of equipment.
Such plaque or other marking shall not be removed (or if removed or damaged such
plaque or other marking shall be replaced) until the security interest in favor
of Lender in such item of Collateral is terminated pursuant to this Agreement.
4.5 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Lender, all financing statements and other
documents such Lender may reasonably request, in form satisfactory to Lender, to
perfect and continue Lender's first priority, perfected security interests in
the Collateral and in order to consummate fully all of the transactions
contemplated under the Loan Documents.
4.6 Right to Inspect. Lender (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents, warrants and covenants as follows:
5.1 Due Organization and Qualification. Borrower is a corporation duly
existing and in good standing under the laws of its state of incorporation and
qualified and licensed to do business in, and is in good standing in, any state
in which the conduct of its business or its ownership of Property requires that
it be so qualified or in which the Collateral is located, except for such states
as to which any failure so to qualify would not have a material adverse effect
on Borrower.
5.2 Authority. Borrower has all necessary power and authority to execute,
deliver, and perform in accordance with the terms thereof, the Loan Documents to
which it is a party. Borrower has all requisite power and authority to own and
operate its properties and to carry on its businesses as now conducted.
5.3 Subsidiaries. Borrower has no Subsidiaries, except those listed in
Schedule 2 hereto.
5.4 Conflict with Other Instruments, etc. Neither the execution and
delivery of any Loan Document to which Borrower is a party nor the consummation
of the transactions therein contemplated nor compliance with the terms,
conditions and provisions thereof will conflict with or result in a breach of
any of the terms, conditions or provisions of the articles of incorporation and
the by-laws, or other organizational documents of Borrower or any law or any
regulation, order, writ, injunction or decree of any court or governmental
instrumentality or any material
<PAGE>
agreement or instrument to which Borrower is a party or by which it or any of
its properties is bound or to which it or any of its properties is subject, or
constitute a default thereunder or result in the creation or imposition of any
Lien, other than Permitted Liens.
5.5 Authorization; Enforceability. The execution and delivery of this
Agreement, the granting of the security interest in the Collateral, the
incurring of the Loans, the execution and delivery of the other Loan Document
to which Borrower is a party and the consummation of the transactions herein and
therein contemplated have each been duly authorized by all necessary action on
the part of Borrower the Loan Documents have been duly executed and delivered
and constitute legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency or other similar laws of general
application relating to or affecting the enforcement of creditors' rights or by
general principles of equity.
5.6 No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of liens, claims, security interests, or
encumbrances, except for the first priority lien held by the Lender and except
for other Permitted Liens. Except as disclosed in Schedule 1, Borrower has not
acquired any part of the Collateral from an assignor outside the ordinary course
of such assignor's business.
5.7 Name; Location of Chief Executive Office, Principal Place of Business
and Collateral. Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office, principal
place of business, and the place where Borrower maintains its records concerning
the Collateral are presently located at the address set forth on the cover page.
The Collateral is presently located at the addresses set forth on the cover
page.
5.8 Litigation. There are no actions or proceedings pending by or against
Borrower before any court or administrative agency in which an adverse decision
could have a material adverse effect on Borrower or the aggregate value of the
Collateral. Borrower does not have knowledge of any such pending or threatened
actions or proceedings. Borrower will promptly notify Lender in writing if any
action, proceeding or governmental investigation involving Borrower is commenced
that would reasonably be expected to result in damages or costs to Borrower of
Fifty Thousand Dollars ($50,000) or more.
5.9 Financial Statements. All financial statements relating to Borrower
or any Affiliate that have been or may hereafter be delivered by Borrower to
Lender present fairly in all material respects Borrower's financial condition as
of the date thereof and Borrower's results of operations for the period then
ended.
5.10 Solvency. Borrower is solvent and able to pay its debts (including
trade debts) as they mature.
5.11 Taxes. Borrower has filed or caused to be filed all tax returns
required to be filed, and has paid, or has made adequate provision for the
payment of, all taxes that are due and payable.
<PAGE>
5.12 Consents and Approvals. No approval, authorization or consent of any
trustee or holder of any indebtedness or obligation of Borrower or of any other
Person under any such material agreement, contract, lease or license or similar
document or instrument to which Borrower is a party or by which Borrower is
bound, is required to be obtained by Borrower in order to make or consummate the
transactions contemplated under the Loan Documents. All consents and approvals
of, filings and registrations with, and other actions in respect of, all
Governmental Authorities required to be obtained by Borrower in order to make or
consummate the transactions contemplated under the Loan Documents have been, or
prior to the time when required will have been, obtained, given, filed or taken
and are or will be in full force and effect.
5.13 Trademarks, Patents, Copyrights, Franchises and Licenses. Borrower
possesses and owns all necessary trademarks, trade names, copyrights, patents,
patent rights, franchises and licenses which are material to the conduct of its
business as now operated.
5.14 Material Contracts. Borrower has disclosed to Lender in writing all
currently effective contracts and agreements (whether written or oral) to which
Borrower is a party. There are no material defaults under any such contract or
agreement by Borrower. Borrower has delivered to Lender true and correct copies
of all such contracts or agreements, (or with respect to oral contracts or
agreements, written descriptions of the material terms thereof).
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any Loan Document, certificate or written statement furnished to
Lender contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until the full and complete
payment of the Obligations and the termination of the Commitments, Borrower
shall do all of the following:
6.1 Good Standing. Borrower shall maintain its corporate existence and
its good standing in its jurisdiction of incorporation and maintain
qualification in each jurisdiction in which the failure to so qualify would
reasonably be expected to have a material adverse effect on the financial
condition, operations or business of Borrower. Borrower shall maintain in force
all licenses, approvals and agreements, the loss of which would reasonably be
expected to have a material adverse effect on its financial condition,
operations or business.
6.2 Government Compliance. Borrower shall comply with all statutes, laws,
ordinances and government rules and regulations to which it is subject,
noncompliance with which would reasonably be expected to materially adversely
affect the financial condition, operations or business of Borrower.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver
to Lender: (a) as soon as available, but in any event within thirty (30) days
after the end of each month, a company prepared balance sheet, income statement
and cash flow statement covering Borrower's operations during such period,
certified by a Responsible Officer; (b) as soon as available, but in any event
within ninety (90) days after the end of Borrower's fiscal year, audited
financial statements of Borrower prepared in accordance with generally accepted
accounting principles,
<PAGE>
consistently applied, together with an unqualified opinion on such financial
statements of a nationally recognized or other independent public accounting
firm reasonably acceptable to Lender; (c) promptly upon becoming available,
copies of all statements, reports and notices sent or made available generally
by Borrower to its security holders; (d) immediately upon receipt of notice
thereof, a report of any material legal actions pending or threatened against
Borrower; and (e) such other financial information as Lender may reasonably
request from time to time.
6.4 Certificates of Compliance. Each time financial statements are
furnished pursuant to Section 6.3 above, there shall be delivered to Lender a
certificate signed by a Responsible Officer (each an "Officer's Certificate")
with respect to such financial reports to the effect that: (i) no Event of
Default or Default has occurred and is continuing hereunder since the date of
this Agreement or, if later, since the date of the prior Officer's Certificate
or, if such an event or condition has occurred and is continuing, the nature and
extent thereof and the action Borrower proposes to take with respect thereto,
and (ii) Borrower is in compliance with the provisions of Sections 6 and 7.
6.5 Notice of Defaults. As soon as possible, and in any event within five
(5) days after the discovery of a Default or an Event of Default provide Lender
with an Officer's Certificate of Borrower setting forth the facts relating to or
giving rise to such Default or Event of Default and the action which Borrower
proposes to take with respect thereto.
6.6 Taxes. Borrower shall make due and timely payment or deposit of all
federal, state, and local taxes, assessments, or contributions required of it by
law or imposed upon any properties belonging to it, and will execute and deliver
to Lender, on demand, appropriate certificates attesting to the payment or
deposit thereof-, and Borrower will make timely payment or deposit of all tax
payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish Lender with proof
satisfactory to lender indicating that Borrower has made such payments or
deposits; provided that Borrower need not make any payment if the amount or
validity of such payment is contested in good faith by appropriate proceedings
and is adequately reserved against by Borrower.
6.7 Use; Maintenance.
(a) Borrower, at its expense, shall make all necessary site
preparations and cause the Collateral to be operated in accordance with any
applicable manufacturers manuals or instructions. So long as no Default or Event
of Default has occurred and is continuing, Borrower shall have the right to
quietly possess and use the Collateral as provided herein without interference
by Lender.
(b) Borrower, at its expense, shall maintain the Collateral in good
condition, reasonable wear and tear excepted, and will comply in all material
respects with all laws, rules and regulations to which the use and operation of
the Collateral may be or become subject. Such obligation shall extend to repair
and replacement of any partial loss or damage to the Collateral, regardless of
the cause, other than Collateral disposed of in the ordinary course of business.
If maintenance is mandated by manufacturer, Borrower shall obtain and keep in
effect, at all times during the Term maintenance service contracts with
suppliers approved by Lender, such
<PAGE>
approval not to be unreasonably withheld. All parts furnished in connection with
such maintenance or repair shall immediately become part of the Collateral. All
such maintenance, repair and replacement services shall be immediately paid for
and discharged by Borrower with the result that no Lien will attach to the
Collateral.
6.8 Insurance.
Borrower shall obtain and maintain for the Term, at its own expense,
(a) insurance protecting against direct physical loss or damage to the
Collateral, and (b) commercial general liability insurance (including
contractual liability, products liability and completed operations coverages),
reasonably satisfactory to Lender and such other insurance (other than
earthquake insurance) against such other risks of loss and with such terms, as
shall in each case be reasonably satisfactory to or reasonably required by
Lender (as to carriers, amounts, deductibles and otherwise). The amount of the
"all risk" insurance shall be the greater of (i) the replacement value of the
Collateral (as new) or (ii) the outstanding principal amount of the Loans and
all other then outstanding amounts payable under the Loan Documents. Such
amounts shall be determined to Lender's reasonable satisfaction as of each
anniversary date of this Agreement and the appropriate amount of coverage shall
be put in effect on the next succeeding renewal or inception date of such
insurance.
The amount of such commercial general public liability insurance
(other than products liability coverage and completed operations insurance)
shall be at least $2,000,000 per occurrence. The amount of such products
liability and completed operations insurance shall be at least $2,000,000 per
occurrence. The deductible with respect to the "all-risk" and product liability
insurance shall not exceed $25,000; otherwise there shall be no deductible with
respect to any insurance required to be maintained hereunder without the prior
written approval of Lender. Such "all risk" insurance shall: (a) name Lender as
sole loss payee with respect to the Collateral, (b) provide each insurer's
waiver of its right of subrogation against Lender and Borrower, and (c) provide
that such insurance (i) shall not be invalidated by any action of, or breach of
warranty by, Borrower of a provision of any of its insurance policies, and (ii)
shall waive set-off, counterclaim or offset against Lender. Each liability
policy shall (A) name Lender as an additional insured and (B) provide that such
insurance shall have cross-liability and severability of interest endorsements
(which shall not increase the aggregate policy limits of Borrower's insurance).
All insurance policies (C) shall provide that Borrower's insurance shall be
primary without a right of contribution of Lender's insurance, if any, or any
obligation on the part of Lender to pay premiums of Borrower, and (D) shall
contain a clause requiring the insurer to give Lender at least thirty (30) days
prior written notice of its cancellation (other than cancellation for non-
payment for which ten (10) days notice shall be sufficient). Borrower shall on
or prior to the date of and prior to each policy renewal, furnish to Lender
certificates of insurance or other evidence satisfactory to Lender that such
insurance coverage is in effect.
6.9 Loss; Damage; Destruction and Seizure.
(a) Borrower shall bear the risk of the Collateral being lost,
stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or
seized by a governmental authority for any reason whatsoever at any time until
the expiration or termination of the Term.
(b) So long as no Event of Default has occurred and is continuing,
any proceeds of insurance maintained pursuant to Section 6.8 received by Lender
or Borrower with
<PAGE>
respect to an item of Collateral, the repair of which is practicable, shall, at
the election of Borrower, be applied either to the repair or replacement of such
Collateral or, upon Lender's receipt of evidence of the repair or replacement of
the Collateral reasonably satisfactory to Lender, to the reimbursement of
Borrower for the cost of such repair or replacement. All replacement parts and
equipment acquired by Borrower in replacement of Collateral pursuant to this
Section 6.9(b) shall immediately become part of the Collateral upon acquisition
by Borrower. Borrower shall take such actions and provide such documentation as
may be reasonably requested by Lender to protect and preserve its first priority
security interest and otherwise to avoid any impairment of Lender's rights under
the Loan Documents in connection with such repair or replacement.
6.10 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Lender to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that until the full and complete payment
of the Obligations and termination of the Commitments, Borrower will not do any
of the following:
7.1 Chief Executive Office; Location of Collateral. During the
continuance of this Agreement, change the chief executive office or principal
place of business or remove or cause to be removed, except in the ordinary
course of Borrower's business, the Collateral or the records concerning the
Collateral from the premises listed on the cover page without thirty (30) days
prior written notice to Lender.
7.2 Extraordinary Transactions and Disposal of Assets. Enter into any
transaction not in the ordinary and usual course of Borrower's business,
including the sale, lease, license or other disposition of, moving, relocation,
or transfer, whether by sale or otherwise, of Borrower's material assets, other
than (i) sales of inventory in the ordinary and usual course of Borrower's
business as presently conducted and (ii) sales or other dispositions in the
ordinary course of business of assets, other than Collateral, that have become
worn out or obsolete or that are promptly being replaced.
7.3 Restructure. Change Borrower's name; make any material change in
Borrower's financial structure or business operations; cause, permit, or suffer
any material change in Borrower's ownership; or suspend operation of Borrower's
business.
7.4 Liens. Create, incur, assume or suffer to exist any Lien or any other
encumbrance of any kind with respect to any of its Property, whether now owned
or hereafter acquired, except for Permitted Liens.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay when due and payable and
such failure continues for a period of two (2) days, or when declared due and
payable in accordance with the Loan Documents, any portion of the Obligations.
<PAGE>
8.2 Certain Covenant Defaults. If Borrower fails to perform any
obligation under Section 6.8 resulting in a lapse of coverage, 6.10, or violates
any of the covenants contained in Section 7 of this Agreement.
8.3 Other Covenant Defaults. If Borrower fails or neglects to perform,
keep, or observe any other material term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the other Loan Documents, or in
any other present or future agreement between Borrower and Lender and as to any
default under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure such default within twenty (20) days after the
occurrence of such default.
8.4 Material Adverse Change. If there occurs a material adverse change in
Borrower's business, or if there is a material impairment of the prospect of
repayment of any portion of the Obligations owing to Lender or a material
impairment of the value or priority of Lenders security interests in the
Collateral.
8.5 Attachment If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or Person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within fifteen (15) days, or if Borrower
is enjoined, restrained, or in any way prevented by court order from continuing
to conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contesting by Borrower.
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness.
8.7 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of thirty (30) days.
8.8 Redemption or Repurchase. Borrower shall, after the date of this
Agreement, redeem or repurchase (a) any shares of any class or series of its
preferred stock or (b) more than Fifty Thousand Dollars ($50,000) in the
aggregate of common stock, in each case whether pursuant to a mandatory
redemption or otherwise.
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty, representation, statement,
or report made to Lender by Borrower or any officer, employee, agent, or
director of Borrower.
8.10 Breach of Warrant. If Borrower shall breach the terms of the Warrant.
<PAGE>
8.11 Enforceability. If any Loan Document shall in any material respect
cease to be, or Borrower shall assert that any Loan Document is not, a legal,
valid and binding obligation of Borrower enforceable in accordance with its
terms.
8.12 Involuntary Bankruptcy or Insolvency. If a proceeding shall have been
instituted in a court having jurisdiction in the premise seeking a decree or
order for relief in respect of Borrower in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or for the appointment of a receiver, liquidator, assignee, custodian,
trustee (or similar official) of Borrower or for any substantial part of its
property, or for the winding-up or liquidation of its affairs, and such
proceeding shall remain undismissed or unstayed and in effect for a period of
forty-five (45) consecutive days or such court shall enter a decree or order
granting the relief sought in such proceeding.
8.13 Voluntary Bankruptcy or Insolvency. If Borrower shall commence a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, shall consent to the entry of an order for relief in
an involuntary case under any such law, or shall consent to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee, custodian (or
other similar official) of Borrower or for any substantial part of its property,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action in furtherance of any of the foregoing.
9. LENDER'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and continuance of any
Default or Event of Default, Lender shall have no further obligation to advance
money or extend credit to or for the benefit of Borrower. In addition, upon the
occurrence and during the continuance of an Event of Default, Lender shall have
the rights, options, duties and remedies of a secured party as permitted by law
and, in addition to and without limitation of the foregoing, Lender may, at its
election, without notice of election and without demand, do any one or more of
the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement by
any of the other Loan Documents, or otherwise, including the outstanding
principal amount of each Loan, immediately due and payable (provided that upon
the occurrence of an Event of Default described in Section 8.12 or 8.13 all
Obligations shall become immediately due and payable without any action by
Lender);
(b) Without notice to or demand upon Borrower, make such payments and
do such acts as Lender consider necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the Collateral if Lender
so requires, and to make the Collateral available to Lender as Lender may
designate. Borrower authorizes Lender to enter the premises where the Collateral
is located, to take and maintain possession of the Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance, charge, or
lien which in Lender's determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned premises, Borrower hereby grants Lender a
license to enter into possession of such premises and to occupy
<PAGE>
the same, without charge, for up to one hundred twenty (120) days in order to
exercise any of Lender's rights or remedies provided herein, at law, in equity,
or otherwise;
(c) Without notice to Borrower, set off and apply to the Obligations
any and all indebtedness at any time owing to or for the credit or the account
of Borrower;
(d) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Lender is hereby granted a license or other right, solely pursuant
to the provisions of this Section 9.1, to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any Property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with
Lender's exercise of its rights under this Section 9.1, Borrower's rights under
all licenses and all franchise agreements shall inure to Lender's benefit;
(e) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Lender determines
are commercially reasonable;
(f) Lender may credit bid and purchase at any public sale; and
(g) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
9.2 Waiver by Borrower. Upon the occurrence of an Event of Default, to the
extent permitted by law, Borrower covenants that it will not at any time insist
upon or plead, or in any manner whatever claim or take any benefit or advantage
of, any stay or extension law now or at any time hereafter in force, nor claim,
take nor insist upon any benefit or advantage of or from any law now or
hereafter in force providing for the valuation or appraisement of the Collateral
or any part thereof prior to any sale or sales thereof to be made pursuant to
any provision herein contained, or to the decree, judgment or order of any court
of competent jurisdiction; nor, after such sale or sales, claim or exercise any
right under any statute now or hereafter made or enacted by any state or
otherwise to redeem the Property so sold or any part thereof, and, to the full
extent legally permitted, except as to rights expressly provided herein, hereby
expressly waives for itself and on behalf of each and every Person, except
decree or judgment creditors of Borrower acquiring any interest in or title to
the Collateral or any part thereof subsequent to the date of this Agreement, all
benefit and advantage of any such law or laws, and covenants that it will not
invoke or utilize any such law or laws or otherwise hinder, delay or impede the
execution of any power herein granted and delegated to Lender, but will suffer
and permit the execution of every such power as though no such power, law or
laws had been made or enacted.
9.3 Effect of Sale. Any sale, whether under any power of sale hereby given
or by virtue of judicial proceedings, shall operate to divest all right, title,
interest, claim and demand whatsoever, either at law or in equity, of Borrower
in and to the Property sold, and shall be a perpetual bar, both at law and in
equity, against Borrower, its successors and assigns, and against
<PAGE>
any and all Persons claiming the Property sold or any part thereof under, by or
through Borrower, its successors or assigns.
