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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1999
REGISTRATION NO. 333-82907
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CALICO COMMERCE, INC.
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0373344
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
RIVERPARK TOWERS
333 WEST SAN CARLOS STREET, SUITE 300
SAN JOSE, CALIFORNIA 95110
(408) 975-7400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
MR. ALAN P. NAUMANN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CALICO COMMERCE, INC.
333 WEST SAN CARLOS STREET, SUITE 300
SAN JOSE, CALIFORNIA 95110
(408) 975-7400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
<TABLE>
<S> <C>
GREGORY M. GALLO, ESQ. LARRY W. SONSINI, ESQ.
PETER M. ASTIZ, ESQ. JOHN T. SHERIDAN, ESQ.
SALLY J. RAU, ESQ. CHRISTOPHER OZBURN, ESQ.
GRAY CARY WARE & FREIDENRICH LLP WILSON SONSINI GOODRICH & ROSATI, P.C.
400 HAMILTON AVENUE 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94301-1825 PALO ALTO, CALIFORNIA 94304-1050
(650) 328-6561 (650) 493-9300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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If any of the securities being registered on this Form are being 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 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 number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED PER SHARE(1)(2) OFFERING PRICE(1)(2) FEE(3)
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Common Stock ($0.001 par value).......................... $14.00 $63,286,692 $17,594
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</TABLE>
(1) Includes 589,627 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) The number of shares being registered hereby is omitted pursuant to Rule
457(o) promulgated under the Securities Act. Estimated solely for the
purposes of determining the registration fee pursuant to Rule 457(o)
promulgated under the Securities Act.
(3) Previously paid.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion. Dated September 22, 1999.
3,930,851 Shares
CALICO COMMERCE, INC.
Common Stock
[CALICO LOGO]
----------------------
This is an initial public offering of shares of common stock of Calico
Commerce, Inc. All of the 3,930,851 shares of common stock are being sold by
Calico.
Prior to this offering, there has been no public market for our common
stock. It is currently estimated that the initial public offering price per
share will be between $12.00 and $14.00. Application has been made for quotation
of the common stock on the Nasdaq National Market under the symbol "CLIC".
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 ADEQUACY
OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Calico........................ $ $
</TABLE>
To the extent that the underwriters sell more than 3,930,851 shares of
common stock, the underwriters have the option to purchase up to an additional
589,627 shares from Calico at the initial public offering price less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares on , 1999.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
HAMBRECHT & QUIST
----------------------
Prospectus dated , 1999.
<PAGE> 3
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Calico and the consolidated financial statements and notes
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:
- - assumes no exercise of the underwriters' over-allotment option;
- - gives effect to the conversion of each outstanding share of preferred stock
into one share of common stock upon the completion of this offering;
- - reflects the 3-for-2 stock split and our reincorporation into Delaware prior
to the completion of this offering; and
- - gives effect to the sale of 1,654,200 shares of common stock to one corporate
investor, at the initial public offering price less the per share estimated
underwriting discount, contemporaneously with this offering.
CALICO COMMERCE, INC.
We provide software and services that enable our customers to engage in
electronic commerce by selling complex products and services over the Internet
and through intranets, extranets and corporate networks. Our software and
services allow our customers to interact directly with users to create a
web-based, guided selling experience. Based on the number of our customers, we
believe that we are a leading provider of software and services that enable our
customers to implement greater electronic business strategies. With an
electronic business strategy, a company combines the opportunities provided by
the Internet with emerging technologies to expand their existing business.
With our software, companies are able to design sales programs that evolve
beyond basic transactions and focus on enhanced interactions with their
customers. We believe that we have pioneered a new class of software that
enables companies to customize the appearance and function of their web site and
create a unique process to interact with their customers. This enables companies
to differentiate themselves from their competitors, and build strong customer
relationships that can result in increased revenue and reduced sales costs.
The Internet has created a new means for businesses to interact directly
with new and existing customers worldwide, thereby transforming the ways
companies market, sell and support their product and service offerings. The
Internet allows for enhanced interactivity, greater personalization and the
ability to offer a broad array of complex, configurable goods and services, all
at the time of purchase. In order to capitalize on the opportunities offered by
the Internet, companies are adopting more sophisticated approaches to electronic
commerce in their strategies, and are increasing their investment in electronic
commerce infrastructure.
The Calico eSales Suite can be implemented on our customers' web sites to
improve selling effectiveness and customer satisfaction. Our software
facilitates the selling process by dynamically assessing customer requirements,
providing tailored information, identifying constraints, proposing alternatives
and delivering quotes. Our software enables companies to provide highly tailored
products and services, recommend additional related or complementary items to a
buyer during the purchase process, and reduce the time to market of new products
and services. In addition, our software is designed to improve sales
effectiveness and order accuracy, thereby enhancing operating efficiency and
reducing costs.
The key elements of our strategy are to:
- - increase the breadth, depth and functionality of our software;
- - align with electronic commerce leaders and expand into additional industry
market segments;
- - enhance and expand our sales and services through additional partnerships
and alliances;
- - extend our technology leadership; and
- - identify and capitalize on new opportunities offered by expansion of
electronic commerce.
Our software is broadly applicable to a wide range of industries and
markets. Our current customers include companies that have adopted aggressive
electronic business strategies.
We were incorporated in California in 1994 and will reincorporate in
Delaware prior to the consummation of this offering. Our principal executive
offices are located at 333 West San Carlos Street, Suite 300, San Jose,
California
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95110 and our telephone number is (408) 975-7400. Our worldwide website is at
www.calico.com. The information contained on our website does not constitute a
part of this prospectus.
We incurred net losses of approximately $15.3 million for fiscal 1999 and
$4.7 million for the three months ended June 30, 1999. As of June 30, 1999, we
had an accumulated deficit of $34.4 million.
THE OFFERING
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<S> <C>
Common Stock offered by Calico.................. 3,930,851 shares
Common Stock to be outstanding after this 32,705,178 shares
offering........................................
Proposed Nasdaq National Market symbol.......... "CLIC"
Use of proceeds................................. General corporate purposes, including working
capital, sales and marketing activities, product
development and capital expenditures. See "Use
of Proceeds".
</TABLE>
The above information is based on 27,120,127 shares outstanding as of June 30,
1999. Of this number, 2,302,561 shares are subject to a repurchase option held
by Calico. This information does not include 5,293,237 shares of common stock
issuable upon the exercise of options outstanding under our 1997 and 1995 Stock
Option Plans, 31,463 shares of common stock issuable upon exercise and
conversion of preferred stock options, and 133,249 shares of common stock
issuable upon exercise and conversion of preferred stock warrants. This
information includes the sale of 1,654,200 shares of common stock at the initial
public offering price less the per share underwriting discount in a concurrent
private placement. At the midpoint of the range this price is equal to $12.09
per share, which is less than the price paid by the investors in this offering.
See "Capitalization", "Management -- Executive Compensation", and "-- Benefit
Plans".
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
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1996 1997 1998 1999 1998 1999
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<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net revenue........................................... $ 2,270 $ 5,903 $11,859 $ 21,413 $ 4,653 $ 7,433
Gross profit................................................ 1,830 3,603 8,479 12,962 3,185 4,636
Loss from operations........................................ (2,070) (6,921) (5,458) (15,238) (1,610) (4,794)
Net loss.................................................... (1,970) (6,900) (5,499) (15,261) (1,645) (4,723)
Net loss per share:
Basic and diluted......................................... $ (0.69) $ (2.12) $ (1.08) $ (2.27) $ (0.27) $ (0.59)
Weighted average shares................................... 2,856 3,248 5,079 6,710 6,040 7,961
Pro forma net loss per share:
Basic and diluted......................................... $ (0.74) $ (0.20)
Weighted average shares................................... 20,689 23,588
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 10,528 $10,528 $ 76,302
Working capital............................................. 5,276 5,276 71,050
Total assets................................................ 27,223 27,223 92,997
Debt and capital leases, long-term portion.................. 622 622 622
Total Mandatorily Redeemable Convertible Preferred Stock.... 32,541 -- --
Total stockholders' equity (deficit)........................ (20,972) 11,569 77,343
</TABLE>
Consolidated statement of operations data for the three month period ended June
30, 1999 and for year ended March 31, 1999 includes the results of operations of
FirstFloor Software subsequent to our acquisition of FirstFloor in August 1998.
Shares used in computing unaudited pro forma basic and diluted net loss per
share include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of preferred stock to common stock, as if the
conversion occurred on April 1, 1998 or the date of original issuance, if later.
The pro forma as adjusted information above reflects the application of the
estimated net proceeds from the sale of the shares of common stock that we are
offering at an assumed initial public offering price of $13.00 per share, after
deducting the estimated underwriting discount and our estimated offering
expenses. It also gives effect to the contemporaneous private placement to one
corporate investor of $20.0 million, or 1,654,200 shares of common stock, at the
initial public offering price less the per share estimated underwriting
discount, or $12.09 based on the midpoint of the range. See "Capitalization".
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RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before deciding whether to
invest in our common stock.
If any of the following risks actually occurs, our business could be
harmed. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
WE HAVE A FIVE YEAR HISTORY OF LOSSES, WE EXPECT TO CONTINUE TO INCUR LOSSES AND
WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY
We have incurred quarterly and annual losses in each of the five years
since we were formed, and we expect to continue to incur losses on both a
quarterly and annual basis for the foreseeable future. We incurred net losses of
$6.9 million for fiscal 1997, $5.5 million for fiscal 1998, $15.3 million for
fiscal 1999 and $4.7 million for the three months ended June 30, 1999. As of
June 30, 1999, we had an accumulated deficit of $34.4 million. Moreover, we
expect to continue to incur significant sales and marketing and research and
development expenses, and, as a result, we will need to generate significant
revenue to achieve and maintain profitability. Although our revenue has grown in
recent quarters, we cannot be certain that we can sustain this growth or that we
will generate sufficient revenue for profitability. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future. See "Selected
Consolidated Financial Data" on page 22 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 23 for more
detailed information about our operating results.
OUR QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY, ARE SUBJECT TO SEASONALITY AND
MAY FALL SHORT OF ANTICIPATED LEVELS, WHICH MAY CAUSE VOLATILITY OR DECLINE IN
THE PRICE OF OUR COMMON STOCK
Our quarterly operating results have varied significantly in the past and
we expect that they will continue to vary significantly from quarter to quarter
in the future.
In addition, we receive a major portion of our orders near the end of each
quarter. Therefore, we have difficulty predicting the volume and timing of
orders, and short delays in closing orders or implementation of products can
cause our operating results to fall substantially short of anticipated levels
for that quarter.
We also expect to experience seasonal fluctuations in the sales of our
software products. For example, our quarterly results may fluctuate based upon
our customers' calendar year budgeting cycles. These seasonal variations may
lead to fluctuations in our quarterly operating results.
As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations are not necessarily
meaningful and are not a good predictor of our future performance. In some
future quarter our operating results may be below the expectations of public
market analysts and investors, which could cause volatility or decline in the
price of our common stock.
OUR PRODUCTS HAVE A LONG SALES AND IMPLEMENTATION CYCLE WHICH MAKES IT DIFFICULT
TO PREDICT OUR QUARTERLY RESULTS AND MAY CAUSE OPERATING RESULTS TO VARY
SIGNIFICANTLY
The sales cycle for our products is long, typically ranging from three
months to a year, making it difficult to predict the quarter in which revenue
recognition may occur. Our products have a relatively high sales price per unit,
and often are part of a significant strategic decision by our customers
regarding their information systems infrastructure. Accordingly, the decision to
purchase our products typically requires significant pre-purchase evaluation. We
spend significant time educating and providing information to prospective
customers regarding the use and benefits of our products. During this evaluation
period, we may expend substantial funds in sales, marketing and management
efforts.
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This lengthy sales cycle may cause license revenue and operating results
to vary significantly from period to period. If anticipated sales from a
specific customer for a particular quarter are not realized in that quarter, our
operating results may vary significantly and we may miss our revenue forecast.
IF WE ARE UNABLE TO COMPLETE SUBSTANTIAL LICENSE SALES WHEN ANTICIPATED OR
EXPERIENCE DELAYS IN THE PROGRESS ON A PROJECT OR IN THE SATISFACTION OF
CONTRACT TERMS, WE MAY HAVE TO DEFER REVENUE UNTIL LATER QUARTERS, CAUSING OUR
QUARTERLY RESULTS TO FLUCTUATE AND FALL BELOW ANTICIPATED LEVELS
Even after purchase of our products, it often takes substantial time and
resources to implement our software and to integrate it with our customers'
existing computer systems. We may not be able to recognize all or a portion of
the revenue until the implementation of the software is completed or milestones
are achieved. We have in the past and may in the future be required to defer
license revenue for software products from the period in which the agreement for
the license of software is signed to subsequent periods. If we are unable to
complete one or more substantial anticipated license sales or experience delays
in the progress on a project or product or in the satisfaction of contract terms
required for revenue recognition in a particular quarter, we may not be able to
recognize revenue when anticipated, causing our quarterly results to fluctuate
and fall below anticipated levels. This could cause our stock price to decline.
BECAUSE A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR
REVENUE, OUR REVENUE COULD DECLINE IF WE LOSE A MAJOR CUSTOMER
We derive a significant portion of our software license revenue in each
quarter from a limited number of customers. For example, for the fiscal year
ended March 31, 1999, four customers accounted for 52% of our revenue and ten
customers accounted for 81% of our revenue. Many of our contracts are in excess
of $1.0 million. We expect that a limited number of customers will continue to
account for a substantial portion of our revenue for the foreseeable future. As
a result, if we lose a major customer, if a contract is delayed, cancelled or
deferred or if an anticipated sale is not made, our revenue would be adversely
affected. In addition, customers that have accounted for significant revenue in
the past may not continue to generate revenue in any future period.
WE MAY NOT ACHIEVE ANTICIPATED REVENUE IF WE DO NOT SUCCESSFULLY INTRODUCE, AND
IF OUR CUSTOMERS DO NOT ACCEPT, UPGRADES AND ENHANCEMENTS TO OUR PRODUCTS,
INCLUDING OUR NEW VERSION RELEASED IN JUNE 1999
We currently derive substantially all of our revenue from licenses,
professional services and support related to sales of the Calico eSales Suite.
The latest version of the Calico eSales Suite was introduced in June 1999.
Our business depends on the success and customer acceptance of this introduction
as well as future enhancements. Although our products have been subject to our
internal testing procedures, since the new version of the Calico eSales Suite
has only recently been introduced, customers may discover errors or other
problems with the product, which may adversely affect its acceptance.
We expect that we will continue to depend on revenue from new and enhanced
versions of the Calico eSales Suite for the foreseeable future, and if our
target customers do not continue to adopt and expand their use of the Calico
eSales Suite, we may not achieve anticipated revenue.
WE COULD FAIL TO ACHIEVE ANTICIPATED REVENUE IF WE EXPERIENCE DELAYS IN
INTRODUCTION AND MARKET ACCEPTANCE OF NEW PRODUCTS
We expect to add new products by acquisition or internal development and
by developing enhancements to our existing products. We have in the past
experienced delays in the planned release dates of our software products and
upgrades. New products may not be released on schedule or may contain defects
when released. The introduction of enhancements to our suite of products may
cause customers to defer
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orders for our existing products. New and enhanced products may not meet the
requirements of the marketplace and achieve market acceptance. If we are unable
to ship or implement new or enhanced products when planned, or fail to achieve
timely market acceptance of our new or enhanced products, we may suffer lost
sales and could fail to achieve anticipated revenue.
WE HAVE LIMITED EXPERIENCE WITH LARGE-SCALE DEPLOYMENTS, THE CALICO ESALES
CONFIGURATOR OPERATES ONLY ON WINDOWS NT AND NOT ON UNIX-BASED WEB SERVERS, AND
IF OUR PRODUCTS DO NOT SCALE TO OPERATE IN A COMPANY-WIDE ENVIRONMENT, WE MAY
LOSE SALES AND SUFFER DECREASED REVENUE
Our strategy requires that our software be highly scalable, or able to
accommodate substantial increases in the number of users concurrently using the
product. However, we are just beginning to deploy large-scale Internet-based
solutions and no large-scale deployment has been operating at any customer site
for an extended period of time. In addition, the interface component of the
Calico eSales Configurator is powered by Microsoft Active Server Pages and
therefore operates only on Windows NT. We are developing user interface
components to allow our customers to use either a Unix-based or Windows NT-based
web server. If we are unable to promptly or successfully develop the Unix
version, the scalability of our Calico eSales Configurator may be limited for
larger customer applications due to the scalability limitations of Windows NT.
If our solutions do not perform adequately in large-scale implementations, we
may lose customer sales resulting in a decline in revenue.
In addition, the computer software for our larger customer applications is
often implemented together with computer software applications from other
companies. Some of these implementations are performed by third parties. If our
customers experience delays or difficulties implementing our software together
with these computer software applications in large scale complex integrations,
we may lose sales, incur customer dissatisfaction and suffer decreased revenue.
TO DATE, OUR SALES HAVE BEEN CONCENTRATED IN THE COMPUTER HARDWARE AND NETWORK
AND TELECOMMUNICATIONS EQUIPMENT MARKETS AND IF WE ARE UNABLE TO SUCCESSFULLY
PENETRATE NEW MARKETS, WE MAY NOT BE ABLE TO ACHIEVE EXPECTED SALES GROWTH
Sales of our products and services in two markets -- computer hardware and
network and telecommunications equipment -- accounted for over 80% of our total
net revenue in the fiscal year ended March 31, 1999. We expect that revenue from
these two markets will continue to account for a substantial portion of our
total net revenue in fiscal 2000. We are targeting expansion in additional
market segments defined by industry where eCommerce software is highly strategic
and promote competitive advantage, including manufacturing, retail,
telecommunications services and financial services. If we are unable to
successfully increase penetration of our existing markets or expand in these
additional markets, or if the overall economic climate of our target markets
deteriorates, we may not be able to achieve expected sales growth.
IN ORDER TO INCREASE SALES OF OUR PRODUCTS, WE MUST INCREASE OUR DIRECT SALES
FORCE; HOWEVER, HIRING AND INTEGRATING SALES PERSONNEL TAKES TIME AND THERE IS A
SHORTAGE OF QUALIFIED PERSONNEL
Our future growth depends on the ability of our direct sales force to
develop customer relationships and increase sales to a level that will allow us
to reach and maintain profitability. Our ability to increase our sales will
depend on our ability to recruit, train and retain top quality sales people who
are able to target prospective customers' senior
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management, and who can productively generate and service large accounts.
There is a shortage of the sales personnel we need, and competition for
qualified personnel is intense. In addition, it will take time for new sales
personnel to achieve full productivity. If we are unable to hire or retain
qualified sales personnel, or if newly hired personnel fail to develop the
necessary skills or to reach productivity when anticipated, we may not be able
to expand our sales organization and increase sales of our products.
IF WE DO NOT EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION AND ESTABLISH AND
MAINTAIN RELATIONSHIPS WITH THIRD PARTY CONSULTANTS, WE MAY NOT BE ABLE TO
PROVIDE ADEQUATE IMPLEMENTATION SERVICES TO OUR CUSTOMERS
Growth in the license of our products depends on our ability to provide
our customers with professional services to assist with design, implementation
and maintenance. If we are unable to get the support of third-party consultants
to provide these services or if third parties do not provide these services
effectively or in a cost-efficient manner, or decide to develop their own
products or support the products of our competitors rather than our products, we
may not be able to provide sufficient implementation services to our customers.
This could result in decreased customer satisfaction and loss of sales. In
addition, if we have to retain third party consultants to provide services for
our customers for which we have previously committed, the resulting increased
costs could have an adverse impact on the gross margins for our professional
services.
YEAR 2000 CONSIDERATIONS MAY CAUSE OUR CUSTOMERS AND POTENTIAL CUSTOMERS TO
DELAY PURCHASES OF OUR PRODUCTS UNTIL LATER IN 2000, AND MAY REDUCE OUR SALES
We may experience reduced license of products as customers and potential
customers put a priority on correcting year 2000 problems and therefore defer
purchase decisions for software products until later in 2000. Accordingly,
demand for our products may be particularly volatile and unpredictable for the
remainder of calendar 1999 and 2000.
OUR DEPENDENCE ON SERVICES REVENUE, WHICH HAS A LOWER GROSS MARGIN THAN LICENSE
REVENUE, COULD ADVERSELY IMPACT OUR GROSS MARGIN AND OPERATING RESULTS
We anticipate that services revenue will continue to represent a
significant percentage of total net revenue as we continue to provide consulting
and training services that complement our products and as our installed base of
customers grows. To increase services revenue, we must expand our services
organization, successfully recruit and train a sufficient number of qualified
services personnel, and obtain renewals of current maintenance contracts by our
customers.
Although services revenue is important to our business, services revenue
has lower gross margins than license revenue. As a result, a continued increase
in the percentage of total net revenue represented by services revenue or an
unexpected decrease in license revenue could have a detrimental impact on our
overall gross margins and our operating results.
WE NEED TO ESTABLISH AND MAINTAIN KEY MARKETING ALLIANCES TO COMPLEMENT OUR
DIRECT SALES FORCE IN ORDER TO GROW SALES; HOWEVER, FEW POTENTIAL PARTNERS HAVE
FOCUSED ON OUR SOFTWARE MARKET AND WE HAVE ONLY ENTERED INTO A SMALL NUMBER OF
KEY ALLIANCES
In order to increase geographic sales coverage worldwide and to address
new markets and customer segments, we must complement our direct sales force
with strategic marketing alliances. Until recently, few potential partner
organizations have focused on the emerging class of packaged electronic commerce
applications and we have only established a limited number of such key
alliances. To date, we have not generated significant revenue from these
alliances. If we fail to maintain our existing relationships and to establish
new key alliances, or if our partners do not perform to our or our customers'
expectations, we may not be able to expand our sales as anticipated.
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COMPETITION IN THE MARKET FOR ADVANCED ELECTRONIC COMMERCE PRODUCTS AND SERVICES
IS INTENSE AND COMES FROM DEVELOPERS OF IN-HOUSE SOLUTIONS, VENDORS OF
ENTERPRISE CLASS SOFTWARE AND EMERGING COMPANIES FOCUSED ON ELECTRONIC COMMERCE,
AND COULD REDUCE OUR SALES AND PREVENT US FROM ACHIEVING PROFITABILITY
The market for software and services that enable electronic commerce is
new, intensely competitive, highly fragmented, and rapidly changing. We expect
competition to persist and intensify, which could result in price reductions,
reduced gross margins and loss of market share.
Competitors vary in size and in the scope and breadth of the products and
services offered. Many of our competitors and potential competitors have a
number of significant advantages over us, including:
- - a longer operating history;
- - preferred vendor status with our customers;
- - more extensive name recognition and marketing power; and
- - significantly greater financial, technical, marketing and other resources,
giving them the ability to respond more quickly to new or changing
opportunities, technologies and customer requirements.
Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships with each other or with third parties,
or adopt aggressive pricing policies to gain market share. Competitive pressures
may require us to reduce the prices of our products and services. We may not be
able to maintain or expand our sales if competition increases and we are unable
to respond effectively.
MANY OF OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE RELATIVELY NEW AND MUST BE
INTEGRATED INTO OUR ORGANIZATION, AND WE NEED TO IMPROVE AND IMPLEMENT NEW
SYSTEMS, PROCEDURES AND CONTROLS AND HIRE ADDITIONAL PERSONNEL IN ORDER TO
CONTINUE TO MANAGE OUR RAPID GROWTH
We have recently experienced a period of rapid growth and expansion, which
places significant demands on our managerial administrative, operational,
financial and other resources. All members of our management team, other than
our Vice President, Research and Development have joined Calico since June 1997.
Our Vice President, Engineering joined Calico in January 1999, and our Vice
President and Chief Financial Officer joined Calico in June 1999. From September
30, 1997 to June 30, 1999, we expanded from 85 to 210 employees. Our new
employees include a number of key managerial, marketing, planning, technical and
operations personnel who have not yet been fully integrated into our
organization.
We also plan to expand the geographic scope of our operations. Our rapid
growth and expansion places significant demands on our managerial,
administrative, operational, financial and other resources. To accommodate
continued anticipated growth and expansion, we will be required to:
- - improve existing and implement new operational and financial systems,
procedures and controls; and
- - hire, train, manage, retain and motivate qualified personnel.
These measures may place additional burdens on our management and our
internal resources.
THE MARKET FOR OUR ELECTRONIC COMMERCE
PRODUCTS AND SERVICES IS NEW AND EVOLVING AND CUSTOMERS MAY NOT ACCEPT OUR
PRODUCTS
The market for our products and services is at an early stage of
development and is rapidly evolving. This market may not continue to develop and
grow, and companies may not elect to utilize our products and services rather
than attempt to develop applications internally or through other
10
<PAGE> 11
sources. Companies that have already invested substantial resources in other
methods of conducting commerce may be reluctant to adopt a new approach that may
replace, limit or compete with their existing systems. We expect that we will
continue to need intensive marketing and sales efforts to educate prospective
customers about the uses and benefits of our products and services. Therefore,
demand for and market acceptance of our products and services will be subject to
a high level of uncertainty.
NEW TECHNOLOGIES COULD RENDER OUR PRODUCTS OBSOLETE OR REQUIRE US TO REWRITE OUR
SOFTWARE IN NEW COMPUTER LANGUAGES OR FOR OTHER OPERATING SYSTEMS
The market for software and services that enable electronic commerce is
characterized by rapid technological change, changes in customer requirements,
frequent new product and service introductions and enhancements, and emerging
industry standards. Advances in Internet technology or in applications software
directed at electronic commerce, or the development of entirely new technologies
to replace existing software, could lead to new competitive products that have
better performance or lower prices than our products and could render our
products obsolete and unmarketable. In addition, if a new software language or
operating system becomes standard or is widely adopted in our industry, we may
need to rewrite portions of our products in another computer language or for
another operating system to remain competitive. If we are unable to develop
products that respond to changing technology, our business could be harmed.
It is common for software companies to acquire other companies as a means
of introducing new products or emerging technologies. If a new technology or
product emerges that may displace our product lines, competitors with large
market capitalizations or cash reserves would be better positioned than we are
to acquire such new technology or product.
IF WE LOSE KEY PERSONNEL, WE COULD EXPERIENCE REDUCED SALES, DELAYED PRODUCT
DEVELOPMENT AND DIVERSION OF MANAGEMENT RESOURCES
Our success depends largely on the continued contributions of our key
management, engineering, sales and marketing and professional services
personnel, many of whom would be difficult to replace. We do not have employment
agreements with most of our key personnel. Although we have not experienced
significant turnover in our key personnel in the recent past, if one or more
members of our senior management were to resign, the loss of personnel could
result in loss of sales, delays in new product development and diversion of
management resources.
BECAUSE COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN PERSONNEL, WHICH COULD IMPACT THE DEVELOPMENT OR SALES OF OUR
PRODUCTS
Our success depends on our ability to attract and retain additional
qualified engineering, sales and marketing and professional services personnel.
Competition for these types of personnel is intense, especially in Silicon
Valley. If we are unable to retain our existing key personnel, or attract and
train additional qualified personnel, our growth may be limited due to our lack
of capacity to develop and market our products.
ACQUISITIONS, SUCH AS OUR ACQUISITION OF FIRSTFLOOR, MAY BE COSTLY AND DIFFICULT
TO INTEGRATE, DIVERT MANAGEMENT RESOURCES OR DILUTE STOCKHOLDER VALUE
As part of our business strategy, we have in the past and may in the
future make acquisitions of, or investments in companies, products or
technologies that complement our current products, augment our market coverage,
enhance our technical capabilities or that may otherwise offer growth
opportunities. For example, in 1998 we acquired FirstFloor Software. We
encountered the following difficulties in our acquisition of
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<PAGE> 12
FirstFloor and would anticipate similar difficulties in future acquisitions:
- - difficulties in the assimilation of acquired personnel, operations,
technologies or products;
- - unanticipated costs associated with the acquisition;
- - diversion of management's attention from other business concerns; and
- - adverse effects on existing business relationships with suppliers and
customers.
Future acquisitions could also pose risks of entering markets where we
have no or limited prior experience and require us to use substantial portions
of our available cash to consummate the acquisition.
In addition, in connection with any future acquisitions, we could:
- - issue equity securities which would dilute current stockholders' percentage
ownership;
- - incur substantial debt; or
- - assume significant liabilities.
These actions by us could materially adversely affect our operating
results and/or the price of our common stock.
WE INTEND TO PURSUE RELATIONSHIPS WITH EMERGING ELECTRONIC COMMERCE BUSINESSES
THAT MAY HAVE NO PROVEN RECORD OF SUCCESS
We intend to pursue relationships with and foster development of emerging
electronic commerce-based businesses at an early stage of their development. We
may pursue these new ventures by acquisition, joint venture, or other
alternative investment. We cannot be certain that these new ventures will be
successful, or that we will generate any revenue from these new ventures. In
addition to the risks posed by traditional acquisitions, these new ventures may
have no proven record of success, and may fail, causing us to lose our
investment, and may divert management time and resources.
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES FOR OUR APPLICATION
SERVERS, SEARCH CAPABILITY SOFTWARE, A LICENSING MECHANISM AND QUOTE GRID
TECHNOLOGY, AND THE LOSS OR INABILITY TO MAINTAIN THESE LICENSES COULD RESULT IN
INCREASED COSTS OR DELAY SALES OF OUR PRODUCTS
We license technology from several software providers for our application
servers, our search capability software, a licensing mechanism, and quote grid
technology. We anticipate that we will continue to license technology from third
parties in the future. This software may not continue to be available on
commercially reasonable terms, if at all. Some of the software we license from
third parties could be difficult to replace. The loss of any of these technology
licenses could result in delays in the license of our products until equivalent
technology, if available, is developed or identified, licensed and integrated.
In addition, the effective implementation of our products depends upon the
successful operation of third-party licensed products in conjunction with our
products, and therefore any undetected errors in these licensed products could
prevent the implementation or impair the functionality of our products, delay
new product introductions and/or injure our reputation. The use of additional
third-party software would require us to enter into license agreements with
third parties, which could result in higher royalty payments and a loss of
product differentiation.
SOFTWARE DEFECTS IN OUR SOFTWARE PRODUCTS AND SYSTEM ERRORS IN OUR CUSTOMERS'
SYSTEMS AFTER INSTALLING OUR SOFTWARE COULD DIMINISH DEMAND FOR OUR PRODUCTS AND
RESULT IN LOSS OF REVENUE, DELAY IN MARKET ACCEPTANCE AND INJURY TO OUR
REPUTATION
Complex software products like ours may contain undetected errors or
defects, including year 2000 related errors, that may be detected at any point
in the life of the product. We have in the past discovered software errors in
our products and as a result have experienced delays in shipment of products
during the period required to correct these errors. The latest version of the
Calico eSales Suite was only introduced in June
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<PAGE> 13
1999. Errors may be found from time to time in our new or enhanced products
after commencement of commercial shipments, such as this latest version of our
suite, resulting in loss of revenue, delay in market acceptance and sales,
diversion of development resources, injury to our reputation or increased
warranty and repair costs.
Our products are generally used in systems with other vendors' products,
and as a result our products must integrate successfully with these existing
systems. System errors, whether caused by our products or those of another
vendor, could adversely affect the market acceptance of our products, and any
necessary revisions could cause us to incur significant expenses.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY LITIGATION, IT COULD BE COSTLY AND
TIME CONSUMING TO DEFEND
Since our products are used for company-wide, integral computer
applications with potentially strong impact on our customers' sales of their
products, errors, defects or other performance problems could result in
financial or other damages to our customers. Although our license agreements
generally contain provisions designed to limit our exposure to product liability
claims, existing or future laws or unfavorable judicial decisions could negate
such limitation of liability provisions. Product liability litigation, even if
it were unsuccessful, would be time consuming and costly to defend.
IF OUR SYSTEMS AND THE SYSTEMS OF OUR KEY SUPPLIERS AND CUSTOMERS ARE NOT YEAR
2000 COMPLIANT, WE COULD INCUR INCREASED COSTS, DELAY OR LOSS OF REVENUE,
DIVERSION OF DEVELOPMENT RESOURCES OR DAMAGE TO OUR REPUTATION
Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year 2000
compliant. The failure of our customers' systems to be year 2000 compliant could
impede the success of applications that we or our partners have developed for
them. Accordingly, known or unknown defects that affect the operation of our
software, including any defects or errors in applications that include our
products, could result in delay or loss of revenue, diversion of development
resources, damage to our reputation, or increased service or warranty costs and
litigation costs.
We need to ensure year 2000 compliance of our own internal computer and
other systems, to continue testing our software products and to audit the year
2000 compliance status of our suppliers and business partners. We have not
completed our year 2000 investigation and overall compliance initiative, and the
total cost of our year 2000 compliance may be substantial. We may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal systems. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Compliance" on page 36 for a discussion of the status of our year 2000
compliance review.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY LOSE A VALUABLE
ASSET OR INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS
Our success and ability to compete depend upon our proprietary technology.
We rely on patent, trademark, trade secret and copyright laws to protect our
intellectual property. Despite our efforts to protect our intellectual property,
a third party could copy or otherwise obtain our software or other proprietary
information without authorization, or could develop software competitive to
ours. Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around our patents or other intellectual property. In addition, the
laws of some foreign countries do not protect our proprietary rights to as great
an extent as do the laws of the United States, and we expect that it will become
more difficult to monitor the use of our products if we increase our
international presence.
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<PAGE> 14
We may have to litigate to enforce our intellectual property rights, to
protect our trade secrets or know-how or to determine their scope, validity or
enforceability. Enforcing or defending our proprietary technology is expensive,
could cause the diversion of our resources and may not prove successful. Our
protective measures may prove inadequate to protect our proprietary rights. Any
failure to enforce or protect our rights could cause us to lose a valuable
asset. If we are unable to protect our intellectual property, we may lose a
valuable asset or incur costly litigation to protect our rights.
IF THE FUNCTIONALITY OF OUR PRODUCTS OVERLAPS A COMPETITORS' PRODUCTS AND WE
BECOME SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, THESE CLAIMS COULD
BE COSTLY AND TIME-CONSUMING TO DEFEND, DIVERT MANAGEMENT ATTENTION OR CAUSE
PRODUCT DELAYS
There has been substantial litigation in the software and Internet
industries regarding intellectual property rights. It is possible that, in the
future, third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of electronic commerce solutions will increasingly be
subject to infringement claims as the number of products and competitors in our
industry grows and the functionality of products overlaps. Any claims, with or
without merit, could be costly and time-consuming to defend, divert our
management's attention, or cause product delays. If our products were found to
infringe a third party's proprietary rights, we could be required to enter into
royalty or licensing agreements in order to be able to sell our products.
Royalty and licensing agreements, if required, may not be available on terms
acceptable to us or at all.
IF USE OF THE INTERNET DOES NOT CONTINUE TO DEVELOP AND RELIABLY SUPPORT THE
DEMANDS PLACED ON IT BY ELECTRONIC COMMERCE, IT MAY NOT DEVELOP AS A COMMERCIAL
MARKETPLACE, CAUSING US TO FAIL TO ACHIEVE ANTICIPATED SALES GROWTH
Growth in sales of our products and services depends upon the continued
and increased use of the Internet as a medium for commerce and communication.
Although the Internet is experiencing growth in the number of users and traffic,
such rapid growth is a recent phenomenon and may not continue. In addition, the
Internet infrastructure may not be able to support the demands placed on it by
increased usage and bandwidth requirements. Other risks associated with
commercial use of the Internet could slow its growth, including:
- - inadequate security of information distributed over the Internet, resulting
in privacy concerns;
- - inadequate reliability of the network infrastructure;
- - slow development of enabling technologies and complementary products; and
- - limited accessibility and ability to deliver quality service.
In addition, the recent growth in the use of the Internet has caused
frequent periods of poor or slow performance, requiring components of the
Internet infrastructure to be upgraded. Delays in the development or adoption of
new equipment and standards or protocols required to handle increased levels of
Internet activity, or increased government regulation, could cause the Internet
to lose its viability as a commercial medium. If the Internet infrastructure
does not develop sufficiently to address these concerns, it may not develop as a
commercial marketplace, necessary for us to increase sales.
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<PAGE> 15
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD LIMIT THE MARKET FOR OUR
PRODUCTS AND SERVICES, OR IMPOSE ON US GREATER TAX BURDENS OR LIABILITY FOR
TRANSMISSION OF PROTECTED DATA
As electronic commerce and the Internet continue to evolve, we expect that
federal, state and foreign governments will adopt laws and regulations covering
issues such as user privacy, taxation of goods and services provided over the
Internet, pricing, content and quality of products and services. If enacted,
these laws and regulations could limit the market for electronic commerce, and
therefore the market for our products and services. Although many of these
regulations may not apply directly to our business, we expect that laws
regulating the solicitation, collection or processing of personal or consumer
information could indirectly affect our business.
The Telecommunications Act of 1996 prohibits certain types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a Telecommunications Act violation are
currently unsettled. The imposition upon us and other software and service
providers of potential liability for information carried on or disseminated
through our applications could require us to implement measures to reduce our
exposure to this liability. These measures could require us to expend
substantial resources or discontinue certain services. In addition, although
substantial portions of the Communications Decency Act (the Act through which
the Telecommunications Act of 1996 imposes criminal penalties) were held to be
unconstitutional, similar legislation may be enacted and upheld in the future.
It is possible that this legislation could expose companies involved in
electronic commerce to liability, which could limit the growth of electronic
commerce generally. Legislation like the Telecommunications Act and the
Communications Decency Act could dampen the growth of Internet usage and
decrease its acceptance as a communications and commercial medium.
RESTRICTIONS ON EXPORT OF ENCRYPTED TECHNOLOGY COULD CAUSE US TO INCUR DELAYS IN
INTERNATIONAL PRODUCT SALES
Our software utilizes encryption technology, the export of which is
regulated by the United States government. If our export authority is revoked or
modified, if our software is unlawfully exported or if the United States adopts
new legislation restricting export of software and encryption technology, we may
experience delay or reduction in shipment of our products internationally.
Current or future export regulations could limit our ability to distribute our
products outside of the United States. While we take precautions against
unlawful exportation of our software, we cannot effectively control the
unauthorized distribution of software across the Internet.
IF WE DO NOT EXPAND OUR INTERNATIONAL OPERATIONS, WE MAY NOT ACHIEVE ANTICIPATED
SALES GROWTH
In order to increase our international sales opportunities, we will need
to develop further our international sales, professional services and support
organizations, and we will need to form additional relationships with partners
worldwide. If we are unable to expand our international operations and
international sales on a timely basis, we may not achieve anticipated sales
growth. This expansion may be more difficult or take longer than we anticipate,
and we may not be able to successfully market, sell, deliver and support our
products internationally.
INTERNATIONAL EXPANSION COULD BE DIFFICULT AND PRESENT RISKS TO OUR BUSINESS
If successful in our international expansion, we will be subject to a
number of risks associated with international operations, including:
- - longer accounts receivable collection cycles;
- - expenses associated with localizing products for foreign markets;
- - difficulties in managing operations across disparate geographic areas;
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<PAGE> 16
- - difficulties in hiring qualified local personnel;
- - difficulties associated with enforcing agreements and collecting receivables
through foreign legal systems; and
- - unexpected changes in regulatory requirements that impose multiple
conflicting tax laws and regulations.
FLUCTUATIONS IN FOREIGN EXCHANGE RATES AND THE POSSIBLE LACK OF FINANCIAL
STABILITY IN FOREIGN COUNTRIES COULD PREVENT OVERSEAS SALES GROWTH
Our international sales are currently U.S. dollar-denominated. As a
result, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in international markets. In
the future, we may elect to invoice some of our international customers in local
currencies. Doing so will subject us to fluctuations in exchange rates between
the U.S. dollar and the particular local currency. Our operating results could
also be adversely affected by the seasonality of international sales and the
economic conditions of our overseas markets.
WE HAVE DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS OFFERING AND MAY NOT
OBTAIN A SIGNIFICANT RETURN ON THE USE OF THESE PROCEEDS
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 do not have a specific plan for use of the
proceeds of this offering; however, we will likely need to use the proceeds to
fund our operations. We cannot predict that investment of the proceeds will
yield a favorable return. See "Use of Proceeds" on page 18 for further
discussion of how we intend to use the proceeds from this offering.
OUR DIRECTORS AND EXECUTIVE OFFICERS WILL
RETAIN SIGNIFICANT CONTROL OVER CALICO AFTER THE OFFERING, WHICH MAY LEAD TO
CONFLICTS WITH OTHER STOCKHOLDERS OVER CORPORATE GOVERNANCE
Following the completion of this offering, our directors, executive
officers, and holders of 5% or more of our outstanding common stock will
beneficially own approximately 52.0% of our outstanding common stock. These
stockholders, acting together, would be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and significant corporate transactions, such as mergers or other
business combination transactions. This control may have the effect of delaying
or preventing a third party from acquiring or merging with us.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER OR CHANGE IN OUR
CONTROL THAT A STOCKHOLDER MAY CONSIDER FAVORABLE
Provisions in our Certificate of Incorporation and Bylaws may have the
effect of delaying or preventing a merger or acquisition of us or a change in
our control or changes in our management. See "Description of Capital
Stock -- Delaware Anti-Takeover Law and Charter Provisions" on page 67 for
further discussion of the specific provisions in our charter documents and of
Delaware law that may delay or prevent a change in our control.
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<PAGE> 17
OUR STOCK PRICE MAY BE VOLATILE, WHICH MAY LEAD TO LOSSES BY INVESTORS
There has been no public market for our shares prior to this offering, and
after the offering, an active public market for the shares may not develop. We
will negotiate and determine the initial public offering price with the
representatives of the underwriters based on several factors. This price will
likely vary from the market price of the common stock after the offering. The
stock market has experienced price and volume fluctuations and the market prices
of securities of technology companies in particular have been highly volatile.
You may not be able to resell your shares at or above the initial public
offering price.
WE MAY BE SUBJECT TO SECURITIES CLASS ACTION LITIGATION IF OUR STOCK PRICE IS
VOLATILE
In the past, securities class action litigation has often been instigated
against a company following periods of volatility in the company's stock price.
If this were to happen to Calico, litigation would be expensive and would divert
management's attention.
FUTURE SALES OF OUR STOCK COULD CAUSE OUR STOCK PRICE TO FALL
Sales of a substantial number of shares of our common stock in the public
market after this offering could cause the market price of our common stock to
decline. In addition, the sale of these shares could impair our ability to raise
capital through the sale of additional equity securities. Upon completion of
this offering, we will have approximately 32,705,178 shares of common stock
outstanding, approximately 33,294,805 if the underwriters' over-allotment option
is exercised in full, based on shares outstanding as of June 30, 1999.
Our officers and directors and substantially all of our existing
stockholders have agreed with Goldman, Sachs & Co. not to sell or otherwise
dispose of any of their shares for a period of 150 days after the date of this
offering, with 70% of their shares remaining subject to the lock-up agreement
for 180 days. When these lock-up agreements expire, these shares and the shares
underlying any options held by these individuals will become eligible for sale,
in some cases subject only to the volume, manner of sale and notice requirements
of Rule 144 of the Securities Act of 1933. See "Shares Eligible for Future Sale"
on page 69 for further discussion of the shares that will be freely tradeable
after the date of this prospectus.
THE PURCHASERS OF SHARES IN THE OFFERING WILL EXPERIENCE IMMEDIATE DILUTION
We expect that the initial public offering price will be substantially
higher than the pro forma net tangible book value per share of our outstanding
common stock. Accordingly, if we were liquidated for book value immediately
following this offering, each stockholder purchasing in this offering would
receive less than the price they paid for their common stock. In addition,
because our success is so heavily dependent on our ability to attract and retain
talented personnel, we expect to offer a significant number of stock options to
employees in the future. If other stockholders exercise options or warrants to
purchase our common stock, you will experience further dilution. See "Dilution"
on page 21 for further discussion of the dilution that new investors will incur.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates" and similar expressions. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of reasons,
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<PAGE> 18
including those discussed under "Risk Factors" and elsewhere in this prospectus.
You should read statements that contain those words carefully because they
discuss our expectations about our future performance, contain projections of
our future operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you should
be aware that the occurrence of any of the events described in these risk
factors and elsewhere in this prospectus could substantially harm our business,
results of operations and financial condition and that upon the occurrence of
any of these events, the trading price of our common stock could decline and you
could lose all or part of your investment.
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<PAGE> 19
USE OF PROCEEDS
We estimate that we will receive net proceeds of $45.8 million from the
sale of the 3,930,851 shares of common stock in this offering, assuming an
initial public offering price of $13.00 per share and after deducting estimated
underwriting discount and the estimated offering expenses of $5.0 million. If
the underwriters' over-allotment option is exercised in full, we estimate that
our net proceeds will be $52.9 million.
While we cannot predict with certainty how the proceeds of this offering
will be used, we currently intend to use them approximately as follows:
- $22.8 million for expansion of our sales force, marketing and
distribution activities;
- $14.1 million for expansion of our research and product development
activities; and
- $8.9 million for general corporate purposes and working capital,
including an estimated $3.0 million for capital expenditures.
In addition, we may, if appropriate opportunities arise, use an
undetermined portion of the net proceeds to acquire or invest in complementary
companies, product lines, products or technologies. We do not have any
agreements or commitments with respect to any acquisition or investment and we
are not involved in any negotiations with respect to any transaction. Pending
such uses, we will invest the net proceeds in investment grade, interest-bearing
securities.
DIVIDEND POLICY
We have never paid cash dividends. We do not anticipate paying cash
dividends in the forseeable future. Under the terms of our line of credit
facilities, we may not declare or pay any dividends without the prior consent of
the lenders under each of the credit facilities.
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<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- - on an actual basis, which reflects a 3-for-2 stock split of our outstanding
common stock;
- - on a pro forma basis to reflect the conversion of all outstanding shares of
preferred stock into 15,626,928 shares of common stock; and
- - on a pro forma as adjusted basis to reflect this conversion and the
application of the estimated net proceeds from the sale of 3,930,851 shares
of common stock in this offering, after deducting the estimated underwriting
discount and estimated offering expenses, and the sale of 1,654,200 shares
of common stock to be issued to one corporate investor for $20.0 million, at
a per share price equal to the initial public offering price less the per
share estimated underwriting discount, in a private placement to close
contemporaneously with this offering.
The outstanding share information excludes 5,293,237 shares of common
stock issuable upon the exercise of options outstanding under our option plans
with a weighted average exercise price of $6.41 per share, 31,463 shares of
common stock issuable upon exercise and conversion of preferred stock options at
a weighted average exercise price of $2.68 per share, and 133,249 shares of
common stock issuable upon exercise and conversion of outstanding preferred
stock warrants at a weighted average exercise price of $1.31 per share. The
outstanding share information also excludes 2,848,107 shares of common stock
available for issuance under our 1997 Stock Option Plan and 750,000 shares of
common stock reserved for issuance under our 1999 Employee Stock Purchase Plan.
Of the total shares outstanding, 2,302,561 shares are subject to our right of
repurchase.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes to the consolidated financial statements.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------
PRO
FORMA
AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- --------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Notes payable, current portion.............................. $ 682 $ 682 $ 682
======== ======== ========
Capital lease obligations, current portion.................. 247 247 247
======== ======== ========
Notes payable, non-current.................................. $ 497 $ 497 $ 497
-------- -------- --------
Capital lease obligations, non-current...................... 125 125 125
-------- -------- --------
Mandatorily Redeemable Convertible Preferred Stock.......... 32,541 -- --
-------- -------- --------
Stockholders' equity (deficit):
Preferred Stock; $0.001 par value; 15,000,000 shares
authorized; no shares issued and outstanding actual,
pro forma and pro forma as adjusted.................... -- -- --
Common Stock; $0.001 par value; 150,000,000 shares
authorized; 11,493,199 shares issued and outstanding,
actual; 27,120,127 shares issued and outstanding, pro
forma; 32,705,178 shares issued and outstanding, pro
forma as adjusted...................................... 11 27 33
Additional paid-in capital................................ 17,894 50,419 116,187
Notes receivable from stockholders........................ (2,211) (2,211) (2,211)
Unearned compensation..................................... (2,265) (2,265) (2,265)
Accumulated deficit....................................... (34,401) (34,401) (34,401)
-------- -------- --------
Total stockholders' equity (deficit)................... (20,972) 11,569 77,343
-------- -------- --------
Total capitalization.............................. $ 12,191 $ 12,191 $ 77,965
======== ======== ========
</TABLE>
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<PAGE> 21
DILUTION
Our pro forma net tangible book value at June 30, 1999 was $7.5 million or
$0.28 per share based upon 27,120,127 shares outstanding. Pro forma net tangible
book value per share represents total tangible assets less total liabilities,
divided by the number of shares outstanding as of June 30, 1999, after giving
effect to the conversion into common stock of all of our outstanding shares of
preferred stock. After giving effect to the sale in this offering of 3,930,851
shares of common stock at an assumed initial public offering price of $13.00 per
share, and after deducting the estimated underwriting discount and estimated
offering expenses payable by us, our pro forma net tangible book value as of
June 30, 1999 would have been approximately $73.3 million or $2.24 per share.
This represents an immediate increase in net tangible book value of $1.96 per
share to existing stockholders and an immediate dilution in net tangible book
value of $10.76 per share to new investors, including 1,654,200 shares of common
stock to be sold to one corporate investor for $20.0 million, at the initial
public offering price less the underwriting discount, in a private placement
contemporaneously with this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 13.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $ 0.28
Increase per share attributable to new investors.......... 1.96
--------
Pro forma net tangible book value per share after this
offering.................................................. 2.24
--------
Dilution per share to new investors......................... $ 10.76
========
</TABLE>
The following table summarizes, as of June 30, 1999, assuming conversion
into common stock of all of our outstanding shares of preferred stock, the total
cash consideration paid to us and the average price per share paid by existing
stockholders, by new investors at the assumed initial public offering price of
$13.00 per share, before deducting the estimated underwriting discount and
estimated offering expenses payable by us, by one corporate investor purchasing
1,654,200 shares in a private placement contemporaneously with this offering at
the initial public offering price less the per share estimated underwriting
discount, or $12.09 per share based on the midpoint of the range, and by one
corporate investor purchasing 330,851 shares as part of the registered offering
at the initial public offering price less the per share estimated underwriting
discount, or $12.09 per share based upon the midpoint of the range:
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
-------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- -------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 27,120,127 82.9% $ 34,697 32.9% $ 1.28
New investors.............................. 5,585,051 17.1 70,800 67.1 12.68
---------- ----- -------- -----
Total............................ 32,705,178 100.0% $105,497 100.0%
========== ===== ======== =====
</TABLE>
As of June 30, 1999, there were outstanding options to purchase an
aggregate of 5,293,237 shares of common stock at a weighted average exercise
price of $6.41 per share, options to purchase 31,463 shares of preferred stock
at a weighted average exercise price of $2.68 per share and warrants to purchase
133,249 shares of preferred stock at a weighted average exercise price of $1.31
per share. To the extent that any of these options or warrants is exercised,
there will be further dilution to new investors.
21
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes and
other financial information included elsewhere in this prospectus. The selected
consolidated statement of operations data for Calico for each of the years ended
March 31, 1997, 1998 and 1999, and the consolidated balance sheet data as of
March 31, 1998 and 1999, are derived from our consolidated financial statements
included elsewhere in this prospectus. The selected consolidated statement of
operations data for Calico for the period from inception on April 14, 1994 to
March 31, 1995, the year ended March 31, 1996, and the consolidated balance
sheet data as of March 31, 1995, 1996 and 1997, are derived from our
consolidated financial statements that are not included in this prospectus. The
consolidated statements of operations data for the three months ended June 30,
1998 and 1999 and the consolidated balance sheet data as of June 30, 1999 are
derived from unaudited condensed consolidated financial statements included
elsewhere in this prospectus. In the opinion of management, the unaudited
condensed consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the results of these periods. The consolidated statement of
operations data for the fiscal year ended March 31, 1999 include the results of
operations of FirstFloor subsequent to our acquisition of FirstFloor in August
1998. Historical results are not necessarily indicative of results to be
expected in any future period.