9.4 Power of Attorney in Respect of the Collateral. Borrower does hereby
irrevocably appoint Lender (which appointment is coupled with an interest) on
the occurrence and during the continuance of a Default or an Event of Default,
the true and lawful attorney in fact of Borrower with full power of
substitution, for it and in its name: (a) to ask, demand, collect, receive,
receipt for, sue for, compound and give acquittance for any and all rents,
issues, profits, avails, distributions, income, payment draws and other sums in
which a security interest is granted under Section 4 with full power to settle,
adjust or compromise any claim thereunder as fully as if Lender were a Borrower
itself, (b) to receive payment of and to endorse the name of Borrower to any
items of Collateral (including checks, drafts and other orders for the payment
of money) that come into Lender's possession or under Lender's control, (c) to
make all demands, consents and waivers, or take any other action with respect
to, the Collateral, (d) in Lender's discretion to file any claim or take any
other action or proceedings, either in its own name or in the name of Borrower
or otherwise, which Lender may reasonably deem necessary or appropriate to
protect and preserve the right, title and interest of Lender in and to the
Collateral, or (e) to otherwise act with respect thereto as though Lender were
the outright owner of the Collateral.
9.5 Lender's Expenses. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Lender may do any or all of the
following: (a) make payment of the some or any part thereof, (b) set up such
reserves in Borrower's loan account as Lender deem necessary to protect Lender
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.8 of this Agreement, and take any
action with respect to such policies as Lender deem prudent. Any amounts paid or
deposited by Lender shall constitute Lender's Expenses, shall be immediately due
and payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Lender
shall not constitute an agreement by Lender to make similar payments in the
future or a waiver by Lender of any Event of Default under this Agreement.
9.6 Remedies Cumulative. Lender's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Lender shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law or in equity. No exercise by Lender of one right
or remedy shall be deemed an election, and no waiver by Lender of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Lender shall constitute a waiver, election, or acquiescence by it.
9.7 Application of Collateral Proceeds. The proceeds and/or avails of the
Collateral, or any part thereof, and the proceeds and the avails of any remedy
hereunder (as well as any other amounts of any kind held by Lender at the time
of or received by Lender after, the occurrence of an Event of Default hereunder)
shall be paid to and applied as follows:
(a) First, to the payment of out-of-pocket costs and expenses,
including all amounts expended to preserve the value of the Collateral, of
foreclosure or suit, if any, and of such sale and the exercise of any other
fights or remedies, and of all proper fees, expenses,
<PAGE>
liability and advances, including reasonable legal expenses and attorneys' fees,
incurred or made hereunder by Lender;
(b) Second, to the payment to Lender of the amount then owing or
unpaid on the Loans for Scheduled Payments, the unpaid principal amount of the
Loans, and all other Obligations with respect to all Loans and in case such
proceeds shall be insufficient to pay in full the whole amount so due, owing or
unpaid upon the Loans, then to the unpaid interest thereon, then to the unpaid
principal amount of the Loans, and then to the payment of other amounts then
payable to Lender under any of the Loan Documents; and
(c) Third, to the payment of the surplus, if any, to Borrower, its
successors and assigns, or to whomsoever may be lawfully entitled to receive the
same.
9.8 Reinstatement of Rights. If Lender shall have proceeded to enforce any
right under this Agreement or any other Loan Document by foreclosure, sale,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely, then and in
every such case (unless otherwise ordered by a court of competent jurisdiction),
Lender shall be restored to its former position and fights hereunder with
respect to the Property subject to the security interest created under this
Agreement.
10. WAIVERS; INDEMNIFICATION
10.1 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Lender on which Borrower may in any way be liable.
10.2 Lender's Liability for Collateral. So long as Lender complies with
its obligations, if any, under Section 9207 of the Code, Lender shall not in any
way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof, or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person whomsoever. All risk of loss, damage or destruction of the Collateral
shall be borne by Borrower.
10.3 Indemnification. Whether or not the transactions contemplated hereby
shall be consummated:
(a) General Indemnity. Borrower shall pay, indemnify, and hold
Lender and each of its officers, directors, employees, counsel, partners, agents
and attorneys-in-fact (each, an "Indemnified Person") harmless from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses or disbursements (including Lender's
Expenses and reasonable attorney's fees and the allocated cost of in-house
counsel) of any kind or nature whatsoever with respect to the, execution,
delivery, enforcement, performance and administration of this Agreement and any
other Loan Documents, or the transactions contemplated hereby and thereby, and
with respect to any investigation, litigation or proceeding (including any case,
action or proceeding before any court or other Governmental
<PAGE>
Authority relating to bankruptcy, reorganization, insolvency, liquidation,
dissolution or relief of debtors or any appellate proceeding) related to this
Agreement or the Loans or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that Borrower shall have no obligation
hereunder to any Indemnified Person with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of such Indemnified
Person.
(b) Survival; Defense. The obligations in this Section 10.3 shall
survive payment of all other Obligations. At the election of any Indemnified
Person, Borrower shall defend such Indemnified Person using legal counsel
satisfactory to such Indemnified Person in such Person's sole discretion, at the
sole cost and expense of Borrower. All amounts owing under this Section 10.3
shall be paid within thirty (30) days after written demand.
11. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements
and other informational documents which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by certified mail,
postage prepaid, return receipt requested, or by prepaid facsimile to Borrower
or to Lender, as the case may be, at their respective addresses set forth
below:
If to Borrower: Portal Information Network, Inc.
20863 Stevens Creek Boulevard, Suite 200
Cupertino, CA 95014
FAX: (408) 343-4401
If to Lender: Lighthouse Capital Partners II, L.P.
100 Drake's Landing Road, Suite 260
Greenbrae, California 94904-3121
Attention: Contract Administrator
FAX: (415) 925-3387
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Lender's prior written consent, which
consent may be granted or withheld in Lender's sole discretion. Lender shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participations in all or any part of, or any interest in
such Lender's rights and benefits hereunder.
12.2 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
<PAGE>
12.3 Severability of Provisions. Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.4 Entire Agreement;-Construction; Amendments and Waivers.
(a) This Agreement and each of the other Loan Documents dated as of
the date hereof, taken together, constitute and contain the entire agreement
between Borrower and Lender and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications between the
parties, whether written or oral, respecting the subject matter hereof.
(b) This Agreement is the result of negotiations between and has been
reviewed by each of Borrower and Lender executing this Agreement as of the date
hereof and their respective counsel; accordingly, this Agreement shall be deemed
to be the product of the parties hereto, and no ambiguity shall be construed in
favor of or against Borrower or Lender. Borrower and Lender agree that they
intend the literal words of this Agreement and the other Loan Documents and that
no parol evidence shall be necessary or appropriate to establish Borrower's or
Lender's actual intentions.
(c) Any and all amendments, modifications, discharges or waivers of,
or consents to any departures from any provision of this Agreement or of any of
the other Loan Documents shall not be effective without the written consent of
Lender. Any waiver or consent with respect to any provision of the Loan
Documents shall be effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on Borrower in any case
shall entitle Borrower to any other or further notice or demand in similar or
other circumstances. Any amendment, modification, waiver or consent effected in
accordance with this Section 12.4 shall be binding upon Lender and on Borrower.
12.5 Reliance by Lender. All covenants, agreements, representations and
warranties made herein by Borrower shall, notwithstanding any investigation by
Lender, be deemed to be material to and to have been relied upon by Lender.
12.6 No Set-Offs by Borrower. All sums payable by Borrower pursuant to
this Agreement or any of the other Loan Documents shall be payable without
notice or demand and shall be payable in United States Dollars without set-off
or reduction of any manner whatsoever.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.8 Survival. All covenants, representations and warranties made in this
Agreement shall continue in fall force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Lender with
respect to the expenses, damages, losses, costs and liabilities described in
Section 10.3 shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Lender have run.
<PAGE>
13. RELATIONSHIP OF PARTIES. Borrower and Lender acknowledge, understand
and agree that the relationship between the Borrower, on the one hand, and
Lender, on the other, is, and at all time shall remain solely that of a borrower
and lender. Lender shall not under any circumstances be construed to be a
partner or joint venturer of Borrower or any of its Affiliates; nor shall the
Lender under any circumstances be deemed to be in a relationship of confidence
or trust or a fiduciary relationship with Borrower or any of its Affiliates, or
to owe any fiduciary duty to Borrower or any of its Affiliates. Lender does not
undertake or assume any responsibility or duty to Borrower or any of its
Affiliates to select, review, inspect, supervise, pass judgment upon or
otherwise inform the Borrower or any of its Affiliates of any matter in
connection with its or their Property, any Collateral held by Lender or the
operations of Borrower or any of its Affiliates. Borrower and each of its
Affiliates shall rely entirely on their own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or supply
of information undertaken or assumed by Lender in connection with such matters
is solely for the protection of Lender and neither Borrower nor any Affiliate is
entitled to rely thereon.
14. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THIS AGREEMENT SHALL BE
GOVERNED-BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICT'S OF LAW. EACH OF BORROWER
AND LENDER HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF SANTA CLARA, STATE OF CALIFORNIA. BORROWER AND
LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
THIS SPACE IS INTENTIONALLY LEFT BLANK
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
<TABLE>
<CAPTION>
BORROWER: LENDER:
<S> <C>
PORTAL INFORMATION LIGHTHOUSE CAPITAL PARTNERS II,
NETWORKS, INC. L.P.
By: /s/ John Little By: LIGHTHOUSE MANAGEMENT
------------------------------------ PARTNERS II, L.P., its general partner
Name: By: LIGHTHOUSE CAPITAL PARTNERS,
---------------------------------- INC., its general partner
Title: By: /s/ Richard D. Stubblefield
--------------------------------- ----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
</TABLE>
Exhibit A - Collateral
Exhibit B - Summary of Warrant Terms
Exhibit C - Form of Landlord Consent
Exhibit D - Form of Loan Agreement Supplement
Schedule 1 - Existing Liens
Schedule 2- Subsidiaries
<PAGE>
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT No. 18001
("Amendment") is made and entered into as of December 23, 1997, by and between
LIGHTHOUSE CAPITAL PARTNERS H, L.P., a Delaware limited partnership ("Lender")
and PORTAL INFORMATION NETWORK, INC., a California corporation ("Borrower").
RECITALS OF FACT
A. Borrower and Lender have entered into that certain Loan and
Security Agreement No. 18001, dated as of July 24, 1997 (as amended or
supplemented from time to time, the "Loan Agreement" and collectively with the
other documents executed in connection therewith, the "Loan Documents"). All
capitalized terms not otherwise defined herein shall have the meanings given to
such terms in the Loan Agreement.
B. Borrower and Lender desire to amend the Loan Agreement to provide
for a new credit facility and to make certain other amendments to the Loan
Documents.
AGREEMENT
Now, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants herein set forth, and intending to be legally bound, the
parties hereto hereby amend the Loan Documents as follows:
1. Amendments To Loan Agreement. The following amendments are hereby
made to the Loan Agreement:
(i) The following new definitions are added to the Loan Agreement:
"Facility B Commitment" means $503,178.08.
"Facility B Loan" means each advance of credit by Lender to Borrower
under the Facility B Commitment.
(ii) The following definitions are amended and restated in their
entirety:
"Commitment Termination Date" means (a) with respect to Loans other
than Facility B Loans, March 31, 1998 and (b) with respect to Facility B
Loans, December 23, 1997.
"Repayment Period" means (a) with respect to Loans other than Facility
B Loans, the period beginning on the first Payment Date and continuing for
the number of calendar months set forth following such term on the cover
page of this Agreement and (b) with respect to Facility B Loans, the
earlier of (i) the closing of the Borrower's Series B financing or (ii)
April 30, 1998.
<PAGE>
"Loan" means each advance of credit by Lender to Borrower under this
Agreement, including, without limitation, the Facility B Loans.
(iii) Section 2.1 is amended and restated in its entirety as set
forth below:
2.1 Commitment; The Credit Amount. Subject to the terms and
conditions of this Agreement and relying upon the representations and
warranties herein set forth as and when made or deemed to be made, Lender
agrees to lend to Borrower, from time to time prior to the Commitment
Termination Date, the Loans; provided that the aggregate principal amount
of the Loans (other than Facility B Loans) shall not exceed the Credit
Amount at such time; provided further, that the aggregate principal amount
of the Facility B Loans shall not exceed the Facility B Commitment at such
time. If prepaid, the principal of the Loans may not be re-borrowed.
2. Representations And Warranties. Borrower represents and warrants
that its representations and warranties in the Loan Documents continue to be
true and complete in all material respects as of the date hereof after giving
effect to this Amendment and that the execution, delivery and performance of
this Amendment are duly authorized, do not require the consent or approval of
any governmental body or regulatory authority and are not in contravention of or
in conflict with any law or regulation or any term or provision of any other
agreement entered into by Borrower.
3. Conditions Precedent. The legal effectiveness of this Amendment is
subject to the following conditions precedent being satisfied prior to December
23, 1997, in form and substance satisfactory to Lender:
(i) Resolutions and Other Corporate Documents of Borrower. Lender
shall have received resolutions of the Board of Directors of Borrower
authorizing Borrower to enter into this Amendment and to issue the Additional
Warrant (as defined below), and such other corporate documents as Lender shall
reasonably request.
(ii) Delivery of Additional Warrant. Lender shall receive from
Borrower an executed Additional Warrant as outlined on the Summary of Additional
Warrant Terms attached as Exhibit A hereto upon the closing of the Series B
financing (the "Additional Warrant").
(iii) Expenses. Borrower shall pay, when invoiced, all reasonable
costs or expenses (including reasonable attorneys' fees and expenses) incurred
in connection with the preparation, negotiation, and administration, of this
Amendment.
(iv) Other Documents. Lender shall have received such other
documents, information and items from Borrower as it shall reasonably request.
4. Full Force And Effect; Entire Agreement. Except to the extent
expressly provided in this Amendment, the terms and conditions of the Loan
Agreement and the other Loan Documents shall remain in full force and effect.
This Amendment and the other Loan Documents constitute and contain the entire
agreement of the parties hereto and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications
<PAGE>
between the parties, whether written or oral, respecting the subject matter
hereof. The parties hereto further agree that the Loan Documents, including this
Amendment, comprise the entire agreement of the parties thereto and supersede
any and all prior agreements, negotiations, correspondence, understandings and
other communications between the parties thereto, whether written or oral
respecting the extension of credit by Lender to Borrower and/or its affiliates.
5. Counterparts; Effectiveness. This Amendment may be executed in
counterparts, each of which when so executed shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
This Amendment shall be deemed effective upon the execution of a counterpart
hereof by each of Borrower and Lender.
Witness the due execution hereof by the respective duly authorized
officer of the undersigned as of the date first written above.
Borrower: Lender:
Portal Information Network, Inc. Lighthouse Capital Partners II, L.P.
By: /s/ John Little By: Lighthouse Management Partners II,
----------------------------- L.P., its general partner
Name: John Little By: Lighthouse Capital Partners, Inc.,
Title: Chief Executive Officer its general partner
By: /s/ Richard D. Stubblefield
----------------------------------
Name: Richard D. Stubblefield
--------------------------------
Title: Managing Director
-------------------------------
<PAGE>
EXHIBIT A
SUMMARY OF ADDITIONAL WARRANT TERMS
The following is a summary of the terms of a Warrant to purchase Series B
Preferred Stock to be issued by Portal Information Network, Inc. to Lighthouse
Capital Partners II, L.P. in connection with the execution and delivery of that
certain First Amendment to Loan and Security Agreement No. 18001 dated December
23, 1997 (the "Agreement") to which this summary is attached as Exhibit A.
<TABLE>
<S> <C>
Issuer: Portal Information Network, Inc. ("Portal")
Holder: Lighthouse Capital Partners II, L.P.
("Lighthouse")
Security to be Issued: Warrant to purchase Series B Preferred Stock
Number of Shares and
Exercise Price: If Portal repays the Facility B Loan on or
before January 31, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $7,548, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
If Portal repays the Facility B Loan after January
31, 1998, but before February 28, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $15,096, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
If Portal repays the Facility B Loan after
February 28, 1998, but before March 31, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $25,159, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
If Portal repays the Facility B Loan after March
31, 1998, but before April 30, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $35,222, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
Other Terms: Pari Passu with that certain Preferred Stock
Purchase Warrant issued by Portal to Lighthouse
dated September 29, 1997.
Preparation of Warrant: Warrant to be drafted by Lighthouse counsel as
soon as practicable after the execution and
delivery of the Agreement.
</TABLE>
Portal Information Network, Lighthouse Capital Partners II, L.P.
Inc.
By: /s/ John Little By: Lighthouse Management Partners II,
------------------------ L.P., its general partner
Name: John Little By: Lighthouse Capital Inc.,
Partners, its general partner
Title: Chief Executive Officer
By: /s/ Richard D. Stubblefield
----------------------------------
Name: Richard D. Stubblefield
--------------------------------
Title: Managing Director
-------------------------------
<PAGE>
AMENDMENT NO. 01
Dated December 23, 1997
TO
Preferred Stock Purchase Warrant dated as of September 29, 1997 (the "Warrant")
issued to Lighthouse Capital Partners II, L.P. ("Holder") and Portal Information
Network, Inc., ("Company").
(All capitalized terms not otherwise defined herein shall have the meanings
given to such terms in the Warrant.)
Without limiting or amending any other provisions of the Warrant, Holder and
Company agree to the following:
Section 2 (ii) is deleted in its entirety and replaced with:
(ii) If the Company has not closed the Next Round Preferred Stock
financing by January 1, 1998, then this Warrant shall be exercisable for that
number of Shares of Next Round Preferred Stock as is determined by dividing (i)
$180,000 (ii) the per share purchase price obtained by the Company in the Next
Round Preferred Stock financing, which shall be determined at the time of the
first exercise of the Warrant and shall apply to any and all subsequent
exercises.
Except as amended hereby, the Lease and Equipment Schedule remain unmodified and
unchanged.
Company: Holder:
Portal Information Network, Inc. Lighthouse Capital Partners II, L.P.
By: /s/ John Little By: Lighthouse Management Partners II,
----------------------------- L.P., its general partner
Name: John Little By: Lighthouse Capital Partners, Inc.,
Title: Chief Executive Officer its general partner
By: /s/ Richard D. Stubblefield
----------------------------------
Name: Richard D. Stubblefield
--------------------------------
Title: Managing Director
-------------------------------
<PAGE>
SUMMARY OF ADDITIONAL WARRANT TERMS
The following is a summary of the terms of a Warrant to purchase Series B
Preferred Stock to be issued by PORTAL INFORMATION NETWORK, INC. to LIGHTHOUSE
CAPITAL PARTNERS II, L.P. in connection with the execution and delivery of that
certain First Amendment to Loan and Security Agreement No. 18001 dated December
23, 1997 (the "Agreement") to which this summary is attached as EXHIBIT A.
<TABLE>
<S> <C>
Issuer: Portal Information Network, Inc. ("Portal")
Holder: Lighthouse Capital Partners II, L.P. ("Lighthouse")
Security to be Issued: Warrant to purchase Series B Preferred Stock
Number of Shares and
Exercise Price: If Portal repays the Facility B Loan on or
before January 31, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $7,548, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
If Portal repays the Facility B Loan after January
31, 1998, but on or before February 28, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $15,096, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
If Portal repays the Facility B Loan after
February 28, 1998 but on or before March 31, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $25,159, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
If Portal repays the Facility B Loan after March
31, 1998, but on or before April 30, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $35,222, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
If Portal repays the Facility B Loan after March
31, 1998, but on or before April 30, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (1) $35,222, by
(11) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under claise (ii) above.
Other Terms: Pari Passu with that certain Preferred Stock
Purchase Warrant issued by Portal to Lighthouse
dated September 29, 1997.
Preparation of Warrant: Warrant to be drafted by Lighthouse counsel as
soon as practicable after the execution and
delivery of the Agreement.
</TABLE>
Portal Information Network, Inc. Lighthouse Capital Partners II, L.P.
By: /s/ John Little By: Lighthouse Management Partners II,
------------------------ L.P., its general partner
Name: John Little By: Lighthouse Capital Partners, Inc.,
Title: Chief Executive Officer its general partner
By: /s/ Richard D. Stubblefield
----------------------------------
Name: Richard D. Stubblefield
--------------------------------
Title: Managing Director
-------------------------------
<PAGE>
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT No. 18001
("Amendment") is made and entered into as of January 10, 1998, by and between
LIGHTHOUSE CAPITAL PARTNERS H, L.P., a Delaware limited partnership ("Lender")
and PORTAL INFORMATION NETWORK, INC., a California corporation ("Borrower").
RECITALS OF FACT
A. Borrower and Lender have entered into that certain First Amendment to
Loan and Security Agreement dated December 23, 1997 and that certain Loan and
Security Agreement No. 18001, dated as of July 24, 1997 (collectively, as
amended or supplemented from time to time, the "Loan Agreement" and collectively
with the other documents executed in connection therewith, the "Loan
Documents"). All capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Loan Agreement.
B. Borrower and Lender desire to amend the Loan Agreement to provide for a
new credit facility and to make certain other amendments to the Loan Documents.
AGREEMENT
Now, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants herein set forth, and intending to be legally bound, the parties
hereto hereby amend the Loan Documents as follows:
1. Amendments To Loan Agreement. The following amendments are hereby
made to the Loan Agreement:
(i) The following new definitions are added to the Loan Agreement:
"Facility C Commitment" means $506,684.93.
"Facility C Loan" means each advance of credit by Lender to Borrower
under the Facility C Commitment.
(ii) The following definitions are amended and restated in their
entirety:
"Commitment Termination Date" means (a) with respect to Loans other
than Facility B Loans and Facility C Loans, March 31, 1998; (b) with respect to
Facility B Loans, December 23, 1997, and (c) with respect to Facility C Loans,
January 12, 1998.
"Repayment Period" means (a) with respect to Loans other than Facility
B Loans and Facility C Loans, the period beginning on the first Payment Date and
continuing for the number of calendar months set forth following such term on
the cover page of this Agreement and (b) with respect to Facility B Loans and
Facility C Loans, the earlier of (i) the closing of the Borrower's Series B
financing or (ii) April 30, 1998.
<PAGE>
"Loan" means each advance of credit by Lender to Borrower under this
Agreement, including, without limitation, the Facility B Loans and the Facility
C Loans.
(iii) Section 2.1 is amended and restated in its entirety as set
forth below:
2.1 Commitment; The Credit Amount. Subject to the terms and conditions of
this Agreement and relying upon the representations and warranties herein set
forth as and when made or deemed to be made, Lender agrees to lend to Borrower,
from time to time prior to the Commitment Termination Date, the Loans; provided
that the aggregate principal amount of the Loans (other than Facility B Loans
and Facility C Loans) shall not exceed the Credit Amount at such time; provided
further, that the aggregate principal amount of the Facility B Loans shall not
exceed the Facility B Commitment and the aggregate principal amount of the
Facility C Loans shall not exceed the Facility C Commitment at such time. If
prepaid, the principal of the Loans may not be re-borrowed.
2. Representations And Warranties. Borrower represents and warrants that
its representations and warranties in the Loan Documents continue to be true and
complete in all material respects as of the date hereof after giving effect to
this Amendment and that the execution, delivery and performance of this
Amendment are duly authorized, do not require the consent or approval of any
governmental body or regulatory authority and are not in contravention of or in
conflict with any law or regulation or any term or provision of any other
agreement entered into by Borrower.
3. Conditions Precedent. The legal effectiveness of this Amendment is
subject to the following conditions precedent being satisfied prior to January
12, 1998, in form and substance satisfactory to Lender:
(i) Resolutions and Other Corporate Documents of Borrower. Lender
shall have received resolutions of the Board of Directors of Borrower
authorizing Borrower to enter into this Amendment and to issue the Additional
Warrant (as defined below), and such other corporate documents as Lender shall
reasonably request.
(ii) Delivery of Additional Warrant. Lender shall receive from
Borrower an executed Additional Warrant as outlined on the Summary of Additional
Warrant Terms attached as Exhibit A hereto upon the closing of the Series B
financing (the "Additional Warrant").
(iii) Expenses. Borrower shall pay, when invoiced, all reasonable
costs or expenses (including reasonable attorneys' fees and expenses) incurred
in connection with the preparation, negotiation, and administration, of this
Amendment.
(iv) Other Documents. Lender shall have received such other
documents, information and items from Borrower as it shall reasonably request.
4. Full Force And Effect; Entire Agreement. Except to the extent
expressly provided in this Amendment, the terms and conditions of the Loan
Agreement and the other Loan Documents shall remain in full force and effect.
This Amendment and the other Loan Documents constitute and contain the entire
agreement of the parties hereto and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications
<PAGE>
between the parties, whether written or oral, respecting the subject matter
hereof. The parties hereto further agree that the Loan Documents, including this
Amendment, comprise the entire agreement of the parties thereto and supersede
any and all prior agreements, negotiations, correspondence, understandings and
other communications between the parties thereto, whether written or oral
respecting the extension of credit by Lender to Borrower and/or its affiliates.
5. Counterparts; Effectiveness. This Amendment may be executed in
counterparts, each of which when so executed shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
This Amendment shall be deemed effective upon the execution of a counterpart
hereof by each of Borrower and Lender.
WITNESS the due execution hereof by the respective duly authorized officer
of the undersigned as of the date first written above.
Portal Information Network, Inc. Lighthouse Capital Partners II, L.P.
By: /s/ John Little By: Lighthouse Management Partners II,
----------------------------- L.P., its general partner
Name: John Little By: Lighthouse Capital Partners, Inc.,
------------------------- its general partner
Title: Chief Executive Officer
-------------------------
By: /s/ Richard D. Stubblefield
----------------------------------
Name: Richard D. Stubblefield
--------------------------------
Title: Managing Director
-------------------------------
<PAGE>
EXHIBIT A
SUMMARY OF ADDITIONAL WARRANT TERMS
The following is a summary of the terms of a Warrant to purchase Series B
Preferred Stock to be issued by PORTAL INFORMATION NETWORK, INC. to LIGHTHOUSE
CAPITAL PARTNERS H, L.P. in connection with the execution and delivery of that
certain Second Amendment to Loan and Security Agreement No. 18001 dated January
10, 1998 (the "Agreement") to which this summary is attached as EXHIBIT A.
<TABLE>
<S> <C>
Issuer: Portal Information Network, Inc. ("Portal")
Holder: Lighthouse Capital Partners II, L.P.
("Lighthouse")
Security to be Issued: Warrant to purchase Series B Preferred Stock
Number of Shares and
Exercise Price: If Portal repays the Facility C Loan on or
before February 15, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $7,600, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
If Portal repays the Facility C Loan after
February 15, 1998, but on or before March 15,
1998.
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $15,200, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
If Portal repays the Facility C Loan after March
15, 1998, but on or before April 30, 1998:
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $15,200,
by (ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Other Terms: Pari Passu with that certain Preferred Stock
Purchase Warrant issued by Portal to Lighthouse
dated September 29, 1997.
Preparation of Warrant: Warrant to be drafted by Lighthouse counsel as soon
as practicable after the execution and delivery of
the Agreement.
</TABLE>
Portal Information Network, Inc. Lighthouse Capital Partners II, L.P.
By: /s/ John Little By: Lighthouse Management Partners II,
--------------------------- L.P., its general partner
Name: John Little By: Lighthouse Capital Partners, Inc.,
----------------------- its general partner
Title: Chief Executive Officer
----------------------- By: /s/ Richard D. Stubblefield
---------------------------
Name: Richard D. Stubblefield
---------------------------
Title: Managing Director
---------------------------
<PAGE>
SUMMARY OF ADDITIONAL WARRANT TERMS
The following is a summary of the terms of a Warrant to purchase Series B
Preferred Stock to be issued by PORTAL INFORMATION NETWORK, INC. to LIGHTHOUSE
CAPITAL PARTNERS U, L.P. in connection with the execution and delivery of that
certain Second Amendment to Loan and Security Agreement No. 18001 dated January
10, 1998 (the "Agreement') to which this summary is attached as EXHIBIT A.
<TABLE>
<S> <C>
Issuer: Portal Information Network, Inc. ("Portar",)
Holder: Lighthouse Capital Partners 11, L.P.
("Lighthouse")
Security to be Issued: Warrant to purchase Series B Preferred Stock
Number of Shares and
Exercise Price: If Portal repays the Facility C Loan on or
before February 15, 1998
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $7,600, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
If Portal repays the Facility C Loan after
February 15, 1998, but before March 15.
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $15,200, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
If Portal repays the Facility C Loan after March
15, 1998, but on or before April 30, 1998.
The Warrant shall entitle Lighthouse to purchase
that number of shares of Portal Series B Preferred
Stock as is determined by dividing (i) $35,468, by
(ii) the per share purchase price obtained by
Portal in the Series B Preferred Stock financing.
The Warrant exercise price shall be the price
determined under clause (ii) above.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Other Terms-. Pari Passu with that certain Preferred Stock
Purchase Warrant issued by Portal to Lighthouse
dated September 29, 1997.
Preparation of Warrant: Warrant to be drafted by Lighthouse counsel as
soon as practicable after the execution and
delivery of the Agreement.
</TABLE>
Portal Information Network, Inc. Lighthouse Capital Partners II, L.P.
By: /s/ John Little By: Lighthouse Management Partners II,
------------------------------- L.P., its general partner
Name: John Little By: Lighthouse Capital Partners, Inc.,
----------------------- its general partner
Title: Chief Executive Officer
----------------------- By: /s/ Richard D. Stubblefield
-------------------------------
Name: Richard D. Stubblefield
--------------------------
Title: Managing Director
--------------------------
<PAGE>
AMENDMENT NO. 03
TO
Loan and Security Agreement No. 18001 dated as of July 24, 1997, as amended
("Agreement") by and between LIGHTHOUSE CAPITAL PARTNERS III, L.P. ("Lender")
and PORTAL SOFTWARE, INC. (aka. PORTAL INFORMATION NETWORK, INC.), ("Borrower).
(All capitalized terms not otherwise defined herein shall have the meanings
given to such terms in the Agreement.)
Without limiting or amending any other provisions of the Agreement, Lender and
Borrower agree to the following:
As of October 29, 1997, Borrower's name has changed from Portal
Information Network, Inc. to Portal Software, Inc.
Except as amended hereby, the Agreement remains unmodified and unchanged.
BORROWER: LENDER:
Portal Information Network, Inc. Lighthouse Capital Partners II, L.P.
By: /s/ John Little By: Lighthouse Management Partners II,
----------------------------- L.P., its general partner
Name: John Little By: Lighthouse Capital Partners, Inc.,
------------------------- its general partner
Title: Chief Executive Officer By: /s/ Thomas Conneely
--------------------------- ------------------------------
Name: Thomas Conneely
----------------------------
Title: Vice President, Operations
--------------------------
<PAGE>
AMENDMENT NO. 04
THIS AMENDMENT No. 04 TO LOAN AND SECURITY AGREEMENT No. 18001
("Amendment") is made and entered into as of February 1, 1999, by and between
LIGHTHOUSE CAPITAL PARTNERS II, L.P., a Delaware limited partnership ("Lender")
and PORTAL SOFTWARE, INC., (FKA PORTAL INFORMATION NETWORK, INC.), a California
corporation ("Borrower")
RECITALS OF FACT
Borrower and Lender have entered into that certain Loan and Security
Agreement No. 18001, dated as of July 24, 1997 (as amended or supplemented from
time to time, the "Loan Agreement" and collectively with the other documents
executed in connection therewith, the "Loan Documents"). All capitalized terms
not otherwise defined herein shall have the meanings given to such terms in the
Loan Agreement.
Borrower and Lender desire to amend the Loan Agreement to provide for an
extension of the Maturity Date for the Loan made under Loan Agreement Supplement
No. 01 dated July 28, 1997 and to make certain other amendments to the Loan
Documents.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants herein set forth, and intending to be legally bound, the parties
hereto hereby amend the Loan documents as follows:
1. Amendments To Loan Agreement. The following amendments are hereby made
to the Loan Agreement:
The Maturity Date for the Loan made under Loan Agreement Supplement
No. 01 ("Advance No. 01") is currently January 31, 1999. Lender and Borrower
agree that the Maturity Date for Advance No. 01 is changed to the earlier of (i)
the close of "Revolving Line of Credit" with Imperial Bank or (ii) February 19,
1999.
2. It Borrower fails to make the Final Payment on the date specified
above, with respect to such Advance No. 01. it shall be an Event of Default and
Borrower shall pay, in addition to the Default Rate, a facility fee equal to
ten percent (10%) of the amount of Advance No. 01 (the "Facility Fee").
3. Full Force And Effect: Entire Agreement. Except to the extent
expressly provided ill this Amendment, the term, and conditions of the Loan
Agreement and the other Loan Documents shall remain in full force and effect.
This Amendment and the other Loan Documents constitute and contain the entire
agreement of the parties hereto and supersede any and ail prior agreements.
negotiations, correspondence. understandings and communications between the
parties, whether written or oral, respecting the subject matter hereof. The
parties hereto further agree that the Loan Documents, including this
Amendment, comprise the entire agreement of The parties thereto and supersede
any and all prior agreement, negotiations, correspondence, understandings and
other communications between the parties thereto, whether written or oral
respecting the extension of credit by Lender to Borrower and/or its affiliates.
<PAGE>
4. Counterparts; Effectiveness. This Amendment may be executed in
counterparts, each of which when so executed shall be deemed and original, but
all such counterparts together shall constitute but one and the same instrument.
This Amendment shall be deemed effective upon the execution of a counterpart
hereof by each of Borrower and Lender.
WITNESS the due execution hereof by the respective duly authorized officer
of the undersigned as of the date first written above.
BORROWER: LENDER:
Portal Information Network, Inc. Lighthouse Capital Partners II, L.P.
By: /s/ Jack L. Acosta By: Lighthouse Management Partners II,
----------------------------- L.P., its general partner
Name: Jack L. Acosta By: Lighthouse Capital Partners, Inc.,
----------------------- its general partner
Title: Chief Financial Officer
-----------------------
By: /s/ Richard D. Stubblefield
-----------------------------
Name: Richard D. Stubblefield
------------------------
Title: Managing Director
------------------------
<PAGE>
Exhibit 10.7
PORTAL SOFTWARE, INC.
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered
into this ____ day of ______, between Portal Software, Inc., a Delaware
corporation (the "Company"), and ___________________ ("Indemnitee").
WHEREAS, Indemnitee, a member of the Board of Directors or an officer,
employee or agent of the Company, performs a valuable service in such capacity
for the Company;
WHEREAS, the stockholders of the Company have adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers, directors,
employees and agents of the Company to the maximum extent authorized by Section
145 of the Delaware General Corporation Law, as amended (the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature,
permit contracts between the Company and the members of its Board of Directors,
officers, employees or agents with respect to indemnification of such directors,
officers, employees or agents;
WHEREAS, in accordance with the authorization as provided by the Code,
the Company either has purchased and presently maintains or intends to purchase
and maintain a policy or policies of Directors and Officers Liability Insurance
("D & O Insurance") covering certain liabilities which may be incurred by its
directors and officers in the performance of their duties as directors and
officers of the Company;
WHEREAS, as a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded members of the Board of Directors or officers,
employees or agents by such D & O Insurance and by statutory and bylaw
indemnification provisions; and
WHEREAS, in order to induce Indemnitee to continue to serve as a
member of the Board of Directors, officer, employee or agent of the Company, the
Company has determined and agreed to enter into this contract with Indemnitee.
NOW, THEREFORE, in consideration of Indemnitee's continued service as
a director, officer, employee or agent after the date hereof, and for other good
and valid consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Indemnification of Indemnitee. The Company hereby agrees to hold
-----------------------------
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the provisions of the Code, as may be amended from time to time.
2. Additional Indemnity. Subject only to the exclusions set forth in
--------------------
Sections 3 and 6(c) hereof, the Company hereby further agrees to hold harmless
and indemnify Indemnitee:
<PAGE>
(a) against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of the Company) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Indemnitee is, was or at any time becomes a
director, officer, employee or agent of the Company or any subsidiary of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise;
and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by the Company under the non-exclusivity provisions of Article VII,
Section 6 of the Bylaws of the Company and the Code.
3. Limitations on Additional Indemnity.
-----------------------------------
(a) No indemnity pursuant to Section 2 hereof shall be paid by
the Company:
i) in respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
ii) on account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
iii) on account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest or to
constitute willful misconduct;
iv) on account of Indemnitee's conduct which is the
subject of an action, suit or proceeding described in Section 6(c)(ii) hereof;
v) on account of any action, claim or proceeding (other
than a proceeding referred to in Section 7(b) hereof) initiated by the
Indemnitee unless such action, claim or proceeding was authorized in the
specific case by action of the Board of Directors;
vi) if a final decision by a Court having jurisdiction in
the matter shall determine that such indemnification is not lawful (and, in this
respect, both the Company and Indemnitee have been advised that the Securities
and Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); and
2
<PAGE>
vii) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of (a) such losses for which the
Indemnitee is indemnified pursuant to Section 1 hereof and (b) any additional
amount paid to the Indemnitee pursuant to any D & O Insurance purchased and
maintained by the Company.
(b) No indemnity pursuant to Section 1 or 2 hereof shall be paid
by the Company if the action, suit or proceeding with respect to which a claim
for indemnity hereunder is made arose from or is based upon any of the
following:
i) Any solicitation of proxies by Indemnitee, or by a
group of which he was or became a member consisting of two or more persons that
had agreed (whether formally or informally and whether or not in writing) to act
together for the purpose of soliciting proxies, in opposition to any
solicitation of proxies approved by the Board of Directors.
ii) Any activities by Indemnitee that constitute a breach
of or default under any agreement between Indemnitee and the Company.
4. Contribution. If the indemnification provided in Sections 1 and 2
------------
hereof is unavailable by reason of a Court decision described in Section
3(a)(vi) hereof based on grounds other than any of those set forth in paragraphs
(i) through (v) of Section 3 (a) hereof, then in respect of any threatened,
pending or completed action, suit or proceeding in which the Company is jointly
liable with Indemnitee (or would be if joined in such action, suit or
proceeding), the Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and Indemnitee on the other hand from the transaction from which such
action, suit or proceeding arose, and (ii) the relative fault of the Company on
the one hand and of Indemnitee on the other in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of Indemnitee on the other shall be determined by reference
to, among other things, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent the circumstances resulting in
such expenses, judgments, fines or settlement amounts. The Company agrees that
it would not be just and equitable if contribution pursuant to this Section 4
were determined by pro rata allocation or any other method of allocation which
does not take account of the foregoing equitable considerations.
5. Notification and Defense of Claim. Not later than thirty (30)
---------------------------------
days after receipt by Indemnitee of notice of the commencement of any action,
suit or proceeding, Indemnitee shall, if a claim in respect thereof is to be
made against the Company under this Agreement, notify the Company of the
commencement thereof; but Indemnitee's omission so to notify the Company will
not relieve the Company from any liability which it may have to Indemnitee
otherwise than under this Agreement. With respect to any such action, suit or
proceeding as to which Indemnitee notifies the Company of the commencement
thereof:
(a) The Company will be entitled to participate therein at its
own expense.