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS
APRIL 14, 1994 YEAR ENDED MARCH 31, ENDED JUNE 30,
(INCEPTION) TO --------------------------------------- ------------------
MARCH 31, 1995 1996 1997 1998 1999 1998 1999
-------------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue:
License......................................... $ 93 $ 1,521 $ 3,940 $ 6,965 $ 10,482 $ 2,932 $ 3,457
Services........................................ 227 749 1,963 4,894 10,931 1,721 3,976
------- ------- ------- -------- -------- ------- -------
Total net revenue............................. 320 2,270 5,903 11,859 21,413 4,653 7,433
------- ------- ------- -------- -------- ------- -------
Cost of net revenue:
License......................................... 2 7 178 265 1,179 101 137
Services........................................ 66 433 2,122 3,115 7,272 1,367 2,660
------- ------- ------- -------- -------- ------- -------
Total cost of net revenue..................... 68 440 2,300 3,380 8,451 1,468 2,797
------- ------- ------- -------- -------- ------- -------
Gross profit...................................... 252 1,830 3,603 8,479 12,962 3,185 4,636
------- ------- ------- -------- -------- ------- -------
Operating expenses:
Sales and marketing............................. 98 1,972 5,950 7,593 14,138 2,758 4,558
Research and development........................ 132 458 2,224 3,342 5,677 972 2,666
General and administrative...................... 25 480 1,486 2,222 3,988 641 1,452
Stock compensation.............................. -- 990 864 780 2,007 424 514
Acquired in-process research and development.... -- -- -- -- 1,840 -- --
Amortization of goodwill........................ -- -- -- -- 550 -- 240
------- ------- ------- -------- -------- ------- -------
Total operating expenses...................... 255 3,900 10,524 13,937 28,200 4,795 9,430
------- ------- ------- -------- -------- ------- -------
Loss from operations.............................. (3) (2,070) (6,921) (5,458) (15,238) (1,610) (4,794)
Interest and other income, net.................... 31 100 21 (41) (23) (35) 71
------- ------- ------- -------- -------- ------- -------
Net income (loss)................................. $ 28 $(1,970) $(6,900) $ (5,499) $(15,261) $(1,645) $(4,723)
======= ======= ======= ======== ======== ======= =======
Net income (loss) per share:
Basic and diluted............................... $ -- $ (0.69) $ (2.12) $ (1.08) $ (2.27) $ (0.27) $ (0.59)
======= ======= ======= ======== ======== ======= =======
Weighted average shares......................... 6,000 2,856 3,248 5,079 6,710 6,040 7,961
======= ======= ======= ======== ======== ======= =======
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents......................... $ 83 $ 1,780 $ 1,921 $ 2,514 $ 15,441 $10,528
Working capital (deficit)......................... (42) 1,683 353 44 10,187 5,276
Total assets...................................... 252 2,800 4,356 7,692 31,368 27,223
Debt and capital leases, long-term portion........ -- 90 815 814 877 622
Total Mandatorily Redeemable Convertible Preferred
Stock........................................... -- 3,842 9,500 14,505 32,535 32,541
Total stockholders' deficit....................... (21) (2,012) (8,854) (13,428) (16,780) (20,972)
</TABLE>
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the notes to those statements included elsewhere in this prospectus. This
discussion contains forward looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
These forward looking statements involve risks and uncertainties. Our actual
results could differ materially from those indicated in these forward looking
statements as a result of certain factors, as more fully described in the "Risk
Factors" section and elsewhere in this prospectus. We undertake no obligation to
update publicly any forward looking statements for any reason, even if new
information becomes available or other events occur in the future.
OVERVIEW
We provide software and services that enable companies to interact
directly with their customers over the Internet, intranets, extranets, and
corporate networks, and accessed through desktop and mobile computers and retail
kiosks to improve the interactive buying and selling of complex products and
services.
We were incorporated in April 1994. From May 1994 through March 1997, we
generated revenue primarily from the license of products based upon our first
generation configuration technology. In March 1997, we released our first
product designed for use over the Internet and corporate networks. In December
1998, we released Calico eSales 2.0, an integrated suite of products that
extended the Internet-based architecture and included Calico eSales Catalog
(since re-named Calico eSales InfoGuide), a product that allows targeted
delivery of information without the need to modify existing applications or
information sources. Calico eSales InfoGuide was the first product release based
upon technology obtained from our August 1998 acquisition of FirstFloor. In May
1999, we released Calico eSales Loyalty Builder, which incorporates technology
also obtained from our acquisition of FirstFloor. In June 1999, we released
Calico eSales 2.5, an integrated suite that incorporates eSales Loyalty Builder,
eSales Quote and improved versions of our other products.
We derive revenue principally from the license of our Calico eSales Suite
of products and the delivery of associated implementation and support services.
Prior to the fourth quarter of fiscal 1999, more than 90% of our license revenue
was derived from the license of the predecessors to the eSales Configurator and
eSales Workbench products. Commencing in the fourth quarter of fiscal 1999, we
released the Calico eSales Suite, which is an integrated family of interactive
software products. Initial implementations have typically included the majority
of the functionality provided by the product suite available at implementation,
with additional user licenses and Calico eSales Engines added as use expands.
However, the eSales Configurator and Calico eSales Workbench products comprised
more than 74% of license revenue in the fourth quarter of fiscal 1999 and more
than 86% of license revenue in the first quarter of fiscal 2000. The mix of
products and services sold varies by customer, and follow-on sales typically
reflect an expansion of the use of our products within the customer's business,
rather than a migration to different products. To date, our sales have been
primarily within the computer hardware and network and telecommunications
equipment industries. Revenue from international sales have not been material to
date.
Licenses for our suite of products are sold in different methods, such as
per user, per site or per enterprise. Customer licenses are typically several
hundred thousand dollars. The price of our annual maintenance contracts are
based on a percentage of the related product license price and is generally paid
in advance. Consulting fees for implementation and training are generally priced
on a per hour basis.
For contracts with multiple elements, and for which vendor-specific
objective evidence
23
<PAGE> 24
of fair value exists for the undelivered elements, we recognize revenue for the
delivered elements based upon the residual contract value as prescribed by SOP
98-9. Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant
obligations of Calico with regard to implementation exist, the fee is fixed or
determinable, and collection is probable. Provisions for sales returns are made
at the time of revenue recognition based upon estimated returns. License revenue
from contracts involving customization or services which are essential to the
functionality of the software is recognized under contract accounting using the
completed contract or percentage-of-completion methods as appropriate. During
fiscal 1997, 100% of our license revenue was generated from new customer
implementations, during fiscal 1998, 91% of our license revenue was generated
from new customer implementations, and in fiscal 1999, 78% of our license
revenue was generated from new customer implementations. New implementations
include implementations in additional divisions of an existing customer.
Services revenue primarily comprises revenue from consulting services,
maintenance contracts and training. Services revenue from consulting and
training is generally recognized as the service is performed. Maintenance
contracts include the right to unspecified upgrades and ongoing support.
Maintenance revenue is deferred and recognized on a straight-line basis as
services revenue over the life of the related contract, which is typically one
year. Our customers generally purchase maintenance contracts with their initial
software implementation.
Revenue from contracts involving significant implementation, customization
or services essential to the functionality of the software is recognized over
the period of each engagement, primarily using the percentage-of-completion
method of contract accounting. Labor hours completed is generally used as the
measure of progress towards completion. To the extent that these arrangements
include license fees, the license fees are recorded as license revenue based on
the percentage-of-completion ratio. A provision for estimated losses on
engagements is made in the period in which the loss becomes probable and can be
reasonably estimated.
We bill customers in accordance with contract terms. Customer advances and
amounts billed to customers in excess of revenue recognized are recorded as
deferred revenue. Amounts recognized as revenue in advance of billing are
recorded as unbilled receivables.
Services revenue as a percentage of total net revenue was 33% in fiscal
1997, 41% in fiscal 1998, 51% in fiscal 1999, 37% in the quarter ended June 30,
1998 and 53% in the quarter ended June 30, 1999. As we develop additional
relationships with service partners, we anticipate that an increasing share of
professional services will be provided by third parties. As a result, we expect
that a higher percentage of total net revenue may be attributable to license
revenue in the future. Although services revenue may continue to increase in
absolute dollars if we increase the professional services we provide, services
revenue has a lower gross margin than license revenue. Our overall gross profit
can therefore fluctuate based on the mix of license revenue compared to services
revenue.
Our cost of license revenue consists primarily of amortization of
purchased technology, sub-licensing fees paid for embedded technology, and to a
lesser extent other product-related costs. Our cost of services revenue consists
primarily of salary expense and other related costs for our consulting and
support organizations, as well as third-party contractor expenses.
Our operating expenses are classified as sales and marketing, research and
development, and general and administrative. We classify all charges to these
operating expense categories based on the nature the expenses incurred. All
operating expense categories contain common recurring expenditures, including
salaries, employee benefits, incentive pay, travel and entertainment, costs for
contract staff and
24
<PAGE> 25
professional advisory services, rent and utilities. The sales and marketing
category contains additional expenditures specific to the sales and marketing
group, such as public relations, trade show participation, advertising, sales
lead generation, and commissions. Commission expense is recorded upon contract
signing. To date, all software development costs in research and development
have been expensed as incurred. General and administrative expenses include our
executive, financial, human resources and information technology departments,
and include additional expenditures related to legal and financial advisors, as
well as bad debt reserves.
In connection with the granting of stock options to our employees, we have
recorded unearned stock compensation totaling $5.6 million through June 30,
1999, of which $2.3 million remains to be amortized. This amount represents the
difference between the exercise price and the estimated fair value of our common
stock on the date these stock options were granted. This amount is included as a
component of stockholders' equity and is being amortized by charges to
operations over the vesting period of the options, consistent with the method
described in Financial Accounting Standards Board, or FASB, Interpretation No.
28. We recorded amortization of unearned stock compensation of $780,000 for
fiscal 1998, $2.0 million for fiscal 1999, $424,000 for the three months ended
June 30, 1998 and $514,000 for the three months ended June 30, 1999. The
amortization of the remaining unearned stock compensation at March 31, 1999 will
result in additional charges to operations through fiscal 2003. The amortization
of stock compensation is classified as a separate component of operating
expenses in our consolidated statement of operations.
Effective August 21, 1998, we acquired all of the outstanding shares of
FirstFloor, a developer and marketer of interactive marketing systems for
business-to-business communications, in exchange for 1,248,423 shares of our
Series D preferred stock, valued at $4.558 per share. In addition, we assumed
all of the outstanding options to purchase FirstFloor common stock and converted
them into options to acquire 47,203 shares of our Series D preferred stock. We
accounted for the acquisition using the purchase method of accounting. Of the
total purchase price, valued at approximately $6.1 million, approximately $1.8
million was allocated to in-process research and development and immediately
charged to operations, $360,000 to tangible assets, $1.5 million to existing
products and core technology, $2.0 million to liabilities assumed, and $4.3
million to goodwill. The intangible assets will be amortized over their
estimated useful lives which range from seven to 48 months. We structured the
acquisition as a tax-free exchange of stock; therefore, the differences between
the recognized fair values of acquired assets, including tangible and intangible
assets, and their historical tax bases are not deductible for tax purposes.
In connection with our acquisition of FirstFloor, we acquired one existing
product and two in-process research and development projects. The existing
product provides customers with the ability to automatically update their sales
force with the latest information. The first acquired in-process project, a
marketing information delivery system, is a complete rewrite of the acquired
product, and replaced the product upon its release. While the solution remains
the same, the functionality has been completely re-engineered. This development
effort increased the product's utility as well as its scalability on larger
intranets, which increases the possible number of users, and provides a variety
of data sources instead of just one central database. The second in-process
project, a personalization solution, provides customers with the ability to
obtain in-depth information and critical data needed to build stronger customer
relationships with the objective of increasing revenue and reducing sales cost.
At the time of the acquisition, an entity affiliated with Mr. Unger, one
of our directors, was a principal shareholder of both Calico and FirstFloor.
Since our inception, we have incurred quarterly and annual losses, and we
expect to continue to incur losses on both a quarterly
25
<PAGE> 26
and annual basis for the foreseeable future. We incurred net losses of $6.9
million for fiscal 1997, $5.5 million for fiscal 1998, $15.3 million for fiscal
1999 and $4.7 million for the three months ended June 30, 1999. As of June 30,
1999, we had an accumulated deficit of $34.4 million. We expect that our
operating expenses will continue to increase substantially in future quarters as
we increase sales and marketing operations, develop new distribution channels,
expand our professional services organization, and continue to fund research and
development.
We have recently experienced a period of rapid growth and expansion, and
expect to continue to expand through multiple growth strategies. To manage this
growth effectively, we will have to improve our existing operational and
financial systems and hire additional qualified personnel. In addition, we
expect to expand our current headquarters or move to new facilities during the
first half of fiscal 2000. The expenses related to this expansion or move may be
greater than our obligations for our current facility.
26
<PAGE> 27
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, selected
consolidated
financial data as a percentage of total net revenue.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
-------------------- ------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenue:
License............................................ 67% 59% 49% 63% 47%
Services........................................... 33 41 51 37 53
---- --- --- --- ---
Total net revenue............................... 100 100 100 100 100
---- --- --- --- ---
Cost of net revenue:
License............................................ 3 2 6 2 2
Services........................................... 36 26 33 30 36
---- --- --- --- ---
Total cost of net revenue....................... 39 28 39 32 38
---- --- --- --- ---
Gross profit......................................... 61 72 61 68 62
---- --- --- --- ---
Operating expenses:
Sales and marketing................................ 101 64 65 59 61
Research and development........................... 38 28 27 21 36
General and administrative......................... 25 19 19 14 20
Stock compensation................................. 14 7 9 9 7
Acquired in-process research and development....... -- -- 9 -- --
Amortization of goodwill........................... -- -- 3 -- 3
---- --- --- --- ---
Total operating expenses........................ 178 118 132 103 127
---- --- --- --- ---
Loss from operations................................. (117) (46) (71) (35) (65)
Interest and other income, net....................... -- -- -- -- 1
---- --- --- --- ---
Net loss............................................. (117)% (46)% (71)% (35)% (64)%
==== === === === ===
</TABLE>
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUE
Total net revenue increased 60% from $4.7 million in the three months
ended June 30, 1998 to $7.4 million in the three months ended June 30, 1999.
This increase is attributable to a significant increase in services revenue
associated with an increase in the number and scope of consulting engagements.
LICENSE. License revenue increased 18% from $2.9 million in the three
months ended June 30, 1998 to $3.5 million in the three months ended June 30,
1999. License revenue as a percentage of total net revenue was 63% in the three
months ended June 30, 1998 and 47% in the three months ended June 30, 1999. The
increase in license revenue in absolute dollars is attributable to an increase
in the average size of license transactions recognized during the quarter.
During the three months ended June 30, 1999, 97% of our license revenue was
attributable to new customer implementations.
SERVICES. Services revenue increased 131% from $1.7 million in the three
months ended June 30, 1998 to $4.0 million in the three months ended June 30,
1999. Services revenue as a percentage of total net revenue was 37% in the three
months ended June 30, 1998 and 53% in the three months ended June 30, 1999. The
increase in services revenue in absolute dollars and as a percentage of total
net revenue is attributable to a significant increase in the number and size of
consulting engagements, as well as an increase in the installed base of
customers and in the average size of maintenance
27
<PAGE> 28
contracts. This increase in services revenue as a percentage of total net
revenue has resulted in reduced overall gross margins, since services revenue
typically has lower gross margins than license revenue. During the three months
ended June 30, 1999, 66% of our maintenance revenue came from initial
maintenance contracts, with the remainder from maintenance renewals. As of June
30, 1999 we had 32 customers on active maintenance contracts, compared with 26
as of June 30, 1998. In some cases, a single customer consists of multiple
implementations within one corporate entity.
COST OF REVENUE
LICENSE. Cost of license revenue increased 36% from $101,000 in the three
months ended June 30, 1998 to $137,000 in the three months ended June 30, 1999.
Cost of license revenue as a percentage of license revenue was 3% in the three
months ended June 30, 1998 and 4% in the three months ended June 30, 1999. The
increase in cost of license revenue in absolute dollars and as a percentage of
license revenue is primarily due to the amortization of existing products and
core technology acquired in the acquisition of FirstFloor.
SERVICES. Cost of services revenue increased 95% from $1.4 million in the
three months ended June 30, 1998 to $2.7 million in the three months ended June
30, 1999. Cost of services revenue as a percentage of services revenue was 79%
in the three months ended June 30, 1998 and 67% in the three months ended June
30, 1999. The increase in cost of services revenue in absolute dollars is
primarily due to costs associated with increased personnel in our services
organization, representing 42% of the increase, as well as increased costs for
third-party contractors used to staff consulting engagements, representing 40%
of the increase. The decrease in cost of services revenue as a percentage of
services revenue is primarily due to economies of scale in the professional
services organization, as well as improved billing rate realization.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 65% from $2.8
million in the three months ended June 30, 1998 to $4.6 million in the three
months ended June 30, 1999. Sales and marketing expenses as a percentage of
total net revenue increased from 59% in the three months ended June 30, 1998 to
61% in the three months ended June 30, 1999. Sales and marketing expenses
increased in absolute dollars primarily due to increased personnel-related
costs, which represented 88% of the increase. Sales and marketing expenses as a
percentage of total net revenue increased as a result of our continued
investment in the development of our international direct sales and indirect
sales and marketing organizations.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 174%
from $972,000 in the three months ended June 30, 1998 to $2.7 million in the
three months ended June 30, 1999. Research and development expenses as a
percentage of total net revenue increased from 21% in the three months ended
June 30, 1998 to 36% in the three months ended June 30, 1999. Research and
development expenses increased in absolute dollars and as a percentage of total
net revenue as a result of increased engineering and product development
personnel partially attributable to personnel added as a result of our
acquisition of FirstFloor in the quarter ended September 30, 1998.
Personnel-related expenses accounted for 82% of the increase in absolute
dollars.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
127% from $641,000 in the three months ended June 30, 1998 to $1.5 million in
the three months ended June 30, 1999. General and administrative expenses as a
percentage of total net revenue were 14% in the three months ended June 30, 1998
and 20% in the three months ended June 30, 1999. General and administrative
expenses increased in absolute dollars and as a percentage of total net revenue
as a result of increased personnel-related costs resulting from the
28
<PAGE> 29
growth of our finance, human resources and information systems staff,
representing 47% of the increase in absolute dollars, as well as increased
spending for legal and financial advisory services, representing 37% of the
increase.
STOCK COMPENSATION. In connection with the granting of stock options to
our employees, we recorded aggregate unearned compensation totalling $5.6
million. The unearned compensation represents the difference between the
exercise price of stock option grants and the deemed fair value of our common
stock at the time of the grants. We recorded expenses related to stock
compensation of $424,000 in the three months ended June 30, 1998 and $514,000 in
the three months ended June 30, 1999. Stock compensation expenses as a
percentage of total net revenue were 9% in the three months ended June 30, 1998
and 7% in the three months ended June 30, 1999.
AMORTIZATION OF GOODWILL. During the three months ended June 30, 1999, we
recorded $240,000 in amortization, reflecting the amortization of goodwill
acquired as part of the FirstFloor acquisition.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, improved from $35,000 of net interest
expense in the three months ended June 30, 1998 to $71,000 of net interest
income in the three months ended June 30, 1999. The improvement is primarily due
to interest earned on increased cash and equivalents.
COMPARISON OF FISCAL YEARS ENDED MARCH 31, 1997, 1998 AND 1999
REVENUE
Total net revenue increased 101% from $5.9 million in fiscal 1997 to $11.9
million in fiscal 1998 and 81% to $21.4 million in fiscal 1999.
LICENSE. License revenue increased 77% from $3.9 million in fiscal 1997 to
$7.0 million in fiscal 1998, and 50% to $10.5 million in fiscal 1999. License
revenue as a percentage of total net revenue was 67% in fiscal 1997, 59% in
fiscal 1998 and 49% in fiscal 1999. The increases in absolute dollars were
primarily due to increased market acceptance of our products, increases in the
average size of transactions, as well as the introduction of versions of our
product that included functionality for Internet and corporate network use.
During fiscal 1999, 78% of our license revenue came from new customer
deployments.
SERVICES. Services revenue increased 149% from $2.0 million in fiscal 1997
to $4.9 million in fiscal 1998 and 123% to $10.9 million in fiscal 1999.
Services revenue at a percentage of total net revenue was 33% in fiscal 1997,
41% in fiscal 1998 and 51% in fiscal 1999. The increases in absolute dollars and
as a percentage of total net revenue were primarily due to an increase in the
number and size of customer deployments, additional follow-on consulting
services for existing customers, an increase in the installed base of customers
on maintenance contracts and renewals of prior period maintenance contracts.
COST OF REVENUE
LICENSE. Cost of license revenue increased 49% from $178,000 in fiscal
1997 to $265,000 in fiscal 1998, and 345% to $1.2 million in fiscal 1999. Cost
of license revenue as a percentage of license revenue was 5% in fiscal 1997, 4%
in fiscal 1998 and 11% in fiscal 1999. The increase in absolute dollars in
fiscal 1998 was primarily due to costs associated with sub-licensing of third-
party software used in our products. The increase in absolute dollars and as a
percentage of license revenue in fiscal 1999 was primarily due to the
amortization of existing products and core technology acquired in the
acquisition of FirstFloor in the quarter ended September 30, 1998.
We may from time to time in the future enter into various technology
sub-licensing arrangements with third parties which may require payments that do
not coincide with the timing and magnitude of license revenue. In addition, the
cost of amortization of our existing products and core technology does not vary
with recognized license revenue. As a result, our cost of license revenue may
vary
29
<PAGE> 30
significantly from quarter to quarter in both absolute dollars and as a
percentage of license revenue.
SERVICES. Cost of services revenue increased 47% from $2.1 million in
fiscal 1997 to $3.1 million in fiscal 1998 and 133% to $7.3 million in fiscal
1999. Cost of services revenue as a percentage of services revenue was 108% in
fiscal 1997, 64% in fiscal 1998 and 67% in fiscal 1999. The increase in absolute
dollars was primarily due to increased professional services personnel engaged
in deployment, training and technical support, representing 67% of the increase
in fiscal 1998 and 58% of the increase in fiscal 1999. In 1997, our cost of
services revenue exceeded our services revenue because the actual cost of
providing consulting services exceeded the fixed-price payment received from the
customer. During this period, we provided our services under low margin fixed-
price contracts, and subsequently agreed to provide services in excess of those
originally agreed for no additional fees, in order to gain market share.
However, we generally do not enter into and do not intend to enter into
fixed-price payment arrangements for our consulting services.
Cost of services revenue declined as a percentage of services revenue in
fiscal 1998 primarily due to improved billing rate realization as well as an
increase in revenue from maintenance contracts during fiscal 1998. Cost of
services revenue as a percentage of services revenue increased in fiscal 1999
due to increased use of contract personnel. We expect cost of services revenue
to increase in the future in absolute dollars as we expand our service capacity
to meet anticipated demand. Cost of services revenue as a percentage of services
revenue may vary significantly from quarter to quarter depending upon the mix of
services that we provide and the utilization rate of our services personnel.
Additionally, we may seek to gain more flexibility by staffing engagements with
increasing use of third-party contractors, whose expenses may exceed those of
employees.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 28% from $6.0
million in fiscal 1997 to $7.6 million in fiscal 1998 and 86% to $14.1 million
in fiscal 1999. Sales and marketing expenses as a percentage of total net
revenue were 101% in fiscal 1997, 64% in fiscal 1998 and 65% in fiscal 1999. The
increases in absolute dollars were primarily due to an increase in sales and
marketing personnel, representing 88% of the increase in fiscal 1998 and 69% of
the increase in fiscal 1999. Sales and marketing expenses decreased as a
percentage of total net revenue in fiscal 1998 primarily due to revenue growth
and increased in fiscal 1999 due to the investments in sales and marketing
described above. We believe sales and marketing expenses will continue to
increase in absolute dollars as we expand our sales and marketing organization,
initiate additional marketing programs, expand our distribution channels and
expand geographically. Sales and marketing expenses may increase or fluctuate as
a percentage of total net revenue from period to period.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 50%
from $2.2 million in fiscal 1997 to $3.3 million in fiscal 1998 and 70% to $5.7
million in fiscal 1999. Research and development expenses as a percentage of
total net revenue were 38% in fiscal 1997, 28% in fiscal 1998 and 27% in fiscal
1999. The increase in fiscal 1998 in absolute dollars was primarily due to
increases in engineering and development personnel, representing 69% of the
increase. The increase in fiscal 1999 was due to our addition of engineering and
development personnel, both through new hiring and as a result of our FirstFloor
acquisition. Personnel-related expenses accounted for 96% of the increase in
fiscal 1999. Research and development expenses as a percentage of total net
revenue declined in fiscal 1998 and fiscal 1999 due to the higher rate of
revenue growth during the periods.
We believe that continued investment in research and development is
critical to attaining our strategic objectives, and as a result we expect that
research and
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development expenses will increase in absolute dollars in future periods, and
may increase or fluctuate significantly as a percentage of total net revenue
from period to period.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
50% from $1.5 million in fiscal 1997 to $2.2 million in fiscal 1998, and 79% to
$4.0 million in fiscal 1999. General and administrative expenses as a percentage
of total net revenue were 25% in fiscal 1997, 19% in fiscal 1998 and 19% in
fiscal 1999. The increase in general and administrative expenses in absolute
dollars was primarily due to increased personnel to support our expanding
operations. Personnel-related expenses represented 70% of the increase in fiscal
1998 and 43% of the increase in fiscal 1999. General and administrative expenses
also increased in absolute dollars in fiscal 1999 due to the relocation of our
corporate headquarters which resulted in a charge of $660,000 for the minimum
lease payments committed under our previous leased facility and losses on
disposal of certain fixed assets.
We believe that general and administrative expenses will continue to
increase in absolute dollars as we expand our operations and assume the
responsibilities of a public company, and may fluctuate as a percentage of total
net revenue from period to period.
STOCK COMPENSATION. In fiscal 1998 and 1999 we recorded aggregate unearned
compensation totalling $5.6 million. The unearned compensation represents the
difference between the exercise price of stock option grants and the deemed fair
value of our common stock at the time of the grants. We recorded expenses
related to stock compensation of $864,000 during fiscal 1997, $780,000 during
fiscal 1998 and $2.0 million during fiscal 1999.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In connection with our
acquisition of FirstFloor, we ascribed $1.8 million to two specific in-process
research and development projects -- a marketing information delivery system and
a personalization solution -- which was charged to operations in the quarter
ended September 30, 1998.
The amount of purchase price allocated to in-process research and
development was determined using appropriate valuation techniques, including
percentage-of-completion, which utilizes research and development cost metrics
and key milestones to estimate the stage of development of each in-process
research and development project at the date of acquisition, estimating cash
flows resulting from the revenue expected to be generated from these projects,
and discounting the net cash flows back to their present value. The discount
rate includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology. The remaining
identified intangibles, including the value of acquired existing products and
core technology, is amortized over the periods of benefit ranging from seven to
36 months.
The value assigned to acquired in-process research and development was
determined by identifying the two specific research and development projects
discussed above for which technological feasibility had not been established.
The first project reached technological feasibility and was commercially
released in December 1998. The second project reached technological feasibility
and was commercially released in May 1999. In assigning value to the in-process
projects, consideration was given, as appropriate, to the stage of completion,
the complexity of the work completed to date, the difficulty of completing the
remaining development, costs already incurred and the projected cost to complete
the projects, adjusting for the relative value and contribution of the core
technology. The value assigned to acquired in-process research and development
was based on the assumptions set forth in the following paragraph.
Net cash flows from these projects were determined based on our estimates
of revenue, cost of sales, research and development costs, selling, general and
administrative costs, and income taxes associated with the projects. Revenue
growth rates for each technology was developed
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considering, among other things, the then-current and expected industry trends,
acceptance of the technologies and historical growth rates for similar industry
products. Estimated total revenue from the acquired in-process research and
development projects are expected to generally peak in fiscal 2000 and decline
through fiscal 2001 as other new products are expected to be introduced. We
assumed no synergies as a result of the acquisition and the revenue projections
are within the historical growth rates of Firstfloor product introductions.
Projected gross margins for the marketing information delivery system averaged
74% and the personalization solution averaged 69% over the estimated product
lives. The estimated selling, general and administrative costs for the marketing
delivery system averaged 41% as a percentage of revenue and the personalization
solution averaged 47% as a percentage of revenue over the estimated product
lives, and are consistent with Firstfloor's historical operating cost structure.
These revenue projections were based on our management's estimate of market size
and growth, expected trends in technology and the expected timing of new product
introductions. We applied a royalty charge as a percentage of operating income
for each in-process project to attribute value for dependency on predecessor
core technology. Royalty rates were developed based on published documentation
of royalty rates and the specific facts and circumstances, and in our view, are
considered reasonable approximations of fair value rates for the respective
types of technology under exclusive, perpetual, worldwide licenses. The
estimated net cash flows of each project were discounted back to their present
value using discount rates of 30% for the marketing information delivery system
and 40% for the personalization solution, which represents a premium over our
cost of capital of 20% to reflect the risk associated with the stage of
completion of the in-process technologies. The estimated
percentage-of-completion of the in-process research and development projects
were 82% for the marketing information delivery system and 47% for the
personalization solution.
The actual development timeline and costs of approximately $200,000 for
the marketing information delivery system and approximately $1.2 million for the
personalization solution were in line with the estimates used to compute the
estimated percentage-of-completion used in the valuation of the in-process
research and development projects. These products were just recently released
and it is premature to compare the actual revenue with those projected. To date,
our cash flow and other assumptions have not materially changed.
AMORTIZATION OF GOODWILL. During fiscal 1999, we recognized $550,000 in
amortization, reflecting the amortization of goodwill acquired as part of the
FirstFloor acquisition.
INTEREST AND OTHER INCOME, NET
Interest and other income, net declined from $21,000 of net interest
income in fiscal 1997 to $41,000 of net interest expense in fiscal 1998, and
improved to $23,000 of net interest expense in fiscal 1999, representing less
than one percent of total net revenue in each period.
INCOME TAXES
No provision for federal and state income taxes was recorded for fiscal
1997, 1998 or 1999 because we incurred net operating losses in each of those
periods.
As of March 31, 1999, we had net operating loss carryforwards for federal
income tax reporting purposes of $12.1 million that expire in various amounts
beginning in fiscal 2011. We also had net operating loss carryforwards for state
income tax reporting purposes of $9.7 million that expire in various amounts
beginning in fiscal 2003. We had net deferred tax assets, including our net
operating loss carryforwards and tax credits of $8.8 million as of March 31,
1999. A valuation allowance has been recorded for the net deferred tax asset
balance as a result of uncertainties regarding the realization of the asset
balance. See note 5 of the notes to the consolidated financial statements.
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QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited consolidated statement of
operations data for each of the nine quarters in the period ended June 30, 1999,
as well as that data expressed as a percentage of our total net revenue for the
quarters presented. We have prepared this unaudited consolidated information on
a basis consistent with our audited consolidated financial statements, and in
the opinion of our management, this information reflects all normal recurring
adjustments necessary for a fair presentation of our operating results for the
quarters presented. You should read this information in conjunction with our
consolidated financial statements and related notes included elsewhere in this
prospectus. You should not draw any conclusions about our future results from
the operating results for any quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1998 1998 1998 1998 1999 1999
-------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue:
License.................... $ 1,285 $ 1,162 $ 2,305 $ 2,213 $ 2,932 $ 2,657 $ 2,560 $ 2,333 $ 3,457
Services................... 780 1,371 1,150 1,593 1,721 2,628 3,155 3,427 3,976
------- ------- ------- ------- ------- ------- ------- ------- -------
Total net revenue........ 2,065 2,533 3,455 3,806 4,653 5,285 5,715 5,760 7,433
Cost of net revenue:
License.................... 20 53 97 95 101 265 350 463 137
Services................... 815 597 828 875 1,367 1,742 2,036 2,127 2,660
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of net
revenue................ 835 650 925 970 1,468 2,007 2,386 2,590 2,797
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 1,230 1,883 2,530 2,836 3,185 3,278 3,329 3,170 4,636
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing........ 1,768 1,962 1,824 2,039 2,758 3,066 3,699 4,615 4,558
Research and development... 670 776 934 962 972 1,232 1,684 1,789 2,666
General and
administrative........... 542 610 573 497 641 1,459 934 954 1,452
Stock compensation......... 11 160 252 357 424 469 582 532 514
Acquired in-process
research and
development.............. -- -- -- -- -- 1,840 -- -- --
Amortization of goodwill... -- -- -- -- -- 78 234 238 240
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 2,991 3,508 3,583 3,855 4,795 8,144 7,133 8,128 9,430
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations......... (1,761) (1,625) (1,053) (1,019) (1,610) (4,866) (3,804) (4,958) (4,794)
Interest and other income,
net........................ (36) (6) 7 (6) (35) (46) 54 4 71
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss..................... $(1,797) $(1,631) $(1,046) $(1,025) $(1,645) $(4,912) $(3,750) $(4,954) $(4,723)
======= ======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL NET
REVENUE:
Net revenue:
License.................... 62% 46% 67% 58% 63% 50% 45% 41% 47%
Services................... 38 54 33 42 37 50 55 59 53
------- ------- ------- ------- ------- ------- ------- ------- -------
Total net revenue........ 100 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of net revenue:
License.................... 1 2 3 2 2 5 6 8 2
Services................... 39 24 24 23 30 33 36 37 36
------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of net
revenue................ 40 26 27 25 32 38 42 45 38
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit................. 60 74 73 75 68 62 58 55 62
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing........ 86 77 53 55 59 58 65 80 61
Research and development... 32 31 27 25 21 23 29 31 36
General and
administrative........... 26 24 16 13 14 28 17 17 20
Stock compensation......... 1 6 7 9 9 9 10 9 7
Acquired in-process
research and
development.............. -- -- -- -- -- 35 -- -- --
Amortization of goodwill... -- -- -- -- -- 1 4 4 3
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 145 138 103 102 103 154 125 141 127
------- ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations......... (85) (64) (30) (27) (35) (92) (67) (86) (65)
Interest and other income,
net........................ (2) -- -- -- -- (1) 1 -- 1
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss..................... (87)% (64)% (30)% (27)% (35)% (93)% (66)% (86)% (64)%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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FACTORS AFFECTING QUARTERLY RESULTS
Total net revenue has increased during each of the nine quarters ended
June 30, 1999 due to an increase in the number of our customers, an increase in
the average transaction size and an increase in follow-on orders from existing
customers. We experience significant variability in license revenue from quarter
to quarter due to the timing and size of transactions. License revenue declined
sequentially in each of the three quarters ended March 31, 1999, primarily due
to delays in recognition of revenue under a few large contracts entered into
during those quarters. License revenue increased significantly in the quarter
ended June 30, 1999, due to the recognition of revenue associated with one
significant order, as well as progress on several other percentage-of-completion
and milestone-based contracts.
Services revenue has increased significantly during the comparison
periods, but is also subject to significant variability driven by transaction
timing, contract terms and billing rate realization. Services revenue declined
in the quarter ended December 31, 1997 due to the recognition of services
revenue in the previous quarter upon completion of one large project. Services
revenue increased significantly as a percentage of total net revenue in the five
quarters ended June 30, 1999 primarily as a result of several large
implementation projects during those periods.
Cost of license revenue increased in the three quarters ended March 31,
1999 as a result of the amortization of acquired products and core technology
subsequent to our acquisition of FirstFloor. Cost of license revenue declined
significantly in the quarter ended June 30, 1999 due to the completion of
amortization of one of the two products acquired. Cost of services revenue
increased significantly in the quarter ended June 30, 1998 primarily due to
costs associated with the hiring and training of new professional services
personnel who were not yet fully utilized.
Sales and marketing expenses increased significantly in the quarter ended
June 30, 1998 primarily due to the expansion of our domestic sales force, as
well as the establishment of our international sales office, and increased in
the quarter ended March 31, 1999 due to commissions related to the signing of a
few large orders and further expansion of our sales force. Research and
development expenses increased significantly in the four quarters ended June 30,
1999 due to an increase in product development personnel added in conjunction
with our acquisition of FirstFloor and through new hires. General and
administrative expenses increased significantly in the quarter ended September
30, 1998 due to the relocation of our corporate headquarters which resulted in a
$660,000 charge for the minimum lease payments committed under our previous
leased facility and losses on disposal of fixed assets, and increased in the
quarter ended June 30, 1999 primarily as a result of increased legal and
financial advisory fees, which represented 45% of the increase.
Our quarterly operating results have varied significantly in the past and
we expect that they will vary significantly from quarter to quarter in the
future. These variations are caused by a number of factors, including the length
of our sales cycle, demand for and market acceptance of our products and
services, the timing of orders and deployment of our products and services, the
impact of our revenue recognition policies, changes in technology and changes
caused by the rapidly evolving electronic commerce market and the impact of year
2000 investments by us and our customers.
As a result of these and other factors, we believe that period-to-period
comparisons of our historical results of operations are not necessarily
meaningful and are not a good predictor of our future performance. Our operating
results may be below the expectations of public market analysts and investors in
future quarters, which could cause volatility in the price of our stock.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and met our capital
expenditure requirements primarily through the sale of
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<PAGE> 35
private equity securities, and to a lesser extent, notes payable and capital
equipment leases. As of June 30, 1999, we had $10.5 million of cash and cash
equivalents, compared with $15.4 million as of March 31, 1999. Cash used in
operating activities was $4.3 million for fiscal 1997, $3.3 million for fiscal
1998 and $7.4 million for fiscal 1999, and was $298,000 in the quarter ended
June 30, 1998 and $3.4 million in the quarter ended June 30, 1999. Cash used in
operations resulted primarily from net losses and increases in our accounts
receivable, offset in part by the growth in accrued liabilities, deferred
revenue, and non-cash expenses including depreciation and stock compensation.
Net cash used in investing activities of $930,000 for fiscal 1997, $1.4
million for fiscal 1998, $1.8 million for fiscal 1999, $271,000 for the quarter
ended June 30, 1998 and $1.3 million for the quarter ended June 30, 1999,
related to purchases of computer equipment and to a lesser extent software and
office furniture to support our expanding operations.
Financing activities provided net cash of $5.4 million for fiscal 1997,
$5.3 million for fiscal 1998, $22.1 million for fiscal 1999, $319,000 for the
quarter ended June 30, 1998 and used cash of $187,000 in the quarter ended June
30, 1999. Financing activities were primarily the sale of our common and
preferred stock. We have also used debt and leases to partially finance our
operations and capital purchases. At June 30, 1999 we also had $1.2 million in
current and noncurrent debt as well as $372,000 in current and noncurrent lease
obligations.
Included in the amounts above are four variable rate installment notes
with a bank that are secured by the equipment financed by the bank. The notes
bear interest at the bank prime rate and are due between March 2001 and February
2002. Also included are three notes payable to an equipment financing company
that bear interest at 7% per year and are due between June 2000 and October
2000, and three capital leases for the lease of computer and office equipment
due through January 2003.
Our borrowings under the variable rate installment notes require us to
comply with quarterly financial tests, including minimum operating results, and
liquidity, leverage and debt service ratios. As of March 31, 1999 and June 30,
1999, we were not in compliance with the minimum operating results covenant. We
obtained a waiver from the lender for the periods in which we were not in
compliance. The total amount outstanding under these variable rate installment
notes as of June 30, 1999 was approximately $818,000.
At March 31, 1999, we also had noncancelable operating leases for office
space and equipment of approximately $1.6 million which are payable through
fiscal 2004.
Although we have no material long-term commitments for capital
expenditures, we anticipate a substantial increase in our capital expenditures
and lease commitments consistent with anticipated growth in operations,
infrastructure and personnel. We intend to fund the intended increase in
expenses and capital expenditures through the proceeds of this offering,
together with existing cash and cash equivalents, and believe that these funds
will be sufficient to meet our working capital needs for at least the next 12
months. However, we may need to raise additional funds in order to support more
rapid expansion of our sales force, develop new or enhanced products or
services, respond to competitive pressures, acquire complementary businesses or
technologies or respond to unanticipated requirements. If we seek to raise
additional funds, we may not be able to obtain funds on terms which are
favorable or otherwise acceptable to us. If we raise additional funds through
the issuance of equity securities, the percentage ownership of our stockholders
would be reduced. Furthermore, these securities may have rights, preferences or
privileges senior to our common stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position No. 98-1,
"Accounting for the Cost of Computer Software Developed
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or Obtained for Internal Use". SOP No. 98-1 will become effective during the
year ending March 31, 2000. SOP No. 98-1 provides guidance over accounting for
computer software developed or obtained for internal use including the
requirement to capitalize specified costs and amortization of these costs. We do
not expect the adoption of SOP No. 98-1 to have a material effect on our results
of operations, financial position or cash flows.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivatives and Hedging Activities". This statement
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 will become effective during the year ending
March 31, 2001. The adoption of SFAS No. 133 is not expected to have a material
effect on our results of operations, financial position or cash flows.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, and to a lesser extent in Europe and Asia. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Because nearly
all of our revenue is currently denominated in U.S. dollars, a strengthening of
the dollar could make our products less competitive in foreign markets. Our
interest income is sensitive to changes in the general level of U.S. interest
rates, particularly since the majority of our investments are in short-term
instruments. Due to the short-term nature of our investments, we do not believe
that we have a material risk exposure. Because some of our debt arrangements are
based on variable rates of interest, our interest expense is sensitive to
changes in the general level of U.S. interest rates. Since these obligations
represent a small percentage of our total capitalization, we believe that there
is not a material risk exposure.
YEAR 2000 COMPLIANCE
The "year 2000" issue refers generally to the problems that some software
may have in determining the correct century for the year. Software with date
sensitive information that is not year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in system failures
or the creation of erroneous results. We are subject to potential year 2000
problems affecting our products, our internal systems and the systems of our
suppliers and customers, any of which could harm our business.
We believe that all current versions of our products are year 2000
compliant, so long as they are configured and used in accordance with our
specifications, and provided that the underlying operating systems and any other
software used with our products are also year 2000 compliant. However, since our
products are integrated with our customers' systems, the failure of our
customers' systems to be year 2000 compliant could impede the success of our
applications in their systems. Accordingly, known or unknown defects or errors
that affect the operation of our software, including any defects or errors in
systems that include our products, could result in delay or loss of revenue,
diversion of development resources, damage to our reputation, or increased
service or warranty costs, any of which could harm our business.
We have initiated an assessment of our internal systems and are not
currently aware of any material operational issues or costs associated with
preparing our internal systems for the year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal systems.
In conjunction with our year 2000 assessment, we have begun to contact our
major suppliers to determine whether their operations and the products and
services they provide are year 2000 compliant. Where practicable, we will
attempt to mitigate our risks with respect to the failure of suppliers to be
year 2000 compliant. However, these failures remain a possibility and could harm
our business.
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We are in the process of developing a contingency plan to address
situations that may result if our products, our internal systems, or the systems
of our suppliers or customers are not year 2000 compliant.
We have funded our year 2000 plan from available cash and have not
separately accounted for these costs. To date, these costs have not been
material and are not expected to be material. However, we may experience
unanticipated problems and costs with year 2000 compliance that could harm our
business.
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BUSINESS
We provide electronic commerce software and services focused on the
purchasing customer, to companies worldwide in the telecommunications, financial
services, retail, computer hardware and manufacturing industries. Our products
enable companies to sell complex goods and services over the Internet and to
create a buying experience that engages and guides customers through the
purchasing process, resulting in more successful purchases and enhancing repeat
business.
Our electronic commerce software is broadly applicable to a wide range of
industries and markets, products and services. Our current customers include a
number of companies that have adopted aggressive electronic business strategies,
such as Best Buy, Cisco, Dell, Gateway, Merrill Lynch, Nortel Networks, Qwest,
Siemens, Telia and US West, who represented an aggregate of 67% of our total net
revenue for fiscal 1999.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
The rapid growth of the Internet is revolutionizing the way in which
businesses and consumers communicate, share information and conduct business.
The Internet has created a new means for businesses to reach and interact
directly with new and existing customers worldwide, transforming the traditional
ways companies market, sell and support their product and services offerings.
For some organizations, the Internet acts as a means to improve the
effectiveness of existing distribution channels. For others, it is replacing
those channels or enabling entirely new business models in a world where
traditional barriers to entry are rapidly dissolving. Forrester Research, Inc.
estimates, based upon its research, that the total value of U.S. business trade
on the Internet will grow to approximately $1.3 trillion by 2003. However, there
can be no assurance that these projections will be met.
Driven by rapidly accelerating global competition, companies are seeking
to improve their operations by improving collaboration and communication along
the supply chain, increasing their responsiveness to customers, and offering a
wider range of products and services which can be dynamically matched with
customers' specific needs. In order to capitalize on this opportunity, companies
are adopting more sophisticated approaches to electronic commerce and are
increasing their investment in electronic commerce infrastructure. These
approaches are characterized by enhanced interactivity, greater personalization
and the ability to offer a broad array of complex configurable products and
services, all at the time of purchase.
ELECTRONIC COMMERCE REQUIRES A NEW CLASS OF SOFTWARE
Over the past two decades, many major corporations have invested large
amounts of time and money automating their internal business processes through
the implementation of enterprise resource planning and sales force automation
software. These systems have enabled companies to centralize and better manage
important company-wide data and business processes, and provide sales
representatives with updated product information, contact management and data to
trace sales leads. While these systems have become an important element of
company-wide information technology processes and have brought many operational
benefits, they were developed prior to the commercial use of the Internet, and
were not designed for large scale, Internet-based, customer-driven interactions
and commerce. Because these process automation systems were designed for a
limited universe of internal users, they have not generally scaled to
accommodate the significant number of users or transactions made possible by the
Internet and have not provided the level of intuitive graphical user interface
that is necessary for engaging customer interactions.
As commercial use of the Internet began to develop, early electronic
commerce vendors developed custom websites and
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transactions systems using general purpose Internet publishing tools, such as
HTML editors and specialized database tools. These tools enabled companies to
post static product catalogs and brochure content on the Internet, but generally
allowed only limited real-time interactivity and did not provide proven
reliability and scalability. Recently, packaged electronic commerce applications
have emerged, focusing primarily on enabling transactions by providing security,
credit card validation and the management of "shopping baskets". In addition, a
variety of point solution software applications have been developed to provide
functionality in discrete aspects of the selling process, such as
personalization and content delivery. While these early packaged applications
and point solutions have helped to automate online transactions, they generally
have not provided well-integrated functionality or capabilities for the online
purchasing of complex and configurable products and services, such as computers,
network equipment or financial services.
We believe that the rapid growth and evolution of electronic commerce
requires a new class of software solutions designed specifically for electronic
commerce interactions with customers, resellers and partners. This new class of
software must leverage companies' large investments in company-wide business
applications, and combine the proven reliability of traditional enterprise
systems with the scalability and flexibility of Internet software. In addition,
this software must be customer-driven, integrate a broad range of sophisticated
functionality and enable the sale of complex products and services.
THE CALICO SOLUTION
The Calico eSales Suite is designed to allow companies to interact
directly with their customers over the Internet, intranets, extranets and
corporate networks and can be accessed through desktop and mobile computers and
retail kiosks. Using our software, companies can create a web-based guided
selling experience that can be customized based upon the needs of the customer.
Our software enables companies to provide tailored information to their
customers, identify constraints in the buying process, propose alternatives to
the items chosen and deliver quotes.
Buyers use our software to research, evaluate, weigh trade-offs on price,
performance and other attributes, configure in real-time and buy complex goods
and services.
Our solutions provide the following advantages:
HIGHLY STRATEGIC. Our software is designed to help suppliers increase
their revenue by capitalizing on new electronic commerce opportunities and
reduce their costs by enhancing operating efficiency and order accuracy. For
example, our tailored solutions enable suppliers to provide personalized
products and services, to recommend additional or related complementary items to
a buyer during the purchase process, resulting in improved sales effectiveness
and order accuracy and reduced cost of returned items. This functionality also
reduces the time to market of new products and services. As a result, we believe
our software can provide a significant return on investment and generally is
viewed by our customers as a means of achieving strategic and competitive
advantage.
CUSTOMER-DRIVEN. Unlike traditional enterprise applications, our software
is designed specifically for interacting directly with customers, resellers and
other partners. Our "user-guided behavior" technology enables users to define
the purchasing process according to their own needs and to flexibly configure
complex goods and services at the point of sale in real time. In addition, our
agent technology delivers personalized information during the purchase process,
enabling companies to proactively engage the customer, anticipate customer
needs, provide real-time information and speed product delivery. By keeping the
customer at the center of the buying experience, focus can be shifted from the
transaction to the customer relationship, creating a key source of competitive
differentiation for companies.
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INTEGRATED. By combining advanced configuration, information delivery,
content management and personalization functionality, we offer a broad,
integrated suite of electronic commerce software, providing significant benefits
to customers who wish to launch or improve comprehensive electronic commerce
functionality quickly. In addition, our software enables customers to develop
highly intuitive, interactive, graphical and content-rich electronic commerce
sites. We also provide professional consulting and implementation services,
complemented by our relationships with third-party implementation partners, to
provide a tailored solution for each company's needs.
SCALABLE AND FLEXIBLE. Our product architecture is designed to be highly
scalable, enabling enterprises to interact directly with large numbers of
customers via the Internet and other platforms. The Calico eSales Suite employs
highly flexible modeling and tools to facilitate connections between computer
applications, designed to enable our software to be rapidly integrated with
other computer applications maintained by a company. These other computer
applications include enterprise resource planning, sales force automation and
supply chain management software programs, and their underlying databases.
DESIGNED TO BE ACCESSED ACROSS MULTIPLE MODES OF DISTRIBUTION. The Calico
eSales Suite is designed to connect buyers and sellers, including distributors,
resellers, telemarketers and direct sales forces, to end users. To reach these
audiences, the Calico eSales Suite can be implemented across the Internet,
intranets, extranets and corporate networks and accessed through desktop and
mobile computers and retail kiosks. The Calico eSales Suite uses a single set of
business rules, enhancing consistency of user experience and reducing
maintenance.
STRATEGY
Our objective is to be the leading provider of electronic commerce
software to customers worldwide. The key elements of our strategy include:
INCREASE THE BREADTH AND DEPTH OF OUR ELECTRONIC COMMERCE SOLUTIONS. Our
strategy is to provide software that enhances customer interaction by adding new
features to our Calico eSales Suite and by adding new products that provide
marketing and post-sales service functionality. We plan to accomplish this
through internal product development, licensing and acquisitions of third-party
technology and partnering. Our acquisition of FirstFloor provided agent
technology which enables targeted, personalized information delivery, a key
element in our Calico eSales solution. The introduction of personalized products
which provide marketing functionality will enable our customers to tailor
Internet sites to help build relationships with their most important customers.
In addition, we intend to facilitate integration of our products with a broad
range of enterprise and Internet software applications through the development
of additional tools for integration of our software with other computer
applications and additional application programming interfaces.
ALIGN WITH ELECTRONIC COMMERCE LEADERS AND EXPAND IN OTHER TARGETED
VERTICAL MARKETS. Our electronic commerce software is broadly applicable to a
range of industries and markets. To date, our customers have been concentrated
in two major industry groups -- computer hardware and network and
telecommunications equipment. Our strategy has been to pursue relationships with
leading participants in key industries who have adopted aggressive electronic
business strategies. In addition, we plan to continue to expand in additional
industries where electronic commerce software is highly strategic and promote
significant competitive advantage, including manufacturing, retail,
telecommunications services, and financial services.
ENHANCE SALES AND IMPLEMENTATION SERVICES THROUGH INCREASED ALLIANCES. Our
strategy is to increase our revenue base by complementing our direct sales force
and professional services organization with strategic partnerships and
alliances. These partnerships are intended to increase geographic sales coverage
worldwide, address new industry market segments, and provide our customers with
access to additional design, modeling and
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implementation resources. In addition, our goal is to form additional marketing
and distribution alliances with electronic commerce software vendors and
resellers to broaden distribution or provide complementary functionality to our
applications. We also intend to provide company-wide integration of our software
through alliances with systems integrators and vendors focused on providing
software and integration services for connecting computer applications from
multiple business software providers.
EXTEND TECHNOLOGY LEADERSHIP. Our Calico eSales Suite is based on advanced
expert systems technology which allows matching of user requirements with
suppliers' product and service offerings. For example, the bill of materials
created by our Calico eSales Quote product is described in extensible markup
language, or XML, enabling dynamic and intelligent exchange among electronic
commerce applications. Our strategy is to continue to develop leading
technologies in order to deliver more advanced functionality in our software to
our customers.
IDENTIFY AND CAPITALIZE ON NEW ELECTRONIC COMMERCE-BASED BUSINESSES. Our
strategy is to pursue relationships with and foster the development of emerging
electronic commerce-based businesses at an early stage of their development. By
entering into a variety of arrangements with these emerging leaders, we believe
we can further capitalize on the growth of electronic commerce and remain at the
forefront of electronic commerce trends and technology.
PRODUCTS AND SERVICES
We have developed a suite of applications, integration tools and services
for building electronic commerce solutions.
In a typical interaction with the Calico eSales Suite, a user at a retail
kiosk or other mode of interaction views pages on a vendor's web site that
describe a complex product or service the user wishes to purchase. The web
server supporting the web site connects to the various Calico eSales Suite
modules through industry-standard protocols, such as JHTML, ASP and JSP. The
Calico Enterprise Connectors or other published Java application programming
interfaces then integrate the Calico eSales Suite modules with the vendor's
order entry or other computer systems, enabling user interaction by providing
data flow to the Calico eSales Suite modules and the web site.
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[CALICO eSALES ARCHITECTURE CHART]
THE CALICO ESALES SUITE
The Calico eSales Suite is an integrated family of interactive user-guided
software products that provide our customers with the ability to create aspects
of person-to-person selling in an on-line environment. Companies can use our
suite of products to support multiple sales channels, including direct sales,
in-store, resellers, value added resellers, telesales and sales over the
Internet. Our products can be implemented individually or as part of the entire
suite, depending on customer preference.
Initial implementations by customers typically include the majority of the
functionality provided by our product line. Additional user licenses and Calico
eSales Engines, together with any additional functionality, may be added
following the initial implementation.