3
<PAGE>
(b) Except as otherwise provided below, to the extent that it may
wish, the Company shall, jointly with any other indemnifying party similarly
notified, be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from the Company to Indemnitee of its
election to assume the defense thereof, the Company will not be liable to
Indemnitee under this Agreement for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof, other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ its own counsel in such action, suit or
proceeding, but the fees and expenses of such counsel incurred after notice from
the Company of the Company's assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Company; (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee in
the conduct of the defense of such action; or (iii) the Company shall not in
fact have employed counsel to assume the defense of such action; in each of
which cases the fees and expenses of Indemnitee's separate counsel shall be paid
by the Company. The Company shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of the Company or as to which
Indemnitee shall have made the conclusion provided for in (ii) above.
(c) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall be permitted to settle
any action except that it shall not settle any action or claim in any manner
which would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent. Neither the Company nor Indemnitee will unreasonably withhold
its consent to any proposed settlement.
6. Advancement and Repayment of Expenses.
-------------------------------------
(a) In the event that Indemnitee employs his or her own counsel
pursuant to Sections 5(b)(i) through (iii) above, the Company shall advance to
Indemnitee, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving from Indemnitee copies of invoices presented to Indemnitee
for such expenses.
(b) Indemnitee agrees that Indemnitee will reimburse the Company
for all reasonable expenses paid by the Company in investigating or defending
any civil or criminal action, suit or proceeding against Indemnitee in the event
and only to the extent it shall be ultimately determined by a final judicial
decision (from which there is no right of appeal) that Indemnitee is not
entitled, under the provisions of the Code, the Bylaws, this Agreement or
otherwise, to be indemnified by the Company for such expenses.
(c) Notwithstanding the foregoing, the Company shall not be
required to advance such expenses to Indemnitee in respect of any action arising
from or based upon any of the matters set forth in subsection (b) of Section 3
or if Indemnitee (i) commences any action, suit or proceeding as a plaintiff
unless such advance is specifically approved by a majority of the Board of
Directors or (ii) is a party to an action, suit or proceeding brought by the
Company and
4
<PAGE>
approved by a majority of the Board which alleges willful misappropriation of
corporate assets by Indemnitee, disclosure of confidential information in
violation of Indemnitee's fiduciary or contractual obligations to the Company,
or any other willful and deliberate breach in bad faith of Indemnitee's duty to
the Company or its shareholders.
7. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on the Company hereby in
order to induce Indemnitee to continue as a director, officer, employee or other
agent of the Company, and acknowledges that Indemnitee is relying upon this
Agreement in continuing in such capacity.
(b) In the event Indemnitee is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, the Company shall reimburse Indemnitee for all Indemnitee's
reasonable fees and expenses, including attorney's fees, in bringing and
pursuing such action.
8. Subrogation. In the event of payment under this agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
9. Continuation of Obligations. All agreements and obligations of
---------------------------
the Company contained herein shall commence upon the date that Indemnitee first
became a member of the Board of Directors or an officer, employee or agent of
the Company, as the case may be, and shall continue during the period Indemnitee
is a director, officer, employee or agent of the Company (or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise) and shall continue thereafter so long as Indemnitee shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, by reason of the fact
that Indemnitee was a director, officer, employee or agent of the Company or
serving in any other capacity referred to herein.
10. Survival of Rights. The rights conferred on Indemnitee by this
------------------
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of the Company and shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
11. Non-Exclusivity of Rights. The rights conferred on Indemnitee by
-------------------------
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Company's
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office; provided, however, that this
Agreement shall supersede and replace any prior indemnification agreements
entered into by and between the Company and Indemnitee and that any such prior
indemnification agreement shall be terminated upon the execution of this
Agreement.
12. Separability. Each of the provisions of this Agreement is a
------------
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof
5
<PAGE>
shall be held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof or the obligation of the Company to indemnify the Indemnitee
to the full extent provided by the Bylaws or the Code.
13. Governing Law. This Agreement shall be interpreted and enforced
-------------
in accordance with the laws of the State of Delaware.
14. Binding Effect. This Agreement shall be binding upon Indemnitee
--------------
and upon the Company, its successors and assigns, and shall inure to the benefit
of Indemnitee, his or her heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.
15. Amendment and Termination. No amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless it is in
writing and is signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
PORTAL SOFTWARE, INC.
a Delaware corporation
By:
-------------------------------------
INDEMNITEE
-----------------------------------------
Address:
--------------------------------
-----------------------------------------
6
<PAGE>
EXHIBIT 10.8
PORTAL PROPRIETARY & CONFIDENTIAL
[LOGO OF PORTAL]
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This Software License and Support Agreement is entered into by and between
Portal Software, Inc, a California corporation with principal offices at 20883
Stevens Creek Boulevard, Cupertino, California 95014 ("Portal") and [Company
Name] a(n) [state] [type of entity] with principal offices at [address]
("Licensee") and describes the terms and conditions pursuant to which Portal
shall license to Licensee and support certain Licensed Software (as defined
below). This Agreement shall become effective on the date it is signed by
Portal ("Effective Date").
1 DEFINITIONS
1.1 "Agreement" means this Software License and Support Agreement, including
any and all attached Schedules.
1.2 "Application" means the specific Application set forth in Schedule A hereto
of the Licensed Software running on one or more related computers at a
single location, that share the same Licensed Software Database.
1.3 "Confidential Information" means this Agreement and all its Schedules, any
addenda hereto signed by both parties, all software listings,
Documentation, information, data, drawings, benchmark tests,
specifications, trade secrets, object code and machine-readable copies of
the Licensed Software, and any other proprietary information supplied to
Licensee by Portal or by Licensee to Portal which is clearly marked as
"confidential" if in tangible form, or identified as "confidential" if
orally disclosed.
1.4 "Designated Equipment" means the hardware make and model of the server
computer on which the Licensed Software will be installed as set forth on
Schedule A.
1.5 "Licensed Software" means (i) the software products designated on Schedule
A hereto provided to Licensee by Portal in executable form (but not the
Source Code), (ii) the associated program documentation ("Documentation"),
(iii) any source code or object code which Portal in its sole discretion
may provide to Licensee from time to time and (iv) any Updates,
modifications, maintenance releases, bug fixes or work-arounds which Portal
may provide to Licensee from time to time.
1.6 "Licensed Software Database" means the customer database associated with
the Licensed Software which contains the Customer Records.
1.7 "Production Site" means the address and location of the server computer on
which the Licensed Software will be installed as set forth on Schedule A.
1.8 "Subscriber" means an individual customer record account object ("Customer
Record") in the Licensed Software Database. The total number of Subscribers
is exactly equal to the number of Customer Records in the Licensed Software
Database. If the Licensed Software is used to authenticate, bill, rate or
otherwise track the activities of individual users within a corporate or
group account, each such individual user will be deemed a Subscriber for
the purposes of this Agreement.
1.9 "Updates" means any updates to the Licensed Software licensed hereunder
which Portal, in its discretion, makes generally available to its Licensed
Software licensees.
2 GRANT OF LICENSE
1.1 For so long as this Agreement remains in force Portal grants to Licensee a
perpetual, non-exclusive and non-transferable right to use the Licensed
Software on the Designated Equipment and on a single Licensed Software
Database located at the designated Production Site only for the specified
Application. Licensee may possess only the number of copies of any Licensed
Software necessary for the type of use specified herein and may use such
copies only in accordance with this Agreement and the Documentation. Portal
shall at all times retain ownership of all Licensed Software including any
Documentation and any copies thereof.
2.2 Portal will deliver to Licensee, as soon as is practicable, the necessary
password to enable Licensee to download from Portal's website one machine-
readable copy of the Licensed Software, along with one machine-readable
copy of the Documentation. Licensee may not reproduce Licensed Software or
Documentation except as expressly provided under this Agreement.
2.3 Licensee may copy the Licensed Software and Documentation for backup or
archival purposes provided that all titles, trademark symbols, copyright
symbols and legends, and other proprietary markings are reproduced.
2.4 Licensee shall be permitted to create applications using the Policy
Facilities Modules source code which Portal makes generally available to
all of its licensees.
2.5 Portal grants and Licensee receives no other rights or licenses to the
Licensed Software, derivative works (as defined in the United States
copyright Act of 1976, Title 17 USC Section 101 et. Seq.) or any
intellectual property rights related thereto, whether by implication,
estoppel or otherwise, except those rights expressly granted in this
Section 2.
3 LICENSE RESTRICTIONS
3.1 Licensee agrees that it will not itself, or through any parent, subsidiary,
affiliate, agent or other third party:
3.2 sell, lease, license, sublicense, encumber or otherwise deal with any
portion of the Licensed Software or Documentation;
3.3 except to the minimum extent necessary to comply with EC Directive, if
applicable, or other applicable legislation, decompile, disassemble, or
reverse
Software License & Support Agreement Page 1 of 5
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
engineer any portion of the Licensed Software or attempt to discover any
source code or underlying ideas or algorithms of any Licensed Software;
3.4 other than to the extent permitted by Section 2.4 above, create any
Derivative Work based on the Licensed Software or any Portal Confidential
Information;
3.5 use the Licensed Software to provide processing services to third parties,
commercial timesharing, rental or sharing arrangements, or on a "service
bureau" basis or otherwise use or allow others to use the Licensed Software
for the benefit of any third party;
3.6 provide, disclose, divulge or make available to, or permit use of the
Licensed Software by persons other than Licensee's employees who have
signed a confidentiality agreement consistent with the terms and provisions
herein, without Portal's prior written consent;
3.7 use any Licensed Software, or allow the transfer, transmission, export, or
re-export of any Licensed Software or portion thereof in violation of any
export control laws or regulations administered by the U.S. Commerce
Department, OFAC, or any other government agency. All the limitations and
restrictions on the Licensed Software in this Agreement also apply to the
Documentation.
4 PAYMENTS AND TAXES
4.1 All payments due hereunder shall be made inside the U.S., in U.S. dollars.
In addition to any remedies Portal may have hereunder or at law, any
payments more than thirty (30) days overdue will bear a late payment fee of
1.5% per month, or, if lower, the maximum rate allowed by law. Delinquency
in payment will result in a delay or suspension of the Licensed Software
implementation timetable or services (including Support Services) provided
by Portal. Resumption of services will occur after Licensee has brought
itself current on all of its outstanding payment obligations to Portal. The
services will be scheduled in accordance with the availability of Portal
resources. Portal will not be liable for any damages caused by rescheduling
of suspended services pursuant to this Section 4.1.
4.2 Licensee agrees to pay or reimburse Portal for all federal, state,
dominion, provincial, or local sales, use, personal property, payroll,
excise or other taxes, fees, or duties arising out of this Agreement or the
transactions contemplated by this Agreement (other than taxes on the net
income of Portal.) If any tax is payable by Licensee under this Section
4.2, then the Licensee shall provide evidence of payment to Portal and
Portal shall use all reasonable efforts to obtain a credit, rebate, or
benefit for that amount against its own tax, and if it receives such
credit, rebate, or benefit it shall refund to Licensee an amount equal to
the lesser of the amount paid by Licensee and the credit, rebate, or
benefit obtained by Portal.
5 LICENSE FEE
In consideration of the rights granted herein, Licensee shall pay Portal the
license fee(s) as set forth in Schedule A.
6 MAINTENANCE AND TECHNICAL SUPPORT
6.1 Upon payment of the annual maintenance and support fee set forth on
Schedule A, Licensee shall be entitled to receive Updates and technical
support in accordance with Portal's Gold Level Support Policy. Portal's
current Gold Level Support Policy appears at Schedule B.
6.2 Portal shall have no obligation to support (a) altered, damaged or modified
Licensed Software (except as authorized by Portal) or any portion of the
Licensed Software incorporated into other software, (b) Licensed Software
that is not the then current or immediately previous sequential release,
(c) problems caused by Licensee's negligence, abuse, or misapplication, or
use of the Licensed Software other than as specified in Portal's user
documentation or other causes beyond the control of Portal, or (d) Licensed
Software installed on a system that is not supported by Portal. Portal
shall have no liability for any changes in Licensee's hardware which may be
necessary to use the Licensed Software.
6.3 Portal reserves the right to change its technical support guidelines and
procedures provided (i) Portal provides Licensee with at least sixty (60)
days prior written notice of such changes, and (ii) such changes do not
diminish Portal's overall technical support obligations to Licensee in any
material regard.
7 TERMINATION
7.1 This Agreement commences on the Effective Date and will remain in force
until it is terminated.
7.2 Portal may, by written notice to Licensee, terminate this Agreement if any
of the following events ("Termination Events") occur, provided that such
termination will not relieve Licensee of its payment obligations hereunder
or otherwise entitle Licensee to a refund of any portion which have been
paid to Portal;
7.3 Licensee is in breach of this Agreement, which breach, if capable of being
cured, is not cured within thirty (30) days (ten (10) days in the case of
nonpayment) after Portal gives Licensee written notice of such breach; or
Portal may terminate this Agreement immediately upon notice if Licensee
breaches any of its obligations under Section 3 above;
7.4 Licensee terminates its business activities or becomes insolvent, admits in
writing to inability to pay its debts as they mature, makes and assignment
for the benefit of creditors, or becomes subject to direct control of a
trustee, receiver or similar authority.
7.5 Termination will become effective immediately or on the date set forth in
the written notice of termination and any payment obligations under this
Agreement shall immediately become due and owing. Termination of this
Agreement will not affect the provisions regarding Licensee's or Portal's
treatment of Confidential Information, provisions relating to the payments
of amounts due, provisions limiting or disclaiming Portal's liability,
and/or provisions
Software License & Support Agreement Page 2 of 5
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
regarding applicable law, which provisions will survive termination of this
Agreement.
7.6 Upon termination, all licenses granted hereunder shall cease to be
effective and Licensee shall immediately cease all use of any affected
Licensed Software, Documentation and Portal Confidential Information.
7.7 Within fourteen (14) days of the date of termination or discontinuance of
this Agreement for any reason whatsoever, Licensee shall return the
Licensed Software, derivative works and all copies thereof, in whole or in
part, all related Documentation and all copies thereof, and any other
Confidential Information in its possession. Licensee shall furnish Portal
with a certificate signed by an executive officer of Licensee verifying
that the same has been done.
7.8 Termination is not an exclusive remedy and all other remedies will be
available whether or not termination occurs.
8 INDEMNIFICATION FOR INFRINGEMENT
8.1 Portal will, at its expense, defend or settle any claim, action or
allegation brought against Licensee that the Licensed Software infringes
any patent, copyright, trade secret or other proprietary right of any third
party and shall pay any final judgment awarded or settlements entered into;
provided that Licensee gives prompt written notice to Portal of any such
claim, action or allegation of infringement and gives Portal the authority
to proceed as contemplated herein. Portal will have the exclusive right to
defend any such claim, action, or allegation and make settlements thereof
at its own discretion, and Licensee may not settle or compromise such
claim, action or allegation, except with prior written consent of Portal.
Licensee shall give such assistance and information as Portal may
reasonably require to settle or oppose such claims.
8.2 In the event any such infringement, claim, action, or allegation is brought
or threatened, Portal may, at its sole option and expense:
8.3 Procure for Licensee the right to continue use of the Licensed Software or
the infringing portion thereof;
8.4 Modify, amend or replace the Licensed Software or infringing part thereof
with other software having substantially the same or better capabilities;
8.5 If neither of the foregoing is commercially practicable, Portal shall
refund the portion of the licensee fee specified on Schedule A related to
the infringing part thereof less one-forty-eighth (1/48) thereof for each
month or portion thereof that this Agreement has been in effect. In the
event that such refund is made, Licensee shall immediately cease using the
infringing portion of the Licensed Software and will remove the same from
its system and so certify to Portal. If, as a result of having ceased using
the infringing Licensed Software due to an infringement claim Licensee is
not reasonably able to continue using the other components of the Licensed
Software licensed hereunder, Licensee will be permitted to return those
other Licensed Software components on the same terms as set forth above for
infringing Licensed Software. By paying any refund(s) in the manner herein
contemplated Portal will be released from any further obligation whatsoever
to Licensee in connection with the infringing part of the Licensed
Software.
8.6 THE FOREGOING OBLIGATIONS SHALL NOT APPLY TO THE EXTENT THE INFRINGEMENT
ARISES AS A RESULT OF (A) MODIFICATIONS TO THE LICENSED SOFTWARE MADE BY
ANY PARTY OTHER THAN PORTAL OR PORTAL'S AUTHORIZED REPRESENTATIVE, OR (B)
FAILURE OF LICENSEE TO INSTALL AN UPDATE, UPGRADE, MAINTENANCE RELEASE,
PATCH, ETC., WITHIN A REASONABLE TIME OF BEING PROVIDED ACCESS TO THE SAME
BY PORTAL IF SUCH INFRINGEMENT WOULD HAVE BEEN AVOIDED BY SUCH
INSTALLATION. THIS SECTION 8 STATES THE ENTIRE LIABILITY OF PORTAL WITH
RESPECT TO INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER
PROPRIETARY RIGHT.
9 WARRANTY AND LIMITATION OF LIABILITY
9.1 Portal warrants to Licensee that the Licensed Software will perform in
substantial accordance with the Documentation for a period of ninety (90)
days from the Effective Date. If the Licensed Software does not perform as
herein warranted, Portal shall undertake at its own expense to correct the
non-conforming part of the Licensed Software. If correction is not
reasonably possible or commercially practicable, Portal shall refund the
monies paid by Licensee for that non-conforming Licensed Software.
9.2 Portal warrants that the Licensed Software is designated to be used prior
to, during and after the calendar year 2000 and that the Licensed Software
will operate during each such time period without error relating to, or the
product of, date data which references different centuries or more than one
century. If the Licensed Software does not perform as warranted, Portal
shall undertake at its own expense to correct the non-conforming part of
the Licensed Software, or if correction is reasonably not possible, replace
such non-conforming part of the Licensed Software free of charge. If
neither of the foregoing is commercially practicable, Portal shall refund
the license and annual maintenance support fees paid by Licensee for the
non-conforming Licensed Software. If a refund is made in the manner herein
contemplated, the parties will amend the definition of "Licensed Software"
in Schedule A to reflect the same. The foregoing Year 2000 Warranty shall
not apply to the extent that the Licensed Software is used or interfaced
with other software, data or operating systems which are not Year 2000
compliant or if the Licensed Software has been modified in a manner not
authorized by Portal. THE FOREGOING ARE LICENSEE'S SOLE AND EXCLUSIVE
REMEDIES FOR BREACH OF WARRANTY.
9.3 Portal's warranty obligations as set forth above are made to and for the
benefit of Licensee only and shall be enforceable against Portal only if:
9.3.1 The Licensed Software has been properly installed and has been used at
all times in accordance with the Documentation and this Agreement;
Software License & Support Agreement Page 3 of 5
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
9.3.2 All modifications, alterations or additions to the Licensed Software, if
any, have been made using Licensed Software Customization Tools provided
by Portal to Licensee; and
9.3.3 Licensee has not made or caused to be made modifications, alterations or
additions to the Licensed Software that cause it to deviate from the
Documentation.
9.4 Except as set forth in this Section 9, Portal makes no warranties, whether
express or implied, or statutory regarding or relating to the Licensed
Software or the Documentation, or any materials or services furnished or
provided to Licensee under this Agreement. Specifically, Portal does not
warrant that the Licensed Software will be error free or will perform in an
uninterrupted manner. To the maximum extent allowed by law, Portal
specifically disclaims all implied warranties of merchantability and
fitness for a particular purpose (even if Portal had been informed of such
purpose) with respect to the Licensed Software, Documentation and support
and with respect to the use of any of the foregoing.
9.5 IN NO EVENT WILL PORTAL OR ITS SUBCONTRACTORS BE LIABLE FOR ANY LOSS OF
PROFITS, LOSS OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF COVER OR
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN
CONNECTION WITH OR ARISING OUT OF THE FURNISHING, PERFORMANCE OR USE OF THE
LICENSED SOFTWARE OR SERVICES PERFORMED HEREUNDER OR ANY DELAY IN DELIVERY
OR FURNISHING THE LICENSED SOFTWARE OR SAID SERVICES WHETHER ALLEGED AS A
BREACH OF CONTRACT OR TORTIOUS CONDUCT, INCLUDING NEGLIGENCE, EVEN IF
PORTAL HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
9.6 PORTAL'S MAXIMUM AGGREGATE LIABILITY (WHETHER IN CONTRACT, TORT OR ANY
OTHER FORM OF LIABILITY) FOR DAMAGES OR LOSS, HOWSOEVER ARISING OR CAUSED,
WHETHER OR NOT ARISING FROM PORTAL'S NEGLIGENCE, SHALL IN NO EVENT BE
GREATER THAN (A) IN THE EVENT SUCH DAMAGE IS NOT RELATED TO SUPPORT, THE
LICENSE FEE SPECIFIED IN SCHEDULE A RELATED TO THE PARTICULAR LICENSED
SOFTWARE PROGRAM WHICH CAUSED THE DAMAGE OR LOSS, OR (B) IN THE EVENT SUCH
DAMAGE OR LOSS IS RELATED TO SUPPORT, THE SUPPORT FEES PAID BY LICENSEE FOR
THE THEN CURRENT SUPPORT TERM.
9.7 No employee, agent, representative or affiliate of Portal has authority to
bind Portal to any oral representations or warranty concerning the Licensed
Software. Any written representation or warranty not expressly contained in
this Agreement is unenforceable.
10 AUDIT RIGHTS/QUARTERLY REPORTS
10.1 Licensee shall keep and maintain full, accurate and detailed records
regarding its obligations under this Agreement and the number of
Subscribers of the Licensed Software Database. Portal or its
representatives shall be entitled to review and audit such books and
records and/or Licensee's compliance with the provisions of this Agreement
from time to time during normal business hours by providing written notice
to Licensee at least ten (10) business days prior to such audit. If any
such audit reveals a deficiency in any amounts due to Portal hereunder,
Licensee will immediately pay such amounts as are required to re-establish
compliance with the terms of this Agreement.
10.2 Commencing ninety (90) days from the Effective Date, Licensee will provide
Portal with calendar quarterly reports setting forth the total number of
Subscribers. Licensee will provide Portal with all such reports and any
payments required hereunder within thirty (30) days of the end of each
calendar quarter.
11 ASSIGNMENT/BINDING AGREEMENT
Neither this Agreement nor any rights under this Agreement may be assigned or
otherwise transferred by Licensee, in whole or in part, including by way of
merger, acquisition or sale of all or substantially all of the voting rights in
one or more related transactions, without Portal's prior written consent.
12 CONFIDENTIALITY
12.1 Each Party acknowledges that the Confidential Information constitutes
valuable trade secrets and each party agrees that it shall use the
Confidential Information of the other party solely in accordance with the
provisions of this Agreement and it will not disclose, or permit to be
disclosed, the same directly or indirectly, to any third party without the
other party's prior written consent. Each party agrees to exercise due
care in protecting the Confidential Information from unauthorized use and
disclosure. However, neither party bears any responsibility for
safeguarding any information that it can document in writing (i) is in the
public domain through no fault of its own, (ii) was properly known to it,
without restriction, prior to disclosure by Disclosing Party, (iii) was
properly disclosed to it, without restriction, by another person with the
legal authority to do so, (iv) is independently developed by Receiving
Party without use or reference to Disclosing Party's Proprietary
Information or (v) is required to be disclosed pursuant to a judicial or
legislative order or proceeding; provided that, to the extent permitted by
and practical under the circumstances, Receiving Party provides to
Disclosing Party prior notice of the intended disclosure and an
opportunity to respond or object to the disclosure or if prior notice is
not permitted or practical under the circumstances, prompt notice of such
disclosure.
12.2 In the event of actual or threatened breach of the provisions of Section 3
or Section 12, the non-breaching party will be entitled to immediate
injunctive and other equitable relief, without bond and without the
necessity of showing actual damage.
13 NOTICE
Any notice required or permitted under the terms of this Agreement or required
by law must be in writing and must be (a) delivered in person, (b) sent by
registered mail, return receipt requested, (c) sent by overnight air courier, or
(d) by facsimile, in
Software License & Support Agreement Page 4 of 5
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
each case forwarded to the appropriate address set forth above. Either party may
change its address for notice by written notice to the other party. Notices will
be considered to have been given at the time of actual delivery in person, three
(3) business days after posting, or one day after (i) delivery to an overnight
air courier service or (ii) the moment of transmission by facsimile.
14 MISCELLANEOUS
14.1 Force Majeure. Neither party will incur any liability to the other on
- ---- -------------
account of any loss or damage resulting from any delay or failure to
perform all or any part of this Agreement if such delay or failure is
caused, in whole or in part, by events, occurrences, or causes beyond its
control and without negligence of the parties. Such events, occurrences or
causes will include, without limitation, acts of God, strikes, lockouts,
riots, acts of war, earthquakes, fire and explosions, but the ability to
meet financial obligations is expressly excluded.
14.2 Waiver. Any waiver of the provisions of this Agreement or of a party's
- ---- ------
rights or remedies under this Agreement must be in writing to be
effective. Failure, neglect or delay by a party to enforce the provisions
of this Agreement or its rights or remedies at any time will not be
construed to be deemed a waiver of such party's rights under this
Agreement and will not in any way affect the validity of the whole or any
part of this Agreement or prejudice such party's right to take subsequent
action.
14.3 Severability. If any term, condition or provision in this Agreement is
- ---- ------------
found to be invalid, unlawful or unenforceable to any extent, the parties
shall endeavor in good faith to agree to such amendments that will
preserve, as far as possible, the intentions expressed in this Agreement.
If the parties fail to agree on such an amendment, such invalid term,
condition or provision will be severed from the remaining terms,
conditions and provisions, which will continue to be valid and enforceable
to the fullest extent permitted by law.
14.4 Entire Agreement. This Agreement (including the Schedules and any addenda
- ---- ----------------
hereto signed by both parties) contains the entire agreement of the
parties with respect to the subject matter of this Agreement and
supercedes all previous communications, representations, understandings
and agreements, either oral or written, between the parties with respect
to said subject matter.
14.5 Standard Terms of Licensee. No terms, provisions or conditions of any
- ---- --------------------------
purchase order, acknowledgement or other business form that Licensee may
use in connection with the acquisition or licensing of the Licensed
Software will have any effect on the rights, duties or obligations of the
parties under, or otherwise modify, this Agreement, regardless of any
failure of Portal to object to such terms, provisions, or conditions.
14.6 Public Announcements/Publicity. Licensee and Portal agree to cooperate
- ---- ------------------------------
regarding public relations activities, including public announcements,
joint press releases, and other activities to be mutually agreed. Neither
party will perform such activities without the prior written consent of
the other party, which consent shall not be unreasonably withheld.
14.7 Counterparts. This Agreement may be executed in counterparts, each of
- ---- ------------
which so executed will be deemed to be an original and such counterparts
together will constitute one and the same Agreement.
14.8 Applicable Law. This Agreement will be interpreted and construed pursuant
- ---- --------------
to the laws of the State of California and the United States without
regard to conflict of laws provisions thereof, and without regard to the
United Nations Convention on the International Sale of Goods. Any legal
action or proceeding relating to this Agreement shall be instituted in a
state or federal court in Santa Clara County, California. Portal and
Licensee agree to submit to the jurisdiction of, and agree that venue is
proper in, these courts in any such action or proceeding. The prevailing
party in any action to enforce this Agreement will be entitled to recover
its attorney's fees and costs in connection with such action. Licensee
represents that it is not a government agency and it is not acquiring the
license pursuant to a government contract or with government funds.
IN WITNESS WHEREOF, the authorized representatives of the parties hereby bind
the parties by signing below:
[Company Name]
"Licensee"
By:______________________________________________________________
Print Name:______________________________________________________
Title:___________________________________________________________
Date:____________________________________________________________
Portal Software, Inc.
"Portal"
By:______________________________________________________________
Print Name:______________________________________________________
Title:___________________________________________________________
Date:____________________________________________________________
Software License & Support Agreement Page 5 of 5
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
SCHEDULE A
SECTION 1.0 LICENSED SOFTWARE
The following Portal Software products and their associated online documentation
will be provided by Portal and will comprise the "Licensed Software":
SECTION 2.0 APPLICATION DESCRIPTION/PLATFORM /INITIAL SUBSCRIBER LIMIT
2.1 APPLICATION:
2.2 Platform (O/S):
2.3 Initial Subscriber Limit:
SECTION 3.0 INSTALLATION SITES
3.1 PRODUCTION SITE:
3.2 Development Site:
3.3 Backup Site:
SECTION 4.0 LICENSE AND MAINTENANCE SUPPORT SERVICE FEES
4.1 SOFTWARE LICENSE FEES
The following table sets forth the license fees for the Licensed Software
for the above-stated Application for up to _________ Subscribers.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Licensed Software Components License Fees
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
SLSA Schedule A Page A-1
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
4.2 ANNUAL GOLD LEVEL SUPPORT SERVICES FEES
Portal will provide Gold Level Maintenance Support Services in accordance
with Schedule B ("Support Services") for _________ Subscribers for one-year
Annual Support Services terms for the Support Services fees set forth below.
Support Services will be automatically renewed in one-year periods on the same
terms and conditions unless Licensee terminates such Support Services by
providing written notice to Portal at least sixty (60) days prior to the end of
the then-current annual support services term.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Portal Support Services Annual Fee Annual Payment Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gold Level Support Services $ Effective Date
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
4.3 ADDITIONAL SUBSCRIBER LICENSE AND SUPPORT SERVICES FEES
For up to three (3) years from the Effective Date ("Option Period")
Licensee shall be entitled to use the Licensed Software listed in Section 1.0
above for the designated Application in connection with additional subscribers
("Additional Subscribers") provided Licensee shall pay the amounts set forth in
the following table. Additional Subscribers will be licensed in the incremental
blocks specified and not one at a time. Associated Annual Support Services fees
will be due when the Additional Subscribers are licensed. Annual Support
Services fees will be prorated over the remainder of the annual support term
during which they are added.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Subscriber Subscribers in License Fee Per License Fee per Annual Gold
Numbers Block Subscriber Block Support Services
Fee Per Block
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
SECTION 5.0 PAYMENT SCHEDULE
Licensee agrees to make payment in accordance with the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Description Amount Payment Due Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
License Fee Effective Date
- ---------------------------------------------------------------------------------------------------------------------
Annual Gold Support Payment Effective Date
- ---------------------------------------------------------------------------------------------------------------------
Basic Infranet Developer Training Within 30 days of Invoice Date
- ---------------------------------------------------------------------------------------------------------------------
Advanced Infranet Developer Training Within 30 days of Invoice Date
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SLSA Schedule A Page A-2
<PAGE>
[LOGO]
SCHEDULE B
Infranet(TM)
Product Support
Guidelines, Policies and Definitions
Version 2.0
Portal Software, Inc.
20863 Stevens Creek Boulevard
Suite 200
Cupertino, CA 95014
U.S.A.
<PAGE>
Product Support
Guidelines, Policies and Definitions
<TABLE>
<S> <C>
SUPPORT OVERVIEW:..................................................................... 3
WEB-BASED SUPPORT..................................................................... 3
Submitting a Support Case............................................................ 3
Viewing Status or Updating a Support Case............................................ 5
SEVERITY DEFINITIONS:................................................................. 6
Changing Severity Level:............................................................. 8
STATUS DEFINITIONS.................................................................... 8
Typical Progression Through Status................................................... 9
Support Case Activity Log............................................................ 10
RESPONSE AND RESOLUTION OBJECTIVES.................................................... 10
Phase Definitions:................................................................... 11
COMMUNICATION......................................................................... 11
SUPPORT ESCALATION PROCESS............................................................ 12
Calling the Message Center........................................................... 13
For General Support Issues and Errors of Any Severity................................ 13
TECHNICAL SUPPORT CONTACTS............................................................ 14
SOFTWARE ERRORS....................................................................... 14
Product Support Period............................................................... 15
</TABLE>
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 2 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
SUPPORT OVERVIEW
As Portal grows we are committed to continuing to develop our world-class
technical support service organization to provide the best support services to
our customer. The following are our procedures to ensure that you, as a
customer, receive proper and prompt assistance when needed.
WEB-BASED SUPPORT
Technical support is available to all Portal customers with a current customer
support contract. Portal's Web-Based support provides fast and easy access to
all your technical support cases. It allows you to add a new case, or update
and monitor the status of an existing case. Each case is associated with a case
number for reference and tracking purposes.
Each customer contact is provided with a login ID and password. To obtain your
login and password, register by completing our online registration form:
-------------------------
www.portal.com/professional services/plreg.htm
----------------------------------------------
For all development or production related questions, errors or defects, please
start by submitting the issue via our Web-Based Support interface:
-----------------
www.portal.com/WebSupport/login.htm
-----------------------------------
If you experience problems with our web site, please notify us by sending us an
email at [email protected]
------------------
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 3 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
Submitting a Support Case:
- --------------------------
To submit a new support case, login via www.portal.com/WebSupport/login.htm by
-----------------------------------
providing your current user login and password. From the `case listings'
screen, click on the `Add a New Case' button to get to the `open a new case'
screen containing a blank template for case submission. Fill in all the
required information, when finished click on the `Submit' buttom at the bottom
of the screen. If all the required information has not been filled in , you
will get an error message, else it will inform you that the submission was
successful and provide a case number for future reference. To get back to any
of the previous screens, you must click the "Back" icon on your browser.
Following fields are required when submitting a support case:
<TABLE>
<CAPTION>
Name Case Type Case Severity Case Priority
<S> <C> <C> <C>
Infranet Version Deployment Product Area Hardware
Operating System Database Problem Summary Problem Detail.
</TABLE>
Name - Name of submitter filing the support case. Email notifications are sent
to the submitter of the case.
Case Type - Case Type field is used to classify the problem into one of the
following three categories:
. Bug/Defect - Problem has been identified as a product defect
. Question - A technical question on functionality, API's and so forth
. Request for Enhancement - Request for a feature or product enhancement in
a future release
Case Severity - Severity field is used to indicate the impact of the problem in
a production or development environment.
Important: When selecting severity, please follow the severity guidelines in
-----------------------------------------------------------------------------
the latter part of this document. If in reviewing the support case, Portal's
----------------------------------------------------------------------------
analysis is that a change in severity level is consistent with the severity
---------------------------------------------------------------------------
definitions, Portal will change the severity level and notify the submitter.
----------------------------------------------------------------------------
Case Priority - Priority field is used to indicate the urgency of the problem.
In the case when a customer reports several issues, the support engineer
prioritizes the issues list first by severity then by priority levels as
assigned by the submitter.
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 4 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
Infranet Version - Version field indicates the released version in which the
problem exists. This information is relied upon by engineering when delivering
a fix or a patch and therefore MUST be accurate.
----
[PICTURE APPEARS HERE]Deployment Type - Deployment Type field is used to
identify the product implementation stage. This field is defined in conjunction
with the Severity of the problem.
. Production: Problem occurs in the production environment.
. Development: Problem occurs in the development environment.
. Test: Problem occurs in the test environment.
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page -5 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
[PICTURE APPEARS HERE]Hardware - Hardware field is used to identify the hardware
on which your software or a specific module is running on.
[PICTURE APPEARS HERE]Operating System - Operating System field is used to
identify the operating system where the software or a specific module is running
on. This information is relied upon by engineering when delivering a fix or a
patch and therefore MUST be accurate
----
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 6 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
[PICTURE APPEARS HERE]Database - Database field is used to identify the
relational database management system (RDBMS).
Problem Summary - Product Summary field is used to provide a brief description
of the technical problem which you are experiencing.
[PICTURE APPEARS HERE]Problem Detail - Problem Detail field is used to provide a
detailed description of the technical problem which you are experiencing. Please
send large text files as an attachment to [email protected]. Enter as much
------------------
information as possible to allow Portal staff to accurately isolate the problem.
The detail description should also include the following information:
. Errors in the error logs (i.e. cm.pinlog, dm.pinlog, and so forth)
. Configuration information relevant to this problem.
. How and when the problem occurs.
. Steps to reproduce the problem.
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 7 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
Email any configuration (pin.cnf) or log files (pinlog) to
[email protected]. Please include your case number and company name in the
------------------
subject header of the email.
For example:
"Portal case# 1234: dm_oracle pinlog files"
NOTE: Be aware that when you CC people in your email to us with aliases, we
may not get the full email address of the CC'ed person. If that is the case,
we will be unable to send a reply to them. You will need to forward our reply
to them yourself.
Viewing Status or Updating a Support Case:
- -------------------------------------------
To view current status or submit any updates to an existing support case, login
via www.portal.com/WebSupport/login.htm by providing your current user login and
-----------------------------------
password. From the `case listings' screen, double click on Case Description to
get to the `case activity' screen to view current status or submit any updates.
To submit updates, add your comments in the Additional Comments section and
click on `Submit' button when finished. At this point, the Case Status will
change to `Submitted' and an email notification is sent to Portal's technical
support to notify them of the customer update.
SEVERITY DEFINITIONS
Severity 1 - Production issue - Major product defect causing complete loss of
service. A support case can be filed as a severity 1 ONLY if the problem
----------------------------------------------------------------
exists in a production environment. Resolution: work until complete
- ----------------------------------- -------------------
Examples:
. System failure prevents end-users from accessing network service.
. Failover not successful in routing around problems.
. Repeated data loss or data corruption occurs to object data.
. Repeated software failures that result in total interruption of service.
Severity 2 - Production issue/Emergency development issue - Serious product
defect causing major but intermittent loss of production service or preventing
imminent
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 8 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
deployment of system under development. No workaround is available, but
operation can continue in a restricted fashion. Resolution: Work until
----------
complete.
- ---------
Examples:
. System failure prevents end-users from signing up for service, but
allows end users to access network services.
. System failure prevents billing collections from occurring, but allows
end-users to access network service.
Severity 3 - Significant product defect causing loss of service of one or more
functions or a technical question of high urgency. Workaround is not available,
or functionality loss is critical to system operation. Resolution: "Quick Fix"
----------
or next release, if imminent
- ----------------------------
Examples:
. System failure prevents admin users from performing specific account
updates, but all other functions are working. However, the missing
function is critical to determining customer's sales commissions.
. System failure prevents end-users from accessing web pages for account
information, but allows end-users to access network service. However,
for many users, the web is the only access available to them.
Severity 4 - Product defect causing loss of service of one or more functions or
a technical question of medium urgency. Workaround is available, or
functionality loss is not critical to system operation. Resolution: Next or
--------
future release
- --------------
Examples:
. System failure prevents admin users from performing specific account
updates, but all other system functions are working.
. System failure prevents end-users from accessing web pages for account
information, but allows end-users to access network service.
Severity 5 - Minor product defect causing little or no end-user visible loss of
service or a technical question of low urgency. This category includes cosmetic
errors or defects where the impact to a customer's operation is minor.
Resolution: Candidate for future release
----------------------------
Examples:
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 9 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
. Documentation errors requiring correction or clarification.
. Most error message problems.
. System failure that occurs rarely and where failover successfully routes
around the failure.