The Calico eSales Suite includes the following software modules:
CALICO ESALES CONFIGURATOR. At the heart of the Calico eSales Suite is the
Calico eSales Configurator, an expert system that matches customer requirements
with product attributes, guiding customers to products and services that meet
their needs. The Calico eSales Configurator employs our "user-guided behavior"
technology to explore different combinations of solution elements. This
technology enables users to evaluate trade-offs on price, performance or other
attributes, while at the same time determining that the configured product or
service meets business or legal constraints set by the vendor. The Calico eSales
Configurator uses dynamic models of customer requirements and product attributes
developed using the Calico eSales Workbench. Once the models have been created,
they can be loaded into an application running standalone or in a
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multi-user setting. A single model can be implemented and accessed across
multiple sales channels, including direct sales, in-store, resellers, value
added resellers, telesales, and sales over the Internet, streamlining
maintenance and permitting significant flexibility.
In this way, customers can select and purchase complex products and
services without the individual attention of a sales person and speed the
process of creating complete and correct complex product configurations.
CALICO ESALES LOYALTY BUILDER. The Calico eSales Loyalty Builder is
designed to address the challenge of building and maintaining customer loyalty
on-line. Calico eSales Loyalty Builder personalizes the Internet-based guided
selling experience from the customer's initial expression of interest through
configuring and ordering products. This personalized guided selling experience
enables companies to proactively engage customers to build stronger customer
relationships with the objective of increasing revenue and reducing sales costs.
The Calico eSales Loyalty Builder is an integral part of the Calico eSales
Suite, and provides organizations with customer-driven electronic commerce
software with profiling technology for personalized buying over the Internet.
The Calico eSales Loyalty Builder's agent technology automatically monitors
content and notifies users of changes. In addition, the Calico eSales Loyalty
Builder's Java and XML-based architecture is designed to enable customers to
adopt the technology within their existing web infrastructure.
CALICO ESALES QUOTE. The Calico eSales Quote provides customized sales
quotations to customers for selected products and stores quotes for later
retrieval or immediate entry into an order management system. The Calico eSales
Quote is designed to enable unification of product requirements, complex
configurations and pricing and acts as the intermediary to automating order
entry. The Calico eSales Quote is built using the Java programming language and
XML-based architecture. This enables companies to integrate the quoting and
pricing functions of the Calico eSales Suite with existing order entry,
enterprise resource planning and external pricing tools and software programs.
In addition, the core functionality of the Calico eSales Quote can be extended
via the Java-based application programming interfaces provided with the Calico
eSales Quote.
CALICO ESALES INFOGUIDE. The Calico eSales InfoGuide, previously called
Calico eSales Catalog, delivers targeted marketing information, such as
brochures, product datasheets, product reviews and competitive comparisons,
directly to customers during the on-line buying process. The Calico eSales
InfoGuide is a Java-based programming tool that pairs content-sensitive
selections and browser clicks with content from any source, even pre-existing
content stored in multiple file formats. The Calico eSales Configurator, Calico
eSales Quote and Calico eSales InfoGuide are integrated so that at any point
within the buying process the customer can request additional information and
have targeted information delivered.
CALICO ESALES WORKBENCH. The Calico eSales Workbench is a flexible toolset
for creating product, pricing and content models for use by the Calico eSales
Configurator. This toolset is used to develop models that describe how each
product can be configured and priced and establishes the relationship between
the requirements and the products to be configured. The Calico eSales Workbench
does not require significant computer programming or advanced technical
expertise to develop or maintain models.
CALICO ESALES ENGINE. The Calico eSales Engine runs the models created
with the Calico eSales Workbench. The Calico eSales Engine is a constraint-based
sales engine, that can be implemented on laptops, desktops and high-end servers,
among others. Because the engine allows users to access the same model,
regardless of whether they are using ActiveX-, Java- or HTML-based user
interfaces, each modification and update of a model only needs to be made once.
Calico eSales Engines are included with each Calico eSales Configurator.
Additional Calico eSales Engines can be added to run the same model,
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thereby accommodating increased traffic while continuing to provide rapid
response time.
CUSTOMER CASE STUDIES
The following case studies are representative of our customers and how
they use the Calico eSales Suite.
DELL COMPUTER CORPORATION
Dell has licensed Calico software for their enterprise configuration
solution on a worldwide basis. Dell internal telesales staff in Europe and the
U.S. are currently using the Calico eSales Configurator to create an accurate
order for Dell's large server and storage product line.
Calico's "user guiding behavior" technology helps the Dell salespeople
correctly configure these large servers by combining the hardware and software
components based on the varying customer requirements as to performance,
redundancy, and other state-of-the-art features offered in the Dell server line.
The result is an accurate order custom tailored to each individual customer
situation.
NORTEL NETWORKS
Communication networking leader Nortel Networks has implemented our Calico
eSales Suite to enable its customers to buy Nortel Networks Carrier Solutions
products interactively via the Internet.
Using the Calico eSales Suite, Nortel Networks Carrier customers have
access to up-to-date and customizable product and pricing information for
optical and access product portfolios, enabling them to make informed purchasing
decisions. The Calico eSales Suite guides Nortel customers through the
purchasing process, reducing the time it takes to configure and place orders for
optical and access networking products and enhancing order accuracy.
Nortel believes our interactive, customer-focused guided selling approach
will enhance sales and customer satisfaction. Nortel Networks is also working
with us to deploy and integrate our eSales Suite as a part of its future
electronic business initiatives.
INTERNATIONAL GAME TECHNOLOGY
IGT designs, develops and manufactures slot, video and progressive gaming
devices and software systems. To meet the increasing demand for its products and
better serve its customers and prospects, IGT needed a sales force automation
solution that would enable its direct sales force to pursue new sales
opportunities and configure products at the point of sale. The solution required
functionality to deliver information about IGT's extensive and complex product
line, as well as state-by-state gaming requirements, from within a single
computer system. The Calico eSales Configurator, together with a sales
automation application provided by Clarify, Inc., created a seamless interface
between IGT's mobile sales organization and networked users and its back-end
enterprise resource planning system. This integrated software solution provided
IGT's sales representatives with the ability to match those customer needs with
the appropriate IGT product configuration.
EDU.COM
edu.com is a national marketing and distribution channel that focuses
exclusively on the purchasing needs of college students. edu.com brokers
programs with vendors to deliver favorable pricing on significant purchases.
Through edu.com, students receive "student-only" prices on a variety of branded
products and services including computers, software, textbooks, and health &
beauty care products, as well as banking, phone and travel services.
edu.com utilizes navigators based on the Calico eSales Configurator to
help students make educated purchasing decisions. The navigators prompt students
with questions specific to the category of products they are shopping for, then
offer a list of choices that meet their criteria. Students unfamiliar with the
product they are buying can use the navigators to easily identify appropriate
selections. Informed shoppers can use the navigators to locate products quickly
and easily.
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PROFESSIONAL SERVICES
We offer a range of professional and support services including
requirements analysis and definition, creation and evolution of sample customer
implementations based on customer input, design, data analysis, process
modification advice, implementation consultation, education, and post-
implementation maintenance. Our staff of professionals and consultants who
define the implementation specifications for installing our software work with
customers to capture and model the business logic and policies that reflect
marketing and selling practices. Our professional services consultants also help
with the integration of our applications into other company-wide computer
software systems. Our professional services team and our consulting partners use
the Calico eSales Workbench to design, create and finalize graphical user
interfaces which meet specific customer requirements, delivering a personalized
buying experience. These professionals have backgrounds in user interface
design, systems integration, technology strategy, and project management.
We use our Opportunity Assessment Methodology in working with customers to
define the opportunity set, priorities, business justification, project costs
and roadmap to implementation relating to each project. This methodology
includes a series of cross-functional interviews at many levels of our
customer's project team. This series of interviews results in an analytical
comparison, known as the Calico eSales Proficiency Matrix, which is used to
determine how our customer's sales practices compare to other sales practices in
their industry. This analysis enables the customer to build cross-functional
action plans, including economic justification and a cohesive and knowledgeable
project team. The methodology may recommend that a prototype be created to
demonstrate the concept and set expectations for our engagement.
MAINTENANCE AND CUSTOMER SERVICE
We offer a broad range of maintenance and customer service options to meet
the varying needs of each customer. Customers covered by maintenance agreements
can report application problems, make enhancement requests and obtain update
releases. Our help desk is staffed with technical support engineers experienced
in a variety of programming languages. For our customers, including those using
in-house modeling resources, our remote consulting staff provides ongoing
consulting, limited continuing education and customer-specific model support.
Our implementation support is targeted at customers who have completed their
modeling and require assistance in implementing a client/server or Internet
server deployment. We also help troubleshoot problems with network bandwidth,
network access and configurations as they pertain to our products.
SALES AND MARKETING
We market and sell our products primarily through our direct sales force
located at our headquarters in San Jose, and our regional sales and service
offices in Atlanta, Boston, Chicago, England, Germany and Sweden. As of June 30,
1999, our total sales and marketing organization consisted of 67 employees. We
intend to increase our domestic and international direct sales organizations, in
part by increasing our direct sales force in Australia, the Benelux, Singapore
and Japan during fiscal 2000. We are also complementing our direct sales force
through additional distribution channels, including systems integrators and
value added resellers, both domestically and internationally. For example, we
have entered into an agreement with an entity to provide sales distribution and
services in Japan.
We have multi-disciplined sales teams that consist of sales, technical and
support professionals. Our senior management also takes an active role in our
sales efforts. We often develop a pilot or custom demonstration which we or our
partners can then use to design a model for a full scale implementation. Our
sales efforts are typically directed to senior executives at our customers'
organizations, including the chief executive officer, the chief information
officer and the vice presidents of sales and marketing.
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To support our direct sales efforts and to actively promote our Calico
eSales brand, we conduct comprehensive marketing programs and market research,
including public relations, print advertisements, online advertisements, trade
shows, speaking engagements and ongoing customer communications.
STRATEGIC ALLIANCES
We are pursuing marketing, implementation and resale alliances with
electronic commerce software vendors, systems integrators, professional services
organizations and application services providers. These alliances are intended
to increase geographic sales coverage worldwide and address new vertical markets
and market segments. In addition, these partnerships and alliances allow us to
provide our customers with access to additional resources to design, install and
customize our solutions. As of June 30, 1999, these alliances were in their
early phase of development and we had not yet generated significant revenue from
these alliances.
As part of this strategy, we have formed marketing and distribution
alliances with electronic commerce software vendors. For example, we have
entered into joint marketing relationships with Silknet Software, a provider of
Internet-based customer support solutions, and with Netcentives, a provider of
Internet loyalty, direct marketing and promotion products and services designed
to drive electronic commerce. We have also recently entered into a joint
marketing agreement with Vignette to share sales and marketing leads, provide
complementary training of each other's sales teams and develop joint marketing
materials. Vignette is a provider of Internet relationship management software
products and services. In addition, we have a cooperative marketing agreement
with IBM. These relationships enable us to broaden distribution of our products
and provide complementary functionality to our applications.
Under these joint marketing arrangements, each party agrees to provide
each other with reasonable marketing and sales assistance. Our marketing and
distribution alliances are not exclusive and some of our partners provide
similar services to other companies.
We also intend to expand the professional services offered to our
customers by enhancing existing relationships with systems integrators and
professional services organizations. We have entered into a joint marketing
agreement with Andersen Consulting to form a global alliance. Under this
alliance, Andersen Consulting acquires rights to market integration services
related to our software, and we have agreed to promote Andersen Consulting as
the preferred integrator of our software. The parties anticipate that this
alliance will allow the development of offerings by the two organizations to
target specific industries, which may include banking, healthcare and insurance,
among others.
We hope to work together with Andersen Consulting to stimulate interest
for our products and services under this marketing alliance. As part of this
alliance, we have agreed to engage Andersen Consulting to provide a minimum of
$1.0 million of consulting services over the next 18 months, including creation
of prototypes, external presentations, development of training materials,
product testing and other activities supporting our product releases.
In addition, Andersen Consulting has expressed a non-binding interest in
purchasing up to $4.0 million of common stock at the initial public offering
price less the per share estimated underwriting discount in this offering. This
would represent a total of 330,851 shares of common stock at a price of $12.09
per share, based upon the midpoint of the estimated range.
We are also developing additional relationships with other professional
services organizations, such as Cap Gemini, who specialize in offering
consulting services for the installation and implementation of software products
such as the Calico eSales Suite. In addition, we have entered into a joint
marketing agreement with USWeb/CKS, an Internet professional services firm,
where USWeb/CKS may provide its Internet
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integration expertise in our customer deployments.
We also participate in the Oracle Partner Program, which assists us in
marketing the Calico eSales suite of products to Oracle customers. Since our
products are built to be database independent, they can be easily integrated
with Oracle's products.
We are a Microsoft Certified Solution Provider and a member of the
Microsoft Developer Network, providing us with co-marketing and advertising
opportunities.
SIGNIFICANT CUSTOMERS
We have provided electronic commerce software primarily to customers
concentrated in two major industry groups -- computer hardware and network and
telecommunications equipment. We are continuing to expand in other markets, such
as manufacturing, retail, telecommunication services and financial services. In
fiscal 1999, Gateway and Dell each represented more than 10% of our total net
revenue. In fiscal 1998, Micron Electronics accounted for more than 10% of our
total net revenue. In fiscal 1997, Amdahl, Lanier and US Robotics (subsequently
acquired by 3Com) each accounted for more than 10% of our total net revenue. A
substantial portion of our revenue in any given quarter has been, and is
expected to continue to be, generated from a limited number of customers with
large financial commitment contracts.
The following is a representative list of current customers from whom we
have generated revenue of in excess of $100,000 in either the year ended March
31, 1999 or the quarter ended June 30, 1999:
<TABLE>
<S> <C>
Best Buy Qwest
Cabletron Siemens
Cisco Starhub
Dell Sunrise Medical
Gateway Telia
Merrill Lynch Telxon
Motorola US West
MTD Products Zurn Industries
Nortel Networks
</TABLE>
These customers accounted for 87% of our total net revenue for fiscal 1999
and 82% of our total net revenue for the three months ended June 30, 1999.
TECHNOLOGY
Our software architecture provides the platform for our electronic
commerce software. Our technology is designed to provide interactive, scalable,
and easily maintained advanced electronic commerce applications. The user
interface component of the Calico eSales Configurator is powered by Microsoft
Active Server Pages and therefore operates only on Windows NT. The Calico eSales
Loyalty Builder, Calico eSales Quote, Calico eSales InfoGuide and Calico eSales
Engine each operate on Unix and Windows NT. We intend to develop user interface
components to allow our customers to use either a Unix-based or Windows NT-
based Web server. If we are unable to promptly or successfully develop the Unix
version, the scalability of our Calico eSales Configurator may be adversely
impacted for certain customer applications due to the scalability limitations of
Windows NT.
The elements of our technology consist of the following:
USER-GUIDED BEHAVIOR TECHNOLOGY
We have developed proprietary "user-guided behavior" technology that is
based upon expert systems that provide the ability to match user requirements
with specific product and service offerings from companies, subject to a number
of constraints. The user-guided behavior technology offers the following
benefits:
- - Our data maintenance system allows data to be entered in tabular form for
concise expression of relationships between data, thereby reducing the
system's maintenance requirements.
- - Applications that are constructed from the models created with the Calico
eSales Workbench require only constraints, product content information and
user interface information. Since models can be loaded into an application
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running standalone or in a multi-user setting, the same application can be
targeted to run on laptops, desktops and the Internet.
- - Constraints, together with our user-guided behavior technology, provide
options to the end user and explain why particular configurations are not
valid.
The Calico eSales Engine is designed to handle complex configurations. Our
technology allows for composite modeling, which permits the configuration to
expand to accommodate numerous sites at the user's request. The Calico eSales
Configurator supports multiprocessor servers as well as server clusters. This
enables organizations to scale their deployments readily to accommodate traffic.
Because session state information is stored in multiple locations, a user's
configuration session can proceed uninterrupted even in the event of a server
failure.
ACCESS TO ENTERPRISE DATA
Our proprietary agent technology allows customers to quickly and easily
access their company-wide business data and content, as well as external content
from their intranet and the Internet as part of an electronic commerce software
system, without re-creating the content or re-submitting each document to a new
system. Automatic notification and delivery of documents and other important
information is possible without needing to modify existing software applications
or information sources.
ADHERENCE TO INDUSTRY STANDARDS
The Calico eSales Loyalty Builder, Calico eSales Quote and Calico eSales
InfoGuide have been designed based on XML, an emerging standard for data
representation and computer-to-computer exchange of information supporting
electronic commerce. Software systems that support XML provide customers with
the ability to reduce application development time, easily integrate with prior
generations of business software and hardware systems and build applications
that span the business processes of a company, its suppliers, distributors and
customers.
In addition, Calico eSales Loyalty Builder, Calico eSales Quote and Calico
eSales InfoGuide have all been designed using Java, a programming language that
enables compatibility across multiple platforms and facilitates Internet-based
performance. Java is emerging as a development language for electronic business
and other Internet applications.
Our architecture is designed to comply with widely accepted commercial
software industry standards for building large-scale Internet applications. In
addition to XML, we use other widely accepted standards in developing our
products, including structured query language, Java database connectivity and
open database connectivity for accessing relational database management systems,
HTTP for Internet access and HTML for web information presentation. The Calico
eSales Configurator can be operated in conjunction with enterprise applications
provided by Oracle, Baan, SAP and JD Edwards. Integration with these and other
applications is facilitated by our support of open standards.
RESEARCH AND DEVELOPMENT
Our future success will depend in part upon our ability to enhance the
Calico eSales Suite of products, develop new products and capitalize on our
technological leadership to provide electronic commerce software to a global
customer base. Our immediate focus is to extend the existing company-wide
business application integration capabilities of our product suite to Oracle
Order Entry and SAP Order Entry. In addition, we are seeking to broaden our
current product line by improving performance, adaptation to standards,
integration with company-wide business applications, and ease of modeling and
applicability to commercial products and services.
To foster development, definition, adoption and implementation of open
standards that can be leveraged by the Calico eSales Suite, we work with several
industry standards organizations such as the World
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Wide Web Consortium, RosettaNet, Commercenet, the American Association of
Artificial Intelligence, the Institute for Electrical and Electronic Engineering
and the Association for Computing Machinery. For example, through these
organizations we are actively promoting the use of XML technology for data
representation and computer-to-computer exchange of information.
Our research and development expenses were $2.2 million for fiscal 1997,
$3.3 million for fiscal 1998, $5.7 million for fiscal 1999, $972,000 for the
three months ended June 30, 1998 and $2.7 million for the three months ended
June 30, 1999. We expect to continue to invest significantly in research and
development in the future. We have experienced technical personnel in the areas
of agent-based technology, artificial intelligence, expert systems, user
interface design, enterprise and middleware software development.
PROPRIETARY RIGHTS
Our success and ability to compete are substantially dependent on our
internally developed technology and software applications. We have two U.S.
patents, one of which is related to the monitoring and notification technology
incorporated in the Calico eSales Loyalty Builder and the other of which is
related to certain aspects of our user-guided product configuration technology.
In addition, we have filed patent applications in 3 foreign jurisdictions. While
we rely on patent, trademark, copyright and trade secret laws and restrictions
in the United States and other jurisdictions, together with contractual
restrictions, to protect our proprietary rights, patent, trademark, copyright
and trade secret protection may not be available in every country in which we
distribute our products.
We also typically enter into confidentiality and invention assignment
agreements with our employees and contractors, and nondisclosure agreements with
our customers, suppliers and strategic partners in order to limit access to and
distribution and disclosure of our proprietary information. However, despite our
efforts to protect our proprietary rights, unauthorized parties could copy or
otherwise obtain and use our products or technology or develop products with the
same functionality as our products. Policing unauthorized use is difficult, and
the steps we have taken may not prevent misappropriation of our technology. In
addition, the laws of some foreign countries provide less protection of
proprietary rights than do the laws of the United States, and we expect that it
will become more difficult to monitor the use of our products if we increase our
international presence.
We utilize technology provided by BEA Systems, Inc. for our application
servers, from Verity, Inc. for our search capability software, from Rainbow
Software, Inc. to provide a licensing mechanism, from TideStone Technologies,
Inc. for quote grid technology and from Rogue Wave Software, Inc. for
development software. Should this third-party software no longer continue to be
available at an acceptable cost, our products could be delayed until equivalent
software could be developed or licensed and integrated into our products.
However, we do not believe that our business could be considered to be
substantially dependent on any one of these license agreements.
Substantial litigation regarding intellectual property rights exists in
the software industry. We expect that software products may increasingly be
subject to third-party infringement claims as the number of competitors
supplying electronic commerce applications and solutions grows, and the
functionality in other industry segments overlaps. Some of our competitors may
have filed or intend to file patent applications covering aspects of their
technology that they claim our technology infringes. Our competitors may make a
claim of infringement against us with respect to our products and technology.
These claims could result in litigation subjecting us to significant liability
for damages, or in invalidation of our proprietary rights. Any claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management's attention and resources or require us to enter into royalty
or licensing agreements in order to be able to sell our products. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, or at all.
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<PAGE> 50
COMPETITION
The market for software and services that enable electronic commerce for
the interactive buying and selling of products is new, intensely competitive,
highly fragmented and rapidly changing.
We believe that our ability to compete depends on many factors, both
within and beyond our control, including:
- - the performance, functionality, scalability and flexibility of our software
solutions;
- - the timing and market acceptance of new products and product enhancements to
the Calico eSales Suite of products;
- - the effectiveness of our sales and marketing efforts; and
- - the quality and performance of our professional services.
Although we believe that we currently compete favorably as to each of
these factors, we expect competition to persist and intensify. Our primary
competition currently comes from companies developing solutions in-house and
from a large number of emerging companies focused on electronic commerce. We
also compete with vendors of enterprise class application software, including
BroadVision, Siebel Systems, Oracle, SAP, Baan and Microsoft. Within our Calico
eSales Configurator product line, our competitors include Trilogy, pcOrder.com,
Selectica and FirePond.
Many of our competitors and potential competitors have a number of
significant advantages over us, including:
- - a longer operating history;
- - preferred vendor status with our customers;
- - more extensive name recognition and marketing power; and
- - significantly greater financial, technical, marketing and other resources,
giving them the ability to respond more quickly to new or changing
opportunities, technologies and customer requirements.
We also expect that competition will increase as a result of software
industry consolidation. For example, a number of enterprise software companies
have announced acquisitions of point solution providers to expand their product
lines. Our competitors may also bundle their products in a manner that may
discourage users from purchasing our products. Current and potential competitors
may establish cooperative relationships among themselves or with third parties
or adopt aggressive pricing policies to gain market share. In addition, new
competitors could emerge and rapidly capture market share.
LEGAL PROCEEDINGS
We are currently involved in litigation with a former employee arising out
of the alleged sexual harassment and wrongful termination of the employee. We
have responded to the lawsuit by filing an answer that denies all of the
material allegations. The lawsuit was filed by Susan D. Quinn on June 11, 1997
in the Santa Clara County Superior Court for the State of California, naming us
and one of our former employees as defendants. The case is currently in the
early stages of pre-trial discovery. The lawsuit seeks unspecified monetary
amounts for lost wages and benefits, emotional and physical distress and
punitive damages.
We believe that we have meritorious defenses against the alleged claims,
and intend to defend ourselves vigorously. However, due to the nature of
litigation and the fact that discovery is still in its early stages, we cannot
determine the possible loss, if any, that may ultimately be incurred either in
the context of a trial or as a result of a negotiated settlement. We may also
incur substantial legal fees in this matter. After consideration of the nature
of the claims and facts relating to the litigation, we believe that the
resolution of this matter will not harm our business. However, the results of
these proceedings, including any potential settlement, are uncertain and there
can be no assurance that they will not harm our business.
EMPLOYEES
As of June 30, 1999, we had 210 employees. Of that total, 65 were
primarily
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<PAGE> 51
engaged in product development, engineering or systems engineering, 67 were
engaged in sales and marketing, 54 were engaged in professional services and 24
in operational, financial and administrative functions.
None of our employees is represented by a labor union, and we have never
experienced a work stoppage. Our relations with our employees are good.
FACILITIES
Our headquarters are located in approximately 58,000 square feet in San
Jose, California, occupied under an office lease expiring in September 2004. We
also lease office space in Pleasanton, California; Boston, Massachusetts;
Atlanta, Georgia; Chicago, Illinois; Reading, England; and Stockholm, Sweden,
under leases for terms expiring from August 1999 to January 2002. We have
additional leased space in San Jose and Mountain View, California, some of which
we have sublet to unrelated third parties.
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<PAGE> 52
MANAGEMENT
OFFICERS AND DIRECTORS
Our executive officers, other officers and directors as of June 30, 1999
are:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Alan P. Naumann(1)................... 39 President, Chief Executive Officer and
Director
David E. Barrett(1).................. 43 Executive Vice President and Chief Operating
Officer
Matthew S. DiMaria(1)................ 38 Vice President, Marketing
Arthur F. Knapp, Jr.(1).............. 50 Vice President and Chief Financial Officer
H. Tayloe Stansbury(1)............... 38 Vice President, Engineering
David J. Cardinal.................... 39 Vice President and Chief Technical Officer
Lynn Butler Corsiglia................ 40 Vice President, Human Resources
Paul S. Greenfield................... 47 Vice President and Managing Director, Eurasia
Steve P. Leahy....................... 40 Vice President, Americas
Alan W. MacMurray.................... 42 Vice President, Professional Services
Joseph A. Moran...................... 42 Vice President, Finance
Amanda A. North...................... 42 Vice President, New Ventures
Barton P. O'Brien.................... 43 Vice President, Strategic Sales
Michael M. Ouye...................... 45 Vice President, Advanced Development
William G. Paseman................... 44 Vice President, Research and Development and
Chairman of the Board
Beverly A. Powell-Goldman............ 45 Vice President, Business Development
Joseph B. Costello................... 45 Director
Bernard J. Lacroute.................. 55 Director
William D. Unger..................... 49 Director
</TABLE>
- -------------------------
(1) Executive Officer. The individuals identified above who are not executive
officers or directors are deemed to be significant employees who make or are
expected to make significant contributions to our business.
ALAN P. NAUMANN has served as President, Chief Executive Officer and a
director of Calico since September 1997. From November 1995 to September 1997,
Mr. Naumann served as Vice President and General Manager at Cadence Design
Systems, a software company. From 1988 to November 1995, Mr. Naumann held
director and vice president positions in sales and field operations at Cadence.
From 1982 to 1987, Mr. Naumann served in various sales and business development
positions at Hewlett Packard. Mr. Naumann holds a B.S. degree in Computer
Engineering from Iowa State University.
DAVID E. BARRETT has served as our Executive Vice President and Chief
Operating Officer since May 1999, and from February 1998 to May 1999, Mr.
Barrett served as our Executive Vice President, Business Operations. From
December 1996 until he joined Calico, Mr. Barrett served as Senior Vice
President, Worldwide Sales and Customer Services at Pure Atria/Rational Software
Corporation, an enterprise software development automation company. From March
1996 to December 1996, Mr. Barrett served as Vice President, Sales, Marketing
and Services at Nets, Inc., an electronic commerce company. Mr. Barrett served
as Vice President, Field Sales & Services for Lotus Development Corporation,
which was subsequently acquired by IBM, from July 1994 to March 1996. From March
1992 to July 1994, Mr. Barrett served concurrently as General Manager,
Government Sales and Marketing and Senior Director Strategic Sales and
Operations at Lotus, and from June 1984 to March 1992, Mr. Barrett held various
senior management positions in sales, marketing and services at Lotus. Mr.
Barrett
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<PAGE> 53
holds a B.S. degree in Marketing Management from the University of Rhode Island.
MATTHEW S. DIMARIA has served as our Vice President, Marketing since
September 1998. Mr. DiMaria joined Calico as Vice President of Product Marketing
in March 1998. From March 1995 to February 1998, Mr. DiMaria served as Vice
President of Americas, Marketing for Symantec Corporation, a software company.
From July 1994 to February 1995, Mr. DiMaria served as a partner of Presence
Corporation, a high technology consulting company which he co-founded. From June
1986 to June 1994, Mr. DiMaria held various sales and marketing positions at
Ingres Corporation, a software provider. Mr. DiMaria holds a B.S. degree in
Information Systems Management from the University of Maryland.
ARTHUR F. KNAPP, JR. has served as our Vice President and Chief Financial
Officer since June 1999. From 1991 to March 1999 Mr. Knapp served as Senior Vice
President and Chief Financial Officer at Boole & Babbage, a systems management
software company. From 1984 to 1991, Mr. Knapp served as Chief Financial Officer
at Legent Corporation, a systems management software company. Mr. Knapp holds a
B.S. degree in Finance from the Pennsylvania State University and is a Certified
Public Accountant and a Certified Management Accountant.
H. TAYLOE STANSBURY has served as our Vice President, Engineering since
January 1999. From July 1996 to January 1999, Mr. Stansbury served as Vice
President, Document Management Systems for Xerox Corporation. From December 1994
to June 1996, Mr. Stansbury served as Director, then Vice President, of Software
Engineering for Xerox's XSoft division. Mr. Stansbury holds a B.S. degree in
Applied Mathematics and Computer Science from Harvard University.
DAVID J. CARDINAL has served as our Vice President and Chief Technical
Officer since August 1998 when we acquired FirstFloor, which Mr. Cardinal
co-founded in October 1992. From October 1992 to April 1996, Mr. Cardinal was
Chairman, Chief Executive Officer and President of FirstFloor, and from April
1996 to August 1998, Mr. Cardinal was Chairman and Chief Technical Officer of
FirstFloor. Prior to that time, Mr. Cardinal served as General Manager of
Desktop Software at Sun Microsystems and held various positions at Amdahl
Corporation and MICA, Inc., a supplier of training and consulting solutions. Mr.
Cardinal holds a B.S. degree in Electrical Engineering from Princeton
University.
LYNN BUTLER CORSIGLIA has served as our Vice President, Human Resources
since March 1998. From November 1995 until she joined Calico, Ms. Butler
Corsiglia served as Director of Human Resources at Netscape Communications
Corporation. Ms. Butler Corsiglia held human resource management positions at
Sybase Incorporated from October 1992 to October 1995 and served in various
human resource management positions at Ungermann-Bass from July 1986 to October
1992.
PAUL S. GREENFIELD has served as our Vice President and Managing Director,
Eurasia since June 1998. From May 1994 to June 1998, Mr. Greenfield was Vice
President, European Operations at Avant! Corporation, a provider of software
used to implement integrated circuits on silicon chips. From June 1993 to May
1994, Mr. Greenfield served as Vice President, Northern European Operations at
Redwood Design Automation. Mr. Greenfield holds an H.N.C. degree from
Hammersmith College of Commerce in London.
STEVE P. LEAHY has served as our Vice President, Americas since August
1998. From August 1997 until he joined Calico, Mr. Leahy served as Vice
President, Northeast at Informix Software, an enterprise database and data
management company. From August 1994 to August 1997, Mr. Leahy was Director of
Sales for Pure Software, which later merged to become Pure Atria/Rational
Software Corporation, where he continued as Director of Sales for the Eastern US
and Canada. During the five year period prior to that date, Mr. Leahy held
various positions at Sun Microsystems in various sales capacities.
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<PAGE> 54
Mr. Leahy holds a B.A. degree in History from Bowdoin College.
ALAN W. MACMURRAY has served as our Vice President, Professional Services
since April 1997. From January 1995 until he joined Calico, Mr. MacMurray served
as Vice President, Professional Services at TravelNet, Inc., an electronic
commerce software company. From March 1988 to December 1994, Mr. MacMurray held
four services and support positions at Aspect Telecommunications, a supplier of
automated call distributors. From December 1984 to March 1988, he was employed
by the Rolm Division of IBM where he held various sales and services roles
including Branch Manager. He has a B.S. degree in Economics from Harvard College
and an M.B.A. degree in Marketing and Finance from the University of Chicago.
JOSEPH A. MORAN has served as our Vice President, Finance since June 1997,
and as Chief Financial Officer from June 1997 to June 1999. From 1991 to 1997,
Mr. Moran held various positions at Sybase, including Vice President, Finance,
Enterprise Business Group from June 1996 to June 1997, and Director of Finance
from January 1993 to June 1996. Mr. Moran holds a B.S. degree in Economics from
the University of California at Berkeley and an M.B.A. degree in Finance and
International Business from the University of Chicago. Mr. Moran has resigned
his employment with Calico effective December 15, 1999.
AMANDA A. NORTH has served as our Vice President, New Ventures since
September 1998. From November 1997 to September 1998, Ms. North served as
Calico's Vice President, Corporate Marketing. From October 1993 to November
1997, Ms. North held various positions at Studio Archetype, a developer of
complex and high visibility web sites. Ms. North was President of Studio
Archetype from October 1996 to October 1997. Ms. North holds B.A. degrees in
Economics and Politics from Princeton University and an M.B.A. degree from
Stanford University.
BARTON P. O'BRIEN has served as our Vice President, Strategic Sales, since
he co-founded Calico in January 1994. Prior to joining Calico, Mr. O'Brien held
sales positions at RSA Data Security, a developer of encryption and
authentication technology. Mr. O'Brien holds a B.S. degree in Business
Administration from the University of Florida and an M.S. degree in Industrial
Administration from Carnegie-Mellon Graduate School of Industrial
Administration.
MICHAEL M. OUYE has served as our Vice President, Advanced Development,
since August 1996 when Calico acquired FirstFloor, where he had been Vice
President, Engineering since April 1994. From February 1987 to April 1994, Mr.
Ouye was involved in the formation of GO Corporation and EO, Inc., developing
the concepts and software around pen-based computing as Director of Engineering
and Vice President, Engineering, respectively. Mr. Ouye has a B.S. degree in
Computer Science from California State University in Sacramento and an M.S.
degree in Computer Science from the University of Santa Clara.
WILLIAM G. PASEMAN, the Chairman of the board of directors of Calico and a
director since he founded Calico, served as Calico's President until January
1996, and has since served as Calico's Vice President, Research and Development.
From 1990 to 1994, Mr. Paseman was a consultant at Paseman & Associates, a
consulting firm that he co-founded. From 1986 to 1990, Mr. Paseman co-founded
Atherton Technology, Inc., a software company, where he served as Vice President
of Technology. Mr. Paseman holds a B.S. degree in Chemical Engineering, a B.S.
degree in Electrical Engineering, and an M.S. degree in Chemical Engineering
from Rice University. He also holds an M.S. degree in Computer Science from
Massachusetts Institute of Technology.
BEVERLY A. POWELL-GOLDMAN has served as our Vice President, Business
Development since December 1998. From October 1997 to December 1998, Ms.
Powell-Goldman served as Executive Vice President, Worldwide Sales and Business
Development at Extricity Software, a provider of business-to-business
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<PAGE> 55
integration software. From June 1996 to October 1997, Ms. Powell-Goldman served
as Vice President, Strategic Alliances at Siebel Systems, a supplier of
enterprise relationship management software. From September 1991 to October
1995, Ms. Powell-Goldman served as General Manager and Senior Vice President at
Hyperion Software/Pillar Corp. Ms. Powell-Goldman holds a B.S. degree in
Business Administration and Economics from San Jose State University.
JOSEPH B. COSTELLO has been a director of Calico since August 1999. Since
February 1998, Mr. Costello has served as Managing Director and Chairman of the
Board of Think3 (formerly named Cad.Lab, Inc.), a computer-aided design company.
From 1988 to October 1997, Mr. Costello served as President and Chief Executive
Officer of Cadence Design Systems. Before the formation of Cadence, Mr. Costello
served as President and Chief Operation Officer of SDA Systems, an electronic
design automation company and predecessor company to Cadence. Mr. Costello also
serves as Chairman of the Board of Zamba (formerly Racotek, Inc.), a systems
integration company; and a member of the board of Clarify, a systems integration
company. Mr. Costello holds a B.S. degree in Mathematics and Physics from Harvey
Mudd College, an M.S. degree in Physics from Yale University, and an M.S. degree
in Physics from the University of California, Berkeley.
BERNARD J. LACROUTE has been a director of Calico since June 1995. Mr.
Lacroute has been a partner with Kleiner Perkins Caufield & Byers since 1989.
Prior to joining Kleiner Perkins Caufield & Byers, Mr. Lacroute held a number of
senior executive positions in high technology firms including Digital Equipment
Corporation and Sun Microsystems. Mr. Lacroute is a director of Brio Technology,
Inc., a software provider, and a director of several privately held companies.
Mr. Lacroute holds graduate degrees in Physics from the University of Grenoble
and in Engineering from the Ecole Nationale Superiere d'Ingenieurs, as well as
an M.S. degree in Electrical Engineering from the University of Michigan.
WILLIAM D. UNGER has been a director of Calico since June 1995. Mr. Unger
joined Mayfield Fund, a venture capital firm, in 1983, and has been a general
partner of several venture capital firms affiliated with Mayfield Fund since
1987. Before joining Mayfield, Mr. Unger founded the executive recruitment firm
Positek. Mr. Unger is a director of several privately held companies. Mr. Unger
holds a B.A. degree in Elementary Education from the University of Illinois.
BOARD OF DIRECTORS
Upon completion of the offering, the terms of the board of directors will
be divided into three classes: Class I, whose term will expire at the annual
meeting of stockholders to be held in 2000; Class II, whose term will expire at
the annual meeting of stockholders to be held in 2001; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2002. The Class
I directors are Mr. Naumann and Mr. Paseman, the Class II directors are Mr.
Lacroute and Mr. Unger, and the Class III director is Mr. Costello. At each
annual meeting of stockholders after the initial classification, the successors
to directors whose term expires will be elected to serve a term of three years.
This classification of directors may have the effect of delaying or preventing
changes in our control. Our board of directors consists of five members. Our
bylaws provide that the authorized number of directors may be changed by
resolution of the board of directors.
If Andersen Consulting makes its $4.0 million investment in this public
offering, we have agreed to appoint a representative of Andersen Consulting to
our board of directors. This representative would be a Class III director.
Executive officers are elected by the board of directors annually. There
are no family relationships among any of our directors, officers or key
executives.
BOARD COMMITTEES
The board of directors has established an audit committee and a
compensation committee.
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<PAGE> 56
The audit committee reviews and monitors our corporate financial reporting
and our external audits, including, among other things, our control functions,
the results and scope of the annual audit and other services provided by our
independent accountants and our compliance with legal matters that have a
significant impact on our financial reports. The audit committee also consults
with management and our independent accountants prior to the presentation of
financial statements to stockholders and, as appropriate, initiates inquiries
into aspects of our financial affairs. In addition, the audit committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with our independent accountants. The current members of the audit
committee are Messrs. Lacroute and Unger.
The compensation committee reviews and makes recommendations to the board
of directors regarding our compensation policies and all forms of compensation
to be provided to our executive officers and directors, including among other
things, annual salaries and bonuses and stock option and other incentive
compensation arrangements. The current members of the compensation committee are
Messrs. Lacroute and Unger. Prior to the creation of our compensation committee
in February 1999, all compensation decisions were made by our full board.
Neither Mr. Naumann nor Mr. Paseman participated in discussions by our board of
directors with respect to his compensation.
DIRECTOR COMPENSATION
Our directors do not currently receive any compensation for their service
as directors, other than reimbursement of all reasonable out-of-pocket expenses
for attendance at meetings of the board of directors. Members of the board of
directors are eligible to receive discretionary option grants and stock
issuances under our 1997 Stock Option Plan and employee-directors will be able
to participate in our 1999 Employee Stock Purchase Plan.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee. During fiscal 1999, all compensation decisions were made by our full
board. In August, 1999, we issued 198,752 shares of our Series D preferred stock
to entities affiliated with Mr. Unger in connection with our acquisition of
FirstFloor, and in September 1999 we issued 329,090 shares of our Series E
preferred stock to entities affiliated with Mr. Lacroute and 548,488 shares of
our Series E preferred stock to entities affiliated with Mr. Unger in connection
with our Series E preferred stock financing.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to our chief
executive officer and each of our other executive officers whose total salary
and bonus exceeded $100,000 for the fiscal year ended March 31, 1999:
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<PAGE> 57
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION(S) SALARY BONUS OPTIONS
------------------------------ -------- -------- ------------
<S> <C> <C> <C>
Alan P. Naumann........................................... $175,000 $ 37,148 300,000
President and Chief Executive Officer
David E. Barrett.......................................... 175,000 179,018 --
Executive Vice President and Chief Operating Officer
Matthew S. DiMaria........................................ 155,000 19,380 --
Vice President, Marketing
</TABLE>
OPTION GRANTS IN FISCAL YEAR ENDED
MARCH 31, 1999
The following table sets forth information for stock options granted
during the fiscal year ended March 31, 1999 to our chief executive officer and
each of our other executive officers who earned in excess of $100,000.
All of these options were granted under our 1997 Stock Option Plan.
Options granted under the 1997 Option Plan generally vest over a four-year
period with 25% of the shares vesting at the first anniversary of the grant date
and the remaining shares vesting in equal monthly installments over the next 36
months.
The percentages in the column entitled "Percent of Total Options Granted
to Employees in Fiscal 1999" was based on an aggregate of 3,687,955 options
granted to our employees under our 1997 Stock Option Plan during fiscal 1999.
The exercise price of each option is equal to the fair market value of our
common stock as determined by the board of directors on the date of grant,
taking into account the purchase price paid by investors for shares of our
preferred stock, the liquidation preferences and other rights, privileges and
preferences associated with the preferred stock and an evaluation by the board
of directors of our revenues, operating history and prospects.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. For purposes of these columns, we assumed stock
appreciation of 5% and 10% as required by the Securities and Exchange
Commission. These rates of appreciation do not represent our prediction of our
stock price performance. The potential realizable values at 5% and 10%
appreciation are calculated by assuming that the estimated fair market value on
the date of grant, based upon an assumed initial public offering price of
$13.00, appreciates at the indicated rate for the entire term of the options and
that the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION
UNDERLYING TO EMPLOYEES FOR OPTION TERM
OPTIONS DURING EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL 1999 PER SHARE DATE 5% 10%
---- ---------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan P. Naumann...... 300,000 8.1% $1.73 4/29/08 $5,833,670 $9,642,543
David E. Barrett..... -- -- -- -- -- --
Matthew S. DiMaria... -- -- -- -- -- --
</TABLE>
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AGGREGATE OPTION EXERCISES AND OPTION VALUES
The following table presents for our chief executive officer and each of
our other highest-paid executive officers the number of options exercised during
the fiscal year ended March 31, 1999 and the number and value of securities
underlying unexercised options that are held by our chief executive officer and
other highest-paid executive officers as of March 31, 1999. Each of the options
listed in the table is immediately exercisable in full at the date of grant, but
shares purchased on exercise of unvested options are subject to a repurchase
right in our favor that entitles us
to repurchase unvested shares at their original exercise price on termination of
the employee's services with us. The heading "Vested" refers to shares no longer
subject to repurchase; the heading "Unvested" refers to shares subject to
repurchase as of March 31, 1999. The numbers in the column "Value of Unexercised
In-the-Money Options at March 31, 1999" are based on the assumed initial public
offering price of $13.00 per share, less the exercise price payable for the
shares.
OPTION EXERCISES IN FISCAL YEAR ENDED MARCH 31, 1999 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT MARCH 31, 1999 OPTIONS AT MARCH 31, 1999
ACQUIRED ON VALUE ------------------------- --------------------------
NAME EXERCISE REALIZED VESTED UNVESTED VESTED UNVESTED
---- ----------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Alan P. Naumann....... 300,000 $180,000 -- -- $ -- $ --
David E. Barrett...... 412,500 68,950 -- -- -- --
Matthew S. DiMaria.... -- -- -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
All options granted to Mr. Naumann may accelerate in full upon a change in
our control. Acceleration will occur if (i) the acquiring corporation does not
assume the options or replace them with substantially equivalent options or (ii)
within 36 months following the change in control, Mr. Naumann is terminated
without cause or resigns for good reason.
The options granted to Mr. Barrett may also accelerate upon a change in
our control. Mr. Barrett's options will accelerate from 70% to full
acceleration, depending on the date of the change in our control. Acceleration
will occur if (i) the acquiring corporation does not assume the options or
replace them with substantially equivalent options or (ii) within 12 months
following the change in our control, Mr. Barrett is terminated without cause or
resigns for good reason.
BENEFIT PLANS
1995 STOCK OPTION PLAN
Our 1995 stock option plan provides for the grant of incentive stock
options to employees, within the meaning of Section 422 of the Internal Revenue
Code, and for the grant of nonstatutory stock options to employees, non-employee
directors and consultants. The terms of the 1995 stock option plan are
substantially identical to the terms of our 1997 stock option plan. The board of
directors has determined that no further options will be granted under the 1995
stock option plan, although options granted under the 1995 stock option plan
will remain outstanding in accordance with their terms.
1997 STOCK OPTION PLAN
Our 1997 stock option plan was adopted by the board of directors in June
1997 and by the stockholders in July 1997. The 1997 stock option plan provides
for the grant of incentive stock options to employees, within the meaning of
Section 422 of the Internal Revenue Code, and for the grant of nonstatutory
stock options to employees,
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non-employee directors and consultants. However, no incentive stock options may
be granted under the 1997 stock option plan after June 2007.
The maximum number of shares issuable under the plan is 14,715,000 shares.
The share reserve will automatically be increased on the first day of each
fiscal year beginning on or after April 1, 2001 by an amount equal to 5% of the
number of shares of our common stock which were issued and outstanding on the
last day of the preceding fiscal year. Notwithstanding the foregoing, the
maximum number of shares issuable at any time under the plan will be reduced by
the number of outstanding shares that were issued under the 1995 stock option
plan, plus the number of shares subject to outstanding options which were
granted under the 1995 stock option plan, which together was 3,867,926 shares as
of June 30, 1999. As of June 30, 1999, 7,343,624 shares had been issued upon the
exercise of options under our 1995 and 1997 stock option plans, options to
purchase a total of 5,293,237 shares at a weighted average exercise price of
$6.41 per share were outstanding under these plans, and 2,848,107 shares were
available for future grants under the 1997 stock option plan.
The 1997 stock option plan is administered by the board of directors, or a
committee of the board. Subject to the provisions of the plan, the board of
directors or its committee has the authority to select the persons to whom
options are granted and determine the terms of each option, including:
- - the number of shares of common stock covered by the option;
- - when the option becomes exercisable;
- - the per share option exercise price, which, in the case of incentive stock
options, must be at least 100% of the fair market value of a share of common
stock as of the date of grant or 110% of fair market value for incentive
stock options granted to 10% stockholders, and, in the case of nonstatutory
stock options, must be at least 85% of the fair market value of a share of
common stock as of the date of grant; and
- - the duration of the option, which may not exceed ten years, or five years
for incentive stock options granted to a 10% stockholder.
Generally, options granted under the 1997 stock option plan vest over four
years, and are non-transferable other than by will or the laws of descent and
distribution. In the event of a change in our control, if the acquiring or
successor corporation does not assume or substitute for options outstanding
under the plan, the options shall terminate. Options granted to four of our
executive officers provide for acceleration upon a change in our control.
FIRSTFLOOR OPTIONS
In connection with the acquisition of FirstFloor, we assumed the options
granted under the FirstFloor 1993 stock option plan and converted the options
into options to purchase 47,203 shares of our Series D preferred stock. At June
30, 1999, options to purchase 31,463 shares of Series D preferred stock were
outstanding at a weighted average exercise price of $2.68 per share. We do not
intend to grant further options to purchase our Series D preferred stock.
401(k) PLAN
In 1995, we adopted a tax-qualified employee savings and retirement plan
which covers our eligible full-time U.S. employees. Under the 401(k) plan,
employees may elect to reduce their current annual compensation up to the lesser
of 15% or the statutorily prescribed limit, which is $10,000 in calendar year
1999, and have the amount of the reduction contributed to the 401(k) plan. The
plan permits, but does not require us to make matching contributions to the
401(k) plan. To date we have not made any matching contributions to the 401(k)
plan. The 401(k) plan is intended to qualify under Sections 401(a) and 401(k) of
the Internal Revenue Code, so that contributions by us or our employees to the
401(k) plan, and income earned on plan contributions, are not taxable to
employees until withdrawn from the
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401(k) plan. Salary deferred contributions are held in trust. Each participant
may direct the investment of his or her account among the investment options
offered by the 401(k) plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
In July 1999, the board of directors adopted the 1999 employee stock
purchase plan, subject to stockholder approval. We have reserved a total of
750,000 shares of common stock for issuance under the employee stock purchase
plan, none of which has yet been issued. The employee stock purchase plan will
become effective as of the effective date of this offering and will be
administered by the board of directors or by a committee appointed by the board
of directors. Employees are eligible to participate if they are customarily
employed by us for at least 20 hours per week and more than five months in any
fiscal year.
The employee stock purchase plan permits an eligible employee to purchase
our common stock at a discount through accumulated payroll deductions of up to
15% of his or her compensation. Participants generally may not purchase more
than 750 shares on any purchase date or stock having a value measured at the
beginning of the offering period, greater than $25,000 in any calendar year. The
employee stock purchase plan also provides that all participants, in aggregate,
may not purchase more than 150,000 shares on any purchase date.
Unless the board of directors or a committee of the board of directors
determines otherwise, the first offering period starts on the effective date of
this offering and will run for approximately 24 months and will be divided into
four consecutive purchase periods of approximately six months. The first
offering period and the first purchase period commence on the date of this
prospectus. Subsequent offering periods will generally have a duration of 12
months and will be divided into two consecutive purchase periods of
approximately six months. Offering periods and purchase periods after the
initial offering will commence on May 1 and November 1 of each year. The board
of directors may change the dates or duration of one or more offerings, but no
offering period may exceed 27 months. Participants will purchase shares on the
last day of each purchase period.
The price at which shares are purchased under the employee stock purchase
plan is equal to 85% of the lower of the fair market value of a share of common
stock on the first day of the offering period, or the last day of the purchase
period. In the event of a change in our control, our board of directors may
accelerate the purchase date of the then current purchase period to a date prior
to the change in control, or the acquiring corporation may assume or replace the
outstanding purchase rights under the employee stock purchase plan. Participants
may end their participation in the employee stock purchase plan at any time, and
participation automatically ends on termination of employment. The board of
directors may amend or terminate the employee stock purchase plan at any time as
long as such amendment or termination does not impair outstanding purchase
rights.
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION
As permitted by the Delaware General Corporation Law, we have adopted
provisions in our certificate of incorporation and bylaws that limit or
eliminate the personal liability of our directors for a breach of their
fiduciary duty of care as a director. The duty of care generally requires that,
when acting on behalf of the corporation, directors exercise an informed
business judgment based on all material information reasonably available to
them. Consequently, a director will not be personally liable to us or our
stockholders for monetary damages or breach of fiduciary duty as a director,
except liability for:
- - any breach of the director's duty of loyalty to us or our stockholders;
- - acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law;
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- - unlawful stock repurchases, redemptions or other distributions or unlawful
payments of dividends; or
- - any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation and bylaws also allow us to indemnify our
officers, directors and other agents to the fullest extent permitted by Delaware
law. We intend to enter into separate indemnity agreements with each of our
officers and directors which gives these officers and directors additional
indemnification. The indemnity agreements may require us, among other things,
to:
- - indemnify our officers and directors against liabilities that may arise by
reason of their status or service as directors or officers;
- - advance expenses as incurred to our officers and directors in connection
with any legal proceeding as to which they could be indemnified, subject to
limited exceptions; or
- - obtain directors' and officers' liability insurance.
We also intend to purchase an insurance policy covering our directors and
officers for claims they may otherwise be required to pay or for which we may be
required to indemnify them.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification is sought. We
are not aware of any threatened litigation or proceeding which may result in a
claim for indemnification.
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TRANSACTIONS WITH RELATED PARTIES AND INSIDERS
We have raised capital primarily through the sale of our stock. On May 26,
1995 and May 31, 1995, we sold 5,999,998 shares of Series A preferred stock at a
price of $0.67 per share. On June 7, 1996, we sold an aggregate of 3,600,000
shares of Series B preferred stock at a price of $1.60 per share. On July 23,
1997, we sold an aggregate of 2,083,331 shares of Series C preferred stock at a
price of $2.40 per share. On August 21, 1998 we exchanged 1,248,423 shares of
Series D preferred stock for all of the issued and outstanding shares of capital
stock of FirstFloor in connection with our acquisition of FirstFloor. From
September 4, 1998 through September 23, 1998, Calico sold an aggregate of
2,687,580 shares of Series E preferred stock at a price of $4.558 per share.
The following holders of more than 5% of our voting securities purchased
shares of Series A, Series B, Series C and Series E preferred stock or were
shareholders of FirstFloor and received shares of Series D preferred stock in
exchange for their shares of capital stock of FirstFloor:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
SERIES A SERIES B SERIES C SERIES D SERIES E
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
PURCHASER STOCK STOCK STOCK STOCK STOCK
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Entities Affiliated with Kleiner Perkins
Caufield & Byers...................... 3,000,000 1,500,000 520,832 -- 329,090
Entities Affiliated with Mayfield
Fund.................................. 3,000,000 1,500,000 520,832 198,752 513,390
Entities Affiliated with Integral
Capital Partners...................... -- 600,000 1,041,667 -- 175,515
</TABLE>
The preferred stock purchased by these affiliates was purchased on the
same terms and conditions as the preferred stock purchased by other investors.
Entities affiliated with Kleiner Perkins Caufield & Byers are together
considered a 5% stockholder of ours. Bernard J. Lacroute, a director of Calico,
is a general partner of Kleiner Perkins Caufield & Byers. Entities affiliated
with Mayfield Fund are together considered a 5% stockholder of ours. William D.