Severity 10 - Enhancement request to Infranet for new feature or modification to
existing feature rendering the feature more effective, complete or easier to
use. Resolution: Candidate for future release
----------------------------
Examples:
. Additional summary reports by cycle, accounts, etc.
. Additional screens in the web interface.
Changing a Severity Level:
- ---------------------------
When a support case is initially submitted, the submitter makes their best
estimate of the appropriate severity level and files it as such. As Portal and
the submitter work on the reported issue, it may become clear that the severity
level should be changed. If the submitter wishes to change the severity level,
they should update the case via the web to indicate what severity level to
change from and to, and why the change is being requested. If in reviewing the
case, Portal's analysis is that a change in severity levels is consistent with
the definitions above, Portal will change the severity level and notify the
submitter.
STATUS DEFINITIONS
Submitted - A support case is in this state when first submitted. An existing
case will revert back to the submitted state when any updates are made via the
web by the submitter.
Pending - waiting Customer - A support case is in this state to indicate that
more information is needed from the submitter for Portal to further analyze the
problem. Information to include when submitting a case includes: how to
reproduce the error, any non-reproducible symptoms and any error messages,
configuration information, steps to reproduce the failure and so forth.
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 10 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
Researching - A support case is in this state to indicate that the technical
support engineer is in the process of trying to reproduce the problem. If the
issue can be resolved without engineering evaluation, the technical support
engineer will drive resolution.
Qualified as Bug - Technical Support has reviewed the support case and has
qualified it as a bug warranting engineering evaluation. Cases filed as a
severity 1 or severity 2 remain in this state until a fix or a patch is
delivered. Cases filed as severity 3, severity 4, severity 5 or severity 10 are
moved to Closed state. However, customers can continue to monitor engineering
progress and updates for Closed support cases that have been qualified as bugs.
Patch Delivered - A patch or a "Quick Fix" was delivered to the customer and is
awaiting customer validation. Case is moved to `Closed' state after
verification of fix from customer.
Closed - Closed is the final state of a case and indiates that no further
analysis is needed to be performed by Portal's technical support staff. The
technical question has been answered satisfactorily. In the case of a product
defect submitted as a severity 3, 4, 5 or a 10, technical support will continue
to update the support case with status from engineering.
Typical Progression Through Status
- ----------------------------------
The order in which the status indicators are listed in the prior pages is close
to representing the typical progression through to resolution. All cases are
automatically tagged with a status of "Submitted" when they are filed.
Technical Support engineers are the first ones at Portal to review a case. They
will do one of four things.
1) They may see that more information is needed to analyze the problem, note
what information is needed in the case and change the status to "Pending-
waiting Customer" until more information is provided by the submitter.
2) They may determine that this case warrants review by Portal Engineering
and reports the issue to enigneering and changes the status to "Qualified
as Bug".
3) They have all the necessary information to try reproducing the problem
and changes the status to "Researching".
4) Or they are able to answer the question if the answer does not require
any code changes, and changes the status to "Closed".
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 11 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
Once a case is marked as Qualified as Bug, then Portal Engineering reviews it,
assigns it to an appropriate engineer. When an engineer reviews the case, they
may do one of three things:
1) Evaluate it, determine they have enough information to reach a resolution.
2) Evaluate it, determine that more information is necessary, list what
information is necessary in the case and mark the status as "Pending
waiting Customer"
3) Evaluate the case, determine that it should be closed for some reason,
indicate the reason (such as not a bug) and change the status to "Closed"
After a Portal engineer has evaluated a case and has determined that enough
information is available, the engineer will work on a fix for the error. After
the build in which the fix has been integrated is delivered (posted to the
Portal web site) as a Release or an Update, then the case status is changed
to"Patch Delivered". Or in the case of a severity 1 or a severity 2 issue, if
Portal agrees that it mandates an immediate resolution, Portal engineer will
work to provide a standalone `Quick Fix' as an interim solution. In the
------
interest of speedy delivery to our customers, `Quick Fixes' bypass our full
- ---------------------------------------------------------------------------
system tests and are only unit tested by the engineers. We strongly recommend
- ------------------------------------------------------------------------------
that `Quick Fixes' are fully tested in your test environment prior to deployment
- --------------------------------------------------------------------------------
in your production environment. `Quick Fixes' are integrated into the next
- ---------------------------------------------------------------------------
patch release, updates or normal product release . Portal will provide `Quick
- ------------------------------------------------------------------------------
Fixes' only for the latest patch or update currently supported for that release.
- --------------------------------------------------------------------------------
We recognize that your technical problems often need immediate attention. To
address this need, we have asked our technical support engineers to be available
24 hours a day to respond to both severity 1 and 2 problems. In order to ensure
that we continue to provide this high level of support, we request confirmation
of the success or failure of a 'Quick Fix' or workaround within 48 hours after
it has been provided to you. The ability to work closely with you is critical
for resolving your technical problems efficiently.
Support Case Activity Log
- -------------------------
Any activity on the support case will be added to the call `Details' section as
it progresses through to resolution. Any information that is pertinent will be
added to the `Details. In particular when a case status is changed to Pending,
details of what information is needed is described.
RESPONSE and RESOLUTION OBJECTIVES
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 12 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
It is our intent to meet or beat the Response and Resolution Objectives
guidelines as set forth in the table below. Actual response and resolution
times may take longer and are depended upon the complexity of the problem.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SEVERITY LEVEL CALL TARGET RESOLUTION
BACK for OBJECTIVE
TIME INITIAL
ANALYSIS
<S> <C> <C> <C>
1 Complete loss in production 30 minutes 4 hours work until complete
2 Serious defect causing major but 4 hours 8 hours work until complete
intermittent loss in production or
preventing deployment.
3 Significant defect causing minor 2 business 5 business days Patch or next
loss in production with no days release
workaround
4 Minor defect causing minor loss Via WEB Via WEB updates Next or future
with workaround updates release
5 Minor defect causing no loss Via WEB Via WEB updates Candidate for
updates future release
10 - Request for Enhancement Via WEB Via WEB updates Candidate for
updates future release
- ----------------------------------------------------------------------------------------------
</TABLE>
Phase Definitions:
- ------------------
Call Back Time - Initial callback from Portal by a qualified technical support
representative.
Target for Initial Analysis - Targeted response time for first detailed analysis
of problem, including any possible workaround and plan for complete resolution.
Resolution Objective - Estimate of when a fix or workaround is available to
customer to eliminate symptoms of problem.
NOTE: Our response time for product defects will be based on the severity
levels and individual customer's support contract. If the defect is not
resolved in a satisfactory manner, please escalate the situation per the
"Escalation Process" as described on page 13.
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 13 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
COMMUNICATION
Severity 1 Cases
- ----------------
For Severity 1 cases Portal provides updates to submitter as pertinent
information becomes available. These updates are provided via phone, fax
or email or via web updates as the situation warrants. The definition of
Severity 1 as complete loss of service in production will be strictly
adhered to and any cases that do not fall within this definition either
initially or after a work around has been provided will be reassigned to a
lower severity level.
Severity 2 Cases
- ----------------
For Severity 2 cases Portal provides updates to submitter as pertinent
information becomes available. These updates are provided via phone, fax
or email or via web updates as the situation warrants. The definition of
Severity 2 as major loss of service in production or preventing imminent
deployment will be strictly adhered to and any cases that do not fall
within this definition either initially or after a work around has been
provided will be reassigned to a lower severity level.
Severity 3, 4, 5 and 10 Cases
- -----------------------------
Portal communicates updates on these cases via web updates as pertinent
information is available. The Web-Base support interface permits users to
search for recently updated cases and it will also send email
notifications when a case is changed.
24X7 SUPPORT
Our 24-hour support services are only available to our Gold Level Support
customers for reporting a severity level 1 or a severity level 2 system failure
in a production environment only. For all other severities and for Silver Level
Support customers, please call during our normal business hours Monday through
Friday (excluding holidays) 8:00 am - 5:00 pm PST.
SUPPORT ESCALATION PROCESS
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 14 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
To ensure that our customers are getting the appropriate level of attention and
service, the following are escalation procedures to use when dealing with any
Infranet product defect.
Severity 1 Errors:
Definition: Major product defect causing complete loss of service.
- ----------
Escalation Process:
- -------------------
1. Report the failure via the Web-Based Support interface:
www.portal.com/websupport/login.htm
-----------------------------------
2. Call our 24-Hour message center at (408) 752-7430 to report the problem. The
- - on-call support engineer will be paged to respond. A support engineer is
expected to respond within 30 minutes of logging the call with the message
center. If you are able to bring your production system back online
-----------------------------------------------------------
successfully and believe that a less urgent fix is required and can be
----------------------------------------------------------------------
worked on during normal business hours, you do not have to call the message
---------------------------------------------------------------------------
center.
-------
3. The initial focus of the support engineer will be to provide assistance to
bring the production system back online. Analysis of the cause and/or
resolution may take longer.
4. Support engineer escalates to Portal engineering.
Severity 2 Errors:
Definition: Serious product defect causing major but intermittent loss of
- -----------
production service or preventing imminent deployment of system under
development.
Escalation Process:
- -------------------
1. Report the failure via the Web-Based Support interface:
www.portal.com/websupport/login.htm
-----------------------------------
2. Call our 24-Hour message center at (408) 752-7430 to report the problem. The
- - on-call support engineer will be paged to respond. A support engineer is
expected to respond within 2 hours of logging the call with the message
center. If you are able to bring your production system back online
-----------------------------------------------------------
successfully and believe that a less urgent fix is required that can be
-----------------------------------------------------------------------
worked on during normal business hours, you do not have to call the message
---------------------------------------------------------------------------
center.
-------
3. The initial focus of the support engineer will be to provide assistance to
bring the production system back online. Analysis of the cause and/or
resolution may take longer.
4. Support engineer escalates to Portal engineering
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 15 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
Severities 3,4,5 & 10 Errors:
-
The message center does NOT handle severity 3, 4, 5 or 10 issues.
Escalation Process:
- ------------------
1. Report the failure via the Web-Based Support interface:
www.portal.com/websupport/login.htm
-----------------------------------
2. The support engineer will attempt to reproduce the problem.
3. If reproducible, support engineer submits the issue to Portal's engineering
for consideration in the next release or future release.
4. If you require a fix to be available sooner, inform the support engineer by
updating the support case via the web to indicate that the issue needs to be
escalated.
5. Support engineer escalates the issue to Portal engineering.
Note: For severity 3, 4, 5, and 10 issues, Portal engineering will review the
escalated issue and determine if a fix will or will not be available in the
timeframe requested.
Calling the 24-hour Message Center
- ----------------------------------
An agent with the message center will receive your call and collect the
following information from you: your name, phone number, company which you
represent, severity of the problem, and a brief message. The answering service
is instructed to escalate severity 1 and severity 2 issues to the appropriate
Portal individual. The message center personnel are provided with instructions
on how to escalate to the Manager of Technical Support and the VP of Portal's
Professional Services should the on-call engineer(s) fail to respond.
NOTE: Our 24-hour support services are only available to our Gold Level Support
customers for reporting a severity level 1 or a severity level 2 system failure
in a production environment only. For all other severities and for Silver Level
Support customers, please call during Portal's normal business hours which are
Monday through Friday (excluding holidays) 8:00 am - 5:00 pm PST.
For General Support Issues and Errors of Any Severity:
- ------------------------------------------------------
If you feel that an error or defect of any severity is not being resolved
appropriately, please call the Technical Support phone number at:
Technical Support: (408) 343-4410 (voicemail)
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 16 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
and leave a voicemail with your name, phone number, company which you represent
and brief problem description. A Technical Support engineer will be paged
automatically to assist you. If the Technical Support engineer is unable to
address your needs, please feel free to contact the Technical Support Manager
at:
Technical Support Manager: (408) 697-5037 (pager)
If the problem is not progressing at a speed with which you are satisfied, you
may ask the Technical Support Manager to escalate the issue.
TECHNICAL SUPPORT CONTACTS
To ensure that we provide uniform support to each of our customers, each
customer account is required to designate two senior level contacts to function
as the technical support liaison to Portal. Please send an email to
[email protected] stating the name, phone number and email address of your
- ------------------
contacts. Your designated contacts will be added to our call tracking database
and will be the only individuals allowed to submit issues into technical
support. To change your contact information, please send an email request to
[email protected]. Additional contacts can be negotiated into the Support
- ------------------
Maintenance Contract at additional cost.
SOFTWARE ERRORS
An Update Release is a full Infranet release and contain the cumulative set of
fixes available for a given release. Update Releases should be downloaded and
installed in full to ensure that you have the most recent, supported version of
Infranet.
Portal will work on cases of severity 1 and 2 until they are resolved. Fixes
for these cases are targeted to be included in an Update Release of the
currently shipping Infranet release as well as in the following release.
Cases of severity 3 and 4 are targeted for fixing in the next release, severity
5 for fixing in a future release and cases of severity 10 are candidates for a
future release.
Periodically, Portal does a full review of outstanding product bugs. Portal
engineering and Product Marketing determines the bug fixes and product
enhancements selected for integration into a release based upon customer demand
and value to our client base.
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 17 -
Not to be disclosed without prior written
permission
<PAGE>
Product Support
Guidelines, Policies and Definitions
Product Support Period
- ----------------------
Infranet releases are supported for a period of 18 months from the official
Release to Web date (RTW). Portal highly encourages customers to upgrade to the
latest release of Infranet in order to benefit from the latest features and
fixes.
Portal is a registered trademark in the United States, and Portal Software,
the Portal logo, the Real Time - No Limits tagline and Infranet are
trademarks of Portal Software, Inc. Copyright 1998 Portal Software, Inc.
- --------------------------------------------------------------------------------
Portal Confidential and Proprietary Page - 18 -
Not to be disclosed without prior written
permission
<PAGE>
EXHIBIT 10.9
Portal Confidential & Proprietary.
BUSINESS ALLIANCE AGREEMENT
1 Parties
1.1 This Business Alliance Agreement ("Agreement") is made this [day] day of
[month], 1999 ("Effective Date") by and between Portal Software, Inc., a
California corporation with its principal place of business located at 20883
Stevens Creek Boulevard, Suite 200, Cupertino, California 95014 ("Portal") and
[company name], a(n) [state] with its principal place of business located at
[address] ("Alliance Member").
2 Definitions
2.1 Affiliate
"Affiliate" means an entity controlled by a party, where control means the
ownership or control, directly or indirectly, of more than fifty percent (50%)
of all of the voting power of the shares (or other securities or rights)
entitled to vote for the election of directors or other governing authority, as
of the date of this Agreement or hereafter during the term of this Agreement;
provided that such entity shall be considered an Affiliate only for the time
during which such control exists.
2.2 Application Solution
"Application Solution" means the Licensed Software plus any software, hardware
and services provided by the Alliance Member to an End User. In any event,
Alliance Member shall include, at a minimum: management consulting, project
management, and systems integration services; custom software application
development for Licensed Software implementation; application integration with
other application software packages and training services in connection with the
Application Solution.
2.3 Designated Equipment
"Designated Equipment" means (i) Portal certified Intel processor based computer
systems running Microsoft Windows NT or Microsoft Windows 95 operating systems
(or any successor operating system); (ii) Sun Microsystems SPARC processor based
systems running Solaris Operating System; or (iii) Hewlett Packard systems
running HP-UX Operating System.
2.4 End User
"End User" means a third party entity which licenses the Licensed Software from
Alliance Member.
2.5 Licensed Software
"Licensed Software" means (i) the software products designated on Schedule A
hereto provided to Licensee by Portal in executable form (but not the source
code), (ii) related program documentation ("Documentation"), (iii) updates,
modifications, maintenance releases, bug fixes or work-arounds provided by
Portal, and (iv) any source code or object code which Portal provides in its
sole discretion.
2.6 Term
The "Term" of this Agreement shall be two (2) years from the Effective Date.
2.7 Territory
"Territory" means the countries and/or geographical regions designated on
Schedule A.
3 Grant of License Rights
3.1 Development License
Subject to all the terms of this Agreement and payment of all fees, Portal
grants Alliance Member a non-transferable, non-exclusive, license to use the
Licensed Software on the Designated Equipment at the Designated Development
Sites set forth on Schedule A, to test and develop applications, in a non-
production environment, only for the purpose of interfacing the Licensed
Software with the Alliance Member's Application Solution.
3.2 Demonstration License
Alliance Member may use up to five (5) copies of the Licensed Software for
demonstration purposes on its premises or that of a prospective End User
("Prospect") provided all copies are removed by Alliance Member from the
Prospect's site on the same day such copy was installed.
3.3 Evaluation License
Alliance Member may install copies of the Licensed Software at a Prospect's site
on a trial basis and for evaluation purposes provided (i) the Prospect has
signed an Evaluation License Agreement containing at a minimum the terms and
conditions set forth on Schedule B, and (ii) all such copies are removed by
Alliance Member upon completion of the evaluation period or 30 days from such
delivery, whichever occurs first. Any evaluation copy of the Licensed Software
not removed or returned to the Alliance Member at the end of such period is
deemed to be licensed and license fees with respect thereto shall be due to
Portal. Alliance Member shall keep and maintain accurate records with respect
to any and all Evaluation Licenses granted and will provide Portal with a copy
of each such Evaluation License promptly upon execution. At no time will
Alliance Member be permitted to simultaneously issue more than five (5) copies
of the Evaluation Licenses without having obtained the prior written consent of
Portal.
3.4 Distribution License.
Subject to the terms of this Agreement, Portal grants to Alliance Member a
nonexclusive, nontransferable, license to distribute the Licensed Software to
its End Users in the Territory. Prior to the delivery of any Licensed Software
to an End User, Alliance Member and End User shall execute a license agreement
for the Licensed Software ("End User Agreement") that contains at a minimum the
terms and conditions set forth in Schedule B. Alliance Member shall maintain
complete and accurate records regarding all End Users and End User Agreements
and shall promptly deliver any such End User Agreement upon the request of
Portal. If Alliance Member learns of any breach of the terms set forth in
Schedule B, it will take prompt, commercially reasonable corrective action at
its expense to remedy the breach and/or obtain all other appropriate relief and
will immediately notify Portal in writing of the breach and corrective action
taken. The execution of these duties by Alliance Member shall not preclude
Portal from also taking corrective action. In addition, if a breach of the
terms set forth in Schedule B occurs that in Portal's opinion, results in
irreparable harm to Portal and/or its third party licensees, unless injunctive
or other equitable relief is entered into to restrain the violation, Alliance
Member shall use its best efforts to obtain such equitable relief as promptly as
possible. If Portal determines that Alliance Member is not adequately pursuing
such relief, Portal may require that Alliance Member assign to Portal its rights
under Alliance Member's license with the End User to permit Portal to seek such
equitable relief. Alliance Member will reimburse Portal for all costs and
expenses incurred in pursuing such relief, including reasonable attorneys' fees.
Alliance Member shall be liable in all respects for any breach by its End Users
of the terms set forth in Schedule B. Alliance Member's foregoing obligations
to enforce the End User Agreements as necessary to protect the interest of
Portal and its third party licensors shall survive expiration or termination of
this Agreement.
3.5 Affiliates.
Alliance Member may assign the licenses granted above to its Affiliates (for so
long as they remain Affiliates), provided that all such Affiliates become bound
in writing (for Portal's benefit) to Alliance Member's obligations under this
Agreement, that Alliance Member assumes full responsibility for compliance by
such Affiliates with such obligations and that all payments and reports from
Affiliates will be made through Alliance Member together with Alliance Member's
payments and reports.
4 License Restrictions
4.1 No Reverse Engineering
Alliance Member agrees that it will not (and will not permit others to) reverse
compile or disassemble object code versions of the Licensed Software or
otherwise create, or attempt to create or
Business Alliance Agreement Page 1 of 12
<PAGE>
Portal Confidential & Proprietary.
permit, allow or assist others to create the source code of the Licensed
Software.
4.2 Copies
All copies of the Licensed Software or its related documentation must reproduce
copyright notices, restrictive rights legends, proprietary notices and other
notices as contained in the Licensed Software in whole or in part for any use or
purpose, other than as provided herein.
5 Ownership of Licensed Software.
5.1 The Licensed Software (including such portions as are incorporated in the
Application Solution) and any Documentation provided by Portal are and shall
remain at all time the property of Portal. Alliance Member shall be permitted
to create applications ("Infranet Applications") in order to obtain
interoperability with the Licensed Software using any code provided by Portal
for development of the Application Solution including, but not limited to, the
policy facilities modules source code and/or application programming interfaces
provided by Portal in its sole discretion.
5.2 Alliance Member hereby grants Portal a worldwide, non-exclusive,
sublicensable license to use, modify, sell, distribute, create derivative works
of and otherwise exploit the Infranet Applications developed by Alliance Member.
6 Training and Technical Support
6.1 Training and Technical Assistance
Portal will provide technical training classes at current training rates
comparable to those provided to other Licensed Software Alliance Members, at
Portal's premises at such dates as are mutually acceptable to both parties or,
at a location and at a time to be mutually agreed upon by the parties. Portal
will also provide Alliance Member with Silver Level Support Services during
Portal's normal business hours (8:00 AM to 5:00 PM, PST, Monday through Friday,
excluding holidays) for its internal development license. Portal's Technical
Support Guidelines, Policies and Procedures are set forth at Portal's website at
www.portal.com ("Support Terms"). Portal reserves the right to modify its
- --------------
technical support policies and procedures at any time upon thirty (30) days
notice.
6.2 End User Support
Unless otherwise agreed in writing, Alliance Member shall be responsible for all
End User technical assistance and support services, including without limitation
any and all installation, maintenance, testing, management, and control of the
end user's use of the Application Solution, including the Licensed Software,
including any Evaluation Licenses thereof. Alliance Member shall provide each
end user with sufficient documentation to enable the end user to install and use
the Licensed Software in accordance with the Documentation and sufficient to
allow support of the Licensed Software. Portal may, if requested by Alliance
Member, provide backup support from its Cupertino headquarters during Portal's
normal hours of operation for the fee set forth on Schedule A. Alliance
Member's first level support obligations are set forth on Schedule D.
7 Fees and Taxes.
7.1 License Fees
Alliance Member shall pay all license fees in accordance with the terms set
forth in Schedule A.
7.2 Referral Fees
In those instances where Alliance Member actively pursues and is instrumental in
a customer's decision to license the Licensed Software from Portal directly,
Portal will pay Alliance Member a referral fee in accordance with the guidelines
set forth in Schedule A.
7.3 Payment Terms
Alliance Member shall pay to Portal all fees due hereunder in US dollars.
Monthly interest at the rate of 1.5%, or if lower, the maximum rate allowed by
law, shall be charged on any amounts due over thirty (30) days. All charges are
exclusive of all taxes, duties, including customs duties, and similar charges.
7.4 Taxes
Partner agrees to pay or reimburse Portal for all federal, state, dominion,
provincial or local sales, use, personal property, payroll, excise or other
taxes, fees or duties arising out of this Agreement or the transactions
contemplated by this Agreement (other than taxes on the net income of Portal).
If any tax is payable by the Alliance Member under this clause, then the
Alliance Member shall provide evidence of payment to Portal and Portal shall use
all reasonable efforts to obtain credit, rebate, or benefit for that amount
against its own tax, and if it receives such credit, rebate, or benefit it shall
refund to the Alliance Member an amount equal to the lesser of the amount paid
by the Alliance Member and the credit, rebate, or benefit obtained by Portal.
8 Confidential Information
8.1.1 Both parties agree that all code, inventions, know-how and ideas it
obtains from the other and all other business, technical and financial
information it obtains from the other are the confidential property of the
disclosing party and its licensors ("Proprietary Information"). Except as
expressly and unambiguously allowed herein, both parties will hold in confidence
and not use or disclose any Proprietary Information except to its employees and
consultants with a "need to know" and who are similarly bound by confidentiality
obligations. The parties' nondisclosure obligation shall not apply to
information that:
(a) is at the time of disclosure generally known by or available to the public
or became so known or available thereafter through no fault of the
receiving party; or
(b) is legally known to the receiving party at the time of disclosure without
any obligation of confidentiality; or
(c) is furnished by the disclosing party to third parties without restriction;
or
(d) is furnished to the either party without any obligation of confidentiality
by a third party who legally obtained said information and the right to
disclose it; or
(e) is developed independently by either party's employees who had no access to
such Proprietary Information where the party can document such independent
development.
8.1.2 Due to the unique and proprietary nature of the Confidential Information,
it is understood and agreed that each party's remedies at law for a breach by
the other of its obligations under this Section will be inadequate and that such
party shall, in the event of any such breach, be entitled to equitable relief
(including without limitation provisional and permanent injunctive relief and
specific performance) in addition to any other remedies under this Agreement or
available at law.
9 Termination
9.1.1 This Agreement will terminate:
(a) automatically upon the natural expiration of the Term;
(b) thirty (30) days (ten (10) in the case of non-payment and immediately in
the case of a breach of Section 4 or 8) after notice from one party of any
breach by the other party remaining uncured at the end of such notice
period; or
(c) immediately upon the commencement of any bankruptcy proceeding (or other
insolvency proceeding) of Alliance Member, or the dissolution of Alliance
Member. Termination is not an exclusive remedy and all other remedies will
be available whether or not termination occurs.
9.1.2 Upon termination of this Agreement, Alliance Member shall immediately pay
to Portal all fees then due to Portal, all licenses to the Licensed Software
shall immediately cease, and the parties shall mutually agree upon arrangements
for continued support of end users. Sections 4.1, 4.2, 5.2, 8, 13, 15, 16 and
19 (including all subsections of Section 9) of this Agreement shall survive any
termination or expiration of this Agreement.
10 Marketing Requirements
Alliance Member shall exercise its best efforts in all respects to advertise,
promote and market, in all parts of the Territory, the use of the Licensed
Software or the Application Solution and shall
Business Alliance Agreement Page 2 of 12
<PAGE>
Portal Confidential & Proprietary.
protect the good name and reputation of Portal and its Licensed Software.
Alliance Member shall act in accordance with Portal's then current marketing
guidelines, a current copy of which is set forth in Schedule C.
11 Proprietary Rights and Trademarks
11.1 Alliance Member shall use Portal's then-current names, marks, logos, and
other identifiers for the Licensed Software ("Trademarks") on or in connection
with the Licensed Software, packaging for the Application Bundle, and Alliance
Member's advertising for the Application Bundle, provided that Alliance Member
shall:
(a) only use Trademarks in the form and manner, and in accordance with the
quality standards, that Portal prescribes (and which it may change from
time to time);
(b) at Portal's request, submit samples of Application Solution, packaging,
advertising, and Licensed Software to Portal for approval; and
(c) upon termination of this Agreement for any reason, immediately cease all
use of the Trademarks.
11.2 Alliance Member will not use, register or take other action with respect
to any name, logo, trademark, service mark, or other identifier used anywhere in
the world by Portal, except to the extent authorized in writing by Portal in
advance.
12 Accounting Reports and Audit Rights
Alliance Member shall maintain accurate records regarding each end user
including without limitation, the names of the Licensed Software components
sublicensed and/or in use, the applicable version number(s), the dates of
delivery and installation, and the full legal name and address of each end user,
the number of copies of the Licensed Software provided and the make, model and
serial number of the machine on which the Licensed Software and/or the
Application Solution are installed. Within ten (10) days after the end of each
calendar month, Alliance Member shall provide Portal a written report containing
the information set forth above plus similar information regarding all copies of
the Licensed Software installed for evaluation purposes at an End User's or
Prospect's site; all copies of the Licensed Software under maintenance
contracts; all copies of the Licensed Software otherwise provided by Alliance
Member to end users (as expressly permitted under any Attachment to this
Agreement). Alliance Member shall remit to Portal all fees due to Portal as
reflected in such report. Portal may, with reasonable notice and at Portal's
expense, audit Alliance Member's records and inspect Alliance Member's
facilities to verify Alliance Member's compliance with the provisions of this
Agreement. If an audit indicates an underpayment of five percent (5%) or more of
any amounts due hereunder, Alliance Member shall promptly pay the deficiency and
reimburse Portal for the cost of the audit.
13 Indemnification
13.1 Portal shall hold Alliance Member harmless from liability to third parties
resulting from infringement by the Licensed Software of any United States patent
or any copyright or misappropriation of any trade secret. Portal shall have no
liability unless Alliance Member:
(a) promptly notifies Portal of the claim,
(b) gives Portal full authority, information and assistance to defend the
claim, and
(c) gives Portal sole control of the defense of the claim. Portal will not be
responsible for any settlement it does not approve in writing.
13.2 The foregoing obligations do not apply with respect to Licensed Software
or portions or components thereof:
(a) not supplied by Portal,
(b) made in whole or in part in accordance to Alliance Member specifications,
(c) that are modified after delivery by Portal,
(d) combined with other products, processes or materials where the alleged
infringement relates to such combination,
(e) where Alliance Member continues allegedly infringing activity after being
notified thereof or after being informed of modifications that would have
avoided the alleged infringement, or
(f) where Alliance Member's use of such Licensed Software is not strictly in
accordance with this Agreement.
13.3 In the event that Licensed Software is held or is believed by Portal to
infringe, Portal shall have the option, at its expense, to:
(a) modify the Licensed Software to be non-infringing,
(b) obtain for Alliance Member a license to continue using the Licensed
Software, or
(c) terminate this Agreement or licenses granted hereunder with respect to the
infringing Licensed Software and refund to Alliance Member the fees paid to
Portal for the infringing License Software under this Agreement depreciated
on a straight-line basis over a three (3) year period.
13.4 The foregoing states Portal's entire liability and Alliance Member's
exclusive remedies for a breach of its indemnification obligations under Section
13.
13.5 Alliance Member shall hold Portal harmless from liability to third parties
resulting from infringement by an Application Solution (that is not covered by
Portal's indemnification obligations as set forth above) of any patent,
copyright or misappropriation of any trade secret. Alliance Member shall have
no liability under this Section 13.5 unless Portal:
(a) promptly notifies Alliance Member of the claim,
(b) gives Alliance Member full authority, information and assistance to defend
the claim, and
(c) gives Alliance Member sole control of the defense of the claim. Alliance
Member will not be responsible for any settlement it does not approve in
writing.
13.6 The foregoing states Alliance Member's entire liability and Portal's
exclusive remedies for a breach of Alliance Member's indemnification obligations
under this Section 13.
14 Warranties
14.1 Portal warrants to Alliance Member and Alliance Member only that it is the
licensee or exclusive owner of the Licensed Software, and that it has the right
to sell, license or sublicense Licensed Software and grant to Alliance Member
the rights granted under this Agreement. If the Licensed Software does not
perform as warranted in this Section 14.1, Portal shall undertake at its own
expense to correct the non-conforming part of the Licensed Software. If
correction is not reasonably possible or commercially practicable, Alliance
Member may terminate the license(s) with respect to the non-conforming Licensed
Software and upon receiving written confirmation from Alliance Member that all
copies of the non-conforming Licensed Software and all related product
documentation have been returned to Portal or destroyed, Portal shall refund the
monies paid by Alliance Member for the non-conforming Licensed Software. The
foregoing states Portal's entire liability and Alliance Member's sole remedies
against Portal for failure of the Licensed Software to perform as warranted in
this Section 14.1.
14.2 Portal warrants to Alliance Member and Alliance Member only that to the
best of its knowledge the Licensed Software is free and clear of any lien,
encumbrance or written claim of any third party. If the Licensed Software does
not perform as warranted in this Section 14.2, Portal shall undertake at its own
expense to correct the non-conforming part of the Licensed Software. If
correction is not reasonably possible or commercially practicable, Alliance
Member may terminate the license(s) with respect to the non-conforming Licensed
Software and upon receiving written confirmation from Alliance Member that all
copies of the non-conforming Licensed Software and all related product
documentation have been returned to Portal or destroyed, Portal shall refund the
monies paid by Alliance Member for the non-conforming Licensed Software. The
foregoing states Portal's entire liability and Alliance Member's sole remedies
against Portal for failure of the Licensed Software to perform as warranted in
this Section 14.2.
Business Alliance Agreement Page 3 of 12
<PAGE>
Portal Confidential & Proprietary.
14.3 Portal warrants to Alliance Member and Alliance Member only that the
Licensed Software will perform in substantial accordance with the Documentation
for a period of ninety (90) days from the Effective Date. If the Licensed
Software does not perform as warranted in this Section 14.3, Portal shall
undertake at its own expense to correct the non-conforming part of the Licensed
Software. If correction is not reasonably possible or commercially practicable,
Alliance Member may terminate the license(s) with respect to the non-conforming
Licensed Software and upon receiving written confirmation from Alliance Member
that all copies of the non-conforming Licensed Software and all related product
documentation have been returned to Portal or destroyed, Portal shall refund the
monies paid by Alliance Member for the non-conforming Licensed Software. The
foregoing states Portal's entire liability and Alliance Member's sole remedies
against Portal for failure of the Licensed Software to perform as warranted in
this Section 14.3.
14.4 Portal warrants to Alliance Member and Alliance Member only that the
Licensed Software is designated to be used prior to, during and after the
calendar year 2000 and that it will operate during each such time period without
error relating to, or the product of, date data which references different
centuries or more than one century ("Year 2000 Compliant"). If the Licensed
Software does not perform as warranted in this Section 14.4, Portal shall
undertake at its own expense to correct the non-conforming part of the Licensed
Software. If correction is not reasonably possible or commercially practicable,
Alliance Member may terminate the license(s) with respect to the non-conforming
Licensed Software and upon receiving written confirmation from Alliance Member
that all copies of the non-conforming Licensed Software and all related product
documentation have been returned to Portal or destroyed, Portal shall refund the
monies paid by Alliance Member for the non-conforming Licensed Software. The
foregoing states Portal's entire liability and Alliance Member's sole remedies
against Portal for failure of the Licensed Software to perform as warranted in
this Section 14.4. The foregoing warranty shall not apply to the extent that:
(a) the Licensed Software is used or interfaced with other software, data or
operating systems which are not Year 2000 Compliant;
(b) the Licensed Software has been modified in a manner not expressly
authorized by Portal;
(c) the party claiming relief under the warranty failed to install an upgrade,
update, patch or maintenance release which would have made the Licensed
Software Year 2000 Compliant within a reasonable time of Portal's having
made the upgrade, update, patch or maintenance release available.
14.5 As an accommodation to Alliance Member, Portal may supply Alliance Member
with limited production products, or with pre-production releases of Products
(which may be labeled "Alpha" or "Beta"). These Products are not suitable for
production use. Portal does not warrant Limited Production Products, pre-
production releases or computer-based training Products. THESE LIMITED
PRODUCTION AND ALPHA/BETA PRODUCTS ARE PROVIDED "AS IS".
15 Warranty Disclaimer
15.1 OTHER THAN EXPRESSLY PROVIDED IN SECTION 14 ABOVE, PORTAL MAKES NO
WARRANTIES OR REPRESENTATIONS AS TO ITS PORTAL SOFTWARE OR AS TO ANY SERVICES
RENDERED TO ALLIANCE MEMBER OR ANY OTHER PERSON. PORTAL RESERVES THE RIGHT TO
CHANGE ITS WARRANTY AND SERVICE POLICIES AT ANY TIME, WITHOUT FURTHER NOTICE AND
WITHOUT LIABILITY TO ALLIANCE MEMBER OR ANY OTHER PERSON. EXCEPT AS SET FORTH
ABOVE, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, PORTAL DISCLAIMS ALL
EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INTERRUPTION OF USE,
AND FREEDOM FROM PROGRAM ERRORS. ALLIANCE MEMBER SHALL BE RESPONSIBLE FOR ALL
WARRANTY RETURNS (DIRECT AND INDIRECT) FROM END USERS AND WILL BE ENTITLED TO
(AND ONLY TO) CREDIT FOR AMOUNTS PAID TO PORTAL UNDER THIS AGREEMENT. ALLIANCE
MEMBER SHALL MAKE NO REPRESENTATION OR WARRANTY CONCERNING THE QUALITY,
PERFORMANCE OR OTHER CHARACTERISTICS OF PORTAL SOFTWARE OTHER THAN THOSE WHICH
ARE CONSISTENT IN ALL RESPECTS WITH, AND DO NOT EXPAND THE SCOPE OF, THE
WARRANTIES IN SECTION 14 ABOVE.
16 Limitation of Liability
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, AND EXCEPT FOR
BODILY INJURY, PORTAL SHALL NOT BE LIABLE OR OBLIGATED WITH RESPECT TO THE
SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR:
(a) ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE FEES PAID TO IT HEREUNDER
WITH RESPECT TO THE APPLICABLE PORTAL SOFTWARE PRIOR TO THE CAUSE OF
ACTION;
(b) FOR ANY COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY, SERVICES OR
RIGHTS;
(c) FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES;
(d) FOR INTERRUPTION OF USE OR LOSS OR CORRUPTION OF DATA; OR
(e) FOR ANY MATTER BEYOND ITS REASONABLE CONTROL.
17 Foreign Law Representation
As a condition of Alliance Member's rights hereunder, Alliance Member warrants
and agrees that neither this Agreement (or any term hereof) nor the performance
of or exercise of rights under this Agreement, is restricted by, contrary to, in
conflict with, ineffective under, requires registration or approval or tax
withholding under, or affects Licensor's Proprietary Rights (or the duration
thereof) under, or will require any termination payment or compulsory licensing
under, any law or regulation of any organization, country, group of countries or
political or governmental entity located within or including all or a portion of
the Territory.
18 Export
Alliance Member shall comply with the U.S. Foreign Corrupt Practices Act and all
applicable export laws, restrictions, and regulations of the United States or
foreign agency or authority. Alliance Member will not export, or allow the
export or re-export of the Licensed Software or Application Solution in
violation of any such laws, restrictions or regulations. Alliance Member shall
obtain and bear all expenses relating to any necessary licenses and/or
exemptions with respect to the export from the U.S. of the Licensed Software or
Application Solution to any location so as to be in compliance with all
applicable laws and regulations.
19 Miscellaneous
19.1 Neither the Agreement or the licenses granted hereunder are assignable or
transferable by Alliance Member without the prior written consent of Portal; any
attempt to do so shall be void. Portal may assign this Agreement in whole or in
part.
19.2 Alliance Member agrees that it is an independent contractor and that this
Agreement and relations between Portal and Alliance Member hereby established do
not constitute a, joint venture, agency or contract of employment between them,
or any other similar relationship. Neither party has the right or authority to
assume or create any obligation or responsibility on behalf of the other.
19.3 Any notice, report, approval or consent required or permitted hereunder
shall be in writing.
19.4 No failure or delay in exercising any right hereunder will operate as a
waiver thereof, nor will any partial exercise of any right or power hereunder
preclude further exercise. Any waivers or amendments shall be effective only if
made in writing.
19.5 If any provision of this Agreement shall be adjudged by any court of
competent jurisdiction to be unenforceable or invalid, that provision shall be
limited or eliminated to the minimum extent
Business Alliance Agreement Page 4 of 12
<PAGE>
Portal Confidential & Proprietary.
necessary so that this Agreement shall otherwise remain in full force and effect
and enforceable.
19.6 This Agreement shall be deemed to have been made in, and shall be construed
pursuant to the laws of the State of California and the United States without
regard to conflicts of laws provisions thereof, and without regard to the United
Nations Convention on the International Sale of Goods.