Unger, a director of Calico, is a general partner of Mayfield Fund. Entities
affiliated with Integral Capital Partners are together considered a 5%
stockholder of ours.
In connection with our offering of the Series A and Series B preferred
stock, 1,650,000 shares and 600,000 shares of common stock held by William G.
Paseman, one of our founders, were exchanged for 1,650,000 shares of Series A
and 600,000 shares of Series B preferred stock which were then sold by Mr.
Paseman independently of the shares sold by us.
At the time of our acquisition of FirstFloor, Mayfield Fund held
approximately 22.5% of our outstanding capital stock, and approximately 17.6% of
the outstanding capital stock of FirstFloor. At the time of the acquisition, the
Series D preferred stock issued to Mayfield Fund in exchange for shares of
FirstFloor's capital stock was valued at $4.558 per share, or approximately
$905,900.
In connection with our acquisition of FirstFloor, David J. Cardinal, our
Chief Technology Officer and a co-founder of FirstFloor, exchanged his existing
shares of FirstFloor capital stock for 91,654 shares of Calico Series D
preferred stock.
Our preferred stockholders, our 5% stock holders and our director William
G. Paseman, are entitled to registration rights in respect of their common stock
issued or issuable upon conversion of preferred stock held by them. See
"Description of Capital Stock -- Registration Rights" on page 67 for further
discussion of these registration rights.
On July 18, 1997, we loaned $240,000 to Alan P. Naumann, our Chief
Executive Officer,
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in connection with his purchase of 1,200,000 shares of our common stock for
$0.20 per share upon exercise of stock options. The notes accrue interest at the
rate of 6.65% per year and are due on July 18, 2001. On June 30, 1998, we loaned
$520,000 to Mr. Naumann, in connection with the purchase of 300,000 shares of
our common stock for $1.73 per share upon exercise of stock options. The notes
accrue interest at 5.77% per year and are due on June 30, 2002. The principal
amount of the notes remain outstanding. This loan is full recourse and is
secured by a pledge of the stock purchased upon exercise of the stock option.
On April 28, 1998, we loaned $343,750 to David E. Barrett, our Executive
Vice President and Chief Operating Officer, in connection with his purchase of
412,500 shares of our common stock for $0.83 per share upon exercise of stock
options. The notes accrue interest at the rate of 5.59% per year and are due on
April 28, 2002. The principal amount of the notes remain outstanding. This loan
is full recourse and is secured by a pledge of the stock purchased upon exercise
of the stock option.
On February 26, 1998, we loaned $141,750 to Matthew DiMaria, our Vice
President, Marketing, in connection with his purchase of 202,500 shares of our
common stock for $0.70 per share upon exercise of stock options. The notes
accrue interest at the rate of 5.69% per year and are due on February 26, 2002.
The principal amount of the notes remain outstanding. This loan is full recourse
and is secured by a pledge of the stock purchased upon exercise of the stock
option.
All loan amounts outstanding as of June 30, 1999 are reflected as a
reduction of equity in the consolidated balance sheet.
On August 24, 1999, we granted options to purchase 150,000 shares of
common stock to Joseph Costello, one of our directors, at an exercise price of
$12.00 per share.
On September 3, 1999, we entered into an agreement with Dell U.S.A. L.P.
to sell to Dell $20.0 million in shares of common stock in a private placement
to close concurrently with this public offering. The shares are being sold at
the initial public offering price less the per share estimated underwriting
discount, which equals 1,654,200 shares at $12.09 per share based upon the
midpoint of the estimated range. Although these shares are not being
underwritten, Dell will be granted registration rights to include its shares in
any future registered offerings filed by us. After the offering, assuming the
sale of shares at $12.09 per share as explained above, Dell will beneficially
own 5% of our outstanding shares of common stock.
We intend to enter into indemnity agreements with each of our directors
and officers. These indemnity agreements will require us to indemnify these
officers and directors against liabilities that may arise by reason of their
status or service as officers or directors, and to advance expenses incurred as
a result of any proceedings against them as to which they could be indemnified.
We believe that all transactions with our officers, directors, principal
stockholders and other affiliates described above were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common
stock as of June 30, 1999, by:
- - each person who is known by us to beneficially own more than 5% of our
common stock;
- - our chief executive officer, each of the executive officers named in the
summary compensation table and each of our directors; and
- - all of our executive officers and directors as a group.
Unless otherwise indicated, the address of each of the named individuals
is c/o Calico Commerce, Inc., 333 West San Carlos Street, Suite 300, San Jose,
California 95110. Unless otherwise indicated below, and subject to the rights of
any spouse under applicable community property laws, we believe that the persons
named in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
Percentage of ownership on the table is based on 27,120,127 shares
outstanding as of June 30, 1999 and 32,705,178 shares outstanding immediately
following the completion of this offering, assuming the underwriters'
over-allotment option is not exercised, the conversion of all shares of
preferred stock into common stock, and the sale of 1,654,200 shares of common
stock to Dell. After the offering, assuming the sale of shares to Dell at $12.09
per share, Dell will own 5% of our outstanding common stock. Of the total shares
outstanding, 2,302,561 shares are subject to our right of repurchase. Beneficial
ownership is determined under the rules and regulations of the Securities and
Exchange Commission. All shares of common stock subject to options currently
exercisable or exercisable within 60 days after June 30, 1999 are deemed to be
outstanding for the purpose of computing the percentage of ownership of the
person holding the options, but are not deemed to be outstanding for computing
the percentage of ownership of any other person. Entries denoted by an asterisk
represent an amount less than 1%.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF SHARES ---------------------------------
BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------ --------------- --------------
<S> <C> <C> <C>
Mayfield Fund(1)........................ 5,732,974 21.1% 17.5%
2800 Sand Hill Road,
Menlo Park, California 94025
Kleiner Perkins Caufield & Byers(2)..... 5,349,922 19.7 16.4
2750 Sand Hill Road,
Menlo Park, California 94025
Integral Capital Partners(3)............ 1,817,182 6.7 5.6
2750 Sand Hill Road,
Menlo Park, California 94025
Alan P. Naumann(4)...................... 1,500,000 5.5 4.6
David E. Barrett(5)..................... 412,500 1.5 1.3
Matthew S. DiMaria(6)................... 202,500 * *
William G. Paseman...................... 3,750,000 13.8 11.4
Bernard J. Lacroute(2).................. 5,349,922 19.7 16.4
2750 Sand Hill Road,
Menlo Park, California 94025
William D. Unger(7)..................... 5,583,782 20.6 17.1
2800 Sand Hill Road,
Menlo Park, California 94025
All executive officers and directors as
a group (9 persons)(8)................ 17,211,204 63.5 52.0
</TABLE>
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- ---------------
(1) The shares listed represent 4,996,192 shares held by Mayfield VII; 262,825
shares held by Mayfield Associates Fund II; 289,667 shares held by Mayfield
Software Partners; and 184,290 shares held by e-trust, a revocable trust.
Voting and dispositive power over these shares is exercised by committee.
Mr. Unger, one of our directors, is a general partner of Mayfield
Associates Fund II and Mayfield VII Management Partners, a California
Limited Partnership, which is the general partner of Mayfield VII. Mayfield
VII is one of the general partners of Mayfield Software Partners. Mr. Unger
disclaims beneficial ownership of all other shares except for his pecuniary
interest.
(2) Mr. Lacroute is a partner of Kleiner Perkins Caufield & Byers. The shares
listed represent 4,047,724 shares held by Kleiner Perkins Caufield & Byers
VII, 1,174,961 shares held by KPCB Java Fund, and 127,237 shares held by
KPCB Information Sciences Zaibatsu Fund II. Voting and dispositive power
over these shares is exercised by committee. Mr. Lacroute disclaims
beneficial ownership of all shares except for his pecuniary interest.
(3) The shares listed represent 1,462,620 shares held by Integral Capital
Partners III, L.P., and 354,562 shares held by Integral Capital Partners
International III, L.P. The general partner of Integral Capital Partners
III, L.P. and Integral Capital Partners International III, L.P., is
Integral Capital Management III, L.P. A majority of the general partners of
Integral Capital Management III, L.P. is required to exercise voting and
dispositive control of these shares.
(4) Includes 837,500 shares subject to repurchase by Calico in the event Mr.
Naumann ceases to be an employee of Calico prior to full vesting of the
shares. The right of repurchase lapses at the rate of 31,250 shares per
month until July 18, 2001, after which date the right to repurchase lapses
at the rate of 6,249 shares per month.
(5) Includes 275,000 shares subject to repurchase by Calico in the event Mr.
Barrett ceases to be an employee of Calico prior to full vesting of the
shares. The right of repurchase lapses at the rate of 8,594 shares per
month.
(6) Includes 135,000 shares subject to repurchase by Calico in the event Mr.
DiMaria ceases to be an employee of Calico prior to full vesting of the
shares. The right of repurchase lapses at the rate of 4,220 shares per
month.
(7) The shares listed represent 4,996,191 shares held by Mayfield VII; 262,824
shares held by Mayfield Associates Fund II; 289,667 shares held by Mayfield
Software Partners; and 35,098 shares held by the Unger-Luchsinger Family
Trust U/D/T 12/1999, a revocable trust for the benefit of the
Unger-Luchsinger Family. Except for those shares held by the
Unger-Luchsinger Family Trust U/D/T 12/1999, Mr. Unger disclaims beneficial
ownership of all other shares except for his pecuniary interest.
(8) Includes 1,247,500 shares subject to repurchase by Calico upon cessation of
employment prior to full vesting of the shares, and options to purchase
412,500 shares that are immediately exercisable.
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DESCRIPTION OF CAPITAL STOCK
As of June 30, 1999, there were 27,120,127 shares outstanding held by 239
shareholders of record. Upon completion of this offering, our authorized capital
stock will consist of 150,000,000 shares of common stock, $0.001 par value per
share, and 15,000,000 shares of preferred stock, $0.001 par value per share. The
following description of our capital stock gives effect to the amendments to the
certificate of incorporation to be filed upon completion of this offering. Our
certificate of incorporation and bylaws, to be effective after the closing of
this offering, provide further information about our capital stock.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of our common stock are entitled to the
following rights:
- to receive dividends at such times and in such amounts as the board of
directors may determine out of funds legally available for dividends;
- one vote for each share held on all matters submitted to a vote of
stockholders; and
- upon our liquidation, dissolution or winding up, share ratably in all
assets remaining after payment of liabilities and the liquidation
preference of any preferred stock.
Because our certificate of incorporation does not authorize cumulative
voting for the election of directors, the holders of a majority of the shares
voted can elect all of the directors then standing for election. The common
stock is not entitled to preemptive rights and is not subject to conversion or
redemption. Each outstanding share of common stock is, and all shares of common
stock to be outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon completion of this offering, all outstanding shares of preferred
stock will be converted on a one-to-one basis into shares of common stock.
However, following this conversion, under our certificate of incorporation, the
board of directors will have the authority, without further action or
authorization by the stockholders, to designate and issue up to 15,000,000
shares of preferred stock in one or more series. The board of directors can fix
the rights, preferences and privileges of the shares of each series of preferred
stock and any qualifications, limitations or restrictions on these shares.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of entrenching our board of directors
and making it more difficult for a third party to acquire, or discourage a third
party from acquiring, a majority of our outstanding voting stock. Furthermore,
the preferred stock may have other rights, including economic rights, senior to
the common stock. We have no current plans to issue any shares of preferred
stock.
WARRANTS
At June 30, 1999, we had issued warrants to purchase a total of 133,249
shares of common stock on an as-converted basis. Warrants to purchase 42,000
shares of common stock at $0.67 per share will expire in November 2002. Warrants
to purchase 34,999 shares of common stock at $1.60 per share will expire in
November 2004 and warrants to purchase 56,250 shares of common stock at $1.60
per share will expire in June 2007.
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REGISTRATION RIGHTS
Following this offering, under the terms of an amended investor rights
agreement, the holders of approximately 20,594,272 shares of our common stock,
including shares issuable upon conversion of preferred stock and warrants and
options to purchase preferred stock, will have rights to require us to register
those registration shares under the Securities Act. Subject to limitations in
this investor rights agreement, the holders of at least 30% of these shares may
require, on two occasions, that we use our best efforts to register these shares
for public resale. If we register any common stock for our own account, other
than a registration relating solely to employee benefit plans, a registration
relating solely to transactions under Rule 145 of the Securities Act, or a
registration on any registration form which does not permit secondary sales, or
for the account of other security holders, the holders of 22,248,472 shares are
entitled to include their shares of common stock in the registration, subject to
the ability of the underwriters to limit the number of shares included in the
offering. The holders of these shares may also require us to register all or a
portion of their registrable securities on Form S-3 when we are eligible to use
this form, provided, among other limitations, that the proposed aggregate price
of the offering to the public is at least $500,000. We will pay all fees, costs
and expenses of these registrations, other than underwriting discounts and
commissions.
Included within the shares subject to registration rights that entitle the
holders to include their shares in future registration statements filed by us
are 1,654,200 shares to be sold to Dell U.S.A. L.P. concurrently with this
offering.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make it more difficult for a third party to acquire us by means of a
tender offer, proxy contest, or otherwise, and could make the removal of
incumbent officers and directors more difficult. These provisions could
discourage coercive takeover practices and takeover bids and encourage persons
seeking to acquire control of us to negotiate first with us.
We will be subject to Section 203 of the Delaware General Corporation Law,
which generally prohibits a publicly held Delaware corporation from engaging in
any business combination with an interested stockholder for three years
following the date the stockholder became an interested stockholder, unless:
- - prior to that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder;
- - upon completion 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
began; or
- - on or following 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 two-thirds
of the outstanding voting stock not owned by the interested stockholder.
Section 203 defines a business combination to include:
- - any merger or consolidation involving the corporation and the interested
stockholders;
- - any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholders;
- - subject to limited exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholders;
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- - 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 stockholders; or
- - the receipt by the interested stockholders 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 an entity or
person who, together with affiliates and associates, owns 15% or more of the
corporation's outstanding voting stock.
Upon filing after the closing of this offering, our certificate of
incorporation will provide that our board of directors will be divided into
three classes of directors serving staggered three-year terms. As a result, only
one of the three classes of our board of directors will be elected each year.
The classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of us
and may maintain the incumbency of our board of directors, as the classification
of the board generally increases the difficulty of replacing a majority of the
directors. Our directors will be removable only for cause upon the affirmative
vote of the holders of at least a majority of the voting power of all
outstanding shares of voting stock, voting as a single class. Our board of
directors has the exclusive right to set the authorized number of directors and
to fill vacancies on our board of directors. Our certificate of incorporation
requires that any action required or permitted to be taken by stockholders must
be effected at a duly called annual or special meeting of the stockholders and
may not be effected by a consent in writing. In addition, special meetings of
the stockholders may be called only by our board of directors, the Chairman of
our board of directors, or our chief executive officer or by the holders of not
less than ten percent of all of the shares entitled to vote at the meeting.
Advance notice must be given by stockholders of any stockholder proposals or
director nominations or other business to be brought by stockholders at
stockholders' meetings. Our certificate of incorporation authorizes undesignated
preferred stock, which makes it possible for the board of directors to issue
preferred stock with voting or other rights or preferences that could discourage
potential acquisition proposals and could delay or prevent a change in our
control or management. These provisions may be amended only by the affirmative
vote of at least two-thirds of all the outstanding voting stock. These
provisions may have the effect of deferring hostile takeovers or delaying
changes in our control or management.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is BankBoston, N.A.,
whose address is 150 Royall Street, Canton, Massachusetts 02021 and whose
telephone number is (781) 575-2200.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there was no public market for our common stock.
Future sales of substantial amounts of common stock in the public market,
including shares issued upon exercise of outstanding options or warrants, could
adversely affect the market price of our common stock.
Upon completion of this offering, we will have 32,705,178 shares of common
stock outstanding, assuming no exercise of options after June 30, 1999. Of these
shares, 3,600,000 of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except for
any shares purchased by affiliates of Calico as that term is defined in Rule 144
under the Securities Act. Shares purchased by affiliates 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.
Andersen Consulting has agreed that if it purchases the 330,851 shares of
common stock in this offering, it will enter into a lock-up agreement
restricting the sale of these shares for 360 days after the date of this
offering.
We issued and sold the remaining 28,774,327 shares of common stock held by
existing stockholders in reliance on exemptions from the registration
requirements of the Securities Act and are "restricted securities" as that term
is defined in Rule 144 under the Securities Act. All of these restricted
securities will be subject to lock-up agreements generally providing that the
stockholder will not offer, sell, or otherwise dispose of any of the shares of
common stock owned by them, for a period of 150 days after the date of this
offering, with 70% of the shares remaining subject to the lock-up agreement for
180 days, without the prior written consent of Goldman, Sachs & Co. Following
the expiration of the lock-up period, 25,106,427 restricted shares will be
available for sale in the public market, all of which are subject to limitations
under Rule 144, except for 1,087,477 shares eligible for sale under Rule 144(k)
and 5,324,703 shares eligible for sale under Rule 701, subject in some cases to
repurchase rights in favor of Calico.
Immediately after the completion of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under our 1997
Stock Option Plan and our 1999 employee stock purchase plan. Based upon the
number of shares subject to outstanding options as of June 30, 1999 and
currently reserved for issuance under both of these plans, this registration
statement would cover approximately 8,891,305 shares. Shares registered under
the registration statement will generally be available for sale in the open
market immediately after the 180 day lock-up agreements expire.
Also beginning six months after the date of this offering, holders of
22,248,472 shares of our common stock, including shares issuable upon conversion
of preferred stock and warrants and of options to purchase preferred stock will
be entitled to certain rights with respect to registration of these shares for
sale in the public market. See "Description of Capital Stock -- Registration
Rights". Registration of these shares under the Securities Act would result in
these shares becoming freely tradable without restriction under the Securities
Act immediately upon effectiveness of the registration.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year, including a person who may be deemed an
affiliate, is entitled to sell in "brokers' transactions" or to market makers,
within any three-month period, a number of shares that does not exceed the
greater of:
- - 1% of the number of shares of common stock then outstanding, which will
equal approximately 327,051 shares immediately after this offering; or
69
<PAGE> 70
- - the average weekly trading volume of our common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
Sales under Rule 144 are also subject to restrictions relating to the
manner of sale, notice and the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Calico at any time during the 90 days preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
the shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately upon the completion of this
offering.
RULE 701
In general, under Rule 701 as currently in effect, any of our employees,
directors, officers, consultants or advisors who purchase shares from us in
connection with a compensatory stock or option plan or other written agreement
before the effective date of this offering is entitled to sell the shares 90
days after the effective date of this offering in reliance on Rule 144 without
having to comply with the holding period and notice requirements of Rule 144
and, in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, along with
the shares acquired upon exercise of the options, including exercises after the
date of this prospectus. Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its one year
minimum holding period requirements.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Calico by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. As of June
30, 1999, an investment partnership of Gray Cary Ware & Freidenrich owned an
aggregate of 5,485 shares of our Series E preferred stock, which was purchased
on September 4, 1998 for $4.558 per share. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of Calico Commerce, Inc. as of
March 31, 1998 and 1999 and for each of the three years in the period ended
March 31, 1999 included in this Prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of FirstFloor Software, Inc. at December 31, 1996
and 1997, and for each of the two years in the period ended December 31, 1997,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon,
appearing elsewhere in this prospectus, which contains an explanatory paragraph
describing conditions that raise
70
<PAGE> 71
substantial doubt about FirstFloor's ability to continue as a going concern as
described in note 1 to the financial statements, and are included in reliance
upon such report, given upon the authority of such firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered by this prospectus. This prospectus does not contain all of
the information set forth in the registration statement and the exhibits and
schedule filed with it. For further information with respect to Calico and the
common stock offered in this offering, please read the registration statement
and the exhibits and schedules that we have filed. A copy of the registration
statement and the exhibits and schedules filed with it may be inspected without
charge at the public reference facilities maintained by the SEC in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of all or any part of the registration
statement may be obtained from these offices upon the payment of the fees
prescribed by the SEC. The SEC maintains a world wide web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the site is
http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934, and will file periodic reports, proxy statements and other information
with the SEC. These periodic reports, proxy statements and other information
will be available for inspection and copying at the regional offices, public
reference facilities and web site of the SEC referred to above.
71
<PAGE> 72
CALICO COMMERCE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CALICO COMMERCE, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statement of Operations........................ F-4
Consolidated Statement of Stockholders' Deficit............. F-5
Consolidated Statement of Cash Flows........................ F-6
Notes to Consolidated Financial Statements.................. F-7
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
Overview.................................................... F-30
Pro Forma Combined Consolidated Statement of Operations..... F-31
Notes to Pro Forma Combined Consolidated Financial
Information............................................... F-32
FIRSTFLOOR SOFTWARE, INC.
Report of Independent Auditors.............................. F-33
Balance Sheets.............................................. F-34
Statements of Operations.................................... F-35
Statements of Shareholders' Equity (Net Capital
Deficiency)............................................... F-36
Statements of Cash Flows.................................... F-37
Notes to Financial Statements............................... F-39
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT ACCOUNTANTS
The recapitalization and reincorporation described in Note 1 to the consolidated
financial statements has not been consummated at September 21, 1999. When it has
been consummated, we will be in a position to furnish the following report:
"To the Board of Directors and Stockholders of
Calico Commerce, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of
Calico Commerce, Inc. and its subsidiaries at March 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above."
PricewaterhouseCoopers LLP
San Jose, California
July 13, 1999, except for Note 12,
which is as of September 18, 1999
F-2
<PAGE> 74
CALICO COMMERCE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY AT
------------------- JUNE 30, JUNE 30,
1998 1999 1999 1999
-------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 2,514 $ 15,441 $ 10,528
Accounts receivable, net.................... 2,952 7,443 7,358
Other current assets........................ 379 1,417 1,883
-------- -------- --------
Total current assets..................... 5,845 24,301 19,769
Property and equipment, net................... 1,847 2,532 3,387
Intangible and other assets, net.............. -- 4,535 4,067
-------- -------- --------
$ 7,692 $ 31,368 $ 27,223
======== ======== ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................ $ 1,197 $ 1,728 $ 2,183
Accrued liabilities......................... 1,813 5,448 5,729
Deferred revenue............................ 2,361 6,054 5,652
Current portion of notes payable............ 330 628 682
Current portion of capital lease
obligations.............................. 100 256 247
-------- -------- --------
Total current liabilities................ 5,801 14,114 14,493
Notes payable, non-current.................... 644 700 497
Capital lease obligations, non-current........ 170 177 125
Other liabilities............................. -- 622 539
-------- -------- --------
6,615 15,613 15,654
-------- -------- --------
Mandatorily Redeemable Convertible Preferred
Stock (Note 6).............................. 14,505 32,535 32,541 $ --
-------- -------- --------
Commitments and contingencies (Notes 10 and 12)
Stockholders' equity (deficit):
Preferred Stock; $0.001 par value; 15,000
shares authorized; no shares issued and
outstanding actual and pro forma
(unaudited).............................. -- -- -- --
Common Stock; $0.001 par value; 150,000
shares authorized; 9,498, 11,436 and
11,493 (unaudited) shares issued and
outstanding; 150,000 shares authorized;
27,120 shares issued and outstanding, pro
forma (unaudited)........................ 9 11 11 27
Additional paid-in capital.................. 3,658 17,877 17,894 50,419
Notes receivable from stockholders.......... (712) (2,211) (2,211) (2,211)
Unearned compensation....................... (1,966) (2,779) (2,265) (2,265)
Accumulated deficit......................... (14,417) (29,678) (34,401) (34,401)
-------- -------- -------- --------
Total stockholders' equity (deficit)..... (13,428) (16,780) (20,972) $ 11,569
======== ======== ======== ========
$ 7,692 $ 31,368 $ 27,223
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 75
CALICO COMMERCE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------ -------------------
1997 1998 1999 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue:
License.......................... $ 3,940 $ 6,965 $ 10,482 $ 2,932 $ 3,457
Services......................... 1,963 4,894 10,931 1,721 3,976
------- ------- -------- ------- --------
Total net revenue............. 5,903 11,859 21,413 4,653 7,433
------- ------- -------- ------- --------
Cost of net revenue:
License.......................... 178 265 1,179 101 137
Services......................... 2,122 3,115 7,272 1,367 2,660
------- ------- -------- ------- --------
Total cost of net revenue..... 2,300 3,380 8,451 1,468 2,797
------- ------- -------- ------- --------
Gross profit....................... 3,603 8,479 12,962 3,185 4,636
------- ------- -------- ------- --------
Operating expenses:
Sales and marketing.............. 5,950 7,593 14,138 2,758 4,558
Research and development......... 2,224 3,342 5,677 972 2,666
General and administrative....... 1,486 2,222 3,988 641 1,452
Stock compensation (Notes 8 and
9)............................ 864 780 2,007 424 514
Acquired in-process research and
development (Note 2).......... -- -- 1,840 -- --
Amortization of goodwill (Note
2)............................ -- -- 550 -- 240
------- ------- -------- ------- --------
Total operating expenses...... 10,524 13,937 28,200 4,795 9,430
------- ------- -------- ------- --------
Loss from operations............... (6,921) (5,458) (15,238) (1,610) (4,794)
Interest expense................... (40) (154) (314) (66) (50)
Interest income and other.......... 61 113 291 31 121
------- ------- -------- ------- --------
Net loss........................... $(6,900) $(5,499) $(15,261) $(1,645) $ (4,723)
======= ======= ======== ======= ========
Net loss per share:
Basic and diluted................ $ (2.12) $ (1.08) $ (2.27) $ (0.27) $ (0.59)
======= ======= ======== ======= ========
Weighted average shares.......... 3,248 5,079 6,710 6,040 7,961
======= ======= ======== ======= ========
Pro forma net loss per share:
Basic and diluted................ $ (0.74) $ (0.20)
======== ========
Weighted average shares.......... 20,689 23,588
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 76
CALICO COMMERCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON NOTES
STOCK ADDITIONAL RECEIVABLE TOTAL
--------------- PAID-IN FROM UNEARNED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT DEFICIT
------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996.... 4,416 $ 4 $ 2 $ -- $ -- $ (2,018) $ (2,012)
Exercise of stock options.... 2,823 3 186 (166) -- -- 23
Exchange of founder's Common
Stock for Preferred Stock
(Note 9)................... (600) (1) 1 -- -- -- --
Issuance of Common Stock..... 218 -- 35 -- -- -- 35
Net loss..................... -- -- -- -- -- (6,900) (6,900)
------ ---- ------- ------- ------- -------- --------
Balance at March 31, 1997.... 6,857 6 224 (166) -- (8,918) (8,854)
Exercise of stock options.... 2,936 3 707 (574) -- -- 136
Repayments of notes
receivable................. -- -- (16) 28 -- -- 12
Issuance of Common Stock..... 8 -- 2 -- -- -- 2
Repurchase of Common Stock... (303) -- (5) -- -- -- (5)
Unearned compensation (Note
8)......................... -- -- 2,746 -- (2,746) -- --
Amortization of unearned
compensation (Note 8)...... -- -- -- -- 780 -- 780
Net loss..................... -- -- -- -- -- (5,499) (5,499)
------ ---- ------- ------- ------- -------- --------
Balance at March 31, 1998.... 9,498 9 3,658 (712) (1,966) (14,417) (13,428)
Exercise of stock options.... 1,526 2 1,811 (1,660) -- -- 153
Issuance of Common Stock..... 1,053 1 9,999 -- -- -- 10,000
Repayments of notes
receivable................. -- -- (92) 161 -- -- 69
Repurchase of Common Stock... (641) (1) (501) -- -- -- (502)
Issuance of Common Stock
options to non-employees... -- -- 148 -- -- -- 148
Unearned compensation (Note
8)......................... -- -- 2,854 -- (2,854) -- --
Amortization of unearned
compensation (Note 8)...... -- -- -- -- 2,041 -- 2,041
Net loss..................... -- -- -- -- -- (15,261) (15,261)
------ ---- ------- ------- ------- -------- --------
Balance at March 31, 1999.... 11,436 11 17,877 (2,211) (2,779) (29,678) (16,780)
Exercise of stock options
(unaudited)................ 59 -- 17 -- -- -- 17
Repurchase of Common Stock
(unaudited)................ (2) -- -- -- -- -- --
Amortization of unearned
compensation (unaudited)... -- -- -- -- 514 -- 514
Net loss (unaudited)......... -- -- -- -- -- (4,723) (4,723)
------ ---- ------- ------- ------- -------- --------
Balance at June 30, 1999
(unaudited)................ 11,493 $ 11 $17,894 $(2,211) $(2,265) $(34,401) $(20,972)
====== ==== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 77
CALICO COMMERCE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
---------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,900) $(5,499) $(15,261) $(1,645) $ (4,723)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for doubtful accounts......................... 200 200 200 74 157
Provision for sales returns............................. 500 200 330 50 153
Depreciation, amortization and other.................... 350 664 2,641 249 869
Stock compensation and other............................ 899 780 2,189 424 514
Loss on disposal of assets.............................. -- -- 260 -- 36
Acquired in-process research and development............ -- -- 1,840 -- --
Changes in assets and liabilities, net of acquisition:
Accounts receivable................................... (1,214) (2,248) (4,904) (879) (225)
Other current assets.................................. (9) (103) (1,072) 46 (466)
Accounts payable...................................... 496 786 531 602 455
Accrued liabilities................................... 422 822 2,662 (363) 281
Deferred revenue...................................... 915 1,062 3,130 1,144 (402)
Other liabilities..................................... -- -- 91 -- (44)
------- ------- -------- ------- --------
Net cash used in operating activities............... (4,341) (3,336) (7,363) (298) (3,395)
------- ------- -------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (930) (1,403) (1,829) (271) (1,331)
------- ------- -------- ------- --------
Net cash used in investing activities............... (930) (1,403) (1,829) (271) (1,331)
------- ------- -------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock.................... 23 133 10,153 80 17
Common stock repurchases.................................. -- -- (502) -- --
Proceeds from repayments of stockholder loans............. -- 12 69 -- --
Net proceeds from issuance of preferred stock............. 4,769 4,952 12,217 -- 6
Proceeds from issuance of notes payable................... 702 443 763 345 --
Repayments of notes payable............................... (27) (144) (409) (82) (149)
Principal payments under capital lease obligations........ (55) (64) (172) (24) (61)
------- ------- -------- ------- --------
Net cash provided by financing activities........... 5,412 5,332 22,119 319 (187)
------- ------- -------- ------- --------
Net increase in cash and cash equivalents................... 141 593 12,927 (250) (4,913)
Cash and cash equivalents at beginning of period............ 1,780 1,921 2,514 2,514 15,441
------- ------- -------- ------- --------
Cash and cash equivalents at end of period.................. $ 1,921 $ 2,514 $ 15,441 $ 2,264 $ 10,528
======= ======= ======== ======= ========
Supplemental cash flow disclosures:
Cash paid for interest.................................... $ 40 $ 154 $ 192 $ 51 $ 47
======= ======= ======== ======= ========
Non cash transactions:
Issuance of Common Stock for notes receivable............. $ 166 $ 574 $ 1,660 $ 1,143 $ --
======= ======= ======== ======= ========
Cancellation of notes receivable related to forfeited
unvested restricted Common Stock........................ $ -- $ 16 $ 92 $ -- $ --
======= ======= ======== ======= ========
Equipment acquired through capital lease obligations...... $ 287 $ -- $ 136 $ -- $ --
======= ======= ======== ======= ========
Issuance of Series B Mandatorily Redeemable Convertible
Preferred Stock warrants................................ $ 25 $ 53 $ -- $ -- $ --
======= ======= ======== ======= ========
</TABLE>
Acquired net assets associated with FirstFloor acquisition includes:
<TABLE>
<S> <C> <C> <C>
Fair value of tangible assets............................. $ 360
Fair value of existing products and core technology....... 1,547
Acquired in-process research and development.............. 1,840
Goodwill.................................................. 4,266
Fair value of liabilities assumed......................... (1,951)
-------
$ 6,062
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 78
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Calico Commerce, Inc. ("Calico" or the "Company") was incorporated on April 14,
1994 as an S-corporation. In May 1995, the Company was reorganized as a
C-corporation under California law.
Calico Commerce, Inc., headquartered in San Jose, California, is a leading
provider of electronic commerce software and services that enable its customers
to sell complex products and services over the Internet and other platforms.
Calico's products enable companies to create a guided selling experience that
allows their customers to interactively affect the on-line purchasing process.
The Company has incurred losses and generated operating cash shortfalls since
its inception. It has financed its operations and met its capital expenditure
requirements primarily through the sale of private equity securities, and to a
lesser extent, notes payable and equipment leases. The Company intends to fund
planned increases in expenses and capital expenditures through the proceeds of
an initial public offering of shares of its Common Stock (See Note 12).
REINCORPORATION
In July 1999, the Company's Board of Directors authorized the reincorporation of
the Company in the State of Delaware. The reincorporation will occur immediately
prior to the consummation of the Company's initial public offering (see Note
12). As a result of the reincorporation, the Company is authorized to issue
150,000,000 shares of $0.001 par value Common Stock and 15,000,000 shares of
$0.001 par value Preferred Stock. The Board of Directors has the authority to
issue the undesignated Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof. Share and per share
information for each of the three years in the period ended March 31, 1999 and
the three months ended June 30, 1999 has been retroactively adjusted to reflect
the reincorporation.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Calico Technology UK Limited, which commenced
operations in April 1998, and FirstFloor Software, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet as of June 30, 1999, the
consolidated statements of operations and cash flows for the three months ended
June 30, 1999 and 1998 and the consolidated statements of stockholders' deficit
for the three months ended June 30, 1999 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for the fair statement of the results
of these periods. The data disclosed in the notes to the consolidated financial
statements for these periods are unaudited.
F-7
<PAGE> 79
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company's management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents consist
of cash on deposit with banks and money market funds that are stated at cost.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents and accounts receivable.
The Company by policy and practice maintains its cash and cash equivalents with
financial institutions the Company believes are of high credit quality. The
Company generally requires no collateral from its customers. To reduce its risk,
the Company periodically reviews the credit worthiness of its customers. The
Company establishes reserves for potential credit losses, and such losses have
been within management's estimations.
The following table sets forth customers comprising 10% or more of the Company's
net revenue for each of the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------ --------------
CUSTOMER 1997 1998 1999 1998 1999
-------- ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A..................................... 22% --% --% --% --%
B..................................... 19 -- -- -- --
C..................................... 12 -- -- -- --
D..................................... -- 11 -- -- --
E..................................... -- -- 22 16 --
F..................................... -- -- 13 -- --
G..................................... -- -- -- 32 --
H..................................... -- -- -- -- 29
I..................................... -- -- -- -- 16
</TABLE>
At March 31, 1998, three customers represented 27%, 14% and 12%, respectively,
of gross accounts receivable. At March 31, 1999, three customers represented
32%, 12% and 11%, respectively, of gross accounts receivable. At June 30, 1999
(unaudited) three customers represented 37%, 13% and 12%, respectively, of gross
accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and capital lease obligations are carried
at cost, which approximates their fair value because of the short-term maturity
of these instruments.
F-8
<PAGE> 80
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
two to five years. The cost of equipment acquired under a capital lease is
amortized over the life of the lease, or the estimated useful life of the
assets. Maintenance and repairs are charged to operations as incurred and major
improvements are capitalized. The cost of assets retired or otherwise disposed
of and the accumulated depreciation thereon are removed from the accounts with
any gain or loss realized upon sale or disposal credited or charged to
operations, respectively.
INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price of the acquired business
over the fair value of the identifiable net costs acquired and is amortized
using the straight-line method over an estimated useful life of four years.
Acquired existing products and core technology are being amortized over the
period of benefit ranging from seven to 36 months.
The Company evaluates the recoverability of its intangible assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
FOREIGN CURRENCY
The functional currency of the Company's subsidiaries is the local currency. The
balance sheet accounts are translated into United States dollars at the exchange
rates prevailing at the balance sheet dates. Revenues, costs and expenses are
translated into United States dollars at average rates for the periods. Gains
and losses resulting from translation are accumulated as a component of
stockholder's deficit. Net gains and losses resulting from foreign exchange
transactions are included in the consolidated statements of operations and were
not significant during any of the periods presented.
REVENUE RECOGNITION
The Company's revenues are derived from licenses for its software and related
services, which include implementation and integration, technical support,
training and consulting. For contracts with multiple elements, and for which
vendor-specific objective evidence of fair value for the undelivered elements
exists, the Company recognizes revenue for the delivered elements based upon the
residual contract value as prescribed by Statement of Position No. 98-9,
"Modification of SOP No. 97-2 with Respect to Certain Transactions".
Revenue from license fees is recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, no significant Company obligations
with regard to implementation or integration exist, the fee is fixed or
determinable and collectibility is probable. Provisions for sales returns are
provided at the time of revenue recognition based upon estimated returns. The
Company has not incurred charges for product returns to date.
Services revenue primarily comprises revenue from consulting fees, maintenance
contracts and training. Services revenue from consulting and training is
recognized as the service is performed.
F-9
<PAGE> 81
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Maintenance contracts include the right to unspecified upgrades and ongoing
support. Maintenance revenue is deferred and recognized on a straight-line basis
as services revenue over the life of the related contract, which is typically
one year.
License and services revenue on contracts involving significant implementation,
customization or services which are essential to the functionality of the
software is recognized over the period of each engagement, primarily using the
percentage-of-completion method. Labor hours incurred is generally used as the
measure of progress towards completion. To the extent that these arrangements
include license fees, such fees are recorded as license revenue based on the
percentage-of-completion ratio. A provision for estimated losses on engagements
is made in the period in which the loss becomes probable and can be reasonably
estimated.
Customer billing occurs in accordance with contract terms. Customer advances and
amounts billed to customers in excess of revenue recognized are recorded as
deferred revenue. Amounts recognized as revenue in advance of billing (typically
under percentage-of-completion accounting) are recorded as unbilled receivables.
RESEARCH AND DEVELOPMENT COSTS
Expenditures for research and development are charged to expense as incurred.
Under Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" certain
software development costs are capitalized after technological feasibility has
been established. Development costs incurred in the period between achievement
of technological feasibility, which the Company defines as the establishment of
a working model, until the general availability of such software to customers,
has been short and software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not capitalized any software
development costs to date.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.
Unearned compensation is amortized and expensed in accordance with Financial
Accounting Standards Board ("FASB") Interpretation No. 28. The Company accounts
for stock issued to non-employees in accordance with the provisions of SFAS No.
123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services."
The Company uses the Black-Scholes option pricing model to value options granted
to consultants. The related expense is recorded on the option grant date as the
options are fully vested at such time.
F-10
<PAGE> 82
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ADVERTISING EXPENSE
Advertising costs are expensed as incurred and totaled $238,000, $92,000, and
$339,000 during the years ended March 31, 1997, 1998 and 1999, respectively.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The measurement of current and deferred tax liabilities and assets are based on
provisions of the enacted tax law; the effects of future changes in tax laws or
rates are not anticipated. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
are not expected to be realized.
COMPREHENSIVE INCOME
Effective April 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. To date, the Company has not had any significant transactions that are
required to be reported in comprehensive income.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128")
and SEC Staff Accounting Bulletin No. 98 ("SAB No. 98"). Under the provisions of
SFAS No. 128 and SAB No. 98, basic and diluted net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of shares of Common Stock outstanding during the period.
The calculation of diluted net loss per share excludes potential shares of
Common Stock if the effect is antidilutive. Potential shares of Common Stock
consist of unvested restricted Common Stock, incremental shares of Common Stock
issuable upon the exercise of stock options and warrants and shares issuable
upon conversion of the Series A, Series B, Series C, Series D and Series E
Mandatorily Redeemable Convertible Preferred Stock.
F-11
<PAGE> 83
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of basic and diluted net loss per
share for the periods indicated (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
---------------------------- -----------------
1997 1998 1999 1998 1999
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss.................................. $(6,900) $(5,499) $(15,261) $(1,645) $(4,723)
======= ======= ======== ======= =======
Denominator:
Weighted average shares................... 5,755 8,136 10,327 10,068 10,416
Weighted average unvested shares of Common
Stock subject to repurchase............ (2,507) (3,057) (3,617) (4,028) (2,455)
------- ------- -------- ------- -------
Denominator for basic and diluted
calculation............................ 3,248 5,079 6,710 6,040 7,961
======= ======= ======== ======= =======
Net loss per share:
Basic and diluted......................... $ (2.12) $ (1.08) $ (2.27) $ (0.27) $ (0.59)
======= ======= ======== ======= =======
</TABLE>
The following table sets forth potential shares of Common Stock that are not
included in the diluted net loss per share calculation above because to do so
would be anti-dilutive for the periods indicated (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
-------------------------- ----------------
1997 1998 1999 1998 1999
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average effect of Common Stock
equivalents:
Series A Preferred Stock................. 6,000 6,000 6,000 6,000 6,000
Series B Preferred Stock................. 2,940 3,600 3,600 3,600 3,600
Series C Preferred Stock................. -- 1,441 2,083 2,083 2,083
Series D Preferred Stock................. -- -- 766 -- 1,256
Series E Preferred Stock................. -- -- 1,530 -- 2,688
Preferred Stock warrants................. 49 124 133 133 133
Preferred Stock options.................. -- -- 24 -- 32
Unvested shares of Common Stock subject
to repurchase......................... 2,507 3,057 3,617 4,028 2,455
Common Stock options..................... 2,037 1,646 2,245 1,762 4,021
------ ------ ------ ------ ------
13,533 15,868 19,998 17,606 22,268
====== ====== ====== ====== ======
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended March 31, 1999 and the three
months ended June 30, 1999 is computed using the weighted average number of
shares of Common Stock outstanding, including the pro forma effects of the
automatic conversion of the Company's Series A, Series B, Series C, Series D
(excluding approximately 4,422 and 3,027, weighted average repurchasable shares
at March 31, 1999 and June 30, 1999, respectively) and Series E
F-12
<PAGE> 84
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mandatorily Redeemable Convertible Preferred Stock into shares of the Company's
Common Stock effective upon the closing of the Company's initial public offering
as if such conversion occurred on April 1, 1998, or at the date of original
issuance, if later. The resulting pro forma adjustment includes an increase of
13,979,000 in the weighted average shares used to compute basic net loss per
share for the year ended March 31, 1999 and 15,627,000 increase for the three
months ended June 30, 1999. The calculation of diluted net loss per share
excludes potential shares of Common Stock as their effect would be antidilutive.
Pro forma potential shares of Common Stock consist of unvested Common Stock
subject to repurchase rights and incremental shares of Common Stock issuable
upon the exercise of stock options and warrants.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the initial public offering of the Company's
Common Stock, the outstanding shares of Series A, Series B, Series C, Series D
and Series E Mandatorily Redeemable Convertible Preferred Stock will
automatically convert into 5,999,998, 3,600,000, 2,083,331, 1,256,019 and
2,687,580 shares, respectively, of Common Stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro forma
consolidated balance sheet at June 30, 1999.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to current period presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP No.
98-1"). SOP No. 98-1 will become effective during the year ending March 31,
2000. SOP No. 98-1 provides guidance on accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs. The Company does not expect the
adoption of SOP No. 98-1 to have a material effect on the Company's results of
operations, financial position or cash flows.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"). This
statement establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 will become effective during
the year ending March 31, 2001. The adoption of SFAS No. 133 is not expected to
have a material effect on the Company's results of operations, financial
position or cash flows.
NOTE 2 -- ACQUISITION OF FIRSTFLOOR SOFTWARE, INC.:
As discussed in Note 1, the Company completed the acquisition of all outstanding
capital stock of FirstFloor on August 21, 1998. The transaction was completed
pursuant to the Agreement and Plan of Reorganization, dated as of June 23, 1998
among the Company, Calico Acquisition Corporation, FirstFloor and certain
stockholders of Calico and certain shareholders of FirstFloor. The acquisition
was accounted for using the purchase method of accounting and, accordingly,
F-13
<PAGE> 85
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the net assets and results of operations of FirstFloor have been included in the
Company's consolidated financial statements since the acquisition date.
The purchase consideration included 1,248,423 shares of Series D Mandatorily
Redeemable Convertible Preferred Stock valued at approximately $5,690,000. In
addition, all of the outstanding stock options granted under the FirstFloor 1993
Stock Option Plan were converted into stock options to purchase 47,203 shares of
the Company's Series D Mandatorily Redeemable Convertible Preferred Stock at
$4.558 per share. The Black-Scholes option pricing model was used to determine
the fair value of the converted options. The fair value of the stock options, of
approximately $122,000, was included as a component of the purchase price. The
Company also incurred approximately $250,000 in acquisition expenses.
The total purchase price of $6.1 million was allocated to assets acquired,
including tangible and intangible assets, and liabilities assumed, based on
their respective estimated fair values at the acquisition date. The estimate of
fair value of the net assets acquired is based on an independent appraisal and
management estimates.
The total purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets............................... $ 360
Fair value of existing products and core technology......... 1,547
Acquired in-process research and development................ 1,840
Goodwill.................................................... 4,266
Fair value of liabilities assumed........................... (1,951)
-------
$ 6,062
=======
</TABLE>
The acquisition was structured as a tax free exchange of stock, therefore, the
differences between the recognized fair values of acquired net assets, and their
historical tax bases are not deductible for tax purposes. Accordingly, a
deferred tax liability has been recognized for the differences between the
assigned value of intangible assets (excluding goodwill) for book purposes and
the tax basis of such assets in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisition, the Company acquired one existing product
and two in-process projects. The existing product provides customers with the
ability to automatically update their sales force with the latest information.
The first acquired in-process project, a marketing information delivery system,
is a complete rewrite of the acquired product, and replaced the product upon its
release. While the solution remains the same, the functionality has been
completely reengineered. This development effort increased the product's utility
as well as its scalability on larger intranets, which increases the possible
number of users, and provides a variety of data sources instead of just one
central database. The second in-process project, a personalization solution,
provides customers with the ability to obtain in-depth information and critical
data needed to build stronger customer relationships with the objective of
increasing revenue and reducing sales cost.
In connection with the acquisition, the Company recorded a $1.8 million charge
in the year ended March 31, 1999 for acquired in-process research and
development. This represents the value of purchased in-process research and
development on projects that have not yet reached technological feasibility and
have no alternative future use.
F-14
<PAGE> 86
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amount of purchase price allocated to in-process research and development
was determined using appropriate valuation techniques, including
percentage-of-completion which utilizes research and development cost metrics
and key milestones to estimate the stage of development of each in-process
research and development project at the date of acquisition, estimating cash
flows resulting from the expected revenues generated from such projects, and
discounting the net cash flows back to their present value. The discount rate
includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology. The remaining
identified intangibles, including the value of acquired existing products and
core technology, will be amortized over the periods of benefit ranging from
seven to 36 months.
The value assigned to acquired in-process research and development was
determined by identifying the two specific research and development projects
discussed above, for which technological feasibility had not been established.
The first project reached technological feasibility and was commercially
released in December 1998. The second project reached technological feasibility
and was commercially released in May 1999. In assigning value to the in-process
projects, consideration was given, as appropriate, to the stage of completion,
the complexity of the work completed to date, the difficulty of completing the
remaining development, costs already incurred and the projected cost to complete
the projects, adjusting for the relative value and contribution of the core
technology. The value assigned to acquired in-process research and development
was based on the assumptions set forth in the following paragraph.
Net cash flows from such projects were determined based on the Company's
estimates of revenues, cost of sales, research and development costs, selling,
general and administrative costs, and income taxes associated with such
projects. Revenue growth rates for each technology was developed considering,
among other things, the current and expected industry trends, acceptance of the
technologies and historical growth rates for similar industry products.
Estimated total revenue from the acquired in-process research and development
projects are expected to generally peak in fiscal year 2000 and decline through
fiscal year 2001 as other new products are expected to be introduced. These
revenue projections were based on management's estimates of market size and
growth, expected trends in technology and the expected timing of new product
introductions. The Company assumed no synergies as a result of the acquisition
and the revenue projections are within the historical growth rates of FirstFloor
product introductions. Projected gross margins for the marketing delivery system
and personalization solution averaged 74% and 69%, respectively, over the
estimated product lives. The estimated selling, general and administrative costs
for the marketing delivery system and the personalization solution averaged 41%
and 47%, respectively, as a percentage of revenue over the estimated product
lives, and are consistent with FirstFloor's historical operating cost structure.
The estimated net cash flows of each project were discounted back to their
present value using discount rates of 30% and 40%, respectively, which represent
premiums over the Company's cost of capital of 20% to reflect the risk
associated with the stage of completion of the in-process technologies. The
estimated percentage-of-completion of the in-process research and development
projects were 82% and 47%, respectively.
The actual development timeline and costs of approximately $200,000 for the
marketing information delivery system and approximately $1.2 million for the
personalization solution were in line with the estimates used to compute the
estimated percentage-of-completion used in the valuation of the in-process
research and development projects. These products were just recently released
and it is too premature to compare the actual revenues with those projected. To
date, management's cash flow and other assumptions have not materially changed.
F-15
<PAGE> 87
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CORE TECHNOLOGY
The amount of purchase price allocated to acquired core technology was
determined based upon royalty streams that were assigned as revenue to such
technology, recognizing the value of that core technology to the expected
product resulting from the in-process research and development. Royalty rates
were developed based on published documentation of royalty rates and the
specific facts and circumstances, and in Calico's view, are considered
reasonable approximations of fair value rates for the respective types of
technology under exclusive, perpetual, worldwide licenses.
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
The following table presents the unaudited pro forma consolidated results of
operations of the Company for the years ended March 31, 1998 and 1999 as if the
acquisition had been consummated at the beginning of each fiscal year. The pro
forma consolidated results of operations include certain pro forma adjustments,
including the amortization of intangible assets and the elimination of the
charge related to in-process research and development.
Pro forma basic net loss per share for each year presented is computed using the
weighted average number of common shares outstanding, including the pro forma
effects of the automatic conversion of the Company's Series A, Series B, Series
C and Series E Mandatorily Redeemable Convertible Preferred Stock into shares of
the Company's Common Stock effective upon the closing of the Company's initial
public offering as if such conversion occurred at the beginning of each fiscal
year, or at date of original issuance, if later. The shares of Series D
Mandatorily Redeemable Convertible Preferred Stock, issued as consideration for
the acquisition, are assumed to be converted into the Company's Common Stock
under the automatic conversion feature and outstanding at the beginning of each
fiscal year. Pro forma diluted net loss per share excludes potential shares of
Common Stock, consisting of options and warrants, as their effect would be
antidilutive.
The unaudited pro forma consolidated results of operations are prepared for
comparative purposes only and do not necessarily reflect the results that would
have occurred had the acquisition occurred at the beginning of the periods
presented or the results which may occur in the future (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
Net revenues......................................... $ 13,577 $ 21,737
Net loss............................................. (12,221) (16,305)
Net loss per share:
Basic and diluted.................................. (0.72) (0.79)
</TABLE>
F-16
<PAGE> 88
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1999
------ -------
<S> <C> <C>
ACCOUNTS RECEIVABLE, NET:
Accounts receivable................................... $2,518 $ 8,561
Unbilled receivables.................................. 1,714 571
Allowance for doubtful accounts....................... (580) (659)
Allowance for sales returns........................... (700) (1,030)
------ -------
$2,952 $ 7,443
====== =======
</TABLE>
Write-offs of accounts receivable charged against the allowance for doubtful
accounts were $0, $0 and $121,000 for the years ended March 31, 1997, 1998 and
1999, respectively.
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1998 1999
------ -------
<S> <C> <C>
PROPERTY AND EQUIPMENT, NET:
Computer equipment and software....................... $2,534 $ 3,878
Furniture, fixtures and leasehold improvements........ 291 1,223
------ -------
2,825 5,101
Less: Accumulated depreciation and amortization....... (978) (2,569)
------ -------
$1,847 $ 2,532
====== =======
</TABLE>
Property and equipment includes $395,000 and $700,000 of computer and office
equipment under capital leases at March 31, 1998 and 1999, respectively.
Accumulated depreciation of assets under capital leases totaled $209,000 and
$360,000 at March 31, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1998 1999
------ ---------
<S> <C> <C>
INTANGIBLE AND OTHER ASSETS, NET:
Existing and core technology........................ $ -- $ 1,547
Goodwill............................................ -- 4,329
------ -------
-- 5,876
Less: Accumulated amortization...................... -- (1,341)
------ -------
$ -- $ 4,535
====== =======
ACCRUED LIABILITIES:
Accrued compensation and benefits................... $ 379 $ 1,149
Accrued commissions................................. 540 1,573
Other............................................... 894 2,726
------ -------
$1,813 $ 5,448
====== =======
</TABLE>
F-17
<PAGE> 89
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- BORROWINGS:
NOTES PAYABLE
Notes payable consist of amounts payable to an equipment financing company and
bank and are collateralized by the underlying assets as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------
1998 1999
----- ------
<S> <C> <C>
7% note; principal and interest payable monthly; matures
June 2000................................................. $ 368 $ 236
7% note; principal and interest payable monthly; matures
August 2000............................................... 179 120
7% note; principal and interest payable monthly; matures
October 2000.............................................. 90 63
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures March
2001...................................................... 337 230
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures May
2001...................................................... -- 121
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures September
2001...................................................... -- 218
Bank prime (7.75% at March 31, 1999) plus 0.5% note;
principal and interest payable monthly; matures February
2002...................................................... -- 340
----- ------
974 1,328
Less: current portion of notes payable...................... (330) (628)
----- ------
Notes payable, non-current.................................. $ 644 $ 700
===== ======
</TABLE>
Under the bank prime plus 0.5% notes above, the Company is required to meet
certain quarterly financial tests, including minimum operating results and
certain liquidity, leverage and debt service ratios. At March 31, 1999 and June
30, 1999, the Company was not in compliance with the minimum operating results
covenant. The Company obtained a waiver for the periods in which it was in
default.
Future minimum principal payments under the notes at March 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
2000...................................................... $ 628
2001...................................................... 538
2002...................................................... 162
2003...................................................... --
------
Total payments.................................... $1,328
======
</TABLE>
NOTE 5 -- INCOME TAXES:
At March 31, 1999, the Company had approximately $12,093,000 of federal and
$9,731,000 of state net operating loss carryforwards available to offset future
taxable income which expire in varying amounts beginning in 2011 and 2003,
respectively. At March 31, 1999, the Company had approximately $389,000 of
federal and $301,000 of state research and development credit carryforwards
available to offset future taxable income which expire in varying amounts
beginning in
F-18
<PAGE> 90
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2011 and indefinitely, respectively. Under the Tax Reform Act of 1986, the
amounts of and benefits from net operating loss carryforwards may be impaired or
limited in certain circumstances. Events which cause limitations in the amount
of net operating losses that the Company may utilize in any one year include,
but are not limited to, a cumulative ownership change of more than 50%, as
defined, over a three year period. Due to cumulative ownership changes, at March
31, 1999, the net operating loss carryforwards will be limited to approximately
$6,000,000 annually to offset future taxable income.
Deferred taxes are composed of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1998 1999
------- ---------
<S> <C> <C>
Deferred tax assets:
Depreciation.............................................. $ -- $ 250
Other accruals and liabilities............................ 725 3,146
Net operating loss and credit carryforwards............... 4,460 5,399
------- -------
5,185 8,795
Less: Valuation allowance................................. (5,134) (8,795)
------- -------
$ 51 $ --
======= =======
Deferred tax liabilities:
Non-deductible intangible assets.......................... $ -- $ 531
Depreciation.............................................. 51 --
------- -------
$ 51 $ 531
======= =======
</TABLE>
The acquisition of FirstFloor was structured as a tax-free exchange of stock,
therefore, the differences between the recognized fair values of acquired net
assets and their historical tax bases are not deductible for tax purposes. A
deferred tax liability has been recognized for the differences between the
assigned fair values of intangible assets (excluding goodwill) for book purposes
and the tax bases of such assets.
For financial reporting purposes the Company has incurred a loss in each period
since its inception. Based on the available objective evidence, including the
Company's history of losses, management believes it is more likely than not that
the net deferred tax assets will not be fully realizable. Accordingly, the
Company has provided a full valuation allowance against its net deferred tax
assets at March 31, 1998 and 1999. The Company's operating losses are generated
domestically and amounts attributable to its foreign operations have been
insignificant for all periods presented. A reconciliation between the amount of
income tax benefit determined by applying the applicable U.S. statutory income
tax rate to pre-tax loss is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... (35)% (35)% (35)%
State tax, net of federal impact............................ (6) (6) (6)
Provision for valuation allowance on deferred tax assets.... 41 36 26
Permanent differences....................................... -- 5 15
---- ---- ----
--% --% --%
==== ==== ====
</TABLE>
F-19
<PAGE> 91
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Mandatorily Redeemable Convertible Preferred Stock ($0.001 par value) at March
31, 1999 was comprised of the following (in thousands):
<TABLE>
<CAPTION>
SHARES
------------------------ LIQUIDATION REDEMPTION
AUTHORIZED OUTSTANDING AMOUNT AMOUNT
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Series A........................ 6,045 6,000 $16,000 $ 3,942
Series B........................ 3,692 3,600 23,040 5,729
Series C........................ 2,084 2,084 13,334 4,952
Series D........................ 1,298 1,254 8,035 5,695
Series E........................ 2,694 2,688 17,203 12,217
Undesignated.................... 36 -- -- --
------ ------ ------- -------
15,849 15,626 $77,612 $32,535
====== ====== ======= =======
</TABLE>
Of the 1,254,128 shares of Series D Mandatorily Redeemable Convertible Preferred
Stock outstanding at March 31, 1999, 3,762 were subject to repurchase.
The holders of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock, have certain rights as follows:
VOTING
Each share of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes together
as one class with the Common Stock.
DIVIDENDS
Holders of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock are entitled to receive noncumulative
annual dividends of $0.03, $0.08, $0.12, $0.20 and $0.23 per share,
respectively, when and if declared by the Board of Directors. The holders of
Series A, Series B, Series C, Series D and Series E Mandatorily Redeemable
Convertible Preferred Stock will also be entitled to participate in dividends on
Common Stock, when and if declared by the Board of Directors, based on the
number of shares of Common Stock into which the Mandatorily Redeemable
Convertible Preferred Stock is convertible. As of March 31, 1999, no dividends
on Mandatorily Redeemable Convertible Preferred Stock or Common Stock have been
declared or paid.
LIQUIDATION
In the event of any liquidation, dissolution, winding up of affairs, merger or
other business combination where the stockholders of the Company retain less
than a majority of the voting power in the surviving entity, the holders of
Series A, Series B, Series C, Series D and Series E Mandatorily Redeemable
Convertible Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Company to the holders of the Common Stock, the amounts of $0.67, $1.60, $2.40,
$4.558 and $4.558 per share, respectively, adjusted for any stock split, stock
dividends, or the like, plus all declared but unpaid dividends. Thereafter, the
holders of Mandatorily Redeemable Convertible Preferred Stock and Common Stock
share proceeds pro rata, on an as-converted basis, until holders of Series A
F-20
<PAGE> 92
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mandatorily Redeemable Convertible Preferred Stock have recovered an amount of
$2.67 per share and holders of Series B, Series C, Series D and Series E
Mandatorily Redeemable Convertible Preferred Stock have recovered an amount of
$6.40 per share. All further proceeds shall be distributed to the holders of
Common Stock.
REDEMPTION
Holders of two-thirds of the Series A, Series B, Series C and Series E
Mandatorily Redeemable Convertible Preferred Stock may require the Company to
redeem the respective series of Mandatorily Redeemable Convertible Preferred
Stock at any time. The redemption price for the Series A, Series B, Series C and
Series E Mandatorily Redeemable Convertible Preferred Stock shall be $0.67,
$1.60, $2.40 and $4.558 per share, respectively, adjusted for any stock split,
stock dividends, or the like, plus all declared but unpaid dividends.
Holders of two-thirds of the Series D Mandatorily Redeemable Convertible
Preferred Stock may require the Company to redeem the respective series of
Mandatorily Redeemable Convertible Preferred Stock if the requisite percentage
of Series A, Series B, Series C, and Series E Mandatorily Redeemable Convertible
Preferred Stock have previously requested redemption. The redemption price for
the Series D Mandatorily Redeemable Convertible Preferred Stock shall be $4.558
per share adjusted for any stock split, stock dividends, or the like, plus all
declared but unpaid dividends.
CONVERSION
Each share of Series A, Series B, Series C, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock is convertible, at the option of the
stockholder, into the number of shares of Common Stock according to a conversion
ratio, subject to antidilution. The initial share price of the Mandatorily
Redeemable Convertible Preferred Stock used in the conversion ratio shall be
$0.67, $1.60, $2.40, $4.558 and $4.558 per share for Series A, Series B, Series
C, Series D and Series E Mandatorily Redeemable Convertible Preferred Stock,
respectively.
Automatic conversion will occur upon the consummation of an underwritten public
offering priced in excess of $4.80 per share and with total proceeds in excess
of $15,000,000. The Series A, Series B, Series D and Series E Mandatorily
Redeemable Convertible Preferred Stock shall automatically convert upon written
consent of a majority of the holders of Series A, Series B, Series D and Series
E Mandatorily Redeemable Convertible Preferred Stock, together. The Series C
Mandatorily Redeemable Convertible Preferred Stock shall automatically convert
upon written consent of a majority of the Series C stockholders.
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK OPTIONS AND WARRANTS
In connection with certain financing arrangements, the Company issued warrants
to purchase shares of the Company's Mandatorily Redeemable Convertible Preferred
Stock to a capital lessor and lender. These warrants were immediately
exercisable after issuance. The Company estimated the fair value of the warrants
using the Black-Scholes option pricing model. The Company records the expense
related to the warrants over the life of the associated financing
F-21
<PAGE> 93
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
instrument as additional interest expense. The following table summarizes the
outstanding warrants:
<TABLE>
<CAPTION>
DATE OF EXERCISE ESTIMATED FISCAL YEAR
GRANT SHARES PRICE FAIR VALUE OF EXPIRATION
------------- ------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Series A Preferred Stock
warrants.................... December 1995 42,000 $0.67 $10,000 2003
Series B Preferred Stock
warrants.................... January 1997 34,999 1.60 25,000 2005
Series B Preferred Stock
warrants.................... June 1997 56,250 1.60 53,000 2008
</TABLE>
In connection with the acquisition of FirstFloor in August 1998, the Company
exchanged the options granted under the FirstFloor 1993 Stock Option Plan into
options to purchase 47,203 shares of Company's Series D Mandatorily Redeemable
Convertible Preferred Stock. These options had a weighted average exercise price
of $2.63 per share. At March 31, 1999, 33,354 of such options were outstanding
with a weighted average exercise price of $2.70 per share. The options expire
upon the earlier of the respective employee termination or 10 years from grant
date. See Note 2.
NOTE 7 -- COMMON STOCK:
The Company's Certificate of Incorporation, as amended, authorizes the Company
to issue 150,000,000 shares of $0.001 par value Common Stock.
On March 5, 1999, the Company sold 1,052,632 shares of Common Stock to a third
party for $9.50 per share.
Certain Common Stock option holders have the right to exercise unvested options,
subject to a repurchase right held by the Company, in the event of voluntary or
involuntary termination of employment of the stockholder. As of March 31, 1999,
approximately 2,670,712 shares of outstanding Common Stock were subject to
repurchase by the Company at the original exercise price. Of the 2,670,712
shares of unvested restricted Common Stock repurchaseable, 2,583,212 are
available for reissuance under the 1997 Stock Option Plan. As of June 30, 1999
(unaudited), approximately 2,300,274 shares of Common Stock were subject to
repurchase by the Company at the original exercise price, all of which are
available for reissuance under the 1997 Stock Option Plan.
At March 31, 1999, the Company had reserved shares of Common Stock for future
issuance as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
Conversion of Series A Preferred Stock and warrants......... 6,045
Conversion of Series B Preferred Stock and warrants......... 3,692
Conversion of Series C Preferred Stock...................... 2,084
Conversion of Series D Preferred Stock and options.......... 1,298
Conversion of Series E Preferred Stock...................... 2,694
Exercise of options under stock option plans................ 8,199
Undesignated................................................ 125,988
</TABLE>
F-22
<PAGE> 94
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- EMPLOYEE BENEFIT PLANS:
401(k) SAVINGS PLAN
The Company sponsors a 401(k) defined contribution plan covering eligible
employees who elect to participate. The Company may elect to contribute matching
and discretionary contributions to the plan; however, no contributions were made
by the Company since the inception of the plan.
STOCK OPTION PLANS
In July 1995 and April 1997, the Board of Directors adopted the 1995 Stock
Option Plan and 1997 Stock Option Plan, respectively, (collectively, the
"Plans") which provide for the issuance of incentive and nonstatutory stock
options to employees, officers, directors, and consultants of the Company. The
Company has reserved 14,715,000 shares of Common Stock for issuance under the
Plans. The share reserve will automatically be increased on the first day of
each fiscal year beginning on or after April 1, 2001 by an amount equal to 5% of
the number of shares of the Company's Common Stock which were issued and
outstanding on the last day of the preceding fiscal year.
Options under the Plans are generally for periods not to exceed ten years, and
must be issued at prices not less than 100% and 85%, for incentive and
nonstatutory stock options, respectively, of the estimated fair value of the
underlying shares of Common Stock on the date of grant as determined by the
Board of Directors. Options granted to stockholders who own greater than 10% of
the outstanding stock are for periods not to exceed five years, and must be
issued at prices not less than 110% of the estimated fair value of the
underlying shares of Common Stock on the date of grant. The plan provides for
grants of immediately exercisable options, however, the Company has the right to
repurchase any unvested Common Stock upon termination of employment at the
original exercise price. Options become exercisable at such times and under such
conditions as determined by the Board of Directors. Options generally vest over
four years. The Board of Directors has determined that no further options will
be granted under the 1995 Option Plan.
In December 1998, the Company granted immediately exercisable options to a
charitable organization to purchase 15,000 shares of Common Stock at an exercise
price of $4.50 per share. The Company recorded a charge associated with these
options of $45,000, measured using the Black-Scholes option pricing model, which
is included in the total stock-based compensation charge for the year ended
March 31, 1999.
EMPLOYEE STOCK PURCHASE PLAN
In July 1999, the Board of Directors adopted the 1999 Employee Stock Purchase
Plan (the "Purchase Plan"), subject to stockholder approval. There are 750,000
shares of Common Stock reserved for issuance under the Purchase Plan, none of
which has yet been issued. Employees generally will be eligible to participate
in the Purchase Plan if they are customarily employed by the Company for more
than 20 hours per week and more than five months in a fiscal year. Under the
Purchase Plan, eligible employees may select a rate of payroll deduction up to
15% of their compensation, but may not purchase more than 750 shares on any
purchase date or stock having a value measured at the beginning of the offering
period greater than $25,000 in any calendar year. The first Offering Period
commences on the date of the prospectus, will run for approximately 24 months
and will be divided into four consecutive purchase periods of approximately six
months. Offering Periods and Purchase Periods thereafter will begin on May 1
F-23
<PAGE> 95
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and November 1 of each year. The price at which the Common Stock is purchased
under the Purchase Plan is 85% of the lower of the fair market value of the
Company's Common Stock on the first day of the applicable Offering Period or on
the last day of that Purchase Period.
The following table summarizes stock option activity under the Plans and
non-plan options (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE NUMBER OF EXERCISE
FOR GRANT OPTIONS PRICE
--------- --------- --------
<S> <C> <C> <C>
Balance at March 31, 1996..................... 669 3,873 $ 0.07
Additional shares authorized.................. 315 -- --
Options granted............................... (804) 804 0.12
Options exercised............................. -- (2,823) 0.07
Options canceled.............................. 414 (414) 0.09
-------- --------
Balance at March 31, 1997..................... 594 1,440 0.09
Additional shares authorized.................. 3,393 -- --
Options granted............................... (3,847) 3,847 0.41
Repurchase of restricted Common Stock......... 303 -- 0.07
Options exercised............................. -- (2,936) 0.24
Options canceled.............................. 411 (411) 0.14
-------- --------
Balance at March 31, 1998..................... 854 1,940 0.49
Additional shares authorized.................. 6,465 -- --
Options granted............................... (3,688) 3,688 4.59
Repurchase of restricted Common Stock......... 466 -- 0.23
Options exercised............................. -- (1,526) 1.19
Options canceled.............................. 605 (605) 0.69
-------- --------
Balance at March 31, 1999..................... 4,702 3,497 4.47
Options granted (unaudited)................... (1,963) 1,963 9.50
Repurchase of restricted Common Stock
(unaudited)................................. 2 -- 0.12
Options exercised (unaudited)................. -- (59) 0.31
Options canceled (unaudited).................. 107 (107) 3.13
-------- --------
Balance at June 30, 1999 (unaudited).......... 2,848 5,294 6.41
======== ========
</TABLE>
F-24
<PAGE> 96
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the information about stock options outstanding
and exercisable as of March 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED AND
------------------------------------- EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.07 - $0.83............................ 432 7.9 $ 0.34 215 $0.23
1.00 - 2.63............................ 805 8.9 2.30 14 1.19
2.67 - 3.17............................ 660 9.4 3.02 11 3.11
4.50 - 9.50............................ 1,600 9.8 7.28 62 5.23
----- ---
3,497 9.3 4.47 302 1.40
===== ===
</TABLE>
The following table summarizes the information about stock options outstanding
and exercisable as of June 30, 1999 (unaudited) (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED AND
------------------------------------- EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.07 - $0.83.......................... 351 7.7 $0.35 189 $0.26
$1.00 - 2.63.......................... 752 8.6 2.31 105 2.02
$2.67 - 3.17.......................... 660 9.2 3.02 20 2.91
$4.50 - 9.50.......................... 3,531 9.8 8.52 71 5.32
----- ---
5,294 9.4 6.41 385 1.80
===== ===
</TABLE>
FAIR VALUE DISCLOSURE
The Company calculated the minimum fair value of each option grant on the date
of grant using the Black-Scholes option pricing model as prescribed by SFAS No.
123 with the following underlying assumptions:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
----------------------- --------------
1997 1998 1999 1998 1999
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Stock option plans:
Dividend yield................................ -- -- -- -- --
Expected volatility........................... -- -- -- -- --
Average risk free interest rate............... 5.87% 6.06% 4.72% 4.72% 5.83%
Expected life (in years)...................... 4 4 4 4 4
Weighted average fair value of options
granted.................................... $0.03 $0.11 $1.22 $0.50 $2.89
</TABLE>
F-25
<PAGE> 97
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA NET LOSS
Had the Company recorded compensation based on the estimated grant date fair
value, as defined by SFAS No. 123, for awards granted under its Plans, the
Company's net loss would have been increased to the pro forma amounts below for
the fiscal years ended March 31, 1997, 1998 and 1999, and the three months ended
June 30, 1998 and 1999, respectively, (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------ ----------------------
1997 1998 1999 1998 1999
------- ------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss as reported............. $(6,900) $(5,499) $(15,261) $(1,645) $(4,723)
Pro forma net loss............... (6,914) (5,546) (16,207) (1,714) (5,511)
Net loss per share as reported... (2.12) (1.08) (2.27) (0.27) (0.59)
Pro forma net loss per share..... (2.12) (1.08) (2.41) (0.29) (0.69)
</TABLE>
Because additional option grants are expected to be made each year, the above
pro forma disclosures are not representative of pro forma effects of option
grants on reported net income for future years.
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants during the year ended March 31,
1998 and 1999, the Company recorded unearned compensation cost totaling
$2,746,000 and $2,854,000, respectively, which is being recognized over the
vesting periods of the related options, usually four years.
NOTE 9 -- RELATED PARTY TRANSACTIONS:
In exchange for the issuance of Common Stock upon the exercise of options in the
years ended March 31, 1998 and 1999, the Company received notes receivable from
certain employees of the Company which bear simple interest at various rates
ranging from 5.54% to 6.65% per annum. The notes, which are collateralized by
the underlying shares of Common Stock, are full recourse and mature on various
dates through fiscal 2002.
In connection with the offering of the Series B Mandatorily Redeemable
Convertible Preferred Stock, a founder exchanged 600,000 shares of Common Stock
for 600,000 shares of Series B Mandatorily Redeemable Convertible Preferred
Stock. The Company recognized the difference between the original issue price of
the Series B Mandatorily Redeemable Convertible Preferred Stock and the
estimated fair value of the shares of Common Stock on the date of exchange of
$864,000 as compensation expense for the year ended March 31, 1997.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
CAPITAL LEASES
In January 1996, the Company entered into a lease financing agreement that
provides for the lease of computers and office equipment up to $400,000,
collateralized by the underlying assets. Equipment financed under this agreement
is subject to repayment at various times through
F-26
<PAGE> 98
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
October 2000. At March 31, 1999, purchases of computers and office equipment
under this agreement totaled $395,000.
In September 1998, the Company entered into a lease financing agreement that
provides for the lease of office equipment of $136,000, collateralized by the
underlying assets. Equipment financed under this agreement is subject to
repayment through January 2003. At March 31, 1999, purchases of office equipment
under this agreement totaled $136,000.
In connection with the FirstFloor acquisition, the Company assumed an equipment
financing agreement entered into in March 1997 which provides for the lease of
office equipment of up to $360,000, in one or more leases. Each lease is
repayable over 36 months and is secured by a first priority security interest in
certain assets of the Company. At March 31, 1999, the fair value of office
equipment purchased under this agreement totaled $169,000.
OPERATING LEASES
The Company leases office space and equipment under certain noncancellable
operating leases expiring through the year 2004. Total rent expense was
$286,000, $580,000, and $1,141,000 for the years ended March 31, 1997, 1998 and
1999, respectively.
As a part of an approved plan, the Company relocated its corporate headquarters
to a new leased facility in August 1998. As a result, the Company recorded a
charge, classified in general and administrative expenses, of approximately
$660,000 for the minimum lease payments committed under the previous leased
facility and losses on the disposal of certain fixed assets in the quarter ended
September 30, 1998. At March 31, 1999, there was approximately $230,000 of
minimum lease payments remaining.
LETTER OF CREDIT
At March 31, 1999, the Company maintained a $296,000 letter of credit to secure
the lease deposit on its corporate headquarters. The letter of credit expires on
October 31, 1999, and is included in other current assets.
Future minimum payments under noncancelable operating and capital leases at
March 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
MARCH 31, LEASES LEASES
----------- ------- ---------
<S> <C> <C>
2000........................................................ $ 305 $1,129
2001........................................................ 135 374
2002........................................................ 41 52
2003........................................................ 30 7
2004........................................................ -- 5
----- ------
Total minimum lease obligations................... 511 $1,567
======
Less: Amount representing interest.......................... (78)
-----
Present value of minimum lease obligations.................. 433
Less: Current portion....................................... (256)
-----
Capital lease obligations, non-current...................... $ 177
=====
</TABLE>
F-27
<PAGE> 99
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONTINGENCIES
From time to time, in the normal course of business, various claims are made
against the Company. In the opinion of management, based on consultation with
legal counsel, there are no pending claims for which the outcome is expected to
result in a material adverse effect on the financial position or results of
operations of the Company.
NOTE 11 -- INFORMATION CONCERNING BUSINESS SEGMENTS:
The Company operates in one single industry segment. The Company does not have
separate operating segments for which discrete financial statements are
prepared. The Company's management makes operating decisions and assesses
performance primarily based upon product revenues and related gross margins.
The majority of the Company's sales to other foreign countries are originated in
the United States and therefore represent export sales. The following is a
breakdown of revenues by shipment destination for the years ended March 31,
1997, 1998 and 1999, respectively:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
United States.......................................... $5,903 $11,827 $20,108
Other foreign countries................................ -- 32 1,305
------ ------- -------
$5,903 $11,859 $21,413
====== ======= =======
</TABLE>
NOTE 12 -- SUBSEQUENT EVENTS:
INITIAL PUBLIC OFFERING
In July 1999, the Company's Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit the
Company to sell shares of its Common Stock to the public.
On September 3, 1999, the Company entered into an agreement to sell $20.0
million shares of Common Stock to Dell U.S.A., L.P. in a private placement at
the initial public offering price less an amount equal to the underwriting
discount. The private placement is contingent upon the consummation of the
initial public offering.
In September 1999, Andersen Consulting expressed a non-binding interest in
purchasing up to $4.0 million of Common Stock at the initial public offering
price less the per share estimated underwriting discount in this offering. This
would represent a total of 330,851 shares of Common Stock at a price of $12.09
per share, based upon the midpoint of the estimated offering range. Andersen
Consulting has agreed to execute a 360 day lock-up agreement, restricting its
ability to resell the shares. If Andersen Consulting purchases shares in this
public offering, the Company has agreed to appoint a representative of Andersen
Consulting to its Board of Directors. Additionally, on September 16, 1999, the
Company entered into a consulting services agreement and a joint marketing
agreement with Andersen Consulting. Pursuant to the consulting services
agreement, the Company has a binding commitment to purchase $1.0 million of
consulting services over the next 18 months, to include the creation of
prototypes and external presentations, development of training materials,
product testing and other activities supporting the Company's future product
releases. Pursuant to the join marketing agreement, Andersen
F-28
<PAGE> 100
CALICO COMMERCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Consulting acquires rights to market integration services related to the
Company's software and the Company agrees to promote Andersen Consulting as the
preferred integrator of the Company's software.
STOCK SPLIT
On August 24, 1999, the Board of Directors of the Company approved a 3-for-2
stock split of the Company's outstanding Common Stock. Share and per share
information for all periods presented has been retroactively adjusted to reflect
the stock split.
STOCK OPTION GRANTS
During the period from April 1, 1999 through September 18, 1999, the Company
granted stock options to employees to purchase an aggregate of 3,204,974 shares
of Common Stock ranging from $9.50 to $12.00 per share. The Company has not
recorded any deferred compensation relative to these grants.
F-29
<PAGE> 101
CALICO COMMERCE, INC.
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
The Company completed the acquisition of all outstanding capital stock of
FirstFloor Software, Inc. ("FirstFloor") on August 21, 1998. The transaction was
completed pursuant to the Agreement and Plan of Reorganization, dated as of June
23, 1998 among the Company, Calico Acquisition Corporation, FirstFloor and
certain stockholders of the Company and certain shareholders of FirstFloor. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of FirstFloor have been
included in the Company's consolidated financial statements since the
acquisition date.
The purchase consideration included 1,248,423 shares of Series D Mandatorily
Redeemable Convertible Preferred Stock, valued at $4.558 per share based on the
value of the Series E Mandatorily Redeemable Convertible Preferred Stock which
were sold to third party investors shortly after the acquisition, at
approximately $5,690,000. In addition, all of the outstanding options granted
under the FirstFloor 1993 Stock Option Plan were converted into options to
purchase 47,203 shares of the Company's Series D Mandatorily Redeemable
Convertible Preferred Stock. The Black-Scholes option pricing model was used to
determine the fair value of the converted options. The fair value, of
approximately $122,000, was included as a component of the purchase price. The
Company also incurred approximately $250,000 in acquisition expenses.
The total purchase price of $6.1 million was allocated to assets acquired,
including tangible and intangible assets, and liabilities assumed, based on
their respective estimated fair values at the acquisition date. The estimate of
fair value of the net assets acquired is based on an independent appraisal and
management estimates.
The total purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Fair value of tangible assets............................... $ 360
Fair value of existing products and core technology......... 1,547
Acquired in-process research and development................ 1,840
Goodwill.................................................... 4,266
Fair value of liabilities assumed........................... (1,951)
-------
$ 6,062
=======
</TABLE>
The acquisition has been structured as a tax-free exchange of stock, therefore,
the differences between the recognized fair values of required assets, including
tangible and intangible assets, and their historical tax bases are not
deductible for tax purposes.
The following unaudited pro forma consolidated statement of operations gives
effect to this acquisition as if it had occurred as of April 1, 1998, by
consolidating the results of operations of FirstFloor with the operations of
Calico.
The unaudited pro forma consolidated statement of operations is not necessarily
indicative of the operating results that would have been achieved had the
transaction been in effect as of the beginning of the period presented and
should not be construed as being a representation of future operating results.
The historical consolidated financial statements for the Company and FirstFloor
are included elsewhere in this prospectus and the unaudited pro forma
consolidated financial information presented herein should be read in
conjunction with those consolidated financial statements and related notes.
F-30
<PAGE> 102
CALICO COMMERCE, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
------------------------------------------------------
CALICO FIRSTFLOOR ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
License............................... $ 10,482 $ 283 $ (21)(A) $ 10,744
Services.............................. 10,931 150 (88)(A) 10,993
-------- ------- ------- --------
Net revenues.................. 21,413 433 (109) 21,737
Cost of net revenues
Licenses.............................. 1,179 3 196(A)(B) 1,378
Services.............................. 7,272 295 (88)(A) 7,479
-------- ------- ------- --------
Cost of net revenues.......... 8,451 298 108 8,857
-------- ------- ------- --------
Gross profit............................ 12,962 135 (217) 12,880
Operating expenses:
Sales and marketing................... 14,138 574 -- 14,712
Research and development.............. 5,677 774 -- 6,451
General and administrative............ 3,988 1,058 -- 5,046
Stock compensation.................... 2,007 -- -- 2,007
Acquired in-process research and
development........................ 1,840 -- (1,840)(C) --
Amortization of goodwill.............. 550 -- 401(B) 951
-------- ------- ------- --------
Total operating expenses...... 28,200 2,406 (1,439) 29,167
-------- ------- ------- --------
Loss from operations.................... (15,238) (2,271) 1,222 (16,287)
Interest and other income, net.......... (23) 5 -- (18)
-------- ------- ------- --------
Net loss................................ $(15,261) $(2,266) $ 1,222 $(16,305)
======== ======= ======= ========
Pro forma net loss per share(D):
Basic and diluted............................................................ $ (0.79)
========
Weighted average shares...................................................... 20,689
========
</TABLE>
See accompanying notes to Pro Forma Combined Consolidated Financial Information
F-31
<PAGE> 103
CALICO COMMERCE, INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION:
The unaudited pro forma combined consolidated statement of operations has been
prepared to reflect the acquisition of FirstFloor Software, Inc. by Calico as if
the acquisition had occurred as of April 1, 1998. The pro forma combined
consolidated statement of operations for the year ended March 31, 1999 reflects
the combination of the separate historical statement of operations of Calico for
the year ended March 31, 1999, which include the results of FirstFloor
subsequent to its acquisition, and of FirstFloor for the period from April 1,
1998 through the date of acquisition. Revenues of approximately $329,000 and net
loss of approximately $1.4 million of FirstFloor for the period of January 1,
1998 through March 31, 1998 are not included in the pro forma combined
consolidated statement of operations.
NOTE 2 -- PRO FORMA ADJUSTMENTS:
The following adjustments were applied to the historical statements of
operations to arrive at the pro forma combined consolidated statement of
operations:
(A) Reflects the elimination of license revenues recognized by
FirstFloor related to royalty payments paid by Calico to FirstFloor for
sub-licensing of FirstFloor's products, prior to the Company's acquisition
of FirstFloor. Additionally, the related cost of license revenues
recognized by Calico has been eliminated.
(B) Reflects the amortization expense related to existing products and
core technology and goodwill acquired in the acquisition for the period
April 1, 1998 through the date of acquisition.
(C) The in-process research and development charge related to the
acquisition has been reflected in the historical statements of operations
on the date upon which the acquisition was consummated. The pro forma
combined consolidated statement of operations excludes the nonrecurring
charge for acquired in-process research and development totaling $1.8
million.
(D) Pro forma basic net loss per share for the year ended March 31,
1999 is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of
the Company's Series A, Series B, Series C and Series E Mandatorily
Redeemable Convertible Preferred Stock into shares of the Company's Common
Stock effective upon the closing of the Company's initial public offering
as if such conversion occurred on April 1, 1998, or at date of original
issuance, if later. The shares of Series D Mandatorily Redeemable
Convertible Preferred Stock, issued as consideration for the acquisition,
are assumed to be converted into the Company's Common Stock under the
automatic conversion feature and outstanding as of April 1, 1998.
Pro forma diluted net loss per share excludes potential shares of
Common Stock, consisting of options and warrants, as their effect would be
antidilutive.
F-32
<PAGE> 104
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
FirstFloor Software, Inc.
We have audited the accompanying balance sheets of FirstFloor Software, Inc.
(the "Company") as of December 31, 1996 and 1997 and the related statements of
operations, shareholders' equity (net capital deficiency) and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FirstFloor Software, Inc. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1, the
Company has incurred recurring losses from operations. This raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans as to these matters are also described in Note 1. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability or classification of assets or the amounts and classification of
liabilities that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Palo Alto, California
April 10, 1998
F-33
<PAGE> 105
FIRSTFLOOR SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 4,883,027 $ 2,119,784
Short-term investments.................................... 1,987,171 --
Accounts receivable....................................... 99,628 78,233
Prepaid expenses and other current assets................. 44,366 48,163
----------- ------------
Total current assets................................... 7,014,192 2,246,180
Property and equipment, net................................. 257,812 311,201
Other assets................................................ 15,956 18,554
----------- ------------
$ 7,287,960 $ 2,575,935
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable.......................................... $ 87,357 $ 66,135
Accrued compensation and related liabilities.............. 108,012 110,588
Accrued royalties......................................... 55,470 --
Other accrued liabilities................................. 96,559 145,416
Current portion of deferred revenue....................... 320,699 219,901
Current portion of capital leases......................... -- 79,431
----------- ------------
Total current liabilities.............................. 668,097 621,471
Deferred revenue............................................ 229,163 --
Noncurrent portion of capital leases........................ -- 172,545
Commitments
SHAREHOLDERS' EQUITY:
Convertible preferred stock, no par value, 15,000,000 shares
authorized, issuable in series:
Series A, 750,000 shares designated, issued and
outstanding; aggregate liquidation preference of
$750,000............................................... 740,493 740,493
Series B, 1,794,117 shares designated, issued and
outstanding; aggregate liquidation preference of
$3,050,000............................................. 3,033,754 3,033,754
Series C, 3,000,000 shares designated, issued and
outstanding; aggregate liquidation preference of
$1,500,000............................................. 1,490,985 1,490,985
Series D, 4,000,000 shares designated, 3,588,898 and
3,567,143 shares issued and outstanding in 1997 and
1996, respectively; aggregate liquidation preference of
$10,228,359............................................ 9,647,105 9,709,107
Common stock, no par value, 30,000,000 shares authorized,
3,254,904 and 3,055,481 shares issued and outstanding
in 1997 and 1996, respectively......................... 196,080 256,909
Accumulated deficit....................................... (8,717,717) (13,449,329)
----------- ------------
Total shareholders' equity........................ 6,390,700 1,781,919
----------- ------------
$ 7,287,960 $ 2,575,935
=========== ============
</TABLE>
See accompanying notes.
F-34
<PAGE> 106
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
License and product............ $ 2,251,311 $ 1,581,577 $ 906,644 $ 517,791
Contract and service........... 205,000 158,655 79,790 184,139
----------- ----------- ----------- -----------
Total revenue............... 2,456,311 1,740,232 986,434 701,930
Costs and expenses:
Royalties...................... 257,764 -- -- --
Research and development....... 2,311,178 2,895,805 1,324,550 1,575,250
Marketing and sales............ 2,471,827 2,634,378 1,344,678 1,166,648
General and administrative..... 966,368 1,191,809 561,497 636,095
----------- ----------- ----------- -----------
Total costs and expenses.... 6,007,137 6,721,992 3,230,725 3,377,993
----------- ----------- ----------- -----------
Loss from operations............. (3,550,826) (4,981,760) (2,244,291) (2,676,063)
Interest income, net............. 114,929 250,148 158,948 17,777
----------- ----------- ----------- -----------
Net loss......................... $(3,435,897) $(4,731,612) $(2,085,343) $(2,658,286)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-35
<PAGE> 107
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
---------------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D
------------------ ---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- -------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995...................... 750,000 $740,493 1,794,117 $3,033,754 3,000,000 $1,490,985 -- $ --
Issuance of Series D
convertible preferred
stock for cash and
conversion of notes
payable and accrued
interest, net of issuance
costs of $519,252......... -- -- -- -- -- -- 3,567,143 9,647,105
Issuance of common stock for
the exercise of stock
options................... -- -- -- -- -- -- -- --
Repurchase of unvested
shares.................... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- --------- ----------
Balance at December 31,
1996...................... 750,000 740,493 1,794,117 3,033,754 3,000,000 1,490,985 3,567,143 9,647,105
Issuance of Series D
convertible preferred
stock to consultants for
services rendered......... -- -- -- -- -- -- 21,755 62,002
Issuance of common stock for
the exercise of stock
options................... -- -- -- -- -- -- -- --
Repurchase of unvested
shares.................... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- --------- ----------
Balance at December 31,
1997...................... 750,000 740,493 1,794,117 3,033,754 3,000,000 1,490,985 3,588,898 9,709,107
Issuance of common stock for
the exercise of stock
options (unaudited)....... -- -- -- -- -- -- -- --
Repurchase of unvested
shares (unaudited)........ -- -- -- -- -- -- -- --
Net loss (unaudited)........ -- -- -- -- -- -- -- --
------- -------- --------- ---------- --------- ---------- --------- ----------
Balance at June 30, 1998
(unaudited)............... 750,000 $740,493 1,794,117 $3,033,754 3,000,000 $1,490,985 3,588,898 $9,709,107
======= ======== ========= ========== ========= ========== ========= ==========
<CAPTION>
TOTAL
SHAREHOLDERS'
COMMON STOCK EQUITY
-------------------- ACCUMULATED (NET CAPITAL
SHARES AMOUNT DEFICIT DEFICIENCY)
--------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31,
1995...................... 1,298,642 $ 14,242 $ (5,281,820) $ (2,346)
Issuance of Series D
convertible preferred
stock for cash and
conversion of notes
payable and accrued
interest, net of issuance
costs of $519,252......... -- -- -- 9,647,105
Issuance of common stock for
the exercise of stock
options................... 1,926,503 206,930 -- 206,930
Repurchase of unvested
shares.................... (169,664) (25,092) -- (25,092)
Net loss.................... -- -- (3,435,897) (3,435,897)
--------- -------- ------------ -----------
Balance at December 31,
1996...................... 3,055,481 196,080 (8,717,717) 6,390,700
Issuance of Series D
convertible preferred
stock to consultants for
services rendered......... -- -- -- 62,002
Issuance of common stock for
the exercise of stock
options................... 216,561 63,203 -- 63,203
Repurchase of unvested
shares.................... (17,138) (2,374) (2,374)
Net loss.................... -- -- (4,731,612) (4,731,612)
--------- -------- ------------ -----------
Balance at December 31,
1997...................... 3,254,904 256,909 (13,449,329) 1,781,919
Issuance of common stock for
the exercise of stock
options (unaudited)....... 46,616 13,234 -- 13,234
Repurchase of unvested
shares (unaudited)........ (22,324) (3,142) -- (3,142)
Net loss (unaudited)........ -- -- (2,658,286) (2,658,286)
--------- -------- ------------ -----------
Balance at June 30, 1998
(unaudited)............... 3,279,196 $267,001 $(16,107,615) $ (866,275)
========= ======== ============ ===========
</TABLE>
See accompanying notes.
F-36
<PAGE> 108
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................. $(3,435,897) $(4,731,612) $(2,085,343) $(2,658,286)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization...... 137,245 182,008 105,644 88,919
Issuance of Series D preferred
stock to consultants for
services rendered............... -- 62,002 -- --
(Gain) loss on disposal of capital
equipment....................... 21,214 (5,865) 8,205 --
Accrued interest on convertible
notes payable converted to
preferred stock................. 20,938 -- -- --
Changes in assets and liabilities:
Accounts receivable................ 285,926 21,395 94,628 (223,680)
Prepaid expenses and other current
assets.......................... (15,713) (3,797) (20,804) 24,318
Other assets....................... (6,081) (2,598) (59,857) (12,482)
Accounts payable................... 9,067 (21,222) (57,951) (4,067)
Accrued compensation and related
liabilities..................... 78,828 2,576 98,113 4,590
Accrued royalties.................. 5,470 (55,470) (55,470) --
Other accrued liabilities.......... 28,393 48,857 112,351 (62,490)
Deferred revenue................... (74,537) (329,961) 173,518 375,079
----------- ----------- ----------- -----------
Net cash used in operating
activities......................... (2,945,147) (4,833,687) (1,686,966) (2,468,099)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Sales (purchases) of short-term
investments........................ (1,987,171) 1,987,171 (19,716) --
Capital expenditures................. (239,616) (27,961) (165,523) (119,123)
Proceeds from sale of capital
equipment.......................... -- 93,108 -- --
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities............... (2,226,787) 2,052,318 (185,239) (119,123)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Payments under capital lease
obligations........................ -- (42,703) 183,167 (39,752)
Proceeds from issuance of convertible
notes payable...................... 2,000,000 -- -- 1,150,000
Net proceeds from issuance of
preferred stock.................... 7,626,167 -- -- --
Proceeds from issuance of common
stock, net of repurchases.......... 181,838 60,829 4,261 10,092
----------- ----------- ----------- -----------
</TABLE>
F-37
<PAGE> 109
FIRSTFLOOR SOFTWARE, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows provided by financing
activities......................... 9,808,005 18,126 187,428 1,120,340
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................... 4,636,071 (2,763,243) (1,684,777) (1,466,882)
Cash and cash equivalents at
beginning of period................ 246,956 4,883,027 4,883,027 2,119,783
----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period............................. $ 4,883,027 $ 2,119,784 $ 3,198,250 $ 652,901
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Equipment acquired under capital
leases............................. $ -- $ 201,571 $ 17,262 $ 93,107
=========== =========== =========== ===========
Conversion of notes payable to
preferred stock.................... $ 2,000,000 $ -- $ -- $ --
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest............... $ -- $ 18,236 $ 5,605 $ 15,079
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-38
<PAGE> 110
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
FirstFloor Software, Inc. (the "Company"), formerly FirstFloor, Inc., was
incorporated in the state of California on October 19, 1992. The Company
develops and markets interactive marketing systems for business-to-business
communications.
At December 31, 1997, the Company has recorded cumulative operating losses of
$13,449,329 including losses of $4,731,612 and $3,435,897 for the years ended
December 31, 1997 and 1996, respectively. The Company will need to obtain
additional funds from existing or new investors to continue building production,
sales and marketing capabilities, continue its research and development
activities and fund operating expenses, as necessary. Management believes that
it will be able to obtain additional funds through equity or debt financing. If
adequate funds are not available, the Company may be required to reduce its
level of spending, eliminate one of more of its research and development
programs or obtain funds through arrangements with corporate partners or others
which may require the Company to relinquish certain rights of its technologies
or product candidates.
INTERIM FINANCIAL DATA
The accompanying interim financial statements for the six months ended June 30,
1997 and 1998 are unaudited. In the opinion of management, the unaudited interim
financial statements have been prepared on the same basis as the annual
financial statements and reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the results of the Company's
operations for the six months ended June 30, 1997 and 1998.
The results of operations for the six months ended June 30, 1997 and 1998 are
not necessarily indicative of results to be expected for the full fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts reported in the financial statements as of December 31, 1996
have been reclassified to conform with the presentation adopted by the Company
to report its 1997 financial results.
CUSTOMER CONCENTRATION
A limited number of customers historically have accounted for a substantial
portion of the Company's revenues. Sales of the Company's products and contracts
for its technology will vary as a result of fluctuations in market demand for
such products and technology. Further, the markets in which the Company competes
are characterized by rapid technological change and increased competition.
F-39
<PAGE> 111
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CUSTOMER CONCENTRATION (CONTINUED)
Revenues from customers representing 10% or more of total revenue during fiscal
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Customer:
A........................................................ 48% 46%
B........................................................ 24 17
C........................................................ 6 11
D........................................................ 0 11
E........................................................ 15 3
</TABLE>
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents and short-term
investments consist of money market funds, commercial paper, corporate notes,
and auction rate preferred stock. The fair market value, based on quoted market
prices of the cash equivalents and short-term investments, is substantially
equal to their carrying value at December 31, 1996 and 1997.
Under FAS 115, management classifies investments as available-for-sale at the
time of purchase and periodically reevaluates such designation. Debt securities
are classified as available-for-sale and are reported at fair value.
Unrecognized gains or losses on available-for-sale securities are included, net
of tax, in shareholders' equity until their disposition. Realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in interest income. The cost of
securities sold is based on specific identification.
All cash equivalents and short-term investments are classified as
available-for-sale securities and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Cash and cash equivalents:
Bank and money market funds..................... $ 350,430 $2,119,784
Commercial paper................................ 2,494,447 --
Corporate notes/bonds........................... 2,038,150 --
---------- ----------
Total................................... $4,883,027 $2,119,784
========== ==========
Short-term investments:
Commercial paper................................ $ 987,004 $ --
Auction rate preferred stock.................... 1,000,167 --
---------- ----------
Total................................... $1,987,171 $ --
========== ==========
</TABLE>
Unrealized holding gains and losses on available-for-sale securities at December
31, 1996 and 1997 and gross realized gains and losses on sales of
available-for-sale securities during the year ended December 31, 1996 and 1997
were immaterial.
F-40
<PAGE> 112
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
<S> <C> <C>
Computer equipment and software.................... $ 405,235 $ 627,380
Furniture and fixtures............................. 37,793 37,793
Leasehold improvements............................. 51,555 51,555
--------- ---------
494,583 716,728
Less accumulated depreciation and amortization..... (236,771) (405,527)
--------- ---------
$ 257,812 $ 311,201
========= =========
</TABLE>
Depreciation is provided using the straight line method over the shorter of the
estimated useful lives or lease term of the respective assets, generally three
years. Property and equipment financed under a capital lease were $294,679 at
December 31, 1997. There were no capital leases at December 31, 1996.
Accumulated amortization related to leased assets was $59,906 at December 31,
1997. Amortization related to capital leases is included in depreciation
expense.
CONCENTRATION OF CREDIT RISK
The Company's concentration of credit risk consists principally of cash, cash
equivalents, short-term investments, and receivables. The Company's investment
policy restricts investments to high-credit quality investments and limits the
amounts invested with any one issuer. The Company sells primarily to original
equipment manufacturers in the United States, performs ongoing credit
evaluations of its customers' financial condition, and generally requires no
collateral.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). The Company has elected to account for employee stock
options in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB Opinion No. 25) and to adopt the
"disclosure only" alternative described in FAS 123.
REVENUE RECOGNITION
License fees for the Company's products are generally recognized ratably over
the initial or subsequent renewal periods as unspecified future deliverables,
including product enhancements and new products, are included in such license
agreements. For transactions that do not involve such unspecified future
deliverables, product revenues are recognized at the time of shipment of the
products and fulfillment of acceptance terms, if any, and when no significant
contractual obligations remain outstanding and collection of the resulting
receivable is deemed probable.
Contracts involving custom software development are accounted for using the
percentage-of-completion method. Revenues from services are recognized when the
services are performed. Maintenance contract revenue is recognized ratably over
the term of the maintenance contract.
F-41
<PAGE> 113
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION (CONTINUED)
Amounts received in advance of satisfying revenue recognition criteria are
classified as deferred revenue in the accompanying balance sheets.
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 the Company's product
development process, technological feasibility is established upon the
completion of a working model. Costs incurred by the Company between the
completion of the working model and the point at which the product is ready for
general release have been insignificant. Accordingly, the Company has charged
all such cost to research and development expenses in the accompanying
statements of operations.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $155,000 and $195,000 in advertising costs during 1996 and 1997,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the American Institute of Certified Public Accountants issued Statement
of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), as amended by
Statement of Position 98-4 ("SOP 98-4," collectively the "SOPs"). The SOPs
supersede SOP 91-1 and are effective for transactions entered into for fiscal
years beginning after December 15, 1997. Based upon its reading and
interpretation of the SOPs, the Company believes its current revenue recognition
policies and practices are materially consistent with the SOPs. However,
implementation guidelines for this standard have not yet been issued. Once
available, such implementation guidance could lead to changes in the Company's
current revenue accounting practices.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes rules for
reporting and displaying comprehensive income and is effective for the Company
during 1998. The Company does not believe that the adoption of SFAS 130 will
have a material impact on the Company's results of operations, cash flows or
financial position.
2. COMMITMENTS
CAPITAL LEASE
In March 1997, the Company entered into an Equipment Financing Agreement which
allows the Company to lease up to $360,000 of equipment, in one or more leases.
Each lease is repayable over 36 months and is secured by a first priority
security interest in certain assets of the Company. At December 31, 1997, the
Company has borrowed $294,679 against this financing agreement. In connection
with the equipment financing agreement the Company issued a warrant to the
financing company (see Note 3).
F-42
<PAGE> 114
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. COMMITMENTS (CONTINUED)
OPERATING LEASES
The Company leases its corporate offices under operating lease agreements that
expire in 2000. In February 1998, the Company renegotiated and amended certain
of these agreements. The result of these amended agreements is reflected in the
following table.
CAPITAL AND OPERATING LEASES
Future minimum lease payments under capital leases and operating leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
YEARS ENDING DECEMBER 31,
1998.................................................. $106,656 $253,840
1999.................................................. 106,656 365,327
2000.................................................. 85,281 278,816
2001.................................................. 833 --
-------- --------
Total minimum lease and principal payments,
respectively.............................. 299,426 $897,983
========
Amount representing interest.......................... 47,450
--------
Present value of future lease payments................ 251,976
Current portion of capital lease obligations.......... 79,431
--------
Noncurrent portion of capital lease obligations....... $172,545
========
</TABLE>
Rent expense was approximately $122,000 and $157,000 for 1996 and 1997,
respectively.
3. CONVERTIBLE PROMISSORY NOTES AND WARRANTS
During 1996, the Company issued $2,000,000 in convertible promissory notes. The
notes bore interest at a rate of 6% per annum, compounded annually, and all
principal and accrued interest were due and payable on September 30, 1996 unless
earlier converted. Upon closing of the Series D convertible preferred stock
offering in August 1996, $2,020,938 of principal and related accrued but unpaid
interest were converted into approximately 709,100 shares of Series D
convertible preferred stock. In connection with the issuance of these
convertible notes payable, the Company issued warrants to purchase 42,094 shares
of Series D convertible preferred stock at an exercise price of $2.85 per share.
The warrants are exercisable through April 30, 1999.
In connection with an equipment financing agreement, the Company issued a
warrant to a financing company which permits the purchase of up to 6,300 shares
of Series D preferred stock at a price per share of $2.85. The warrant was
issued in March 1997 and expires in March 2002.
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
CONVERTIBLE PREFERRED STOCK
Series A, B, C, and D preferred stock have a liquidation preference of $1.00,
$1.70, $0.50, and $2.85 per share, respectively, plus all declared but unpaid
dividends. Series A, B, C, and D preferred shareholders are entitled to
noncumulative dividends at the rate of $0.08, $0.14, $0.04, and $0.23 per share,
per annum, respectively, payable quarterly when and if declared by the board of
directors and in preference to common stock dividends. No dividends have been
declared or paid by the Company.
F-43
<PAGE> 115
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
CONVERTIBLE PREFERRED STOCK (CONTINUED)
The holders of each share of Series A, B, C, and D preferred stock are entitled
to one vote for each share of common stock into which such share may be
converted. The holders of Series A, B, C, and D preferred stock have the right,
at the option of the holder, at any time to convert their shares into common
stock at a price of approximately $0.793, $1.203, $0.50, and $2.85 per share,
subject to adjustments for future dilution. Series A, B, C, and D preferred
stock automatically convert into common stock, at the then applicable conversion
rate, upon a public offering of the Company's common stock at a per share price
of not less than $6.00, with aggregate proceeds in excess of $5,000,000 or upon
the consent of the holders of a majority of the then outstanding shares of
preferred stock. The conversion rate of the Series A, B, C, and D preferred
stock is subject to adjustment in the event of, among other things, certain
dilutive issuances of stock, business combinations, stock splits, and stock
dividends.
COMMON STOCK
In December 1992, 1,333,333 shares of common stock were issued to the Company's
founders at $0.0075 per share. Thereafter, 80,000 shares were returned to the
Company without consideration. The outstanding shares are subject to certain
transfer restrictions. Certain of these shares are subject to repurchase at the
issuance price upon the occurrence of certain events, including termination of
employment. The Company's right of repurchase expires ratably over five and
one-half years. At December 31, 1997, 94,949 shares remain subject to
repurchase.
SHARES RESERVED
Common stock reserved for future issuance is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Stock option plan:
Outstanding................................................. 1,087,764
Available for grant......................................... 154,118
----------
1,241,882
Common stock warrants....................................... 48,394
Conversion of preferred stock............................... 10,068,774
Authorized but unissued preferred stock..................... 5,866,985
----------
Total common stock reserved for future issuances............ 17,226,035
==========
</TABLE>
1993 STOCK OPTION/STOCK ISSUANCE PLAN
The Company has elected to follow APB Opinion No. 25 and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB Opinion No. 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
In July 1993, the board of directors adopted the 1993 Stock Option/Stock
Issuance Plan (the "Plan").
F-44
<PAGE> 116
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
1993 STOCK OPTION/STOCK ISSUANCE PLAN (CONTINUED)
The Plan provides for the direct issuance of common stock and grants of both
incentive and nonqualified stock options to eligible participants. The Plan
provides that direct issuances of stock and grants of incentive stock options
will be made at no less than the fair value of the Company's common stock (no
less than 85% of the fair value for nonqualified stock options), as determined
by the board of directors at the date of the issuance or grant. If, at the time
the Company issues stock or grants an option, the holder owns more than 10% of
the total combined voting power of all the classes of stock of the Company, the
stock or option price shall be at least 110% of the fair value. Options are
exercisable upon grant. No option shall have a term in excess of ten years from
the grant date (five years in the case of an option granted to a 10%
shareholder). Stock issued under the Plan may be, as determined by the board of
directors, subject to repurchase by the Company. This right to repurchase
generally lapses over four years from the original date of issuance or grant.
Activity under the stock option plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
SHARES WEIGHTED
AVAILABLE FOR NUMBER OF AVERAGE
GRANT SHARES EXERCISE PRICE
------------- ---------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995.................. 101,480 1,376,968 $0.08
Additional shares authorized................ 1,906,498 -- --
Options granted............................. (1,675,684) 1,675,684 0.20
Options exercised........................... -- (1,926,503) 0.11
Options canceled............................ 276,366 (276,366) 0.12
---------- ----------
Balance at December 31, 1996.................. 608,660 849,783 0.24
Options granted............................. (631,409) 631,409 0.30
Options exercised........................... -- (216,561) 0.29
Options canceled............................ 176,867 (176,867) 0.24
---------- ----------
Balance at December 31, 1997.................. 154,118 1,087,764 0.27
========== ==========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
------------------------------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
RANGE OF OF REMAINING AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE
--------------- --------- ---------------- ---------------
<S> <C> <C> <C>
$0.05 - $0.05.............................. 61,041 7.56 $0.05
$0.15 - $0.15.............................. 32,500 8.52 0.15
$0.17 - $0.17.............................. 114,375 6.58 0.19
$0.30 - $0.30.............................. 879,848 9.17 0.30
---------
Total................................. 1,087,764 8.79 0.27
=========
</TABLE>
F-45
<PAGE> 117
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
1993 STOCK OPTION/STOCK ISSUANCE PLAN (CONTINUED)
The weighted average fair value of options granted in 1996 and 1997 was $0.04
and $0.05, respectively.