19.7 This Agreement is the complete and exclusive statement of the mutual
understanding of the parties and supersedes and cancels all previous written and
oral agreements and communications relating to the subject matter of this
Agreement.
19.8 The prevailing party in any action to enforce this Agreement will be
entitled to recover its attorney's fees and costs in connection with such
action.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals by an
officer duly authorized as of the date first above written.
[Company Name]
("Alliance Member")
By:__________________________________________________________
(print or type):_____________________________________________
Title:_______________________________________________________
Date:________________________________________________________
Portal Software, Inc.
By:__________________________________________________________
(print or type):_____________________________________________
Title:_______________________________________________________
Date:________________________________________________________
Business Alliance Agreement Page 5 of 12
<PAGE>
Portal Confidential & Proprietary.
SCHEDULE A
1 Licensed Software
The following Licensed Software products and their associated online
documentation will be provided:
[_] Infranet(R) (includes Infranet Server, Infranet Developer, Infranet
Administrator, Infranet Payment Tool, Infranet Pricing Tool, Policy
Configuration Tool, Invoice Designer Tool);
[_] Infranet Terminal Server Manager;
[_] Infranet Mail Server Manager;
[_] MCIS Manager;
[_] Netscape(R) SuiteSpot(TM) Manager;
[_] Infranet IPT;
[_] Infranet IPT (manager only)
[_] Infranet Netflow Manager
[_] Other:
[_] Other:
2 Operating System/Hardware Platform
[_] Solaris-Unix
[_] HP-Unix
[_] Windows NT
3 Territory:
4 Designated Installation Sites
Development Site #1:
Development Site #2:
Development Site #3:
Development Site #4:
Development Site #5:
Demonstration Site #1:
Demonstration Site #2:
Demonstration Site #3:
Demonstration Site #4:
Demonstration Site #5:
Primary Backup Site:
5 License and Support Fees
5.1 License Fees
For each copy of the Licensed Software distributed to an End User, Alliance
Member will pay Portal Portal's current list price for such Licensed Software
less a discount of . After Alliance Member has paid Portal for
five (5) End User licenses, this discount shall be increased to .
5.2 Update Support Service Fees
Portal will provide update support services with respect to a particular End
User provided Alliance Member pays Portal an annual fee equal to
of the amount paid in license fees with respect to that End User within
thirty (30) days after the Effective Date of the End User Agreement and on each
anniversary thereafter.
5.3 Maintenance Support Service Fees
Portal will provide backup technical support services with respect to a
particular End User in accordance with Schedule D provided Alliance Member pays
Portal an annual fee equal to of the license fees paid to
Portal with respect to that End User within thirty (30) days after the Effective
Date of the End User Agreement and on each anniversary thereafter.
5.4 Non-compensated services
Unless otherwise agreed by the parties in writing, Alliance Member will not be
compensated for consulting services provided by Portal or for any upgrades or
additions to the licensed subscriber base occurring:
(a) more than one year after the Effective Date of the applicable End User
Agreement, or
(b) after Alliance Member has ceased providing First Level Technical Support
Services to the End User, whichever shall be later.
5.5 Portal's Price Lists
Portal maintains separate list price schedules for Domestic U.S. licenses and
International licenses of the Licensed Software and services. Portal may modify
its list price schedules from time to time. Portal will use reasonable
commercial efforts to provide Alliance Member with at least sixty (60) days
notice prior to any increase in the list price schedules. Any Licensed Software
distributed after the sixty (60) day notice period shall be subject to the
changed price.
Business Alliance Agreement Page 6 of 12
<PAGE>
Portal Confidential & Proprietary.
6 Referral Fees
6.1 Lead Notice
Alliance Member may identify a potential business opportunity in the Territory
and may request the assistance of Portal in pursuing the opportunity by
completing a Customer Lead Notice in the form attached as Schedule A-1.
6.2 Qualified Project
6.2.1 Within fifteen (15) days after receipt of a Customer Lead Notice, the
parties will schedule a meeting to discuss the project identified therein,
further define each party's respective sales and marketing responsibilities,
establish rules of engagement and determine Alliance Members Compensation (as
defined in Section 6.3 below). Execution of a Customer Lead Notice by Portal
shall be entirely in Portal's discretion. Upon execution by Portal of the
amended Customer Lead Notice, the project shall be deemed a "Qualified Project".
6.2.2 Portal shall be under no obligation to consider a Customer Lead Notice if
the prospective customer is:
(a) a current user of Portal's products or
(b) an entity already being solicited by Portal or any of Portal's
distributors, dealers, agents or other manufacturing representatives.
6.3 Fees
6.3.1 With respect to each Qualified Project, Alliance Member will be entitled
to a fee ("Alliance Member Compensation") as specified in the Customer Lead
Notice signed by Portal provided
(a) the potential customer enters into a license agreement with Portal for the
Licensed Software within one hundred eighty (180) days from the time the
project is deemed a Qualified Project, and
(b) Alliance Member is chosen by end user to be the primary source of
professional services for the Qualified Project.
6.3.2 In no event shall the maximum Alliance Member Compensation paid per
Qualified Project exceed .
6.3.3 The amount of Alliance Member Compensation paid to Alliance Member by
Portal under this Section 6.3 will be based solely on the initial license
revenues received by Portal under the resulting license agreement and shall not
be based in any way on any additional software licensed by Portal to end user,
including Updates, or services provided to the end user by Portal.
Additionally, Portal may request that Alliance Member agree to a reduction in
the amount of the Alliance Member Compensation payable to Alliance Member as a
condition to licensing Licensed Software to an end user.
6.4 Payment
Within 30 days after Portal's receipt of payment for the Licensed Software from
the end user in connection with a Qualified Project, Portal will pay to Alliance
Member the applicable Alliance Member Compensation due in connection therewith.
In the event license fees paid by an end user with respect to a particular
Qualified Project are refunded by Portal for any reason, Alliance Member will
immediately refund to Portal any Alliance Member Compensation paid to it in
connection with the license fees refunded, or at Portal's option, Portal may
setoff such amounts from any other Alliance Member Compensation due and/or
payable.
6.5 Termination of Qualified Project
6.5.1 A Qualified Project may be terminated:
(a) by written agreement of the parties, unilaterally by either party provided
such party reasonably determines that a material dispute or claim involving
the Qualified Project has arisen,
(b) by Portal if it determines that the end user has inadequate credit or would
for any other reason be an inappropriate licensee of the Licensed Software,
(c) by Portal if the end user has, in Portal's opinion, made a commitment to
another vendor, or
(d) if Portal does not execute a license agreement with the end user within one
hundred eighty (180) days of the project being deemed a Qualified Project.
6.5.2 After a project's status as a Qualified Project has terminated, Alliance
Member agrees not to perform any sales or marketing assistance activities
on behalf of Portal with respect to that end user.
Business Alliance Agreement Page 7 of 12
<PAGE>
Portal Confidential & Proprietary.
SCHEDULE A-1
LEAD NOTICE
<TABLE>
<S> <C>
Prospect's Company Name: ______________________________________________________________________________________
Address:_______________________________________________________________________________________________________
Contact Name:__________________________________________________________________________________________________
Telephone:_____________________________________________________________________________________________________
Fax:___________________________________________________________________________________________________________
E-mail_________________________________________________________________________________________________________
Prospect's Hardware:___________________________________________________________________________________________
Operating System:______________________________________________________________________________________________
Application (intended use of the Licensed Software):___________________________________________________________
Initial Subscriber Limit:______________________________________________________________________________________
Licensed Software components to be licensed:___________________________________________________________________
Portal's List Price for the Licensed Software:_________________________________________________________________
Estimated total project value (including maintenance and consulting services:__________________________________
Installation Site:_____________________________________________________________________________________________
Portal Alliance Member Contact:________________________________________________________________________________
Alliance Member Contacts:______________________________________________________________________________________
Address:_______________________________________________________________________________________________________
Telephone:_____________________________________________________________________________________________________
Fax:___________________________________________________________________________________________________________
E-mail:________________________________________________________________________________________________________
Rate of Alliance Member Compensation:__________________________________________________________________________
Effective Date of Lead Notice:_________________________________________________________________________________
Additional Rules of Engagement:________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
</TABLE>
Business Alliance Agreement Page 8 of 12
<PAGE>
Portal Confidential & Proprietary.
Lead Notice offered by:
_________________________________________
(Alliance Member)
_________________________________________
(Authorized Signature)
_________________________________________
(Print Name)
_________________________________________
(Title)
_________________________________________
(Date)
Lead Notice accepted by:
Portal Software, Inc.
_________________________________________
(Authorized Signature)
_________________________________________
(Print Name)
_________________________________________
(Title)
_________________________________________
(Date)
Business Alliance Agreement Page 9 of 12
<PAGE>
Portal Confidential & Proprietary.
SCHEDULE B
MINIMUM END USER LICENSE TERMS AND CONDITIONS
1 Sublicenses
1.1 Each sublicense agreement between Alliance Member and its End Users
pertaining to the Licensed Software shall provide without limitation:
1.2 Sublicensee may use the Licensed Software only in object code form in
accordance with the Documentation, at a previously designated production site to
support the number of Subscriber's licensed for the Licensed Software;
1.3 Sublicensee may not transfer or duplicate the Licensed Software except for
temporary transfer in the event of CPU malfunction and a single backup or
archival copy;
1.4 Sublicensee may not sell, lease, license, sublicense, transfer, assign,
encumber or otherwise deal with any portion of the Licensed Software or
Documentation;
1.5 Sublicensee may not use the Licensed Software to provide data processing
services to third parties, commercial timesharing, rental or sharing
arrangements, or on a "service bureau" basis or otherwise use or allow others to
use the Licensed Software for the benefit of any third party;
1.6 Sublicensee may not use the Licensed Software for any purpose outside of
the scope of the authorized use Application (which Application must be approved
in writing by Portal), which shall be specifically set forth in the Sublicense
Agreement;
1.7 Except to the minimum extent necessary to comply with EC Directive, if
applicable, or other applicable legislation, Sublicensee shall not decompile,
disassemble, or reverse engineer any portion of the Licensed Software or attempt
to discover any source code or underlying ideas or algorithms of any Licensed
Software;
1.8 Title to the Licensed Software does not pass to Sublicensee;
1.9 Portal shall not be liable for any damages, whether direct, indirect,
incidental or consequential arising from the use of the Licensed Software;
1.10 Sublicensee, at the termination of the Agreement, shall discontinue use of
and destroy or return to Portal the Licensed Software, related Licensed Software
Documentation and all archival or other copies of the Licensed Software;
1.11 Customer may not publish any results of benchmark test runs on the Licensed
Software;
1.12 With respect to Licensed Software for use in the United States, Sublicensee
may not transfer the Licensed Software outside of the United States; for
Licensed Software licensed for use outside of the United States, Sublicensee
shall comply fully with all relevant export laws and regulations of the United
States to assure that neither the Licensed Software, nor any direct product
thereof, shall be exported, directly or indirectly, in violation of the United
States or other applicable law;
1.13 Portal is a third party beneficiary to the Sublicense Agreement;
1.14 The Licensed Software is not specifically developed or licensed for use in
any nuclear, aviation, mass transit, or medical application or in any other
inherently dangerous applications. Portal shall not be liable for any claims
for damages arising from such use if the Sublicensee uses the Licensed Software
for such applications. Sublicensee agrees to indemnify and hold Portal harmless
from any claims for losses, costs, damages or liability arising out of or in
connection with the use of the Licensed Software in such applications.
1.15 Sublicensee shall not use any Licensed Software, or allow the transfer,
transmission, export, or re-export of any Licensed Software or portion thereof
in violation of any export control laws or regulations administered by the U.S.
Commerce Department, OFAC, or any other government agency. All the limitations
and restrictions on the Licensed Software in this Agreement also apply to the
Documentation.
1.16 Unless otherwise approved by Portal in writing, Subscribers shall be
counted as follows: "Subscriber" means an individual customer record account
object ("Customer Record") in each database used in connection with the Licensed
Software ("Licensed Software Database"). The total number of Subscribers is
exactly equal to the number of Customer Records in the Licensed Software
database.
2 Evaluation Licenses
Each Evaluation License Agreement for the Licensed Software between Alliance
Member and its End Users shall contain all of the provisions set forth above for
Sublicenses plus will further provide:
2.1 The beginning and ending dates of the Licensed Software evaluation period;
2.2 All copies of the Portal software will be removed or destroyed upon
completion of the evaluation period;
2.3 Any evaluation copy of the Licensed Software not removed or returned to the
Alliance Member at the end of such period shall be deemed to be licensed and
license fees with respect thereto shall be due.
Business Alliance Agreement Page 10 of 12
<PAGE>
Portal Confidential & Proprietary.
SCHEDULE C
MINIMUM MARKETING REQUIREMENTS
Alliance Member commits to use its best commercial efforts to market and promote
the Licensed Software throughout the Territory. In furtherance of this
objective, Alliance Member agrees to undertake, without limitation, the
following actions:
. Will establish a Portal Competency and Demonstration Center in two (2)
cities (locations to be determined) within six (6) months of the Effective
Date;
. Will provide sales and technically knowledgeable employees to display and
demonstrate the Licensed Software at no less than two (2) major trade shows
within one year of the Effective Date hereof;
. Once per year at least five (5) of Alliance Member's staff will attend
Portal's standard Basic and Advanced Infranet training course in Cupertino
California. Alliance Member will pay for such training at Portal's standard
rates with a twenty five percent (25%) discount;
. Will designate a primary Alliance Manager for all global account issues.
The current contacts are:
For Portal: For Alliance Member:
________________________________ ________________________________
(Name & Title) (Name & Title)
20883 Stevens Creek Boulevard ________________________________
Cupertino, California, 95014 USA ________________________________
Telephone:______________________ Telephone:______________________
Fax:____________________________ Fax:____________________________
Email:__________________________ E-mail:_________________________
. Alliance Member designates the following person as the single point of
contact for Licensed Software technical support:
Name/Title:_____________________ Address:________________________
Phone Number:___________________ ________________________________
Email:__________________________ ________________________________
. Alliance Member designates the following person as the backup point of
contact for Licensed Software technical support:
Name/Title:_____________________ Address:________________________
Phone Number:___________________ ________________________________
Email:__________________________ ________________________________
. Will dedicate at least three (3) sales and technical personnel to the
Alliance activities in the Territory within six (6) months of the Effective
Date;
. Will be responsible for its own cost of sales;
. Will develop collateral materials that support the Application Solution
within six (6) months of the Effective Date;
. Will develop a joint marketing and sales activity plan mutually acceptable
to both parties;
. Will issue a joint press release (mutually acceptable to both parties)
announcing the Portal relationship within sixty (60) days of the Effective
Date;
. Will issue joint press releases announcing business wins that is mutually
acceptable to both parties;
. Will add a Portal URL pointer in the Alliance or Alliance Member section of
its external web site within six (6) months of the Effective Date.
Business Alliance Agreement Page 11
<PAGE>
Portal Confidential & Proprietary.
SCHEDULE D
ALLIANCE MEMBER'S FIRST LEVEL SUPPORT OBLIGATIONS
1 Alliance Member's Technical Support Team
1.1 As a precondition to being deemed authorized to provide First Level
Support to End Users, Alliance Member agrees to establish a dedicated
Licensed Software Technical Support Team ("Technical Support Team") which
shall be comprised of the following personnel:
1.2 First Level Support Engineers
1.2.1 Alliance Member agrees to train and maintain at least two (2) Licensed
Software First Level Support Engineers at all times during the term of
this Agreement and during the term of any other Portal-related agreement,
including without limitation any sublicense of the Licensed Software,
whereby Alliance Member has undertaken the obligation to provide First
Level Support.
1.2.2 Alliance Member agrees to take all reasonable steps to ensure that the
First Level Engineers will be trained on Infranet and related support
services and installed within sixty (60) of the Effective Date of this
Agreement.
1.2.3 Each First Level Support Engineer must be Portal Certified before he/she
will be deemed qualified to be installed to provide First Level Support.
"Portal Certified" means that the First Level Support Engineer will have
been issued the Portal Certificate of Competency which is awarded to
candidates who have successfully completed Beginning and Advanced
Infranet Developer Training and any other classes made available by
Portal. All First Level Support Engineers will be required to maintain
their Portal Certified status by complying with Portal's standard
continuing education requirements, including without limitation,
attending Portal's Product Update classes at least once per year.
2 Alliance Member's First Level Support Commitments
2.1 In fulfillment of its First Level Support obligations Alliance Member's
Technical Support Team will, without limitation;
2.2 Use its best efforts to adequately and efficiently respond to and
successfully resolve End User technical problems;
2.3 Alliance Member's Technical Support Team will obtain all necessary
information regarding an End User's configuration, log files, screen
dumps, and any other additional data required to troubleshoot and/or
reproduce a reported problem. Research the Program Documentation,
including the Portal knowledge base, FAQ's database and "White Papers" in
order to gain a more thorough understanding of the Licensed Software and
in the course of troubleshooting and resolving reported problems;
2.4 Compile a full description of a reported problem, including its initial
diagnosis before seeking backup support from Portal;
2.5 Initiate appropriate problem escalation procedures as set forth in
Portal's standard Gold and Silver level support guidelines, policies and
procedures;
2.6 Promptly report identified bugs to Portal, provide detailed instructions
on how to reproduce such bugs and will cooperate with Portal, including
obtaining and/or supply such information as may be reasonably necessary
in order to debug such bugs;
2.7 Report all End User requested product enhancements so that Portal may
determine the appropriateness of incorporating such enhancements into
future product releases;
2.8 Provide technical assistance to End Users via email, the internet through
an established web page or by telephone during Alliance Member's normal
business hours (8:00 AM to 5:00 PM Monday through Friday);
2.9 Will provide End Users with 7x24 support packages;
2.10 Will designate one senior level First Level Support Engineer who will
serve as the primary support liaison with Portal and one backup First
Level Support Engineer;
2.11 Upon request, Alliance Member will provide Portal with monthly management
reports which shall include for the preceding calendar month, among other
things: the number of support-related calls received, the initial
response times for such calls, the initial diagnosis, the ultimate
diagnosis, the level of severity ascribed, the total time elapsed from
when the initial End User report of the problem was received until the
problem was cured and a description of how the cure was effected;
2.12 Will promptly inform its End Users of newly released patched and
maintenance upgrades.
3 Portal's Backup Support Commitments:
3.1 Portal will provide a designated support staff to provide backup support
and address escalated issues;
3.2 Portal will provide support for escalated issues on the base Infranet
product between our normal business hours (8:00 AM to 5:00 PM Monday
through Friday) in connection with Silver Level Support End User accounts
and 7x24 in connection with Gold Level End User accounts;
3.3 Portal will provide fixes or patches and status for serious bugs in base
Infranet product as set forth in the Support Terms;
3.4 Portal will make available a listing of problems, fixes, workarounds
and/or updates that it makes generally available;
3.5 In the event Portal makes future modifications to the Support Terms,
Portal will provide Alliance Member with reasonable prior written notice
of such modifications.
Business Alliance Agreement Page 12
<PAGE>
Exhibit 21.1
List of Subsidiaries of Portal Software, Inc.
Portal International Holdings, Inc., a corporation formed under the laws of Hong
Kong.
Portal Software International, Pty. Limited, a corporation formed under the laws
of Australia.
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 24, 1999, in the Registration Statement (Form S-1) and related
Prospectus of Portal Software, Inc. for the registration of shares of its
common stock.
/s/ Ernst & Young LLP
Palo Alto, California
February 25, 1999
<TABLE> <S> <C>
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<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 11,809
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<ALLOWANCES> 940
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<PP&E> 6,555
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0
18,482
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<TOTAL-LIABILITY-AND-EQUITY> 32,344
<SALES> 0
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</TABLE>