During 1997, the Company repurchased 17,138 shares previously exercised under
the Plan. At December 31, 1997, 702,302 shares remain subject to repurchase.
Pro forma information regarding net loss is required by FAS 123 which also
requires that the information be determined as if the Company has accounted for
its employee stock options granted subsequent to December 31, 1994 under the
fair value method. For all grants subsequent to December 31, 1994, the fair
value of these options was determined using the minimum value method with the
following weighted-average assumptions for 1995, 1996 and 1997, respectively:
risk-free interest rates of 6.04%, 6.29% and 6.17%, no dividend yield, no
volatility factors of the expected market price of the Company's common stock,
and expected life of the options of 4, 3.5 and 3.4 years for 1995, 1996 and
1997, respectively.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. The effect of
determination of the compensation expense was immaterial to the Company's
statement of operations for the years ended December 31, 1997, 1996 and 1995.
Because FAS 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until 1999.
5. INCOME TAXES
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $13,100,000. The Company also had federal
research and development tax credit carryforwards of approximately $300,000. The
net operating loss and credit carryforwards will expire at various dates
beginning in 2008 through 2012, if not utilized.
Utilization of the net operating losses may be subject to a substantial
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986 and similar state provisions. The annual limitation may result in
the expiration of net operating losses and credits before utilization.
As of December 31, 1996 and 1997, the Company had deferred tax assets of
approximately $3,500,000 and $5,500,000, respectively. The net deferred tax
asset has been fully offset by a valuation allowance. The valuation allowance
increased by $1,449,000 during the year ended December 31, 1996. Deferred tax
assets relate primarily to net operating loss carryforwards, research credits,
and capitalized research and development costs.
6. YEAR 2000 ISSUE (UNAUDITED)
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. The "Year 2000 problem"
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two-digit year value to "00". The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. Management
does not
F-46
<PAGE> 118
FIRSTFLOOR SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. YEAR 2000 ISSUE (UNAUDITED) (CONTINUED)
anticipate that the Company will incur significant operating expenses or be
required to invest heavily in computer systems improvements to be Year 2000
compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any Year 2000 compliance. Any Year 2000
compliance problems of either the Company or its vendors could adversely affect
the Company's business, results of operations, financial condition and
prospects.
7. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
On August 21, 1998, the acquisition of the Company was completed pursuant to the
agreement and plan of reorganization with Calico Technology, Inc. ("Calico").
Under the terms of the agreement, shareholders of the Company exchanged all
outstanding common stock, preferred stock and common stock options for 1,248,423
shares of Calico Series D Mandatorily Redeemable Convertible Preferred Stock and
options to purchase 47,203 shares of Calico Series D Mandatorily Redeemable
Convertible Preferred Stock.
F-47
<PAGE> 119
UNDERWRITING
Calico and the underwriters for the offering named below have entered into
an underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Hambrecht & Quist LLC are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................................
Hambrecht & Quist LLC.......................................
---------
Total............................................. 3,930,851
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in
the table above, the underwriters have an option to purchase up to an additional
589,627 shares from Calico to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Calico. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Calico
---------------------------
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
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.
Calico has agreed with the underwriters not to dispose of or hedge any of
its 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 Eligible for Future Sale" for a
discussion of restrictions on transfer of Calico's shares.
Prior to this offering, there has been no public market for the shares.
The initial public offering price has been negotiated between Calico 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 Calico's historical performance, estimates of Calico's
business potential and earnings prospects, an assessment of Calico's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
The common stock is expected to be quoted on the Nasdaq National Market
under the symbol "CLIC".
U-1
<PAGE> 120
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 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 such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At our request, the underwriters have reserved up to 350,000 shares of
common stock for sale, at the initial public offering price, to directors,
officers, employees and friends 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.
Calico estimates that its share of the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately $1.75
million.
Calico has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act.
In September 1998, an entity affiliated with Merrill Lynch, Pierce, Fenner
& Smith Incorporated purchased 219,394 shares of Calico's preferred stock at a
purchase price of $4.558 per share, for an aggregate amount of approximately
$1,000,000. These shares will convert into 219,394 shares of common stock upon
the completion of this offering.
In September 1998, entities and persons affiliated with Hambrecht & Quist
LLC purchased an aggregate of 219,394 shares of Calico's preferred stock at a
purchase price of $4.558 per share, for an aggregate amount of approximately
$1,000,000. These shares will convert into 219,394 shares of common stock upon
the completion of this offering.
At our request, the underwriters will have reserved as part of this
underwritten public offering up to $4.0 million of common stock for sale at the
initial public offering price less the per share estimated underwriting discount
to Andersen Consulting LLP, who has expressed a non-binding interest in
acquiring these shares. This would represent an aggregate of 330,851 shares of
common stock at an assumed price of $12.09, based upon the midpoint of the
estimated range and an estimated underwriting discount equal to $0.91 per share.
This price is less than the price paid by other investors in this offering.
Andersen Consulting has agreed that if it purchases these shares it will enter
into a lock-up agreement restricting the sale of the shares for one year after
the date of this offering. If Andersen Consulting purchases these shares, we
have agreed to appoint a representative of Andersen Consulting to our board of
directors. We have also recently entered into a joint marketing agreement with
Andersen Consulting. Under this alliance Andersen Consulting acquires rights to
market integration services related to our software, and we have agreed to
promote Andersen Consulting as the preferred integrator of our software. We have
also agreed to engage Andersen Consulting to provide a minimum of $1 million of
consulting services over the next 18 months.
U-2
<PAGE> 121
The number of shares of common stock available for sale to the general
public in the public offering will be reduced to the extent Andersen Consulting
purchases these reserved shares. Any reserved shares not purchased by Andersen
Consulting will be offered by the underwriters to the general public on the same
terms as the other shares offered by the prospectus.
In addition, concurrent with the sale of shares in this offering, Calico
will sell directly to Dell U.S.A., L.P., a Texas limited partnership, $20.0
million of common stock in a private placement. The sale price will be the
public offering price less the per share estimated underwriting discount. This
would represent an aggregate of 1,654,200 shares of common stock at an assumed
price of $12.09, based upon the midpoint of the estimated range and an estimated
underwriting discount equal to $0.91 per share. This price is less than the
price paid by other investors in this offering. The shares to be sold to Dell
are not part of this underwritten public offering.
U-3
<PAGE> 122
[Art Work Page 1]
Calico enables companies to sell complex products and services over the
Web. Calico's customers include companies that have adopted aggressive
electronic business strategies in a wide range of industries and
markets--telecommunications, financial services, retail, computer hardware, and
manufacturing.
[schematic depicting modes of communication, screen shot of
Calicocommerce.com]
[Calico logo]
[Art Work Page 2]
Calico provides electronic commerce software applications that enable
companies to interactively engage their customers to achieve competitive
advantage.
[Calico logo]
[schematic depicting Customer-focused solutions for Electronic Business]
- Calico eSales InfoGuide delivers targeted marketing information directly
to customers to ADVISE them during the online buying process
- Calico eSales Configurator matches customer requirements with product
attributes to CUSTOMIZE their product selection to meet their needs
[Art Work Page 3]
[continued schematic depicting Customer-focused Solutions for Electronic
Business]
- Calico eSales Quote provides customized sales quotations to customers to
evaluate PRICE and assist in the PURCHASE process
- Calico eSales Loyalty Builder is designed to PERSONALIZE the guided
selling experience and enable companies to build and RETAIN customer
relationships
[Inside Back Cover Art Work]
Calico--Customer-Focused Solutions for Electronic Business
Enables Electronic Business Strategies--
Calico provides large enterprises with electronic commerce software
applications that enable reduced time-to-market for new products and improved
sales effectiveness and order accuracy, in order to achieve strategic and
competitive advantage and enhance return on investment.
Calico eSales Suite: An Internet-Based Guided Selling Solution
Customer Driven--
Companies can create Web sites that guide customers through the entire
buying process, delivering content that is personalized and customized to
generate repeat business.
Integrated
Calico combines advanced configuration, information delivery, content
management, and personalization functionality in an integrated suite of
electronic commerce software.
Deployable Across Multiple Modes of Distribution
Calico eSales Suite connects distributors, resellers, telemarketers, and
direct sales forces to end users, and facilitates connections with existing
computer applications.
[schematic depicting different modes of computer connection, with Calico
logo and address]
For the diagram on page 42:
[Diagram of Calico eSales Interaction with a graphical depiction of the
connection and integration between users, customer web sites and web servers,
the Calico eSales Suite, Calico Enterprise Connectors and other Java application
programming interfaces and the existing order entry and other computer systems]
<PAGE> 123
- ----------------------------------------------------------
- ----------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
Special Note Regarding Forward-Looking
Statements............................. 17
Use of Proceeds.......................... 19
Dividend Policy.......................... 19
Capitalization........................... 20
Dilution................................. 21
Selected Consolidated Financial Data..... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 23
Business................................. 38
Management............................... 52
Transactions with Related Parties and
Insiders............................... 62
Principal Stockholders................... 64
Description of Capital Stock............. 66
Shares Eligible for Future Sale.......... 69
Legal Matters............................ 70
Experts.................................. 70
Where You Can Find More Information...... 71
Index to 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 a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
3,930,851 Shares
CALICO COMMERCE, INC.
Common Stock
-------------------------
[CALICO LOGO]
-------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
HAMBRECHT & QUIST
Representatives of the Underwriters
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses to be paid by Calico, other than the
underwriting discounts and commissions payable by Calico in connection with the
sale of the common stock being registered. All amounts shown are estimates
except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 19,694
NASD filing fee............................................. 6,250
Nasdaq National Market listing fee.......................... 90,000
Blue sky qualification fees and expenses.................... 10,000
Printing and engraving expenses............................. 375,000
Legal fees and expenses..................................... 625,000
Accounting fees and expenses................................ 475,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous expenses...................................... 139,056
----------
Total.................................................. $1,750,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification of
officers, directors and other corporate agents under certain circumstances and
subject to certain limitations. Our certificate of incorporation and bylaws
provide that we shall indemnify our officers, directors, employees and agents to
the full extent permitted by the Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. In addition, we intend to enter into separate indemnification agreements
with our officers, directors and certain employees which would require us, among
other things, to indemnify them against liabilities which may arise by reason of
their status or service as directors, officers or employees. We also intend to
maintain director and officer liability insurance, if available on reasonable
terms.
These indemnification provisions and the indemnification agreements that we
intend to enter into with our officers and directors may be sufficiently broad
to permit indemnification of our officers and directors for liabilities,
including reimbursement of expenses incurred, arising under the Securities Act.
We intend to obtain in conjunction with the effectiveness of the registration
statement a policy of directors' and officers' liability insurance that insures
our directors and officers against the cost of defense, settlement or payment of
a judgment under certain circumstances.
The form of underwriting agreement filed as Exhibit 1.1 to this registration
statement provides for indemnification by the underwriters of Calico and our
officers and directors for certain liabilities arising under the Securities Act,
or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1996, we have sold and issued the following unregistered
securities:
(a) On July 1, 1996, we issued and sold an aggregate of 180,000 shares of common
stock to 10 individuals at a price of $0.16 per share for an total offering
price of $28,800.
II-1
<PAGE> 125
(b) On July 3, 1997, we issued to one of the founders, 37,500 shares of common
stock, valued at $0.16 per share, in exchange for services rendered to us.
(c) From July 21, 1995 to June 30, 1999, we granted options to purchase
14,323,479 shares of common stock pursuant to our 1997 Stock Option Plan and our
1995 Stock Option Plan at exercise prices ranging from $0.07 per share to $9.50
per share.
(d) On January 29, 1997, in connection with a loan agreement, we issued a
warrant to an equipment lender to purchase 34,999 shares of Series B preferred
stock at an exercise price of $1.60 per share and on June 2, 1997, in connection
with a revolving credit agreement, we issued a warrant to a bank to purchase
56,250 shares of Series B preferred stock at an exercise price of $1.60 per
share.
(e) On June 7, 1996, William Paseman, one of our founders, exchanged 4,350,000
shares of common stock, par value $0.001 for 600,000 shares of Series B
preferred stock, and 3,750,000 shares of common stock, par value $0.001 per
share, and sold the 600,000 shares of Series B preferred stock to 2 private
investors.
(f) On June 7, 1996, we sold an aggregate of 3,600,000 shares of Series B
preferred stock to 8 private investors at a price of $1.60 per share for a total
offering price of $5,760,000.
(g) On July 23, 1997, we sold an aggregate of 2,083,331 shares of Series C
preferred stock to 8 private investors at a price of $2.40 per share for a total
offering price of $5,000,000.
(h) On August 21, 1998, in connection with an Agreement and Plan of
Reorganization dated as of June 23, 1998 between Calico and FirstFloor, certain
shareholders of Calico and certain shareholders of FirstFloor, we issued
1,248,423 shares of Series D preferred stock and options to acquire 47,203
shares of Series D preferred stock, in exchange for all of the issued and
outstanding capital stock and options to purchase common stock of FirstFloor.
(i) From September 4, 1998 through September 23, 1998, we sold an aggregate of
2,687,580 shares of Series E preferred stock to 25 private investors at a price
of $4.558 per share for a total offering price of $12,250,023.
(j) On March 5, 1999, we sold an aggregate of 1,052,632 shares of common stock
to one investor at a price of $9.50 per share for a total purchase price of
$10,000,008.75.
(k) On September 3, 1999, we entered into an agreement with one corporate
investor to sell $20.0 million in shares of common stock at the initial public
offering price less the per share estimated underwriting discount, in a private
placement to close concurrently with this initial public offering.
There were no underwriters employed in connection with any of the transactions
set forth in Item 15.
The issuances of securities described in Items 15(a) and 15(d) through 15(g) and
15(i) through 15(k) were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as transactions
by an issuer not involving a public offering. The issuance of securities
described in Item 15(h) was deemed to be exempt from registration under the
Securities Act in reliance on Section 3(a)(10) as a transaction involving a
security which is issued in exchange for a security where the terms and
conditions of such securities are approved after a hearing on the fairness of
such terms and conditions. The issuances of securities described in Items 15(b)
and 15(c) were deemed to be exempt from registration under the Securities Act in
reliance on Section 4(2) or Rule 701 promulgated thereunder as transactions
pursuant to compensatory benefit plans and contracts relating to compensation.
The recipients of securities in each such transaction 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 other
II-2
<PAGE> 126
instruments issued in such transactions. All recipients either received adequate
information about us or had access, through employment or other relationships,
to this information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement
2.1** Agreement and Plan of Reorganization dated as of June 23,
1998 by and among Calico Technology, Inc., Calico
Acquisition Corporation, FirstFloor Software, Inc.,
Certain Shareholders of FirstFloor Software, Inc., and
Certain Shareholders of Calico Technology, Inc.
2.2** Form of Agreement and Plan of Merger between Calico
Technology, Inc., a California corporation, and Calico
Commerce, Inc., a Delaware corporation
3.1** Certificate of Incorporation
3.2** Bylaws
3.3 Form of Certificate of Elimination and Certificate of
Amendment
4.1** Form of Registrant's Specimen Common Stock Certificate
5.1 Opinion of Gray Cary Ware & Freidenrich
10.1 Office Lease between Metropolitan Life Insurance Company and
Calico Commerce, Inc. dated as of August 18, 1999
10.2 1997 Stock Option Plan and forms of agreements thereunder
10.3** 1995 Stock Option Plan and forms of agreements thereunder
10.4** 1999 Employee Stock Purchase Plan
10.5** Form of Indemnity Agreement for directors and officers
10.6** Investors' Rights Agreement, dated as of May 26, 1995, as
amended, among Calico Technology, Inc. William G. Paseman,
and the persons identified on the schedules attached
thereto
10.7** Loan Agreement dated as of January 21, 1997, between Calico
Technology, Inc. and Venture Lending and Leasing, Inc.
10.8** Four Variable Rate Installment Notes between Calico
Technology, Inc. and Comerica Bank -- California
10.9** Common Stock Purchase Agreement dated September 3, 1999
between Calico Commerce, Inc. and Dell U.S.A., L.P.
10.10 Letter Agreement between Andersen Consulting LLP and Calico
Commerce, Inc. dated September 17, 1999
21.1** List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1** Power of Attorney (see page II-5 of the Registration
Statement)
27.1** Financial Data Schedule (in EDGAR format only)
</TABLE>
- ---------------
** Previously filed.
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or notes thereto.
ITEM 17. UNDERTAKINGS
We hereby undertake to provide to the underwriters at the closing specified
in the Underwriting Agreement certificates in the denominations and registered
in the names as required by the underwriters to permit prompt delivery to each
purchaser.
II-3
<PAGE> 127
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the provisions referenced in Item 14 of this registration statement or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities, other than the payment by us
of expenses incurred or paid by our directors, officers or controlling persons
in the successful defense of any action, suit or proceeding, is asserted by the
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us 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,
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 the time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, County of Santa
Clara, State of California, on the 22nd day of September 1999.
CALICO COMMERCE, INC.
By: /s/ ALAN P. NAUMANN
------------------------------
Alan P. Naumann
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ALAN P. NAUMANN President, Chief September 22, 1999
- ----------------------------------------------------- Executive Officer and
Alan P. Naumann Director (Principal
Executive Officer)
/s/ ARTHUR F. KNAPP, JR. Vice President and September 22, 1999
- ----------------------------------------------------- Chief Financial
Arthur F. Knapp, Jr. Officer (Principal
Financial and
Accounting Officer)
/s/ WILLIAM G. PASEMAN* Chairman of the Board September 22, 1999
- -----------------------------------------------------
William Paseman
/s/ BERNARD J. LACROUTE* Director September 22, 1999
- -----------------------------------------------------
Bernard J. Lacroute
/s/ WILLIAM D. UNGER* Director September 22, 1999
- -----------------------------------------------------
William D. Unger
Director
- -----------------------------------------------------
Joseph B. Costello
*By: /s/ ARTHUR F. KNAPP, JR.
------------------------------------------------
Arthur F. Knapp, Jr.
Attorney-in-fact
</TABLE>
II-5
<PAGE> 129
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement
2.1** Agreement and Plan of Reorganization dated as of June 23,
1998 by and among Calico Technology, Inc., Calico
Acquisition Corporation, FirstFloor Software, Inc.,
Certain Shareholders of FirstFloor Software, Inc., and
Certain Shareholders of Calico Technology, Inc.
2.2** Form of Agreement and Plan of Merger between Calico
Technology, Inc., a California corporation, and Calico
Commerce, Inc., a Delaware corporation
3.1** Certificate of Incorporation
3.2** Bylaws
3.3 Forms of Certificate of Elimination and Certificate of
Amendment
4.1** Form of Registrant's Specimen Common Stock Certificate
5.1 Opinion of Gray Cary Ware & Freidenrich
10.1 Office Lease between Metropolitan Life Insurance Company and
Calico Commerce, Inc. dated as of August 18, 1999
10.2 1997 Stock Option Plan and forms of agreements thereunder
10.3** 1995 Stock Option Plan and forms of agreements thereunder
10.4** 1999 Employee Stock Purchase Plan
10.5** Form of Indemnity Agreement for directors and officers
10.6** Investors' Rights Agreement, dated as of May 26, 1995, as
amended, among Calico Technology, Inc. William G. Paseman,
and the persons identified on the schedules attached
thereto
10.7** Loan Agreement dated as of January 21, 1997, between Calico
Technology, Inc. and Venture Lending and Leasing, Inc.
10.8** Four Variable Rate Installment Notes between Calico
Technology, Inc. and Comerica Bank -- California
10.9** Common Stock Purchase Agreement dated September 3, 1999
between Calico Commerce, Inc. and Dell U.S.A., L.P.
10.10 Letter Agreement between Andersen Consulting LLP and Calico
Commerce, Inc. dated September 17, 1999
21.1** List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of Ernst & Young LLP, Independent Auditors
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1** Power of Attorney (see page II-5 of the Registration
Statement)
27.1** Financial Data Schedule (in EDGAR format only)
</TABLE>
- ---------------
** Previously filed.
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF ELIMINATION
OF
SERIES A, SERIES B, SERIES C, SERIES D AND SERIES E PREFERRED STOCK
OF
CALICO COMMERCE, INC.
(Pursuant to Section 151 of the General Corporation Law of the State of
Delaware)
Calico Commerce, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), certifies
as follows:
FIRST: Article FOURTH of the Certificate of Incorporation of the
Corporation authorizes the issuance of 30,811,249 shares of Preferred Stock, par
value $0.001 per share (the "Preferred Stock"), of which Preferred Stock,
6,045,000 shares have been designated Series A Preferred Stock, 3,691,249 shares
have been designated Series B Preferred Stock, 2,083,335 shares have been
designated Series C Preferred Stock, 1,297,500 shares have been designated
Series D Preferred Stock and 2,694,165 shares have been designated Series E
Preferred Stock pursuant to a Certificate of Designations filed pursuant to
Section 151 of the General Corporation Law of the State of Delaware.
SECOND: The following resolution was adopted on August 24, 1999 by the
Board of Directors of the Corporation as required by Section 151(g) of the
General Corporation Law of the State of Delaware:
RESOLVED, that none of the authorized shares of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock are outstanding and no
shares of the Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
will be issued subject to the Certificate of Designations previously
filed with respect to such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock.
THIRD: Pursuant to the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware, all matters set forth in the
Certificate of Designations with respect to such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock are hereby eliminated from the Certificate of
Incorporation.
1
<PAGE> 2
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officer this ____ day of ____________________,
1999.
CALICO COMMERCE, INC.
By:______________________________________
William G. Paseman, Vice President,
Research and Development and Chairman
of the Board
2
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CALICO COMMERCE, INC.
Calico Commerce, Inc., a Delaware corporation (the "Corporation"),
hereby certifies:
1. That the Corporation's Board of Directors has duly adopted the
following resolution:
RESOLVED, that the first paragraph of Article FOURTH of the Restated
Certificate of Incorporation is hereby amended to read in full as
follows:
FOURTH:The Corporation is authorized to issue a total of
165,000,000 shares of stock in two classes designated
respectively "Preferred Stock" and "Common Stock." The total
number of shares of all series of Preferred Stock that the
Corporation shall have the authority to issue is 15,000,000 and
the total number of shares of Common Stock that the Corporation
shall have the authority to issue is 150,000,000. All of the
authorized shares shall have a par value of $0.001.
2. That the proposed amendment has been duly adopted by the
Corporation's Board of Directors and sole stockholder in accordance with the
provisions of Sections 242 and 228 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Restated Certificate of Incorporation to be signed by a duly
authorized officer on this _____ day of _________________, 1999.
CALICO COMMERCE, INC.
By:______________________________________
William G. Paseman,
Vice President, Research and
Development and Chairman of the Board
<PAGE> 1
EXHIBIT 5.1
[GRAY CARY WARE & FREIDENRICH LLP LETTERHEAD]
September 22, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, NW
Washington, DC 20549
RE: CALICO COMMERCE, INC. REGISTRATION STATEMENT ON FORM S-1
Dear Ladies and Gentlemen:
As counsel to Calico Commerce, Inc. (the "Company"), we are rendering this
opinion in connection with a proposed sale of those certain shares of the
Company's newly-issued Common Stock as set forth in the Registration Statement
on Form S-1 to which this opinion is being filed as Exhibit 5.1 (the "Shares").
We have examined all instruments, documents and records which we deemed relevant
and necessary for the basis of our opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the Shares identified in
the above-referenced Registration Statement will be, upon effectiveness of the
Registration Statement and receipt by the Company of payment therefor, validly
authorized, legally issued, fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich LLP
GRAY CARY WARE & FREIDENRICH LLP
<PAGE> 1
EXHIBIT 10.1
OFFICE LEASE
BETWEEN
METROPOLITAN LIFE INSURANCE COMPANY (LANDLORD)
AND
CALICO COMMERCE, INC. (TENANT)
RiverPark
San Jose, California
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE ONE - BASIC LEASE PROVISIONS ..................................... 1
1.01 BASIC LEASE PROVISIONS ....................................... 1
1.02 ENUMERATION OF EXHIBITS & RIDER(S) ........................... 2
1.03 DEFINITIONS .................................................. 2
ARTICLE TWO - PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING .... 6
2.01 LEASE OF PREMISES ............................................ 6
2.02 TERM ......................................................... 6
2.03 FAILURE TO GIVE POSSESSION ................................... 6
2.04 AREA OF PREMISES ............................................. 6
2.05 CONDITION OF PREMISES ........................................ 6
2.06 PARKING ...................................................... 7
ARTICLE THREE - RENT ..................................................... 7
ARTICLE FOUR - RENT ADJUSTMENTS AND PAYMENTS ............................. 7
4.01 RENT ADJUSTMENTS ............................................. 7
4.02 STATEMENT OF LANDLORD ........................................ 8
4.03 BOOKS AND RECORDS ............................................ 8
4.04 PARTIAL OCCUPANCY ............................................ 9
4.05 TENANT OR LEASE SPECIFIC TAXES ............................... 9
ARTICLE FIVE - SECURITY DEPOSIT .......................................... 9
5.01 INITIAL ADJUSTMENTS .......................................... 9
5.02 LETTER OF CREDIT ............................................. 9
5.03 GENERAL PROVISIONS ........................................... 10
ARTICLE SIX - SERVICES ................................................... 10
6.01 LANDLORD'S GENERAL SERVICES .................................. 10
6.02 ELECTRICAL SERVICES .......................................... 11
6.03 ADDITIONAL AND AFTER-HOUR SERVICES ........................... 11
6.04 TELEPHONE SERVICES ........................................... 12
6.05 DELAYS IN FURNISHING SERVICES ................................ 12
6.06 CHOICE OF SERVICE PROVIDER ................................... 13
6.07 SIGNAGE ...................................................... 13
ARTICLE SEVEN - POSSESSION, USE AND CONDITION OF PREMISES ................ 13
7.01 POSSESSION AND USE OF PREMISES ............................... 13
7.02 LANDLORD ACCESS TO PREMISES; APPROVALS ....................... 14
7.03 QUIET ENJOYMENT .............................................. 15
ARTICLE EIGHT - MAINTENANCE .............................................. 15
8.01 LANDLORD'S MAINTENANCE ....................................... 15
8.02 TENANT'S MAINTENANCE ......................................... 15
ARTICLE NINE - ALTERATIONS AND IMPROVEMENTS .............................. 15
9.01 TENANT ALTERATIONS............................................ 15
9.02 LIENS......................................................... 16
ARTICLE TEN - ASSIGNMENT AND SUBLETTING................................... 16
10.01 ASSIGNMENT AND SUBLETTING..................................... 16
10.02 RECAPTURE..................................................... 18
10.03 EXCESS RENT................................................... 18
10.04 TENANT LIABILITY.............................................. 18
10.05 ASSUMPTION AND ATTORNMENT..................................... 18
ARTICLE ELEVEN - DEFAULT AND REMEDIES..................................... 19
11.01 EVENTS OF DEFAULT............................................. 19
11.02 LANDLORD'S REMEDIES........................................... 19
11.03 ATTORNEY'S FEES............................................... 21
11.04 BANKRUPTCY.................................................... 21
11.05 LANDLORD'S DEFAULT............................................ 21
ARTICLE TWELVE - SURRENDER OF PREMISES.................................... 22
12.01 IN GENERAL.................................................... 22
12.02 LANDLORD'S RIGHTS............................................. 22
</TABLE>
i
<PAGE> 3
ARTICLE THIRTEEN - HOLDING OVER........................................ 22
ARTICLE FOURTEEN - DAMAGE BY FIRE OR OTHER CASUALTY.................... 22
14.01 SUBSTANTIAL UNTENANTABILITY................................ 22
14.02 INSUBSTANTIAL UNTENANTABILITY.............................. 23
14.03 RENT ABATEMENT............................................. 23
14.04 WAIVER OF STATUTORY REMEDIES............................... 23
ARTICLE FIFTEEN - EMINENT DOMAIN....................................... 24
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART........................ 24
15.02 TAKING OF PART............................................. 24
15.03 COMPENSATION............................................... 24
ARTICLE SIXTEEN - INSURANCE............................................ 24
16.01 TENANT'S INSURANCE......................................... 24
16.02 FORM OF POLICIES........................................... 24
16.03 LANDLORD'S INSURANCE....................................... 25
16.04 WAIVER OF SUBROGATION...................................... 25
16.05 NOTICE OF CASUALTY......................................... 25
ARTICLE SEVENTEEN - WAIVER OF CLAIMS AND INDEMNITY..................... 26
17.01 WAIVER OF CLAIMS........................................... 26
17.02 INDEMNITY BY TENANT........................................ 26
ARTICLE EIGHTEEN - RULES AND REGULATIONS............................... 26
18.01 RULES...................................................... 26
18.02 ENFORCEMENT................................................ 26
ARTICLE NINETEEN - LANDLORD'S RESERVED RIGHTS.......................... 26
ARTICLE TWENTY - ESTOPPEL CERTIFICATE.................................. 27
20.01 IN GENERAL................................................. 27
20.02 ENFORCEMENT................................................ 27
ARTICLE TWENTY-ONE - RELOCATION OF TENANT.............................. 27
ARTICLE TWENTY-TWO - REAL ESTATE BROKERS............................... 27
ARTICLE TWENTY-THREE - MORTGAGEE PROTECTION............................ 28
23.01 SUBORDINATION AND ATTORNMENT............................... 28
23.02 MORTGAGEE PROTECTION....................................... 28
ARTICLE TWENTY-FOUR - NOTICES.......................................... 29
ARTICLE TWENTY-FIVE - MISCELLANEOUS.................................... 29
25.01 LATE CHARGES............................................... 29
25.02 NO JURY TRIAL; VENUE; JURISDICTION......................... 29
25.03 DEFAULT UNDER OTHER LEASE.................................. 30
25.04 OPTION..................................................... 30
25.05 TENANT AUTHORITY........................................... 30
25.06 ENTIRE AGREEMENT........................................... 30
25.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE............. 30
25.08 EXCULPATION................................................ 30
25.09 ACCORD AND SATISFACTION.................................... 30
25.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING................. 30
25.11 BINDING EFFECT............................................. 31
25.12 CAPTIONS................................................... 31
25.13 TIME; APPLICABLE LAW; CONSTRUCTION......................... 31
25.14 ABANDONMENT................................................ 31
25.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES................ 31
25.16 SECURITY SYSTEM............................................ 31
25.17 NO LIGHT, AIR OR VIEW EASEMENTS............................ 31
25.18 RECORDATION................................................ 31
25.19 SURVIVAL................................................... 31
25.20 RIDERS..................................................... 32
<PAGE> 4
OFFICE LEASE
ARTICLE ONE
BASIC LEASE PROVISIONS
1.01 BASIC LEASE PROVISIONS - In the event of any conflict between these
Basic Lease Provisions and any other Lease provision, such other Lease
provision shall control.
(1) BUILDING AND ADDRESS:
333 West San Carlos Street
San Jose, California 95110
(2) LANDLORD AND ADDRESS:
Life Insurance Company,
a New York corporation
Notices to Landlord shall be addressed:
Metropolitan Life Insurance Company
c/o Office of Building Manager
333 West San Carlos Street
San Jose, CA 95110
with copies to the following:
Metropolitan Life Insurance Company
101 Lincoln Centre Drive, Suite 600
Foster City, CA 94404
Attention: Assistant Vice President
and
Metropolitan Life Insurance Company
101 Lincoln Centre Drive, Suite 600
Foster City, CA 94404
Attention: Associate General Counsel
(3) TENANT AND CURRENT ADDRESS:
Name: Calico Commerce, Inc.
State of incorporation: a Delaware corporation
Notices to Tenant shall be addressed:
Calico Commerce, Inc.
333 West San Carlos Street
San Jose, CA 95110
(4) DATE OF LEASE: as of August 18, 1999
(5) LEASE TERM: The period commencing on the Commencement Date of September
1, 1999 and continuing until the expiration of 5 years after the
Expansion Space A Commencement Date ("ESACD")
(6) COMMENCEMENT DATE: September 1, 1999
(7) EXPIRATION DATE: sixty (60) months after the Expansion Space A
Commencement Date ("ESACD")
(8) MONTHLY BASE RENT:
<TABLE>
<CAPTION>
Period from/to Monthly Monthly Rate/SF of Rentable Area
-------------- -------------- --------------------------------
<S> <C> <C>
09/01/99 - day before ESACD $ 122,761.44 $ 3.14
ESACD - end of 60th month thereafter $ 184,142.16 $ 3.14
</TABLE>
(which amount from and after the ESACD is the combined total for the Premises
initially delivered September 1, 1999 and Expansion Space A)
(9) RENTABLE AREA OF THE BUILDING: 294,532 square feet
<PAGE> 5
(10) RENTABLE AREA OF THE PREMISES: 39,096 square feet (35,213 usable square
feet)
(11) SECURITY DEPOSIT: immediately available funds of One Hundred
Eighty-four Thousand One Hundred and Forty-two Dollars ($184,142.00)
plus the Letter of Credit, all as provided in Article Five
(12) SUITE NUMBERS OF PREMISES: 300 & 400
(13) TENANT'S SHARE: 19.9109% (after the ESACD)
(14) OPERATING EXPENSES BASE YEAR: The calendar year 1999
(15) TAXES BASE YEAR: The calendar year 1999
(16) TENANT'S USE OF PREMISES: General office use, including
training and R&D labs for a computer software company, subject to all
other provisions of the Lease.
(17) PARKING SPACES: 235 initially, subject to the
provisions of Section 2.06
(18) BROKERS:
Landlord's Broker: CB Richard Ellis
Tenant's Broker: Tory Corporate Real Estate Advisors, d/b/a The
Staubach Company
1.02 ENUMERATION OF EXHIBITS & RIDER(S)
The Exhibits and Rider(s) set forth below and attached to this Lease are
incorporated in this Lease by this reference:
EXHIBIT A Plan of Premises
EXHIBIT B Workletter Agreement
EXHIBIT C Rules and Regulations
EXHIBIT D Form of Letter of Credit
EXHIBIT E Form of Subordination, Nondisturbance and Attornment
EXHIBIT F Expansion Space A
EXHIBIT G Roof Antenna
RIDER 1 Commencement Date Agreement
RIDER 2 Additional Provisions
1.03 DEFINITIONS
For purposes hereof, the following terms shall have the following meanings:
ADJUSTMENT YEAR: The applicable calendar year or any portion thereof after the
Operating Expenses Base Year and Taxes Base Year for which a Rent Adjustment
computation is being made.
AFFILIATE: Any corporation or other business entity which, as of the date
hereof, is owned or controlled by, owns or controls, or is under common
ownership or control with Tenant.
BUILDING: The office building located at the address specified in Section
1.01(1).
COMMENCEMENT DATE: The date specified in Section 1.01(6) as the Projected
Commencement Date, unless changed by operation of Article Two.
COMMON AREAS: All areas of the Project made available by Landlord from time to
time for the general common use or benefit of the tenants of the Building, and
their employees and invitees, or the public, as such areas currently exist and
as they may be changed from time to time.
COMPARABLE BUILDINGS: Other first class office buildings located in the City of
San Jose, California, or if the Building is now or subsequently located in a
recognized office sub-market within such City, first class office buildings
located within such sub-market.
DECORATION: Tenant Alterations which do not require a building permit and which
do not involve any of the structural elements of the Building, or any of the
Building's systems, including its electrical, mechanical, plumbing, security,
heating, ventilating, air-conditioning, communication, and fire and life safety
systems.
2
<PAGE> 6
DEFAULT RATE: Two (2) percentage points above the rate then most recently
announced by Bank of America N.T.& S.A. at its San Francisco headquarters as its
corporate base lending rate, from time to time announced, but in no event higher
than the maximum rate permitted by Law.
ENVIRONMENTAL LAWS: All Laws governing the use, storage, disposal or generation
of any Hazardous Material, including the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, and the Resource
Conservation and Recovery Act of 1976, as amended.
EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by
operation of Article Two.
EXPANSION SPACE A: The entire fifth floor of the Building, designated as Suite
500, as depicted on Exhibit F.
FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion,
strike or labor troubles, or any cause whatsoever beyond the reasonable control
of Landlord, including water shortages, energy shortages or governmental
preemption in connection with an act of God, a national emergency, or by reason
of Law, or by reason of the conditions of supply and demand which have been or
are affected by act of God, war or other emergency.
HAZARDOUS MATERIAL: Such substances, material and wastes which are or become
regulated under any Environmental Law; or which are classified as hazardous or
toxic under any Environmental Law; and explosives and firearms, radioactive
material, asbestos, and polychlorinated biphenyls.
INDEMNITEES: Collectively, Landlord, any Mortgagee or ground lessor of the
Property, the property manager and the leasing manager for the Property and
their respective directors, officers, agents and employees.
INTEREST RATE: The rate then most recently announced by Bank of America N.T.&
S.A. at its San Francisco headquarters as its corporate base lending rate, from
time to time announced, but in no event higher than the maximum rate permitted
by Law.
LAND: The parcel of real estate on which the Building is located.
LANDLORD WORK: The construction or installation of improvements to the Premises,
to be furnished by Landlord, specifically described in the Workletter or
exhibits attached hereto.
LAWS OR LAW: All laws, ordinances, rules, regulations, other requirements,
orders, rulings or decisions adopted or made by any governmental body, agency,
department or judicial authority having jurisdiction over the Property, the
Premises or Tenant's activities at the Premises and any covenants, conditions or
restrictions of record which affect the Property.
LEASE: This instrument and all exhibits and riders attached hereto, as may be
amended from time to time.
LEASE YEAR: The twelve month period beginning on the first day of the first
month following the Commencement Date (unless the Commencement Date is the first
day of a calendar month in which case beginning on the Commencement Date), and
each subsequent twelve month, or shorter, period until the Expiration Date.
MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8).
MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument
encumbering the Property.
NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and other holidays recognized by the Landlord
and the janitorial and other unions servicing the Building in accordance with
their contracts.
OPERATING EXPENSES: All costs, expenses and disbursements of every kind and
nature which Landlord shall pay or become obligated to pay in connection with
the ownership, management, operation, maintenance, replacement and repair of the
Building and Land, including the following:
(i) capital replacements amortized over their useful life with interest
on the unamortized cost at a per annum rate equal to the Interest Rate;
(ii) any capital alterations, capital additions and capital
improvements which (a) are intended as a labor-saving device or to
effect other economies in the operation or maintenance of the Real
Property, (b) are made to the Real Property after the Commencement Date
to comply with Laws except those with which the Real Property was
required to comply with prior to the Commencement Date, or (c) are
reasonably determined by Landlord to be in the best interests of the
Real Property and are of a type generally found in the Comparable
Buildings; provided that in each case such cost shall be amortized over
its useful life with interest on the unamortized cost at
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a per annum rate equal to the Interest Rate. Provided further, only if
and to the extent that any amortized capital alterations, capital
additions and capital improvements included in item (a) would exceed
the cost of an otherwise permitted cost item or capital item (such as,
without limitation, a like kind replacement light bulb or fixture, or a
capital item under items (b) or (c)), then such excess shall be subject
to the further limitation that such amortized amount annually not
exceed the anticipated savings annually; and
(iii) Project Operating Expenses, provided however, if and when a
second office building is built and ready for occupancy, the Building
shall share the Project Operating Expenses on an equitable basis with
the second building.
Operating Expenses shall not include, (i) costs of alterations of the premises
of tenants of the Building, (ii) depreciation charges, (iii) interest and
principal payments on loans (except for loans for capital expenditures or
improvements which Landlord is allowed to include in Operating Expenses as
provided above), (iv) ground rental payments, (v) real estate brokerage and
leasing commissions, (vi) advertising and marketing expenses, (vii) costs of
Landlord reimbursed by insurance or condemnation proceeds or under any
contractor, manufacturer or supplier warranty to the extent reimbursed, (viii)
expenses incurred in negotiating leases of other tenants in the Building or
enforcing lease obligations of other tenants in the Building, (ix) Landlord's or
Landlord's property manager's corporate general overhead or corporate general
administrative expenses, (x) the wages and benefits of any employee who does not
devote substantially all of his or her employed time to the operation and
management of the Buildings or Real Property unless such wages and benefits are
prorated to reflect time spent on operating and managing the Real Property
vis-a-vis time spent on matters unrelated to operating and managing the Real
Property, (xi) the expense of service provided to other tenants in the Buildings
which are made available to Tenant at cost or for which Tenant is separately
charged, (xii) compensation (including benefits) of any employee of Landlord
above the grade of Building Manager or Building engineer, (xiii) costs of
capital additions, capital alterations or capital improvements, except those
specifically authorized above, (ivx) rentals and other related expenses for
leasing heating, ventilation and air conditioning systems, elevators, or other
items (except when needed in connection with normal repairs and maintenance of
the Building and/or to an ameliorate an emergency condition in the Building)
which if purchased, rather than rented, would constitute a capital improvement
not specifically authorized to be included in Operating Expenses, (xv) costs and
overhead and profit increment paid to Landlord or to subsidiaries or affiliates
of Landlord for goods and/or services in the Building to the extent the same
exceeds typical costs and overhead and profit increment of such goods and/or
services rendered by qualified unaffiliated third parties on a competitive
basis, (xvi) costs of signs (other than the Building directories) in or on the
Building identifying the owner of the Building or other tenants' signs, (xvii)
costs of large scale cleanup, removal and/or remediation of Hazardous Materials
in, on or under the Real Property required to comply with Environmental Law
which are incurred as a result of (A) the introduction by Landlord or any tenant
of the Real Property of any such Hazardous Materials in, on or under the Real
Property in violation of Environmental Law, or (B) as a result of the presence
of Hazardous Materials in, on, or under the Real Property as of the Commencement
Date, to the extent such Hazardous Materials are in violation of Environmental
Law in effect as of such date, (xviii) any costs expressly excluded from
Operating Expenses elsewhere in this Lease, (xiv) any separate charge to Tenant
or other occupants of the Real Property for after hours or excess usage of heat,
ventilation and air-conditioning ("HVAC") or utilities, and (xv) if earthquake
or flood insurance is not maintained during the Operating Expenses Base Year but
is maintained during any subsequent Adjustment Year, the Operating Expenses for
the Operating Expenses Base Year shall be increased to reflect the premiums
which would have been paid for such insurance had it been maintained during the
Operating Expenses Base Year. If any Operating Expense, though paid in one year,
relates to more than one calendar year, such expense shall be proportionately
allocated among such related calendar years.
OPERATING EXPENSES BASE YEAR: The calendar year designated in Section 1.01(14).
PREMISES: Prior to the ESACD, the entire third and fourth floors of the
Building, designated by the Suite Numbers listed in Section 1.01(12) and
depicted on Exhibit A attached hereto (sometimes referred to in this Lease as
the "Initial Premises"), and after the ESACD the Initial Premises together with
Expansion Space A.
PROJECT or PROPERTY: The Project consists of (a) the Building, associated
parking facility, plaza, improvements (including landscaping) and associated
river-bank area; and (b) the Land on which the Building is located, other land
on which the parking facility, plaza and improvements are located, other land on
which a second building may be built, and land and interests in real property
associated with the foregoing (the area of which is generally described as
bounded by the Guadalupe River, West San Carlos Street, Woz Way and Park
Avenue). A second building (sometimes referred to as a "Second Tower") may be
built as part of the Project and, if built, will share the parking facility,
plaza and other improvements and area outside of the buildings. As of the date
of this Lease, the Second Tower and additional plaza area may or may not be
built, and Landlord shall have no obligation to build it and shall have no
liability whether or not it is built. The Project also includes the personal
property, fixtures, machinery, equipment, systems and apparatus located in or
used in conjunction with any of the foregoing items described in this paragraph.
The Project may also be referred to as the Property.
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PROJECT OPERATING EXPENSES: All costs, expenses and disbursements of every kind
and nature which Landlord shall pay or become obligated to pay in connection
with the ownership, management, operation, maintenance, replacement and repair
of the Project (including the amortized portion of any capital expenditure or
improvement, together with interest thereon); provided however: (a) excluding
Operating Expenses which are directly and separately identifiable to the
Building and Land; (b) if and when a second office building is built and ready
for occupancy, excluding Operating Expenses which are directly and separately
identifiable to it and the parcel of land on which it is built; and (c)
excluding costs, expenses and disbursements of the same type and to the same
extent as those specifically excluded from Operating Expenses. If any Project
Operating Expense, though paid in one year, relates to more than one calendar
year, such expense shall be proportionately allocated among such related
calendar years.
REAL PROPERTY: The Property excluding any personal property.
RENT: Collectively, Monthly Base Rent, Rent Adjustments and Rent Adjustment
Deposits, and all other charges, payments, late fees or other amounts required
to be paid by Tenant under this Lease.
RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses or
Taxes. The Rent Adjustments shall be determined and paid as provided in Article
Four.
RENT ADJUSTMENT DEPOSIT: An amount equal to Landlord's estimate of the Rent
Adjustment attributable to each month of the applicable Adjustment Year. On or
before the beginning of each Adjustment Year or with Landlord's Statement
(defined in Article Four), Landlord may estimate and notify Tenant in writing of
its estimate of the excess, if any, of Operating Expenses over those for the
Operating Expenses Base Year and of Taxes over those for the Taxes Base Year.
Prior to the first determination by Landlord of the amount of Operating Expenses
for the Operating Expenses Base Year and of Taxes for the Taxes Base Year,
Landlord may estimate such amounts in the foregoing calculation. The last
estimate by Landlord shall remain in effect as the applicable Rent Adjustment
Deposit unless and until Landlord notifies Tenant in writing of a change.
RENTABLE AREA OF THE BUILDING: The amount of square footage set forth in Section
1.01(9), which represents the sum of the rentable area of all space intended for
occupancy in the Building, calculated in accordance with the BOMA Standard.
RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in Section
1.01(10), calculated in accordance with the BOMA Standard.
SECOND TOWER: As defined under Project or Property above.
SECURITY DEPOSIT: The funds and Letter of Credit specified in Section 1.01(11),
if any, deposited by Tenant with Landlord as security for Tenant's performance
of its obligations under this Lease. The Security Deposit is more particularly
provided for in Article Five.
STANDARD OPERATING HOURS: Monday through Friday from 7:00 A.M. to 6:00 P.M.,
excluding National Holidays.
SUBSTANTIALLY COMPLETE: The completion of the Landlord Work or Tenant Work, as
the case may be, except for minor insubstantial details of construction,
decoration or mechanical adjustments which remain to be done, which shall apply
and be determined separately for each of the Premises and Expansion Space A.
TAXES: All federal, state and local governmental taxes, assessments and charges
of every kind or nature, whether general, special, ordinary or extraordinary,
which Landlord shall pay or become obligated to pay because of or in connection
with the ownership, leasing, management, control or operation of: (a) the
Building, Land or any personal property used in connection therewith; and (b)
the Project, excluding those described in (a), those separately and directly
identifiable to the Second Tower and its parcel of land, and if and when the
Second Tower is built and ready for occupancy, excluding its equitable share of
Taxes of the Project. Any rental or similar taxes levied in lieu of or in
addition to general real and/or personal property taxes described above may be
included in Taxes. For purposes hereof, Taxes for any year shall be Taxes which
are assessed for any period of such year, whether or not such Taxes are billed
and payable in a subsequent calendar year. There shall be included in Taxes for
any year the amount of all fees, costs and expenses (including reasonable
attorneys' fees) paid by Landlord during such year in seeking or obtaining any
refund or reduction of Taxes. Taxes for any year shall be reduced by the net
amount of any tax refund received by Landlord attributable to such year. If a
special assessment payable in installments is levied against any part of the
Property, Taxes for any year shall include only the installment of such
assessment and any interest payable or paid during such year. Taxes shall not
include any federal or state inheritance, general income, franchise, gift or
estate taxes, or any exactions or impositions for off-site improvements, impact
fees or the like imposed separately as to, and solely as a condition of,
construction of the Second Tower, except that if a change occurs in the method
of taxation resulting in whole or in part in the substitution of any such taxes,
or any other assessment, for any Taxes as above defined, such substituted taxes
or assessments shall be included in the Taxes.
TAXES BASE YEAR: The calendar year designated in Section 1.01(15).
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TENANT ADDITIONS: Collectively, Landlord Work, Tenant Work and Tenant
Alterations.
TENANT ALTERATIONS: Any alterations, improvements, additions, installations or
construction in or to the Premises or any Real Property systems serving the
Premises (excluding Landlord Work or Tenant Work); and any supplementary
air-conditioning systems installed by Landlord or by Tenant at Landlord's
request pursuant to Section 6.01(b).
TENANT DELAY: Any event or occurrence which delays the Substantial Completion of
the Landlord Work in Expansion Space A which is caused by or is described as
follows:
(i) special work, changes, alterations or additions requested or made
by Tenant in the design or finish in any part of Expansion Space A or
the Premises after approval of the plans and specifications (as
described in the Workletter);
(ii) Tenant's delay in submitting plans, supplying information,
approving plans, specifications or estimates, giving authorizations or
otherwise;
(iii) failure to approve and pay for such Tenant Work as Landlord
undertakes to complete at Tenant's expense;
(iv) the performance or completion by Tenant or any person engaged by
Tenant of any work in or about Expansion Space A or the Premises; or
(v) failure to perform or comply with any obligation or condition
binding upon Tenant pursuant to the Workletter, including the failure
to approve and pay for such Landlord Work or other items if and to the
extent the Workletter provides they are to be approved or paid by
Tenant.
TENANT WORK: All work installed or furnished to the Premises by Tenant pursuant
to the Workletter.
TENANT'S SHARE: The percentage specified in Section 1.01(13) which represents
the ratio of the Rentable Area of the Premises (after addition to it of
Expansion Space A) to the Rentable Area of the Building.
TERM: The term of this Lease commencing on the Commencement Date and expiring on
the Expiration Date.
TERMINATION DATE: The Expiration Date or such earlier date as this Lease
terminates or Tenant's right to possession of the Premises terminates.
WORKLETTER: The Agreement regarding the manner of completion of Landlord Work
and Tenant Work set forth on Exhibit B attached hereto.
ARTICLE TWO
PREMISES, TERM, FAILURE TO GIVE POSSESSION, AND PARKING
2.01 LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the Term and upon the terms, covenants and conditions provided in
this Lease.
2.02 TERM
(a) The Commencement Date shall be the date specified in Section
1.01(6), unless changed by operation of Rider 2.
2.03 FAILURE TO GIVE POSSESSION
(Intentionally omitted; see Rider 2)
2.04 AREA OF PREMISES
The Rentable Area of the Premises and the Rentable Area of the Building as set
forth in Article One have been calculated by Landlord pursuant to the Standard
Method for Measuring Floor Area in Office Buildings, ANSI Z65.1-1996 (the "BOMA
Standard"). The Rentable Area of the Premises and of the Building shall be
certified to Landlord and Tenant with reasonably particularized supporting
calculations by Landlord's planner/designer prior to the Commencement Date, and
such certification shall be made in accordance with the provisions of this
Section 2.04.
2.05 CONDITION OF PREMISES
The Premises shall be delivered and leased in the condition provided in Rider 2.
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2.06 PARKING
During the Term, Tenant may use the number of Parking Spaces specified in
Section 1.01(17) for parking on an unassigned basis, subject to the provisions
hereof. Such number is the total Parking Spaces for both the Premises and
Expansion Space A and represents a rate of 4 spaces per 1000 square feet of
Rentable Area. In the event that a Second Tower is built, at such time as
parking spaces are needed for tenants occupying the Second Tower, the number of
Parking Spaces Tenant may use shall be reduced to 141 spaces, which represents
the total Parking spaces for both the Premises and Expansion Space A at a rate
of 2.4 spaces per 1000 square feet of Rentable Area. The rate payable by Tenant
to Landlord for such Parking Spaces allocable to the Premises and Expansion
Space A for the initial Term shall be Seventy Dollars ($70.00) per unassigned
Parking Space. The rate payable during any extensions of the initial Term shall
be at the prevailing rates, and the number of parking spaces and rate payable
for any expansion pursuant to the Rights of First Offer shall be separately
negotiated for any and each such expansion. The prevailing rates mean base rates
being charged from time to time by Landlord or its parking operator to other
tenants for similar parking rights without consideration of any discounts, which
rate as of the date of this Lease is Eighty-five Dollars ($85.00) per space per
month for unassigned parking. The parking charge is payable only for the number
of Parking Spaces Tenant (including its employees) actually requests to use on a
monthly basis, based upon parking passes, keycards or other means of prepaid
access to the garage requested by Tenant or its employees and issued by Landlord
or its parking operator, and is due and payable in advance as additional Rent at
the same time and manner as Monthly Base Rent. Landlord or its parking operator
may deny monthly parking if and to the extent such parking is not prepaid and
will honor only those passes or keycards or the like for which payment has been
received. Holders of paid-up monthly parking passes, keycards or the like will
have access to the parking garage twenty-four (24) hours every day, including
weekends and National Holidays. The locations and type of parking shall be
designated by Landlord or Landlord's parking operator from time to time. Tenant
acknowledges and agrees that the parking spaces in the Project's parking
facility may include a mixture of spaces for compact vehicles as well as
full-size passenger automobiles, and that Tenant shall not use parking spaces
for vehicles larger than the striped size of the parking spaces. All vehicles
using Tenant's spaces shall prominently display identification stickers or other
markers, and/or have passes or keycards for ingress and egress, as may be
required and provided by Landlord or its parking operator from time to time.
Tenant shall comply with any and all parking rules and regulations from time to
time established by Landlord or Landlord's parking operator, including a
requirement that Tenant pay to Landlord or Landlord's parking operator a charge
for loss and replacement of passes, keycards, identification stickers or
markers, and for any and all loss or other damage caused by persons or vehicles
related to use of Tenant's parking privileges. Tenant shall not allow any
vehicles using Tenant's parking privileges to be parked, loaded or unloaded
except in accordance with this Section, including in the areas and in the manner
designated by Landlord or its parking operator for such activities. If any
vehicle is using the parking or loading areas contrary to any provision of this
Section, Landlord or its parking operator shall have the right, in addition to
all other rights and remedies of Landlord under this Lease, to remove or tow
away the vehicle without prior notice to Tenant, and the cost thereof shall be
paid to Landlord within ten (10) days after notice from Landlord to Tenant. Upon
Tenant's request for additional parking on a month-to-month basis, and subject
to availability of spaces for such parking, Landlord may, without obligation to
do so, from time to time provide additional parking on a month-to-month basis at
the prevailing rates, but Landlord shall determine such availability and may
terminate such additional use in Landlord's sole discretion.
ARTICLE THREE
RENT
Tenant agrees to pay to Landlord at the first office specified in Section
1.01(2), or to such other persons, or at such other places designated by
Landlord, without any prior demand therefor in immediately available funds and
(except as otherwise expressly provided in this Lease) without any deduction or
offset whatsoever, Rent, including Monthly Base Rent and Rent Adjustments in
accordance with Article Four, during the Term. Monthly Base Rent shall be paid
monthly in advance on the first day of each month of the Term, except that the
first installment of Monthly Base Rent shall be paid by Tenant to Landlord no
later than the Commencement Date. Monthly Base Rent shall be prorated for
partial months within the Term. Unpaid Rent shall bear interest at the Default
Rate from the date due until paid. Tenant's covenant to pay Rent shall be
independent of every other covenant in this Lease.
ARTICLE FOUR
RENT ADJUSTMENTS AND PAYMENTS
4.01 RENT ADJUSTMENTS
Tenant shall pay to Landlord Rent Adjustments with respect to each Adjustment
Year as follows:
(i) The Rent Adjustment Deposit representing Tenant's Share of
Operating Expenses for the applicable Adjustment Year in excess of
Operating Expenses for the Operating Expenses Base Year, monthly during
the Term with the payment of Monthly Base Rent; and
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(ii) The Rent Adjustment Deposit representing Tenant's Share
of Taxes for the applicable Adjustment Year in excess of Taxes for the
Taxes Base Year, monthly during the Term with the payment of Monthly
Base Rent; and
(iii) Any Rent Adjustments due in excess of the Rent
Adjustment Deposits in accordance with Section 4.02. Rent Adjustments
due from Tenant to Landlord for any Adjustment Year shall be Tenant's
Share of Operating Expenses for such year in excess of Operating
Expenses for the Operating Expenses Base Year and Tenant's Share of
Taxes for such year in excess of Taxes for the Taxes Base Year.
Notwithstanding any provision of this Article Four to the contrary, as a
concession to Tenant, Landlord agrees to waive collection from Tenant of any
Rent Adjustment or Rent Adjustment Deposits for the year 2000, but Rent
Adjustments and Rent Adjustment Deposits for the Adjustment Year 2001 and
thereafter shall be payable based upon the Operating Expenses Base Year and
Taxes Base Year.
4.02 STATEMENT OF LANDLORD
As soon as feasible after the expiration of the Operating Expenses Base Year and
the Taxes Base Year, and each Adjustment Year thereafter, Landlord will furnish
Tenant a statement ("Landlord's Statement") showing the following:
(i) Operating Expenses and Taxes for the Operating Expenses
Base Year and Taxes Base Year and thereafter for the last Adjustment
Year;
(ii) The amount of Rent Adjustments due Landlord for the last
Adjustment Year, less credit for Rent Adjustment Deposits paid, if any;
and
(iii) Any change in the Rent Adjustment Deposit due monthly in
the current Adjustment Year, including the amount or revised amount due
for months preceding any such change pursuant to Landlord's Statement.
Tenant shall pay to Landlord within ten (10) days after receipt of such
statement any amounts for Rent Adjustments then due in accordance with
Landlord's Statement. Any amounts due from Landlord to Tenant pursuant to this
Section shall be credited to the Rent Adjustment Deposit next coming due, or
refunded to Tenant if the Term has already expired provided Tenant is not in
default hereunder. No interest or penalties shall accrue on any amounts which
Landlord is obligated to credit or refund to Tenant by reason of this Section
4.02. Landlord's failure to deliver Landlord's Statement or to compute the
amount of the Rent Adjustments shall not constitute a waiver by Landlord of its
right to deliver such items nor constitute a waiver or release of Tenant's
obligations to pay such amounts. The Rent Adjustment Deposit shall be credited
against Rent Adjustments due for the applicable Adjustment Year. During the last
complete calendar year or during any partial calendar year in which the Lease
terminates, Landlord may include in the Rent Adjustment Deposit its estimate of
Rent Adjustments which may not be finally determined until after the termination
of this Lease. Tenant's obligation to pay Rent Adjustments and Landlord's
obligation to refund any overpayments shall survive the expiration or
termination of the Lease. Notwithstanding the foregoing, in no event shall the
sum of Monthly Base Rent and the Rent Adjustments be less than the Monthly Base
Rent payable.
4.03 BOOKS AND RECORDS
Landlord shall maintain books and records showing Operating Expenses and Taxes
in accordance with sound accounting and management practices, consistently
applied. Tenant or its representative (which representative shall be an employee
of Tenant or a certified public accountant licensed to do business in the state
in which the Property is located and whose primary business is certified public
accounting) shall have the right, for a period of one hundred twenty (120) days
following the date upon which Landlord's Statement is delivered to Tenant, to
examine and make copies of Landlord's books and records with respect to the
items in the foregoing statement of Operating Expenses and Taxes during normal
business hours, upon written notice, delivered at least three (3) business days
in advance. Such books and records shall be available for examination at a
location not greater than 50 miles from the Project. If Tenant does not object
in writing to Landlord's Statement within one hundred eighty (180) days of
Tenant's receipt thereof, specifying the nature of the item in dispute and the
reasons therefor, then Landlord's Statement shall be considered final and
accepted by Tenant. Any amount due to the Landlord as shown on Landlord's
Statement, whether or not disputed by Tenant as provided herein shall be paid by
Tenant when due as provided above, without prejudice to any such written
exception. Tenant agrees to pay the cost of such audit unless it is subsequently
determined that Landlord's original Statement which was the subject of such
audit was in error to Tenant's disadvantage by five percent (5%) or more of the
total Operating Expenses and Taxes which was the subject of such audit. At which
time Landlord will reimburse out of pocket costs up to Two Thousand Five Hundred
Dollars ($2,500.00).
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4.04 PARTIAL OCCUPANCY
For purposes of determining Rent Adjustments, if the Building is not fully
occupied during all or a portion of any year during the Term, Landlord shall
make appropriate adjustments to the Operating Expenses for such year employing
sound accounting and management principles consistently applied, to determine
the amount of Operating Expenses that would have been paid or incurred by
Landlord had the Building been 100% occupied, and the amount so determined shall
be deemed to have been the amount of Operating Expenses for such year. In the
event that the Real Property is not fully assessed for all or a portion of any
year during the Term, then Taxes shall be adjusted to an amount which would have
been payable in such year if the Real Property had been fully assessed. In the
event any other tenant in the Building provides itself with a service of a type
which Landlord would supply under the Lease without an additional or separate
charge to Tenant, then Operating Expenses shall be deemed to include the cost
Landlord would have incurred had Landlord provided such service to such other
tenant.
4.05 TENANT OR LEASE SPECIFIC TAXES
In addition to Monthly Base Rent, Rent Adjustments, Rent Adjustment Deposits and
other charges to be paid by Tenant, Tenant shall pay to Landlord, upon demand,
any and all taxes payable by Landlord (other than federal or state inheritance,
general income, gift or estate taxes) whether or not now customary or within the
contemplation of the parties hereto: (a) upon, allocable to, or measured by the
Rent payable here-under, including any gross receipts tax or excise tax levied
by any governmental or taxing body with respect to the receipt of such rent
(provided, however, that to the extent any such taxes are in effect during the
Taxes Base Year, the same shall be included in the Taxes for the Taxes Base Year
and Tenant shall only be required to pay increases therein pursuant to Section
4.01); or (b) upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises or any portion thereof; or (c) upon the measured value of Tenant's
personal property located in the Premises or in any storeroom or any other place
in the Premises or the Property, or the areas used in connection with the
operation of the Property, it being the intention of Landlord and Tenant that,
to the extent possible, such personal property taxes shall be billed to and paid
directly by Tenant; (d) resulting from Tenant Alterations to the Premises
subsequent to those governed by the Workletter, whether title thereto is in
Landlord or Tenant; or (e) upon this transaction. Taxes paid by Tenant pursuant
to this Section 4.05 shall not be included in any computation of Taxes payable
pursuant to Sections 4.01 and 4.02.
ARTICLE FIVE
SECURITY DEPOSIT
5.01 INITIAL DEPOSIT
Tenant concurrently with the execution of this Lease shall pay to Landlord as
the Security Deposit under this Lease, the amounts in the form provided below:
(i) the amount of One Hundred Eighty-four Thousand One Hundred and Forty-two
Dollars ($184,142.00) specified in Section 1.01 shall be paid to Landlord in
immediately available funds; and (ii) the amount of Eight Hundred Thousand
Dollars ($800,000.00) in the form of the Letter of Credit, as defined and
provided in Section 5.02 below.
5.02 LETTER OF CREDIT
(a) Within ten (10) business days after the execution of this Lease,
Tenant shall deposit with Landlord an irrevocable letter of credit (the "Letter
of Credit") in the amount of Eight Hundred Thousand Dollars ($800,000.00) as
part of the Security Deposit under this Lease. The Letter of Credit provided for
under this Section shall be an unconditional "clean" Letter of Credit and
require no documents, and shall be in the form attached as Exhibit D and from a
banking institution satisfactory to Landlord; provided however, Landlord
pre-approves Comerica Bank as the Issuer initially. It shall also be in
compliance with all applicable laws and regulations, including, without
limitation, applicable regulations of the Comptroller of the Currency. The
Letter of Credit shall have an absolute expiration date of not earlier than
forty-five (45) days after the Expiration Date of the initial Term of this Lease
and prior thereto shall be extended automatically on each anniversary of
issuance unless the Issuer provides Landlord with not less than forty-five (45)
days prior written notice of non-renewal, in which case the same shall be
replaced by Tenant with another Letter of Credit which complies with the
foregoing requirements at least thirty (30) days prior to its expiration. It is
agreed that in the event (i) Tenant defaults in the performance or observance of
any of the terms, provisions, covenants and conditions of this Lease, including
the payment of Rent or any other sum due from Tenant with respect to the Lease,
or (ii) the Letter of Credit is not extended or replaced by Tenant in a manner
which complies with the foregoing provisions of this Section, Landlord shall
have the right but shall not be required to, from time to time without prejudice
to any other remedy Landlord may have on account thereof, to present the Letter
of Credit for payment and to retain the proceeds as security in the event of an
occurrence under clause (i) above, or in the event of an occurrence under clause
(i) above, to use, apply or retain the whole or any part of the proceeds to the
extent Landlord could use, apply or retain any other funds deposited with
Landlord as a Security Deposit hereunder, and any amounts so used, applied or
retained shall be replenished by Tenant as provided in Section 5.03 below. If
Landlord presents the Letter of Credit for payment, no interest shall be payable
to Tenant on the proceeds. Tenant shall not assign or encumber or attempt to
assign or encumber the Letter of Credit deposited (or the proceeds thereof) as
part of the Security Deposit, and neither Landlord
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nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
(b) Notwithstanding anything to the contrary contained herein, Landlord
agrees that the Letter of Credit held as part of the Security Deposit pursuant
to this Section shall be reduced (individually, a "Reduction", collectively, the
"Reductions") as follows: a Reduction of Two Hundred Thousand Dollars
($200,000.00) on each anniversary of the Expansion Space A Commencement Date
(ESACD), as such terms are defined in Rider 2 of the Lease, until such time as
the Letter of Credit is reduced to zero. Each Reduction is expressly subject to
the following: (i) prior to the anniversary date on which a Reduction is to be
granted, there has occurred no default of Tenant beyond any applicable notice
and grace period, and in the event such a default has occurred, the right to the
pending Reduction and to all subsequent Reductions is waived; (ii) on the date
on which such Reduction is to be granted there exists no act or omission on the
part of Tenant which, with the passage of time or the giving of notice, or both
would constitute a default of Tenant, in which event the right to that Reduction
is suspended (until such default is timely cured) but not to all subsequent
Reductions so long as Tenant has timely cured; and (iii) on or immediately after
any anniversary date on which a Reduction is to be granted, and provided Tenant
has qualified for same pursuant to this Section, Tenant must present Landlord
with an acceptable (pursuant to this Section) substitute Letter of Credit or
amendment to the existing Letter of Credit in such appropriately reduced amount.
Landlord agrees, in the instance of a substitute Letter of Credit, to
simultaneously surrender to the Issuer the one held.
5.03 GENERAL PROVISIONS
The Security Deposit may be applied by Landlord to cure, in whole or part, any
default of Tenant under this Lease, and upon notice by Landlord of such
application, Tenant shall replenish the Security Deposit in full by paying to
Landlord within ten (10) days of demand the amount so applied. Landlord's
application of the Security Deposit shall not constitute a waiver of Tenant's
default to the extent that the Security Deposit does not fully compensate
Landlord for all losses, damages, costs and expenses incurred by Landlord in
connection with such default and shall not prejudice any other rights or
remedies available to Landlord under this Lease or by Law. Landlord shall not
pay any interest on the Security Deposit. Landlord shall not be required to keep
the Security Deposit separate from its general accounts. The Security Deposit
shall not be deemed an advance payment of Rent, nor a measure of damages for any
default by Tenant under this Lease, nor shall it be a bar or defense of any
action which Landlord may at any time commence against Tenant. In the absence of
evidence reasonably satisfactory to Landlord of an assignment of the right to
receive the Security Deposit or the remaining balance thereof, Landlord may
return the Security Deposit to the original Tenant, regardless of one or more
assignments of this Lease. Upon the transfer of Landlord's interest under this
Lease, Landlord's obligation to Tenant with respect to the Security Deposit
shall terminate upon transfer to the transferee of the Security Deposit, or any
balance thereof. If Tenant shall fully and faithfully comply with all the terms,
provisions, covenants, and conditions of this Lease, the Security Deposit, or
any balance thereof, shall be returned to Tenant within thirty (30) days after
Landlord recovers possession of the Premises or such longer time as may be
permissible under Law.
ARTICLE SIX
SERVICES
6.01 LANDLORD'S GENERAL SERVICES
(a) So long as the Lease is in full force and effect and Tenant has is
not in Default, Landlord shall furnish the following services:
(1) heat, ventilation and air-conditioning ("HVAC") in the Premises during
Standard Operating Hours as necessary in Landlord's reasonable judgment
for the comfortable occupancy of the Premises under normal business
operations, subject to compliance with all applicable voluntary and
mandatory regulations and Laws;
(2) tempered and cold water for use in lavatories in common with other
tenants from the regular supply of the Building;
(3) cleaning and janitorial services in the Premises five (5) days per
week, excluding weekends and National Holidays, as is customarily
provided in the Comparable Buildings;
(4) washing of the outside windows in the Premises, weather permitting, at
intervals determined by Landlord;
(5) automatic passenger elevator service in common with other tenants of
the Building (with such elevator service to be available, subject to
customary security requirements, twenty-four hours per day and seven
days per week), and freight elevator service subject to reasonable
scheduling by Landlord and payment of Landlord's standard charges;
(b) If Tenant uses heat generating machines or equipment in the
Premises to an extent which adversely affects the temperature otherwise
maintained for general office use by the air-cooling system or
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whenever the occupancy or electrical load adversely affects the temperature
otherwise maintained for general office use by the air-cooling system, Landlord
reserves the right to install or to require Tenant to install supplementary
air-conditioning units in the Premises. Tenant shall bear all costs and expenses
related to the installation, maintenance and operation of such units.
(c) Tenant shall pay Landlord at rates fixed by Landlord for all
tenants in the Building (which shall be based on Landlord's actual cost, without
profit or mark-up to Landlord), charges for all water furnished to the Premises,
including the expenses of installation of a water line, meter and fixtures.
6.02 ELECTRICAL SERVICES
(a) So long as the Lease is in full force and effect and Tenant is not
in Default, Landlord shall furnish to the Premises electric current for general
business office use, including normal lighting, normal business office machines,
customary janitorial service, and making alterations or repairs (whether by
Landlord or Tenant). Notwithstanding any provision of the Lease to the contrary,
without, in each instance, the prior written consent of Landlord, which shall
not be unreasonably withheld, Tenant shall not: (i) make any alterations or
additions to the electric equipment or systems; or (ii) install or use or permit
the installation or use of any computer or electronic data processing equipment
in the Premises other than personal computers, lap-top computers and ancillary
equipment. Landlord confirms that no further consent is required for Tenant's
continued use of existing equipment on a per square foot basis applied to the
Initial Premises and Expansion Space A, provided however, Landlord shall
install, at Tenant's sole cost and expense, a separate meter or meters to
measure electric current consumed by the existing supplementary air-conditioning
units previously installed by Tenant in the Initial Premises, and Tenant shall
bear all costs and expenses related to the installation, maintenance and
operation of such meter(s) and such units. Tenant's use of electric current
shall at no time exceed the capacity of the wiring, feeders and risers providing
electric current to the Premises or the Building. The consent of Landlord to the
installation of electric equipment shall not relieve Tenant from the obligation
to limit usage of electricity to no more than such capacity.
(b) If and to the extent electric current is furnished to the Premises
in excess of the amount of electric current normally used during Standard
Operating Hours in a general business office in a first class office building
with the type of electrical equipment and normal business office machines
described in subparagraph (a) above, Tenant shall pay Landlord upon notice from
Landlord the cost of such excess electric current (without profit or mark-up to
Landlord) as additional Rent. The cost of such excess use and all additional
costs separately billed to Tenant pursuant to this Section shall not be included
as part of Operating Expenses. At any time and from time to time, Landlord may
in its sole discretion either (i) install one or more meters to measure electric
current furnished to the Premises or (ii) reasonably estimate electric current
furnished to the Premises. Upon notice from Landlord, Tenant shall pay Landlord
the cost of installing and maintaining all such meters and of any electrical
engineering or consulting firm, if Landlord retains such firm to estimate the
electric current furnished to the Premises in lieu of installation of a meter,
unless such metering or estimating fails to show that Tenant's usage of
electricity exceeds what is normal for the Building. Tenant shall pay Landlord
for such excess electric current at the then current rates charged to Landlord
for such electricity provided to the Property by the utility provider chosen by
Landlord plus any additional cost of Landlord in keeping account of the electric
current so consumed. Landlord's notice shall specify whether such excess use
shall be payable (i) in advance as reasonably estimated by Landlord in monthly
installments at the time prescribed for monthly installments of Monthly Base
Rent or (ii) within ten days after notice from Landlord given from time to time
of the amount due for prior excess use as metered or reasonably estimated by
Landlord.
(c) So long as the Lease is in full force and effect and Tenant is not
in Default, Landlord shall furnish to the Premises replacement lamps, bulbs,
ballasts and starters used in any normal Building lighting installed in the
Premises, except that if the replacement or repair of such items is a result of
negligence of Tenant, its employees, agents, servants, licensees, subtenants,
contractors or invitees, such cost shall be paid by Tenant within ten days after
notice from Landlord and shall not be included as part of Operating Expenses.
6.03 ADDITIONAL AND AFTER-HOUR SERVICES
At Tenant's written request, Landlord shall furnish additional quantities of any
of the services or utilities specified in Section 6.01, if Landlord can
reasonably do so, on the terms set forth herein. For HVAC services beyond
Standard Operating Hours, Tenant shall deliver to Landlord a written request (a)
prior to 2:00 P.M. Monday through Friday (except National Holidays) for service
on those days, and (b) prior to 2:00 P.M. on the last business day prior to
Saturday, Sunday or a National Holiday for service on those days. For services
or utilities requested by Tenant and furnished by Landlord, Tenant shall pay to
Landlord as a charge therefor Landlord's prevailing rates charged from time to
time for such services and utilities. If Tenant shall fail to make any such
payment within thirty (30) days after receipt of an invoice therefor, Landlord
may, upon notice to Tenant and in addition to Landlord's other remedies under
this Lease, discontinue any or all of such additional services.
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6.04 TELEPHONE SERVICES
All telegraph, telephone, and communication connections outside the Premises
which Tenant may desire shall be subject to Landlord's prior written approval,
in Landlord's sole discretion, and the location of all wires and the work in
connection therewith shall be performed by contractors reasonably approved by
Landlord and shall be subject to the direction of Landlord, provided however,
such approval is not required as to Tenant's choice of service provider or
telephone equipment (including cabling) within the Premises and from the
Premises in a route designated by Landlord to any telephone cabinet or panel
provided (as existing or as installed as part of Landlord's Work, if any) on
Tenant's floor for Tenant's connection to the telephone cable serving the
Building so long as Tenant's service provider and equipment does not require
connections different than or additional to those to the telephone cabinet or
panel provided. Except to the extent of such cabling within the Premises or from
the Premises to such telephone cabinet or panel, Landlord reserves the right to
designate and control the entity or entities providing telephone or other
communication cable installation, removal, repair and maintenance in the areas
of the Building outside the Premises and to restrict and control access to
telephone cabinets or panels. In the event Landlord designates a particular
vendor or vendors to provide such cable installation, removal, repair and
maintenance for the Building, Tenant agrees to abide by and participate in such
program. Tenant shall be responsible for and shall pay all costs incurred in
connection with the installation of telephone cables and communication wiring in
the Premises, including any hook-up, access and maintenance fees related to the
installation of such wires and cables in the Premises and the commencement of
service therein, and the maintenance thereafter of such wire and cables; and
there shall be included in Operating Expenses for the Building all installation,
removal, hook-up or maintenance costs incurred by Landlord in connection with
telephone cables and communication wiring serving the Building which are not
allocable to any individual users of such service but are allocable to the
Building generally. If Tenant fails to maintain all telephone cables and
communication wiring in the Premises and such failure affects or interferes with
the operation or maintenance of any other telephone cables or communication
wiring serving the Building, Landlord or any vendor hired by Landlord may enter
into and upon the Premises forthwith and perform such repairs, restorations or
alterations as Landlord deems necessary in order to eliminate any such
interference (and Landlord may recover from Tenant all of Landlord's costs in
connection therewith). No later than the Termination Date, Tenant agrees to
remove all telephone cables and communication wiring installed by Tenant for and
during Tenant's occupancy, which Landlord shall request Tenant to remove. Tenant
agrees that neither Landlord nor any of its agents or employees shall be liable
to Tenant, or any of Tenant's employees, agents, customers or invitees or anyone
claiming through, by or under Tenant, for any damages, injuries, losses,
expenses, claims or causes of action because of any interruption, diminution,
delay or discontinuance at any time for any reason in the furnishing of any
telephone or other communication service to the Premises and the Building,
except where caused by the gross negligence or intentional misconduct of
Landlord or its agents or employees, and in no event for any consequential
damages.
6.05 DELAYS IN FURNISHING SERVICES
Tenant agrees that Landlord shall not be in breach of this Lease nor be liable
to Tenant for damages or otherwise, for any failure to furnish, or a delay in
furnishing, or a change in the quantity or character of any service when such
failure, delay or change is occasioned, in whole or in part, by repairs,
improvements or mechanical breakdowns by the act or default of Tenant or other
parties or by an event of Force Majeure. No such failure, delay or change shall
be deemed to be an eviction or disturbance of Tenant's use and possession of the
Premises, or relieve Tenant from paying Rent or from performing any other
obligations of Tenant under this Lease, without any deduction or offset. Failure
to any extent to make available, or any slowdown, stoppage, or interruption of,
the specified utility services resulting from any cause, including changes in
service provider or Landlord's compliance with any voluntary or similar
governmental or business guidelines now or hereafter published or any
requirements now or hereafter established by any governmental agency, board, or
bureau having jurisdiction over the operation of the Property, shall not render
Landlord liable in any respect for damages to either persons, property, or
business, nor be construed as an eviction of Tenant or work an abatement of
Rent, nor relieve Tenant of Tenant's obligations for fulfillment of any covenant
or agreement hereof. Should any equipment or machinery furnished by Landlord
break down or for any cause cease to function properly, Landlord shall use
reasonable diligence to repair same promptly, but Tenant shall have no claim for
abatement of Rent or damages on account of any interruption of service
occasioned thereby or resulting therefrom. Notwithstanding any provision of the
foregoing to the contrary, in the event and to the extent that Tenant is unable
to occupy the Premises for ten (10) consecutive days (the "Eligibility Period")
after Tenant has given Landlord written notice of such condition as a result of
Landlord's failure to provide utilities or services which Landlord is obligated
to provide, but excluding any period occupancy is prevented to the extent caused
by any of the following: (i) any act or omission of Tenant, any assignee, any
subtenant or any other occupant of the Premises, or (ii) request by Tenant or
any assignee to Landlord to make a decoration, alteration, improvement or
addition, or (iii) Force Majeure, or (iv) a matter outside of the Real Property,
then Monthly Base Rent and Rent Adjustments shall abate in the proportion in
which the area of the Premises which is unusable and unused bears to the total
area of the Premises on a per diem basis from the expiration of the Eligibility
Period until the earlier of restoration of the applicable service or access or
Tenant's re-occupancy or use of the affected portion of the Premises.
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6.06 CHOICE OF SERVICE PROVIDER
Tenant acknowledges that Landlord may, at Landlord's sole option, to the extent
permitted by applicable law, elect to change, from time to time, the company or
companies which provide services (including electrical service, gas service,
water, telephone and technical services) to the Building, the Premises and/or
its occupants Notwithstanding anything to the contrary set forth in this Lease,
Tenant acknowledges that Landlord has not and does not make any representations
or warranties concerning the identity or identities of the company or companies
which provide services to the Building and the Premises or its occupants and
Tenant acknowledges that the choice of service providers and matters concerning
the engagement and termination thereof shall be solely that of Landlord. The
foregoing provision is not intended to modify, amend, change or otherwise
derogate any provision of this Lease concerning the nature or type of service to
be provided or any specific information concerning the amount thereof to be
provided. Tenant agrees to cooperate with Landlord and each of its service
providers in connection with any change in service or provider.
6.07 SIGNAGE
Initial Building standard signage will be installed by Landlord in the directory
in the main lobby of the Building, in the listing of tenants in the elevator
lobby for the floor on which the Premises is located and at Tenant's main entry
door to the Premises at Tenant's sole cost and expense except to the extent that
funds are available out of any Landlord's Maximum Contribution, if any, provided
pursuant to the Workletter. Any change in such initial signage shall be only
with Landlord's prior written consent, shall conform to Building standard
signage and shall be at Tenant's sole cost and expense.
ARTICLE SEVEN
POSSESSION, USE AND CONDITION OF PREMISES
7.01 POSSESSION AND USE OF PREMISES
(a) Tenant shall be entitled to possession of the Initial Premises on
the Commencement Date and shall be entitled to possession of Expansion Space A
when the Landlord Work is Substantially Complete. Tenant shall occupy and use
the Premises only for the uses specified in Section 1.01(16) to conduct Tenant's
business. Tenant shall not occupy or use the Premises (or permit the use or
occupancy of the Premises) for any purpose or in any manner which: (1) is
unlawful or in violation of any Law or Environmental Law; (2) may be dangerous
to persons or property or which may increase the cost of, or invalidate, any
policy of insurance carried on the Building or covering its operations; (3) is
contrary to or prohibited by the terms and conditions of this Lease or the rules
of the Building set forth in Article Eighteen; or (4) would tend to create or
continue a nuisance.
(b) Tenant shall comply with all Environmental Laws pertaining to
Tenant's occupancy and use of the Premises and concerning the proper storage,
handling and disposal of any Hazardous Material introduced to the Premises or
the Property by Tenant or other occupants of the Premises, or their employees,
servants, agents, contractors, customers or invitees. Landlord shall comply with
all Environmental Laws applicable to the Property other than those to be
complied with by Tenant pursuant to the preceding sentence. Tenant shall not
generate, store, handle or dispose of any Hazardous Material in, on, or about
the Property without the prior written consent of Landlord, which may be
withheld in Landlord's sole discretion, except that such consent shall not be
required to the extent of Hazardous Material packaged and contained in office
products for consumer use in general business offices in quantities for ordinary
day-to-day use provided such use does not give rise to, or pose a risk of,
exposure to or release of Hazardous Material. In the event that Tenant is
notified of any investigation or violation of any Environmental Law arising from
Tenant's activities at the Premises, Tenant shall immediately deliver to
Landlord a copy of such notice. In such event or in the event Landlord
reasonably believes that a violation of Environmental Law exists, Landlord may
conduct such tests and studies relating to compliance by Tenant with
Environmental Laws or the alleged presence of Hazardous Material upon the
Premises as Landlord deems desirable, all of which shall be completed at
Tenant's expense. Landlord's inspection and testing rights are for Landlord's
own protection only, and Landlord has not, and shall not be deemed to have
assumed any responsibility to Tenant or any other party for compliance with
Environmental Laws, as a result of the exercise, or non-exercise of such rights.
Tenant hereby indemnifies, and agrees to defend, protect and hold harmless, the
Indemnitees from any and all loss, claim, demand, action, expense, liability and
cost (including attorneys' fees and expenses) arising out of or in any way
related to the presence of any Hazardous Material introduced to the Premises or
the Property during the Lease Term by Tenant or other occupants of the Premises,
or their employees, servants, agents, contractors, customers or invitees. In
case of any action or proceeding brought against the Indemnitees by reason of
any such claim, upon notice from Landlord, Tenant covenants to defend such
action or proceeding by counsel chosen by Landlord, in Landlord's sole
discretion. Landlord reserves the right to settle, compromise or dispose of any
and all actions, claims and demands related to the foregoing indemnity. If any
Hazardous Material is released, discharged or disposed of on or about the
Property and such release, discharge or disposal is not caused by Tenant or
other occupants of the Premises, or their employees, servants, agents,
contractors customers or invitees, such release, discharge or disposal shall be
deemed casualty damage under Article Fourteen to the extent that the Premises
are affected thereby; in such case, Landlord and Tenant shall have the
obligations and rights respecting such casualty damage provided under such
Article.
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(c) Landlord and Tenant acknowledge that the Americans With Disabilities Act of
1990 (42 U.S.C. Section 12101 et seq.) and regulations and guidelines
promulgated thereunder, as all of the same may be amended and supplemented from
time to time (collectively referred to herein as the "ADA") establish
requirements for business operations, accessibility and barrier removal, and
that such requirements may or may not apply to the Premises, the Building and
the Project depending on, among other things: (1) whether Tenant's business is
deemed a "public accommodation" or "commercial facility", (2) whether such
requirements are "readily achievable", and (3) whether a given alteration
affects a "primary function area" or triggers "path of travel" requirements. The
parties hereby agree that: (i) Landlord shall be responsible for ADA Title III
compliance in the Common Areas, except as provided below, (ii) Tenant shall be
responsible for ADA Title III compliance in the Premises, including any
leasehold improvements or other work to be performed in the Premises under or in
connection with this Lease, (iii) Landlord may perform, or require that Tenant
perform, and Tenant shall be responsible for the cost of, ADA Title III "path of
travel" requirements triggered by Tenant Additions in the Premises, and (iv)
Landlord may perform, or require Tenant to perform, and Tenant shall be
responsible for the cost of, ADA Title III compliance in the Common Areas
necessitated by the Building being deemed to be a "public accommodation" instead
of a "commercial facility" as a result of Tenant's use of the Premises, but
Landlord agrees not to apply the right under this sub-item (iv) so long as
Tenant's use does not differ from its existing use under the Prior Sublease (as
defined in Rider 2). Tenant shall be solely responsible for requirements under
Title I of the ADA relating to Tenant's employees.
(d) Landlord and Tenant agree to cooperate and use commercially
reasonable efforts to participate in traffic management programs generally
applicable to businesses located in or about the area and Tenant shall encourage
and support van and car pooling by, and staggered and flexible working hours
for, its office workers and service employees to the extent reasonably permitted
by the requirements of Tenant's business. Neither this Section or any other
provision of this Lease is intended to or shall create any rights or benefits in
any other person, firm, company, governmental entity or the public.
(e) Tenant agrees to cooperate with Landlord and to comply with any and
all guidelines or controls concerning energy management imposed upon Landlord by
federal or state governmental organizations or by any energy conservation
association to which Landlord is a party or which is applicable to the Building.
7.02 LANDLORD ACCESS TO PREMISES; APPROVALS
(a) Tenant shall permit Landlord to erect, use and maintain pipes,
ducts, wiring and conduits in and through the Premises, so long as Tenant's use,
layout or design of the Premises is not materially affected or altered. Landlord
or Landlord's agents shall have the right to enter upon the Premises in the
event of an emergency, or to inspect the Premises, to perform janitorial and
other services, to conduct safety and other testing in the Premises and to make
such repairs, alterations, improvements or additions to the Premises or the
Building or other parts of the Property as Landlord may deem necessary or
desirable (including all alterations, improvements and additions in connection
with a change in service provider or providers). Janitorial and cleaning
services shall be performed after normal business hours. Any entry or work by
Landlord may be during normal business hours and Landlord may use reasonable
efforts to ensure that any entry or work shall not materially interfere with
Tenant's occupancy of the Premises. Except in case of emergency or for routine
janitorial services, Landlord shall give Tenant reasonable prior notice before
exercising its rights of access and entry under this Section 7.02.
(b) If Tenant's employees shall not be present to permit an entry into
the Premises when Landlord (or Landlord's agents) reasonably believes that an
emergency situation justifies such entry, Landlord may enter the Premises
without rendering Landlord or its agents liable therefor, and without relieving
Tenant of any obligations under this Lease. However, Landlord shall promptly
notify Tenant of any such entry and provide details necessary for Tenant to
evaluate the nature and scope of Landlord's activities in the Premises.
(c) Landlord may enter the Premises for the purpose of conducting such
inspections, tests and studies as Landlord may deem desirable or necessary to
confirm Tenant's compliance with all Laws and Environmental Laws or for other
purposes necessary in Landlord's reasonable judgment to ensure the sound
condition of the Property and the systems serving the Property. Landlord's
rights under this Section 7.02(c) are for Landlord's own protection only, and
Landlord has not, and shall not be deemed to have assumed, any responsibility to
Tenant or any other party as a result of the exercise or non-exercise of such
rights, for compliance with Laws or Environmental Laws or for the accuracy or
sufficiency of any item or the quality or suitability of any item for its
intended use.
(d) Landlord may do any of the foregoing, or undertake any of the
inspection or work described in the preceding paragraphs without such action
constituting an actual or constructive eviction of Tenant, in whole or in part,
or giving rise to an abatement of Rent by reason of loss or interruption of
business of the Tenant, or otherwise.
(e) The review, approval or consent of Landlord with respect to any
item required or permitted under this Lease is for Landlord's own protection
only, and Landlord has not, and shall not be deemed to have assumed, any
responsibility to Tenant or any other party, as a result of the exercise or
non-exercise of
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such rights, for compliance with Laws or Environmental Laws or for the accuracy
or sufficiency of any item or the quality or suitability of any item for its
intended use.
7.03 QUIET ENJOYMENT
Landlord covenants, in lieu of any implied covenant of quiet possession or quiet
enjoyment, that so long as Tenan t is not in Default under this Lease, Tenant
shall have the right to quiet enjoyment of the Premises without hindrance or
interference from Landlord or those claiming through Landlord, and subject to
the covenants and conditions set forth in the Lease and to the rights of any
Mortgagee or ground lessor.
ARTICLE EIGHT
MAINTENANCE
8.01 LANDLORD'S MAINTENANCE
Subject to the provisions of Article Fourteen, Landlord shall maintain and make
necessary repairs to the foundations, roofs, exterior walls, and the structural
elements of the Building, the electrical, plumbing, heating, ventilating,
air-conditioning, mechanical, communication, security and the fire and life
safety systems of the Building and those corridors, washrooms, vestibules,
closets and lobbies which are Common Areas of the Building, except that: (a)
Landlord shall not be responsible for the maintenance or repair of any floor or
wall coverings in the Premises or any of such systems which are located within
the Premises and are supplemental or special to the Building's standard systems;
and (b) the cost of performing any of said maintenance or repairs whether to the
Premises or to the Building caused by the negligence of Tenant, its employees,
agents, servants, licensees, subtenants, contractors or invitees, shall be paid
by Tenant, subject to the waivers set forth in Section 16.04. Landlord shall not
be liable to Tenant for any expense, injury, loss or damage resulting from work
done in or upon, or in connection with the use of, any adjacent or nearby
building, land, street or alley; provided, however, that if Landlord builds the
Second Tower, Landlord shall exercise reasonable care that such construction
(excluding noise and traffic disruptions on public streets) shall not materially
and adversely interfere with Tenant's access to the Premises, the Building,
Tenant's parking and Common Areas serving the Premises.
8.02 TENANT'S MAINTENANCE
Subject to the provisions of Articles Fourteen and Fifteen, Tenant, at its
expense, shall keep and maintain the Premises and all Tenant Additions thereto
in good order, condition and repair and in accordance with all Laws and
Environmental Laws. Tenant shall not permit waste and shall promptly and
adequately repair all damages to the Premises and replace or repair all damaged
or broken glass in the interior of the Premises, fixtures or appurtenances. Any
repairs or maintenance shall be completed with materials of similar quality to
the original materials, all such work to be completed under the supervision of
Landlord. Any such repairs or maintenance shall be performed only by contractors
or mechanics approved by Landlord, which approval shall not be unreasonably
withheld, and whose work will not cause or threaten to cause disharmony or
interference with Landlord or other tenants in the Building and their respective
agents and contractors performing work in or about the Building. If Tenant fails
to perform any of its obligations set forth in this Section 8.02, Landlord may,
in its sole discretion and upon 48 hours prior notice to Tenant (but without
notice in the case of emergencies), perform the same, and Tenant shall pay to
Landlord any costs or expenses incurred by Landlord upon demand.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
9.01 TENANT ALTERATIONS
(a) Except for completion of Tenant Work undertaken by Tenant pursuant
to the Workletter, the following provisions shall apply to the completion of any
Tenant Alterations:
(1) Tenant shall not, except as provided herein, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld,
make or cause to be made any Tenant Alterations in or to the Premises
or any Property systems serving the Premises. Prior to making any
Tenant Alterations, Tenant shall give Landlord ten (10) days prior
written notice (or such earlier notice as would be necessary pursuant
to applicable Law) to permit Landlord sufficient time to post
appropriate notices of non-responsibility. Subject to all other
requirements of this Article Nine, Tenant may undertake Decoration work
without Landlord's prior written consent. Tenant shall furnish Landlord
with the names and addresses of all contractors and subcontractors and
copies of all contracts. All Tenant Alterations shall be completed at
such time and in such manner as Landlord may from time to time
designate, and only by contractors or mechanics reasonably approved by
Landlord, provided, however, that Landlord may, in its sole discretion,
specify the engineers and contractors to perform all work relating to
the Building's systems (including the mechanical, heating, plumbing,
security, ventilating, air-conditioning, electrical, communication and
the fire and life safety systems in the Building). The contractors,
mechanics and engineers who may be used are further limited to those
whose work will not cause or threaten to cause disharmony or
interference with Landlord or other tenants in the Building and their
respective agents and
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contractors performing work in or about the Building. Landlord may
further condition its consent upon Tenant furnishing to Landlord and
Landlord approving prior to the commencement of any work or delivery of
materials to the Premises related to the Tenant Alterations such of the
following as specified by Landlord: architectural plans and
specifications, opinions from Landlord's engineers stating that the
Tenant Alterations will not in any way materially adversely affect the
Building's systems, necessary permits and licenses, certificates of
insurance, and such other documents in such form reasonably requested
by Landlord. Landlord may, in the exercise of reasonable judgment,
request that Tenant provide Landlord with appropriate evidence of
Tenant's ability to complete and pay for the completion of the Tenant
Alterations such as a performance bond or letter of credit. Upon
completion of the Tenant Alterations, Tenant shall deliver to Landlord
an as-built mylar and digitized (if available) set of plans and
specifications for the Tenant Alterations.
(2) Tenant shall pay the cost of all Tenant Alterations and the cost of
decorating the Premises and any work to the Property occasioned
thereby. In connection with completion of any Tenant Alterations,
Tenant shall pay Landlord a construction supervision fee and all
elevator and hoisting charges at Landlord's then standard rate. Upon
completion of Tenant Alterations, Tenant shall furnish Landlord with
contractors' affidavits and full and final waivers of lien and
receipted bills covering all labor and materials expended and used in
connection therewith and such other documentation reasonably requested
by Landlord or Mortgagee.
(3) Tenant agrees to complete all Tenant Alterations (i) in accordance with
all Laws, Environmental Laws, all requirements of applicable insurance
companies and in accordance with Landlord's standard construction rules
and regulations, and (ii) in a good and workmanlike manner with the use
of good grades of materials. Tenant shall notify Landlord immediately
if Tenant receives any notice of violation of any Law in connection
with completion of any Tenant Alterations and shall immediately take
such steps as are necessary to remedy such violation. In no event shall
such supervision or right to supervise by Landlord nor shall any
approvals given by Landlord under this Lease constitute any warranty by
Landlord to Tenant of the adequacy of the design, workmanship or
quality of such work or materials for Tenant's intended use or of
compliance with the requirements of Section 9.01(a)(3)(i) and (ii)
above or impose any liability upon Landlord in connection with the
performance of such work.
(b) All Tenant Additions to the Premises whether installed by Landlord
or Tenant, shall without compensation or credit to Tenant, become part of the
Premises and the property of Landlord at the time of their installation and
shall remain in the Premises, unless pursuant to Article Twelve, Tenant may
remove them or is required to remove them at Landlord's request.
9.02 LIENS
Tenant shall not permit any lien or claim for lien of any mechanic, laborer or
supplier or any other lien to be filed against the Building, the Land, the
Premises, or any other part of the Property arising out of work performed, or
alleged to have been performed by, or at the direction of, or on behalf of
Tenant. If any such lien or claim for lien is filed, Tenant shall within ten
(10) days of receiving notice of such lien or claim (a) have such lien or claim
for lien released of record (whether by filing of a statutory lien release bond
or otherwise) or (b) deliver to Landlord a bond in form, content, amount, and
issued by surety, satisfactory to Landlord, indemnifying, protecting, defending
and holding harmless the Indemnitees against all costs and liabilities resulting
from such lien or claim for lien and the foreclosure or attempted foreclosure
thereof. If Tenant fails to take any of the above actions, Landlord, in addition
to its rights and remedies under Article Eleven, without investigating the
validity of such lien or claim for lien, may pay or discharge the same and
Tenant shall, as payment of additional Rent hereunder, reimburse Landlord upon
demand for the amount so paid by Landlord, including Landlord's expenses and
attorneys' fees.
ARTICLE TEN
ASSIGNMENT AND SUBLETTING
10.01 ASSIGNMENT AND SUBLETTING
(a) Without the prior written consent of Landlord, which may be
withheld in Landlord's sole discretion, Tenant may not sublease, assign,
mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of
this Lease or the encumbering of Tenant's interest therein in whole or in part,
by operation of Law or otherwise or permit the use or occupancy of the Premises,
or any part thereof, by anyone other than Tenant, provided, however, if Landlord
chooses not to recapture the space proposed to be subleased or assigned as
provided in Section 10.02, Landlord shall not unreasonably withhold its consent
to a subletting or assignment under this Section 10.01. Tenant agrees that the
provisions governing sublease and assignment set forth in this Article Ten shall
be deemed to be reasonable. If Tenant desires to enter into any sublease of the
Premises or assignment of this Lease, Tenant shall deliver written notice
thereof to Landlord ("Tenant's Notice"), together with the identity of the
proposed subtenant or assignee and the proposed principal terms thereof and
financial and other information sufficient for Landlord to make an informed
judgment with respect to such proposed subtenant or assignee at least thirty
(30) days prior to the commencement date of the term of the proposed sublease or
assignment. If Tenant proposes to sublease less than all of the Rentable Area of
the Premises, the space proposed to be sublet and the space retained
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by Tenant must each be a marketable unit as reasonably determined by Landlord
and otherwise in compliance with all Laws. Landlord shall notify Tenant in
writing of its decision to exercise its rights under Section 10.02 within ten
(10) days after receipt of Tenant's Notice (and all required information).
Landlord shall notify Tenant in writing of its approval or disapproval of the
proposed sublease or assignment within thirty (30) days after receipt of
Tenant's Notice (and all required information). Tenant shall submit for
Landlord's approval (which approval shall not be unreasonably withheld) any
advertising materials which Tenant or its agents intend to use with respect to
the space proposed to be sublet.
(b) With respect to Landlord's consent to an assignment or sublease,
Landlord may take into consideration any factors which Landlord reasonably may
consider to be relevant, and the reasons for which Landlord's denial shall be
deemed to be reasonable shall include the following:
(i) the business reputation of any proposed subtenant or assignee is
not acceptable to Landlord, taking into account Tenant's continuing
liability under this Lease; or
(ii) in Landlord's reasonable judgment the proposed assignee or
subtenant would diminish the value or reputation of the Building or
Landlord; or
(iii) any proposed assignee's or subtenant's use of the Premises would
violate Section 7.01 of the Lease or would violate the provisions of
any other leases of tenants in the Project;
(iv) the proposed assignee or subtenant is either a governmental
agency, a school or similar operation, or a medical related practice;
or
(v) the proposed subtenant or assignee is at the time Tenant seeks
Landlord's consent a bona fide prospective tenant of Landlord in the
Project, as demonstrated by active lease negotiations between such
proposed assignee or subtenant for space that would satisfy such
proposed assignee's or subtenant's entire requirements in the Project;
or
(vi) the proposed subtenant or assignee would materially increase the
estimated pedestrian and vehicular traffic to and from the Premises and
the Building.
In no event shall Landlord be obligated to consider a consent to any proposed
assignment of the Lease which would assign less than the entire Premises. In the
event Landlord wrongfully withholds its consent to any proposed sublease of the
Premises or assignment of the Lease, Tenant's sole and exclusive remedy therefor
shall be to seek specific performance of Landlord's obligations to consent to
such sublease or assignment.
(c) Any sublease or assignment shall be expressly subject to the terms
and conditions of this Lease. Any subtenant or assignee shall execute such
documents as Landlord may reasonably require to evidence such subtenant or
assignee's assumption of the obligations and liabilities of Tenant under this
Lease. Tenant shall deliver to Landlord a copy of all agreements executed by
Tenant and the proposed subtenant and assignee with respect to the Premises.
Landlord's approval of a sublease, assignment, hypothecation, transfer or third
party use or occupancy shall not constitute a waiver of Tenant's obligation to
obtain Landlord's consent to further assignments or subleases, hypothecations,
transfers or third party use or occupancy.
(d) For purposes of this Article Ten, an assignment shall be deemed to
include a change in the majority control of Tenant, resulting from any transfer,
sale or assignment of shares of stock of Tenant occurring by operation of Law or
otherwise if Tenant is a corporation whose shares of stock are not traded
publicly; provided, however, that a sale or transfer of shares in connection
with an initial public offering of Tenant's stock also shall not be deemed an
assignment. If Tenant is a partnership, any change in the general partners of
Tenant shall be deemed to be an assignment. Landlord's rights under Sections
10.02 and 10.03 shall not apply to any deemed assignment under this Section
10.01(d).
(e) Notwithstanding anything to the contrary contained in this Article
Ten and provided there is no uncured default under this Lease, Tenant shall have
the right, without the prior written consent of Landlord, to assign this Lease
to an Affiliate or to sublease the Premises or any part thereof to an Affiliate,
but (i) promptly following the effective date of the assignment or sublease, the
assignee shall execute documents reasonably satisfactory to Landlord to evidence
such assignee's assumption of the obligations and liabilities of Tenant under
this Lease, unless Landlord modifies or waives such requirement in the case of
any assignment which occurs by operation of law (and without a written
assignment) as a consequence of merger, consolidation or non-bankruptcy
reorganization, and the subtenant shall execute documents satisfactory to
Landlord to evidence that the sublease is subject to the terms and conditions of
this Lease and that the subtenant shall perform and be bound by all the terms
and conditions of this Lease (except payment of Monthly Base Rent and Rent
Adjustments hereunder and other obligations which the sublease expressly
provides are to be performed by Tenant as the sublessor) to the extent
applicable to the space and period covered by the sublease; (ii) within ten (10)
days after the effective date of such assignment or sublease, give notice to
Landlord which notice shall include the full name and address of the assignee or
subtenant, and a copy of all agreements executed between Tenant and the assignee
or subtenant with respect to the Premises or part thereof, as may be the case;
and (iii) within fifteen (15) days after Landlord's written
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request, provide such reasonable documents or information which Landlord
reasonably requests for the purpose of substantiating whether or not the
assignment or sublease is to an Affiliate. Landlord's rights under Sections
10.02 and 10.03 shall not apply to any assignment or sublease authorized under
this Section 10.01(e).
(f) Notwithstanding any contrary provision of this Article Ten, subject
to Section 1.01(16), Tenant may allow employees of companies to whom Tenant is
providing products or services, or with which Tenant is collaborating in the
development or provision of products or services, to work in the Premises
without Landlord's consent and without being deemed to have sublet any portion
of the Premises, so long as (A) such employees do not occupy more than ten
percent (10%) of the Rentable Area of the Premises, in the aggregate, at any one
time, and such space is not separately demised from the space occupied by Tenant
and (B) the number of such employees does not exceed ten percent (10%) of the
total number of persons regularly occupying the Premises. Landlord's rights
under Sections 10.02 and 10.03 shall not apply to any transaction authorized
under this Section 10.01(f).
10.02 RECAPTURE
Except as otherwise provided in Section 10.01, in case of an assignment of this
Lease or a sublease of all or any portion of the Premises for a term which
exceeds seventy-five percent (75%) of the remaining Lease Term, Landlord shall
have the option to exclude from the Premises covered by this Lease
("recapture"), the space proposed to be sublet or subject to the assignment,
effective as of the proposed commencement date of such sublease or assignment.
If Landlord elects to recapture, Tenant shall surrender possession of the space
proposed to be subleased or subject to the assignment to Landlord on the
effective date of recapture of such space from the Premises, such date being the
Termination Date for such space. Effective as of the date of recapture of any
portion of the Premises pursuant to this section, the Monthly Base Rent,
Rentable Area of the Premises and Tenant's Share shall be adjusted accordingly.
10.03 EXCESS RENT
Except as otherwise provided in Section 10.01, Tenant shall pay Landlord on the
first day of each month during the term of the sublease or assignment, fifty
percent (50%) of the amount by which the sum of all rent and other consideration
(direct or indirect) due from the subtenant or assignee, and attributable to the
sublease or assignment, for such month exceeds: (i) that portion of the Monthly
Base Rent and Rent Adjustments due under this Lease for said month which is
allocable to the space sublet or assigned; and (ii) the following costs and
expenses for the subletting or assignment of such space: (1) brokerage
commissions and attorneys' fees and expenses, (2) the actual costs paid in
making any improvements or substitutions in the Premises required by any
sublease or assignment; and (3) "free rent" periods, costs of any inducements or
concessions given to subtenant or assignee, moving costs, and other amounts in
respect of such subtenant's or assignee's other leases or occupancy
arrangements. All such costs and expenses shall be amortized over the term of
the sublease or assignment pursuant to sound accounting principles.
10.04 TENANT LIABILITY
In the event of any sublease or assignment, whether or not with Landlord's
consent, Tenant shall not be released or discharged from any liability, whether
past, present or future, under this Lease, including any liability arising from
the exercise of any renewal or expansion option, to the extent such exercise is
expressly permitted by Landlord. Tenant's liability shall remain primary, and in
the event of default by any subtenant, assignee or successor of Tenant in
performance or observance of any of the covenants or conditions of this Lease,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said subtenant, assignee or successor. After any assignment,
Landlord may consent to subsequent assignments or subletting of this Lease, or
amendments or modifications of this Lease with assignees of Tenant, without
notifying Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto, and such action shall not relieve Tenant or any successor of
Tenant of liability under this Lease; provided, however, that no such amendments
or modifications of this Lease shall increase Tenant's liability hereunder
beyond that which existed as of the date of the assignment. If Landlord grants
consent to such sublease or assignment, Tenant shall pay all reasonable
attorneys' fees and expenses incurred by Landlord with respect to such
assignment or sublease. In addition, if Tenant has any options to extend the
term of this Lease or to add other space to the Premises, such options shall not
be available to any subtenant or assignee, directly or indirectly without
Landlord's express written consent, which may be withheld in Landlord's sole
discretion. Such fees and expenses shall not exceed Two Thousand Dollars
($2,000.00) in any single instance.
10.05 ASSUMPTION AND ATTORNMENT
If Tenant shall assign this Lease as permitted herein, the assignee shall
expressly assume all of the obligations of Tenant hereunder in a written
instrument satisfactory to Landlord and furnished to Landlord: (i) in case of an
assignment for which Landlord's consent is not required, not later than fifteen
(15) days after the effective date of the assignment, and (ii) in all other
cases on or before the effective date of the assignment. If Tenant shall
sublease the Premises as permitted herein, Tenant shall, at Landlord's option,
within fifteen (15) days following any request by Landlord, obtain and furnish
to Landlord the written
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agreement of such subtenant to the effect that the subtenant will attorn to
Landlord and will pay all subrent directly to Landlord.
ARTICLE ELEVEN
DEFAULT AND REMEDIES
11.01 EVENTS OF DEFAULT
The occurrence or existence of any one or more of the following shall constitute
a "Default" by Tenant under this Lease:
(i) Tenant fails to pay any installment or other payment of
Rent including Rent Adjustment Deposits or Rent Adjustments within
three (3) days after the date when due;
(ii) Tenant fails to observe or perform any of the other
covenants, conditions or provisions of this Lease or the Workletter and
fails to cure such default within fifteen (15) days after written
notice thereof to Tenant, unless (A) the default involves a hazardous
condition, which shall be cured forthwith, or (B) the failure to
perform is a Default for which this Lease specifies there is no cure or
grace period, or (C) more than fifteen (15) days is reasonably needed
to cure such default, in which case Tenant shall not be in Default so
long as Tenant promptly commences and diligently and continuously
pursues to completion all actions required to effect such cure and in
all events no more than a total of ninety (90) days;
(iii) the interest of Tenant in this Lease is levied upon
under execution or other legal process;
(iv) a petition is filed by or against Tenant to declare
Tenant bankrupt or seeking a plan of reorganization or arrangement
under any Chapter of the Bankruptcy Act, or any amendment, replacement
or substitution therefor, or to delay payment of, reduce or modify
Tenant's debts, which in the case of an involuntary action is not
discharged within thirty (30) days;
(v) Tenant is declared insolvent by Law or any assignment of
Tenant's property is made for the benefit of creditors;
(vi) a receiver is appointed for Tenant or Tenant's property,
which appointment is not discharged within thirty (30) days;
(vii) any action taken by or against Tenant to reorganize or
modify Tenant's capital structure in a materially adverse way which in
the case of an involuntary action is not discharged within thirty (30)
days;
(viii) upon the dissolution of Tenant; or
(ix) upon the third occurrence within any Lease Year that
Tenant fails to pay Rent when due or has breached a particular covenant
of this Lease (whether or not such failure or breach is thereafter
cured within any stated cure or grace period or statutory period).
11.02 LANDLORD'S REMEDIES
(a) A Default shall constitute a breach of the Lease for which Landlord
shall have the rights and remedies set forth in this Section 11.02 and all other
rights and remedies set forth in this Lease or now or hereafter allowed by Law,
whether legal or equitable, and all rights and remedies of Landlord shall be
cumulative and, except as otherwise prohibited by applicable Law, none shall
exclude any other right or remedy.
(b) With respect to a Default, at any time Landlord may terminate
Tenant's right to possession by written notice to Tenant stating such election.
Any written notice required pursuant to Section 11.01 shall constitute notice of
unlawful detainer pursuant to California Code of Civil Procedure Section 1161
if, at Landlord's sole discretion, it states Landlord's election that Tenant's
right to possession is terminated after expiration of any period required by Law
or any longer period required by Section 11.01. Upon the expiration of the
period stated in Landlord's written notice of termination (and unless such
notice provides an option to cure within such period and Tenant cures the
Default within such period), Tenant's right to possession shall terminate and
this Lease shall terminate, and Tenant shall remain liable as hereinafter
provided. Upon such termination in writing of Tenant's right to possession,
Landlord shall have the right, subject to applicable Law, to re-enter the
Premises and dispossess Tenant and the legal representatives of Tenant and all
other occupants of the Premises by unlawful detainer or other summary
proceedings, or otherwise as permitted by Law, regain possession of the Premises
and remove their property (including their trade fixtures, personal property and
those Tenant Additions which Tenant is required or permitted to remove under
Article Twelve), but Landlord shall not be obligated to effect such removal, and
such property may, at Landlord's option, be stored elsewhere, sold or otherwise
dealt with as permitted by Law, at the risk of, expense of and for the account
of Tenant, and the proceeds of any sale shall be applied pursuant to Law.
Landlord shall in no event
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be responsible for the value, preservation or safekeeping of any such property.
Tenant hereby waives all claims for damages that may be caused by Landlord's
removing or storing Tenant's personal property pursuant to this Section or
Section 12.01, and Tenant hereby indemnifies, and agrees to defend, protect and
hold harmless, the Indemnitees from any and all loss, claims, demands, actions,
expenses, liability and cost (including attorneys' fees and expenses) arising
out of or in any way related to such removal or storage. Upon such written
termination of Tenant's right to possession and this Lease, Landlord shall have
the right to recover damages for Tenant's Default as provided herein or by Law,
including the following damages provided by California Civil Code Section
1951.2:
(1) the worth at the time of award of the unpaid Rent which
had been earned at the time of termination;
(2) 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 Rent loss that Tenant proves
could reasonably have been avoided;
(3) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the term of this Lease after the time of
award exceeds the amount of such Rent loss that Tenant proves could be
reasonably avoided; and
(4) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom. The word "rent" as used in this
Section 11.02 shall have the same meaning as the defined term Rent in
this Lease. The "worth at the time of award" of the amount referred to
in clauses (1) and (2) above is computed by allowing interest at the
Default Rate. The worth at the time of award of the amount referred to
in clause (3) above 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%). For the purpose of determining unpaid
Rent under clause (3) above, the monthly Rent reserved in this Lease
shall be deemed to be the sum of the Monthly Base Rent, monthly storage
space rent, if any, and the amounts last payable by Tenant as Rent
Adjustments for the calendar year in which Landlord terminated this
Lease as provided hereinabove.
(c) Even if Tenant is in Default and/or has abandoned the Premises,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession by written notice as provided in Section 11.02(b)
above, and Landlord may enforce all its rights and remedies under this Lease,
including the right to recover Rent as it becomes due under this Lease. In such
event, Landlord shall have all of the rights and remedies of a landlord under
California Civil Code Section 1951.4 (lessor may continue Lease in effect after
Tenant's Default and abandonment and recover Rent as it becomes due, if Tenant
has the right to sublet or assign, subject only to reasonable limitations), or
any successor statute. During such time as Tenant is in Default, if Landlord has
not terminated this Lease by written notice and if Tenant requests Landlord's
consent to an assignment of this Lease or a sublease of the Premises, subject to
Landlord's option to recapture pursuant to Section 10.02, Landlord shall not
unreasonably withhold its consent to such assignment or sublease. Tenant
acknowledges and agrees that the provisions of Article Ten shall be deemed to
constitute reasonable limitations of Tenant's right to assign or sublet. Tenant
acknowledges and agrees that in the absence of written notice pursuant to
Section 11.02(b) above terminating Tenant's right to possession, no other act of
Landlord shall constitute a termination of Tenant's right to possession or an
acceptance of Tenant's surrender of the Premises, including acts of maintenance
or preservation or efforts to relet the Premises or the appointment of a
receiver upon initiative of Landlord to protect Landlord's interest under this
Lease or the withholding of consent to a subletting or assignment, or
terminating a subletting or assignment, if in accordance with other provisions
of this Lease.
(d) In the event that Landlord seeks an injunction with respect to a
breach or threatened breach by Tenant of any of the covenants, conditions or
provisions of this Lease, Tenant agrees to pay the premium for any bond required
in connection with such injunction.
(e) Tenant hereby waives any and all rights to relief from forfeiture,
redemption or reinstatement granted by Law (including California Civil Code of
Procedure Sections 1174 and 1179) in the event of Tenant being evicted or
dispossessed for any cause or in the event of Landlord obtaining possession of
the Premises by reason of Tenant's Default or otherwise;
(f) When this Lease requires giving or service of a notice, that notice
shall replace rather than supplement any equivalent or similar statutory notice,
including any equivalent or similar notices required by California Code of Civil
Procedure Section 1161 or any similar or successor statute. When a statute
requires service of a notice in a particular manner, service of that notice (or
a similar notice required by this Lease) in the manner required by Article
Twenty-four shall replace and satisfy the statutory service-of-notice
procedures, including those required by Code of Civil Procedure section 1162 or
any similar or successor statute.
(g) The voluntary or other surrender or termination of this Lease, or a
mutual termination or cancellation thereof, shall not work a merger and shall
terminate all or any existing assignments, subleases,
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subtenancies or occupancies permitted by Tenant, except if and as otherwise
specified in writing by Landlord.
(h) No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant, and no exercise by Landlord of its rights
pursuant to Section 25.15 to perform any duty which Tenant fails timely to
perform, shall impair any right or remedy or be construed as a waiver. No
provision of this Lease shall be deemed waived by Landlord unless such waiver is
in a writing signed by Landlord. The waiver by Landlord of any breach of any
provision of this Lease shall not be deemed a waiver of any subsequent breach of
the same or any other provision of this Lease.
11.03 ATTORNEY'S FEES
In the event any party brings any suit or other proceeding with respect to the
subject matter or enforcement of this Lease, the prevailing party (as determined
by the court, agency or other authority before which such suit or proceeding is
commenced) shall, in addition to such other relief as may be awarded, be
entitled to recover attorneys' fees, expenses and costs of investigation as
actually incurred, including court costs, expert witness fees, costs and
expenses of investigation, and all attorneys' fees, costs and expenses in any
such suit or proceeding (including in any action or participation in or in
connection with any case or proceeding under the Bankruptcy Code, 11 United
States Code Sections 101 et seq., or any successor statutes, in establishing or
enforcing the right to indemnification, in appellate proceedings, or in
connection with the enforcement or collection of any judgment obtained in any
such suit or proceeding).
11.04 BANKRUPTCY
The following provisions shall apply in the event of the bankruptcy or
insolvency of Tenant:
(a) In connection with any proceeding under Chapter 7 of the Bankruptcy
Code where the trustee of Tenant elects to assume this Lease for the purposes of
assigning it, such election or assignment, may only be made upon compliance with
the provisions of (b) and (c) below, which conditions Landlord and Tenant
acknowledge to be commercially reasonable. In the event the trustee elects to
reject this Lease then Landlord shall immediately be entitled to possession of
the Premises without further obligation to Tenant or the trustee.
(b) Any election to assume this Lease under Chapter 11 or 13 of the
Bankruptcy Code by Tenant as debtor-in-possession or by Tenant's trustee (the
"Electing Party") must provide for:
The Electing Party to cure or provide to Landlord adequate assurance
that it will cure all monetary defaults under this Lease within fifteen
(15) days from the date of assumption and it will cure all nonmonetary
defaults under this Lease within thirty (30) days from the date of
assumption. Landlord and Tenant acknowledge such condition to be
commercially reasonable.
(c) If the Electing Party has assumed this Lease or elects to assign
Tenant's interest under this Lease to any other person, such interest may be
assigned only if the intended assignee has provided adequate assurance of future
performance (as herein defined), of all of the obligations imposed on Tenant
under this Lease.
For the purposes hereof, "adequate assurance of future performance"
means that Landlord has ascertained that each of the following
conditions has been satisfied:
(i) The assignee has submitted a current financial statement,
certified by its chief financial officer, which shows a net worth and
working capital in amounts sufficient to assure the future performance
by the assignee of Tenant's obligations under this Lease; and
(ii) Landlord has obtained consents or waivers from any third
parties which may be required under a lease, mortgage, financing
arrangement, or other agreement by which Landlord is bound, to enable
Landlord to permit such assignment.
(d) Landlord's acceptance of rent or any other payment from any
trustee, receiver, assignee, person, or other entity will not be deemed to have
waived, or waive, the requirement of Landlord's consent, Landlord's right to
terminate this Lease for any transfer of Tenant's interest under this Lease
without such consent, or Landlord's claim for any amount of Rent due from
Tenant.
11.05 LANDLORD'S DEFAULT
Landlord shall be in default hereunder in the event Landlord has not begun and
pursued with reasonable diligence the cure of any failure of Landlord to meet
its obligations hereunder within thirty (30) days after the receipt by Landlord
of written notice from Tenant of the alleged failure to perform. In no event
shall Tenant have the right to terminate or rescind this Lease as a result of
Landlord's default as to any covenant or agreement contained in this Lease.
Tenant hereby waives such remedies of termination and rescission and hereby
agrees that Tenant's remedies for default hereunder and for breach of any
promise or inducement shall be limited to a suit for damages and/or injunction.
In addition, Tenant hereby covenants that, prior to the
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exercise of any such remedies, it will give the Mortgagee notice and a
reasonable time to cure any default by Landlord.
ARTICLE TWELVE
SURRENDER OF PREMISES
12.01 IN GENERAL
Upon the Termination Date, Tenant shall surrender and vacate the Premises
immediately and deliver possession thereof to Landlord in a clean, good and
tenantable condition, ordinary wear and tear, and damage caused by Landlord or
by casualty or condemnation excepted. Tenant shall deliver to Landlord all keys
to the Premises. Tenant shall remove from the Premises all movable personal
property of Tenant and Tenant's trade fixtures, including, subject to Section
6.04, cabling for any of the foregoing. Tenant shall be entitled to remove such
Tenant Additions which at the time of their installation Landlord and Tenant
agreed may be removed by Tenant. Tenant shall also remove, as required by
Landlord: (a) any existing improvements in the Initial Premises or any Tenant
Alterations hereafter containing Hazardous Material, if any, and (b) any other
Tenant Alterations hereafter except for those Landlord approves without notice
to Tenant identifying which, if any, such improvements must be removed. Provided
however, Landlord shall be required at the time of approval to so notify Tenant
that removal is required only if, at the time Tenant requests such approval,
Tenant's request also specifies in all capital letters that Landlord must
identify any Tenant Alterations which Landlord will require Tenant to remove and
refers to this Section of the Lease, and if Tenant fails to so specify, then
Landlord has the right to require removal on or about the Termination Date.
Notwithstanding the foregoing: (i) if any of the existing improvements in the
Initial Premises or Tenant Additions hereafter which were installed by Tenant
involved the lowering of ceilings, raising of floors or the installation of
specialized wall or floor coverings or lights, then Tenant shall also be
obligated to return such surfaces to their condition prior to the commencement
of this Lease and (ii) Tenant shall also be required to close any staircases or
other openings between floors now existing or hereafter consented to by
Landlord. In the event possession of the Premises is not delivered to Landlord
when required hereunder, or if Tenant shall fail to remove those items described
above, Landlord may (but shall not be obligated to), at Tenant's expense, remove
any of such property and store, sell or otherwise deal with such property as
provided in Section 11.02(b), including the waiver and indemnity obligations
provided in that Section, and undertake, at Tenant's expense, such restoration
work as Landlord deems necessary or advisable.
12.02 LANDLORD'S RIGHTS
All property which may be removed from the Premises by Landlord shall be
conclusively presumed to have been abandoned by Tenant and Landlord may deal
with such property as provided in Section 11.02(b), including the waiver and
indemnity obligations provided in that Section. Tenant shall also reimburse
Landlord for all costs and expenses incurred by Landlord in removing any of
Tenant Additions and in restoring the Premises to the condition required by this
Lease at the Termination Date.
ARTICLE THIRTEEN
HOLDING OVER
Tenant shall pay Landlord the greater of (i) one hundred fifty percent (150%)
the monthly Rent payable for the month immediately preceding the holding over
(including increases for Rent Adjustments which Landlord may reasonably
estimate) or, (ii) one hundred fifty percent (150%) the fair market rental value
of the Premises as reasonably determined by Landlord for each month or portion
thereof that Tenant retains possession of the Premises, or any portion thereof,
after the Termination Date (without reduction for any partial month that Tenant
retains possession). Tenant shall also pay all damages sustained by Landlord by
reason of such retention of possession. The provisions of this Article shall not
constitute a waiver by Landlord of any re-entry rights of Landlord and Tenant's
continued occupancy of the Premises shall be as a tenancy in sufferance. If
Tenant retains possession of the Premises, or any part thereof for thirty (30)
days after the Termination Date then at the sole option of Landlord expressed by
written notice to Tenant, but not otherwise, such holding over shall constitute
an extension of the Term of this Lease for a period of one (1) year on the same
terms and conditions (including those with respect to the payment of Rent) as
provided in this Lease, except that the Monthly Base Rent for such period shall
be equal to the greater of (i) 150% of the Monthly Base Rent payable during the
month preceding the Termination Date, or (ii) 150% of the monthly base rent then
being quoted by Landlord for similar space in the Building.
ARTICLE FOURTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
14.01 SUBSTANTIAL UNTENANTABILITY
(a) If any fire or other casualty (whether insured or uninsured)
renders all or a substantial portion of the Premises or the Building
untenantable, Landlord shall, with reasonable promptness after the occurrence of
such damage, estimate the length of time that will be required to substantially
complete the repair and restoration and shall by notice advise Tenant of such
estimate ("Landlord's Notice"). If Landlord estimates that the amount of time
required to substantially complete such repair and restoration will exceed one
hundred eighty (180) days from the date such damage occurred, then Landlord, or
Tenant if all or a
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substantial portion of the Premises is rendered untenantable, shall have the
right to terminate this Lease as of the date of such damage upon giving written
notice to the other at any time within twenty (20) days after delivery of
Landlord's Notice, provided that if Landlord so chooses, Landlord's Notice may
also constitute such notice of termination.
(b) Unless this Lease is terminated as provided in the preceding
subparagraph, Landlord shall proceed with reasonable promptness to repair and
restore the Premises and the Building to its condition as existed prior to such
casualty, subject to reasonable delays for insurance adjustments and Force
Majeure delays, and also subject to Laws, including zoning laws and building
codes, then in effect. Landlord shall have no liability to Tenant, and Tenant
shall not be entitled to terminate this Lease if such repairs and restoration
are not in fact completed within the time period estimated by Landlord so long
as Landlord shall proceed with reasonable diligence to complete such repairs and
restoration.
(c) Tenant acknowledges that Landlord shall be entitled to the full
proceeds of any insurance coverage, whether carried by Landlord or Tenant, for
damages to the Premises, except for those proceeds of Tenant's insurance of its
own personal property and equipment which would be removable by Tenant at the
Termination Date. All such insurance proceeds shall be payable to Landlord
whether or not the Premises are to be repaired and restored, provided, however,
if this Lease is not terminated and the parties proceed to repair and restore
Tenant Additions at Tenant's cost, to the extent Landlord received proceeds of
Tenant's insurance covering Tenant Additions, such proceeds shall be applied to
reimburse Tenant for its cost of repairing and restoring Tenant Additions.
(d) Notwithstanding anything to the contrary herein set forth: (i)
Landlord shall have no duty pursuant to this Section to repair or restore any
portion of any Tenant Additions or to expend for any repair or restoration of
the Premises or Building amounts in excess of insurance proceeds paid to
Landlord and available for repair or restoration; and (ii) Tenant shall not have
the right to terminate this Lease pursuant to this Section if any damage or
destruction was caused by the act or neglect of Tenant, its agent or employees.
Whether or not the Lease is terminated pursuant to this Article Fourteen, in no
event shall Tenant be entitled to any compensation or damages for loss of the
use of the whole or any part of the Premises or for any inconvenience or
annoyance occasioned by any such damage, destruction, rebuilding or restoration
of the Premises or the Building or access thereto.
(e) Any repair or restoration of the Premises performed by Tenant shall
be in accordance with the provisions of Article Nine hereof.
14.02 INSUBSTANTIAL UNTENANTABILITY
If the Premises or the Building is damaged by a casualty but neither is rendered
substantially untenantable and Landlord estimates that the time to substantially
complete the repair or restoration will not exceed one hundred eighty (180) days
from the date such damage occurred, then Landlord shall proceed to repair and
restore the Building or the Premises other than Tenant Additions, with
reasonable promptness, unless such damage is to the Premises and occurs during
the last six (6) months of the Term, in which event either Tenant or Landlord
shall have the right to terminate this Lease as of the date of such casualty by
giving written notice thereof to the other within twenty (20) days after the
date of such casualty. Notwithstanding the foregoing, Landlord's obligation to
repair shall be limited in accordance with the provisions of Section 14.01
above.
14.03 RENT ABATEMENT
Except for the negligence or willful act of Tenant or its agents, employees,
contractors or invitees, if all or any part of the Premises are rendered
untenantable by fire or other casualty and this Lease is not terminated, Monthly
Base Rent and Rent Adjustments shall abate for that part of the Premises which
is untenantable on a per diem basis from the date of the casualty until Landlord
has Substantially Completed the repair and restoration work in the Premises
which it is required to perform, provided, that as a result of such casualty,
Tenant does not occupy the portion of the Premises which is untenantable during
such period.
14.04 WAIVER OF STATUTORY REMEDIES
The provisions of this Lease, including this Article Fourteen, constitute an
express agreement between Landlord and Tenant with respect to any and all damage
to, or destruction of, the Premises or the Property or any part of either, and
any Law, including Sections 1932(2), 1933(4), 1941 and 1942 of the California
Civil Code, with respect to any rights or obligations concerning damage or
destruction shall have no application to this Lease or to any damage to or
destruction of all or any part of the Premises or the Property or any part of
either, and are hereby waived.
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ARTICLE FIFTEEN
EMINENT DOMAIN
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
In the event the whole or any substantial part of the Building or of the
Premises is taken or condemned by any competent authority for any public use or
purpose (including a deed given in lieu of condemnation) and is thereby rendered
untenantable, this Lease shall terminate as of the date title vests in such
authority, and Monthly Base Rent and Rent Adjustments shall be apportioned as of
the Termination Date. Notwithstanding anything to the contrary herein set forth,
in the event the taking is temporary (for less than twelve (12) months or the
remaining term of the Lease, whichever is less), Landlord may elect either (i)
to terminate this Lease or (ii) to permit Tenant to receive the entire award
attributable to the Premises in which case Tenant shall continue to pay Rent and
this Lease shall not terminate.
15.02 TAKING OF PART
In the event a part of the Building or the Premises is taken or condemned by any
competent authority (or a deed is delivered in lieu of condemnation) and this
Lease is not terminated, the Lease shall be amended to reduce or increase, as
the case may be, the Monthly Base Rent and Tenant's Proportionate Share to
reflect the Rentable Area of the Premises or Building, as the case may be,
remaining after any such taking or condemnation. Landlord, upon receipt and to
the extent of the award in condemnation (or proceeds of sale) shall make
necessary repairs and restorations to the Premises (exclusive of Tenant
Additions) and to the Building to the extent necessary to constitute the portion
of the Building not so taken or condemned as a complete architectural and
economically efficient unit. Notwithstanding the foregoing, if as a result of
any taking, or a governmental order that the grade of any street or alley
adjacent to the Building is to be changed and such taking or change of grade
makes it necessary or desirable to substantially remodel or restore the Building
or prevents the economical operation of the Building, Landlord shall have the
right to terminate this Lease upon ninety (90) days prior written notice to
Tenant.
15.03 COMPENSATION
Landlord shall be entitled to receive the entire award (or sale proceeds) from
any such taking, condemnation or sale without any payment to Tenant, and Tenant
hereby assigns to Landlord Tenant's interest, if any, in such award; provided,
however, Tenant shall have the right separately to pursue against the condemning
authority a separate award in respect of the loss, if any, to Tenant's personal
property, trade fixtures and Tenant Additions paid for by Tenant, as well as
expenses for relocation, without any credit or allowance from Landlord so long
as there is no diminution of Landlord's award as a result.
ARTICLE SIXTEEN
INSURANCE
16.01 TENANT'S INSURANCE
Tenant, at Tenant's expense, agrees to maintain in force, with a company or
companies reasonably acceptable to Landlord, during the Term: (a) Commercial
General Liability Insurance on a primary basis and without any right of
contribution from any insurance carried by Landlord covering the Premises on an
occurrence basis against all claims for personal injury, bodily injury, death
and property damage, including contractual liability covering the
indemnification provisions in this Lease. Such insurance shall be for such
limits that are reasonably required by Landlord from time to time but not less
than a combined single limit of Five Million and No/100 Dollars ($5,000,000.00);
(b) Workers' Compensation and Employers' Liability Insurance to the extent
required by and in accordance with the Laws of the State of California; (c) "All
Risks" property insurance in an amount adequate to cover the full replacement
cost of all Tenant Additions to the Premises, equipment, installations, fixtures
and contents of the Premises in the event of loss; (d) In the event a motor
vehicle is to be used by Tenant in connection with its business operation from
the Premises, Comprehensive Automobile Liability Insurance coverage with limits
of not less than Three Million and No/100 Dollars ($3,000,000.00) combined
single limit coverage against bodily injury liability and property damage
liability arising out of the use by or on behalf of Tenant, its agents and
employees in connection with this Lease, of any owned, non-owned or hired motor
vehicles; and (e) such other insurance or coverages as Landlord reasonably
requires and customarily are maintained by tenants of the Comparable Buildings.
16.02 FORM OF POLICIES
Each policy referred to in 16.01 shall satisfy the following requirements. Each
policy shall (i) name Landlord and the Indemnitees as additional insureds
(except Workers' Compensation and Employers' Liability Insurance), (ii) be
issued by one or more responsible insurance companies licensed to do business in
the State of California reasonably satisfactory to Landlord, (iii) where
applicable, provide for deductible amounts satisfactory to Landlord and not
permit co-insurance, (iv) shall provide that such insurance may not be canceled
or amended without ten (10) days' prior written notice to the Landlord, and (v)
each policy of "All-Risks" property insurance shall provide that the policy
shall not be invalidated should the insured waive in writing prior to a loss,
any or all rights of recovery against any other party for losses covered by such
policies. Tenant shall deliver to Landlord, certificates for all policies and
renewals thereof to be maintained by Tenant hereunder, prior to the Commencement
Date and not less than ten (10) days prior to the expiration date of each
policy.
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16.03 LANDLORD'S INSURANCE
Landlord agrees to purchase and keep in full force and effect during the Term
hereof, including any extensions or renewals thereof, insurance under policies
issued by insurers of recognized responsibility, qualified to do business in the
State of California on the Building in amounts not less than the greater of
eighty (80%) percent of the then full replacement cost (without depreciation) of
the Building (above foundations and excluding Tenant Additions to the Premises)
or an amount sufficient to prevent Landlord from becoming a co-insurer under the
terms of the applicable policies, against fire and such other risks as may be
included in standard forms of all risk coverage insurance reasonably available
from time to time. Landlord agrees to maintain in force during the Term,
Commercial General Liability Insurance covering the Building on an occurrence
basis against all claims for personal injury, bodily injury, death and property
damage. Such insurance shall be for a combined single limit of Five Million and
No/100 Dollars ($5,000,000.00). Neither Landlord's obligation to carry such
insurance nor the carrying of such insurance shall be deemed to be an indemnity
by Landlord with respect to any claim, liability, loss, cost or expense due, in
whole or in part, to Tenant's negligent acts or omissions or willful misconduct.
Without obligation to do so, Landlord may, in its sole discretion from time to
time, carry insurance in amounts greater and/or for coverage additional to the
coverage and amounts set forth above.
16.04 WAIVER OF SUBROGATION
(a) Landlord agrees that, if obtainable at no, or minimal, additional
cost, and so long as the same is permitted under the laws of the State of
California, it will include in its "All Risks" policies appropriate clauses
pursuant to which the insurance companies (i) waive all right of subrogation
against Tenant with respect to losses payable under such policies and/or (ii)
agree that such policies shall not be invalidated should the insured waive in
writing prior to a loss any or all right of recovery against any party for
losses covered by such policies.
(b) Tenant agrees to include, if obtainable at no, or minimal,
additional cost, and so long as the same is permitted under the laws of the
State of California, in its "All Risks" insurance policy or policies on Tenant
Additions to the Premises, whether or not removable, and on Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions of this Lease appropriate clauses pursuant to which the insurance
company or companies (i) waive the right of subrogation against Landlord and/or
any tenant of space in the Building with respect to losses payable under such
policy or policies and/or (ii) agree that such policy or policies shall not be
invalidated should the insured waive in writing prior to a loss any or all right
of recovery against any party for losses covered by such policy or policies. If
Tenant is unable to obtain in such policy or policies either of the clauses
described in the preceding sentence, Tenant shall, if legally possible and
without necessitating a change in insurance carriers, have Landlord named in
such policy or policies as an additional insured. If Landlord shall be named as
an additional insured in accordance with the foregoing, Landlord agrees to
endorse promptly to the order of Tenant, without recourse, any check, draft, or
order for the payment of money representing the proceeds of any such policy or
representing any other payment growing out of or connected with said policies,
and Landlord does hereby irrevocably waive any and all rights in and to such
proceeds and payments.
(c) Provided that Landlord's right of full recovery under its policy or
policies aforesaid is not adversely affected or prejudiced thereby, Landlord
hereby waives any and all right of recovery which it might otherwise have
against Tenant, its servants, agents and employees, for loss or damage occurring
to the Real Property and the fixtures, appurtenances and equipment therein,
except Tenant Additions, to the extent the same is covered by Landlord's
insurance, notwithstanding that such loss or damage may result from the
negligence or fault of Tenant, its servants, agents or employees. Provided that
Tenant's right of full recovery under its aforesaid policy or policies is not
adversely affected or prejudiced thereby, Tenant hereby waives any and all right
of recovery which it might otherwise have against Landlord, its servants, and
employees and against every other tenant of the Real Property who shall have
executed a similar waiver as set forth in this Section 16.04 (c) for loss or
damage to Tenant Additions, whether or not removable, and to Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions hereof to the extent the same is coverable by Tenant's insurance
required under this Lease, notwithstanding that such loss or damage may result
from the negligence or fault of Landlord, its servants, agents or employees, or
such other tenant and the servants, agents or employees thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly if
the clauses to be included in their respective insurance policies pursuant to
subparagraphs (a) and (b) above cannot be obtained on the terms hereinbefore
provided and thereafter to furnish the other with a certificate of insurance or
copy of such policies showing the naming of the other as an additional insured,
as aforesaid. Landlord and Tenant hereby also agree to notify the other promptly
of any cancellation or change of the terms of any such policy which would affect
such clauses or naming. All such policies which name both Landlord and Tenant as
additional insureds shall, to the extent obtainable, contain agreements by the
insurers to the effect that no act or omission of any additional insured will
invalidate the policy as to the other additional insureds.
16.05 NOTICE OF CASUALTY
Tenant shall give Landlord notice in case of a fire or accident in the Premises
promptly after Tenant is aware of such event.
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ARTICLE SEVENTEEN
WAIVER OF CLAIMS AND INDEMNITY
17.01 WAIVER OF CLAIMS
To the extent permitted by Law, Tenant releases the Indemnitees from, and waives
all claims for, damage to person or property sustained by the Tenant or any
occupant of the Premises or the Property resulting directly or indirectly from
any existing or future condition, defect, matter or thing in and about the
Premises or the Property or any part of either or any equipment or appurtenance
therein, or resulting from any accident in or about the Premises or the
Property, or resulting directly or indirectly from any act or neglect of any
tenant or occupant of the Property or of any other person, including Landlord's
agents and servants, except to the extent caused by the gross negligence or
willful misconduct of any of Indemnitees, but the foregoing exception is subject
to and shall not diminish any waivers by Tenant or Landlord or their respective
insurers in effect in accordance with Section 16.04. To the extent permitted by
Law, Tenant hereby waives any consequential damages, compensation or claims for
inconvenience or loss of business, rents, or profits as a result of such injury
or damage, whether or not caused by the gross negligence or willful misconduct
of any of Indemnitees. If any such damage, whether to the Premises or the
Property or any part of either, or whether to Landlord or to other tenants in
the Property, results from any act or neglect of Tenant, its employees,
servants, agents, contractors, invitees or customers, Tenant shall be liable
therefor and Landlord may, at Landlord's option, repair such damage and Tenant
shall, upon demand by Landlord, as payment of additional Rent hereunder,
reimburse Landlord within ten (10) days of demand for the total cost of such
repairs, in excess of amounts, if any, paid to Landlord under insurance covering
such damages. Tenant shall not be liable for any such damage caused by its acts
or neglect if Landlord or a tenant has recovered for the damage from proceeds of
insurance policies and the insurance company has waived its right of subrogation
against Tenant.
17.02 INDEMNITY BY TENANT
To the extent permitted by Law, Tenant hereby indemnifies, and agrees to
protect, defend and hold the Indemnitees harmless, against any and all actions,
claims, demands, liability, costs and expenses, including attorneys' fees and
expenses for the defense thereof, arising from Tenant's occupancy of the
Premises, from the undertaking of any Tenant Additions or repairs to the
Premises, from the conduct of Tenant's business on the Premises, or from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the terms of this
Lease, or from any willful act or negligence of Tenant, its agents, contractors,
servants, employees, customers or invitees, in or about the Premises or the
Property or any part of either. In case of any action or proceeding brought
against the Indemnitees by reason of any such claim, upon notice from Landlord,
Tenant covenants to defend such action or proceeding by counsel chosen by
Landlord, in Landlord's sole discretion. Landlord reserves the right to settle,
compromise or dispose of any and all actions, claims and demands related to the
foregoing indemnity. The foregoing indemnity shall not operate to relieve any
Indemnitee of liability to the extent its share of such liability is caused by
its gross negligence or willful misconduct. Further, the foregoing indemnity and
exception is subject to and shall not diminish any waivers in effect in
accordance with Section 16.04 by Landlord or its insurers to the extent of
amounts, if any, paid to Landlord under its "All-Risks" property insurance.
ARTICLE EIGHTEEN
RULES AND REGULATIONS
18.01 RULES
Tenant agrees for itself and for its subtenants, employees, agents, and invitees
to comply with the rules and regulations listed on Exhibit C attached hereto and
with all reasonable modifications and additions thereto which Landlord may make
from time to time. In the case of any conflict between this Lease and the rules
and regulations, this Lease shall control.
18.02 ENFORCEMENT
Nothing in this Lease shall be construed to impose upon the Landlord any duty or
obligation to enforce the rules and regulations as set forth on Exhibit C or as
hereafter adopted, or the terms, covenants or conditions of any other lease as
against any other tenant, and the Landlord shall not be liable to the Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees. Landlord shall use reasonable efforts to enforce the
rules and regulations of the Building in a uniform and non-discriminatory
manner.
ARTICLE NINETEEN
LANDLORD'S RESERVED RIGHTS
Landlord shall have the following rights exercisable without notice to Tenant
(except as hereinbelow provided) and without liability to Tenant for damage or
injury to persons, property or business and without being deemed an eviction or
disturbance of Tenant's use or possession of the Premises or giving rise to any
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claim for offset or abatement of Rent: (1) to change the Building's name or
street address upon thirty (30) days' prior written notice to Tenant; (2) to
install, affix and maintain all signs on the exterior and/or interior of the
Building; (3) to designate and/or approve prior to installation, all types of
signs, window shades, blinds, drapes, awnings or other similar items, and all
internal lighting that may be visible from the exterior of the Premises; (4)
upon reasonable notice to Tenant, to display the Premises to prospective
purchasers at reasonable hours at any time during the Term and to prospective
tenants at reasonable hours during the last twelve (12) months of the Term; (5)
to grant to any party the exclusive right to conduct any business or render any
service in or to the Building, provided such exclusive right shall not operate
to prohibit Tenant from using the Premises for the purpose permitted hereunder;
(6) to change the arrangement and/or location of entrances or passageways, doors
and doorways, corridors, elevators, stairs, washrooms or public portions of the
Building, and to close entrances, doors, corridors, elevators or other
facilities, provided that such action shall not materially and adversely
interfere with Tenant's access to the Premises or the Building or the
appurtenant areas serving the Premises and the Building; (7) to have access for
Landlord and other tenants of the Building to any mail chutes and boxes located
in or on the Premises as required by any applicable rules of the United States
Post Office; and (8) to close the Building after Standard Operating Hours,
except that Tenant and its employees and invitees shall be entitled to admission
at all times, under such regulations as Landlord prescribes for security
purposes.
ARTICLE TWENTY
ESTOPPEL CERTIFICATE
20.01 IN GENERAL
Within fifteen (15) days after request therefor by Landlord, Mortgagee or any
prospective mortgagee or owner, Tenant agrees as directed in such request to
execute an Estoppel Certificate in recordable form, binding upon Tenant as
against any Mortgagee or prospective mortgagee or purchaser, certifying (i) that
this Lease is unmodified and in full force and effect (or if there have been
modifications, a description of such modifications and that this Lease as
modified is in full force and effect); (ii) the dates to which Rent has been
paid; (iii) that Tenant is in the possession of the Premises if that is the
case; (iv) that to Tenant's knowledge Landlord is not in default under this
Lease, or, if Tenant believes Landlord is in default, the nature thereof in
detail; (v) that Tenant has no offsets or defenses to the performance of its
obligations under this Lease (or if Tenant believes there are any offsets or
defenses, a full and complete explanation thereof); (vi) that the Premises have
been completed in accordance with the terms and provisions hereof or the
Workletter, that Tenant has accepted the Premises and the condition thereof and
of all improvements thereto and has no claims against Landlord or any other
party with respect thereto; (vii) that if an assignment of rents or leases has
been served upon the Tenant by a Mortgagee, Tenant will acknowledge receipt
thereof and agree to be bound by the provisions thereof; (viii) that Tenant will
give to the Mortgagee copies of all notices required or permitted to be given by
Tenant to Landlord; and (ix) to any other information reasonably requested.
20.02 ENFORCEMENT
In the event that Tenant fails to deliver an Estoppel Certificate and such
failure continues for more than ten (10) days after request, then such failure
shall be a Default for which there shall be no cure or grace period. In addition
to any other remedy available to Landlord, Landlord may impose a charge equal to
$500.00 for each day that Tenant thereafter fails after such ten (10) days prior
to deliver an Estoppel Certificate.
ARTICLE TWENTY-ONE
RELOCATION OF TENANT
(Intentionally Omitted)
ARTICLE TWENTY-TWO
REAL ESTATE BROKERS
Tenant represents that, except for the broker(s) listed in Section 1.01(18),
Tenant has not dealt with any real estate broker, sales person, or finder in
connection with this Lease, and no such person initiated or participated in the
negotiation of this Lease, or showed the Premises to Tenant. Tenant hereby
agrees to indemnify, protect, defend and hold Landlord and the Indemnitees,
harmless from and against any and all liabilities and claims for commissions and
fees arising out of a breach of the foregoing representation. Landlord agrees to
pay any commission to which Landlord's Broker listed in Section 1.01(18) is
entitled in connection with this Lease pursuant to Landlord's written agreement
with such broker. Landlord and Tenant agree that any commission payable to
Tenant's Broker shall be paid by Tenant except to the extent Tenant's Broker and
Landlord's Broker have entered into a separate agreement between themselves to
share the commission paid to Landlord's Broker by Landlord.
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ARTICLE TWENTY-THREE
MORTGAGEE PROTECTION
23.01 SUBORDINATION AND ATTORNMENT
(a) Subject to Section 23.01(b) hereof, this Lease is and shall be
expressly subject and subordinate at all times to (i) any ground or underlying
lease of the Real Property, now or hereafter existing, and all amendments,
extensions, renewals and modifications to any such lease, and (ii) the lien of
any mortgage or trust deed now or hereafter encumbering fee title to the Real
Property and/or the leasehold estate under any such lease, and all amendments,
extensions, renewals, replacements and modifications of such mortgage or trust
deed and/or the obligation secured thereby, unless such ground lease or ground
lessor, or mortgage, trust deed or Mortgagee, expressly provides or elects that
the Lease shall be superior to such lease or mortgage or trust deed. If any such
mortgage or trust deed is foreclosed (including any sale of the Real Property
pursuant to a power of sale), or if any such lease is terminated, upon request
of the Mortgagee or ground lessor, as the case may be, Tenant shall attorn to
the purchaser at the foreclosure sale or to the ground lessor under such lease,
as the case may be, provided, however, that such purchaser or ground lessor
shall not be (i) bound by any payment of Rent for more than one month in advance
except payments in the nature of security for the performance by Tenant of its
obligations under this Lease; (ii) subject to any offset, defense or damages
arising out of a default of any obligations of any preceding Landlord; or (iii)
bound by any amendment or modification of this Lease made without the written
consent of the Mortgagee or ground lessor; or (iv) liable for any security
deposits not actually received in cash by such purchaser or ground lessor. This
subordination shall be self-operative and no further certificate or instrument
of subordination need be required by any such Mortgagee or ground lessor. In
confirmation of such subordination, however, Tenant shall execute promptly any
reasonable certificate or instrument that Landlord, Mortgagee or ground lessor
may request. Upon request by such successor in interest, Tenant shall execute
and deliver reasonable instruments confirming the attornment provided for
herein.
(b) Notwithstanding any provision of the Lease to the contrary,
provided that: (i) Tenant pays any fees and costs associated with requesting a
nondisturbance agreement, (ii) executes and delivers a subordination,
nondisturbance and attornment agreement substantially in the form of Exhibit E
hereto, with such changes thereto as any lessor under a ground or underlying
lease or mortgagee or beneficiary may reasonably require ("Nondisturbance
Agreement") and complies with the provisions thereof, and (iii) Tenant is not in
default under this Lease, no termination of any ground lease or underlying lease
and no foreclosure, sale pursuant to power of sale or conveyance by deed in lieu
of foreclosure shall affect Tenant's rights under this Lease, except to the
extent provided by such NonDisturbance Agreement. Landlord's inability to obtain
the signature of any such lessor or Mortgagee on any such Nondisturbance
Agreement shall not constitute a default by Landlord under this Lease, but so
long as default by Tenant under this Lease is not the reason for Landlord's
inability to obtain such signature, any such lessor or Mortgagee shall be deemed
to have elected that this Lease be superior to the lease, mortgage or deed of
trust in question, and Tenant shall, at the request of such lessor, mortgagee or
beneficiary (or purchaser at any sale pursuant to the mortgage or deed of
trust), attorn to any such party or enter into a new lease with such party (as
Landlord) for the balance of the Term then remaining hereunder upon the same
terms and conditions as those herein, provided, however, that such party shall
not be (i) bound by any payment of Rent for more than one month in advance
except payments in the nature of security for the performance by Tenant of its
obligations under this Lease; (ii) subject to any offset, defense or damages
arising out of a default of any obligations of any preceding Landlord; or (iii)
bound by any amendment or modification of this Lease made without the written
consent of the Mortgagee or ground lessor; or (iv) liable for any security
deposits not actually received in cash by such purchaser or ground lessor. Upon
request by such successor in interest, Tenant shall execute and deliver
reasonable instruments confirming the attornment provided for herein.
23.02 MORTGAGEE PROTECTION
Tenant agrees to give any Mortgagee or ground lessor, by registered or certified
mail, a copy of any notice of default served upon the Landlord by Tenant,
provided that prior to such notice Tenant has received notice (by way of service
on Tenant of a copy of an assignment of rents and leases, or otherwise) of the
address of such Mortgagee or ground lessor. Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the Mortgagee or ground lessor shall have an additional thirty
(30) days after receipt of notice thereof within which to cure such default or
if such default cannot be cured within that time, then such additional notice
time as may be necessary, if, within such thirty (30) days, any Mortgagee or
ground lessor has commenced and is diligently pursuing the remedies necessary to
cure such default (including appointment of a receiver or commencement of
foreclosure proceedings or other proceedings to acquire possession of the Real
Property, if necessary to effect such cure). Such period of time shall be
extended by any period within which such Mortgagee or ground lessor is prevented
from commencing or pursuing such foreclosure proceedings or other proceedings to
acquire possession of the Real Property by reason of Landlord's bankruptcy.
Until the time allowed as aforesaid for Mortgagee or ground lessor to cure such
defaults has expired without cure, Tenant shall have no right to, and shall not,
terminate this Lease on account of default. This Lease may not be modified or
amended so as to reduce the Rent or shorten the Term, or so as to adversely
affect in any other respect to any material extent the rights of the Landlord,
nor shall this Lease be canceled or surrendered, without the prior written
consent, in each instance, of the ground lessor or the Mortgagee.
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ARTICLE TWENTY-FOUR
NOTICES
(a) All notices, demands or requests provided for or permitted to be
given pursuant to this Lease must be in writing and shall be personally
delivered, sent by Federal Express or other reputable overnight courier service,
or mailed by first class, registered or certified United States mail, return
receipt requested, postage prepaid.
(b) All notices, demands or requests to be sent pursuant to this Lease
shall be deemed to have been properly given or served by delivering or sending
the same in accordance with this Section, addressed to the parties hereto at
their respective addresses listed in Sections 1.01(2) and (3).
(c) Notices, demands or requests sent by mail or overnight courier
service as described above shall be effective upon deposit in the mail or with
such courier service. However, the time period in which a response to any such
notice, demand or request must be given shall commence to run from (i) in the
case of delivery by mail, the date of receipt on the return receipt of the
notice, demand or request by the addressee thereof, or (ii) in the case of
delivery by Federal Express or other overnight courier service, the date of
acceptance of delivery by an employee, officer, director or partner of Landlord
or Tenant. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given, as indicated by advice
from Federal Express or other overnight courier service or by mail return
receipt, shall be deemed to be receipt of notice, demand or request sent.
Notices may also be served by personal service upon any officer, director or
partner of Landlord or Tenant, and shall be effective upon such service.
(d) By giving to the other party at least thirty (30) days written
notice thereof, either party shall have the right from time to time during the
term of this Lease to change their respective addresses for notices, statements,
demands and requests, provided such new address shall be within the United
States of America.
ARTICLE TWENTY-FIVE
MISCELLANEOUS
25.01 LATE CHARGES
(a) All payments required hereunder (other than the Monthly Base Rent,
Rent Adjustments, and Rent Adjustment Deposits, which shall be due as
hereinbefore provided) to Landlord shall be paid within ten (10) days after
Landlord's demand therefor. All such amounts (including Monthly Base Rent, Rent
Adjustments, and Rent Adjustment Deposits) not paid when due shall bear interest
from the date due until the date paid at the Default Rate in effect on the date
such payment was due.
(b) In the event Tenant is more than five (5) days late in paying any
installment of Rent due under this Lease, Tenant shall pay Landlord a late
charge equal to three percent (3%) of the delinquent installment of Rent. The
parties agree that (i) such delinquency will cause Landlord to incur costs and
expenses not contemplated herein, the exact amount of which will be difficult to
calculate, including the cost and expense that will be incurred by Landlord in
processing each delinquent payment of rent by Tenant, (ii) the amount of such
late charge represents a reasonable estimate of such costs and expenses and that
such late charge shall be paid to Landlord for each delinquent payment in
addition to all Rent otherwise due hereunder. The parties further agree that the
payment of late charges and the payment of interest provided for in subparagraph
(a) above are distinct and separate from one another in that the payment of
interest is to compensate Landlord for its inability to use the money improperly
withheld by Tenant, while the payment of late charges is to compensate Landlord
for its additional administrative expenses in handling and processing delinquent
payments. Notwithstanding the foregoing, on no more than one occasion during
each twelve (12) months during the Lease Term, Landlord shall provide Tenant
with a notice of delinquency and no late charge shall be due if Tenant pays the
delinquent amount within five (5) days after receipt of such notice.
(c) Payment of interest at the Default Rate and/or of late charges
shall not excuse or cure any default by Tenant under this Lease, nor shall the
foregoing provisions of this Article or any such payments prevent Landlord from
exercising any right or remedy available to Landlord upon Tenant's failure to
pay Rent when due, including the right to terminate this Lease.
25.02 NO JURY TRIAL; VENUE; JURISDICTION
Each party hereto (which includes any assignee, successor, heir or personal
representative of a party) shall not seek a jury trial, hereby waives trial by
jury, and hereby further waives any objection to venue in the County in which
the Project is located, and agrees and consents to personal jurisdiction of the
courts of the State of California, in any action or proceeding or counterclaim
brought by any party hereto against the other on any matter whatsoever arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or
damage, or the enforcement of any remedy under any statute, emergency or
otherwise, whether any of the foregoing is based on this Lease or on tort law.
No party will seek to consolidate any such action in which a jury has been
waived with any other action in which a jury trial cannot or has not been
waived. It is the intention of
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the parties that these provisions shall be subject to no exceptions. By
execution of this Lease the parties agree that this provision may be filed by
any party hereto with the clerk or judge before whom any action is instituted,
which filing shall constitute the written consent to a waiver of jury trial
pursuant to and in accordance with Section 631 of the California Code of Civil
Procedure. No party has in any way agreed with or represented to any other party
that the provisions of this Section will not be fully enforced in all instances.
The provisions of this Section shall survive the expiration or earlier
termination of this Lease.
25.03 DEFAULT UNDER OTHER LEASE
It shall be a Default under this Lease if Tenant under any other lease with
Landlord for premises in the Project defaults under such lease and as a result
thereof such lease is terminated or terminable.
25.04 OPTION
This Lease shall not become effective as a lease or otherwise until executed and
delivered by both Landlord and Tenant. The submission of the Lease to Tenant
does not constitute a reservation of or option for the Premises, but when
executed by Tenant and delivered to Landlord, the Lease shall constitute an
irrevocable offer by Tenant in effect for fifteen (15) days to lease the
Premises on the terms and conditions herein contained.
25.05 TENANT AUTHORITY
Tenant represents and warrants to Landlord that it has full authority and power
to enter into and perform its obligations under this Lease, that the person
executing this Lease is fully empowered to do so, and that no consent or
authorization is necessary from any third party. Landlord may request that
Tenant provide Landlord evidence of Tenant's authority.
25.06 ENTIRE AGREEMENT
This Lease, the Exhibits attached hereto and the Workletter contain the entire
agreement between Landlord and Tenant concerning the Premises and there are no
other agreements, either oral or written, and no other representations or
statements, either oral or written, on which Tenant has relied. This Lease shall
not be modified except by a writing executed by Landlord and Tenant.
25.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE
If Mortgagee of Landlord requires a modification of this Lease which shall not
result in any increased cost or expense to Tenant or in any other substantial
and adverse change in the rights and obligations of Tenant hereunder, then
Tenant agrees that the Lease may be so modified.
25.08 EXCULPATION
Tenant agrees, on its behalf and on behalf of its successors and assigns, that
any liability or obligation of Landlord in connection with this Lease shall only
be enforced against Landlord's equity interest in the Property up to a maximum
of Five Million Dollars ($5,000,000.00) and in no event against any other assets
of the Landlord, or Landlord's officers or directors or partners, and that any
liability of Landlord with respect to this Lease shall be so limited and Tenant
shall not be entitled to any judgment in excess of such amount.
25.09 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than any
installment or payment of Rent due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or any letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment of Rent
or pursue any other remedies available to Landlord. No receipt of money by
Landlord from Tenant after the termination of this Lease or Tenant's right of
possession of the Premises shall reinstate, continue or extend the Term. Receipt
or acceptance of payment from anyone other than Tenant, including an assignee of
Tenant, is not a waiver of any breach of Article Ten, and Landlord may accept
such payment on account of the amount due without prejudice to Landlord's right
to pursue any remedies available to Landlord.
25.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING
In the event of any sale or other transfer of the Building, Landlord shall be
entirely freed and relieved of all agreements and obligations of Landlord
hereunder accruing or to be performed after the date of such sale or transfer,
and any remaining liability of Landlord with respect to this Lease shall be
limited to Five Million Dollars ($5,000,000.00) and Tenant shall not be entitled
to any judgment in excess of such amount.
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25.11 BINDING EFFECT
Subject to the provisions of Article Ten, this Lease shall be binding upon and
inure to the benefit of Landlord and Tenant and their respective heirs, legal
representatives, successors and permitted assigns.
25.12 CAPTIONS
The Article and Section captions in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe, or describe the scope or
intent of such Articles and Sections.
25.13 TIME; APPLICABLE LAW; CONSTRUCTION
Time is of the essence of this Lease and each and all of its provisions. This
Lease shall be construed in accordance with the Laws of the State of California.
If more than one person signs this Lease as Tenant, the obligations hereunder
imposed shall be joint and several. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each item, covenant or condition of this Lease shall be
valid and be enforced to the fullest extent permitted by Law. Wherever the term
"including" or "includes" is used in this Lease, it shall have the same meaning
as if followed by the phrase "but not limited to". The language in all parts of
this Lease shall be construed according to its normal and usual meaning and not
strictly for or against either Landlord or Tenant.
25.14 ABANDONMENT
(Intentionally Omitted)
25.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES
If Tenant fails timely to perform any of its duties under this Lease or the
Workletter, Landlord shall have the right (but not the obligation), to perform
such duty on behalf and at the expense of Tenant with not less than three (3)
days prior notice to Tenant (except in the case of an emergency, or in which
case notice as is reasonable under the circumstances), and all sums expended or
expenses incurred by Landlord in performing such duty shall be deemed to be
additional Rent under this Lease and shall be due and payable upon demand by
Landlord.
25.16 SECURITY SYSTEM
Landlord shall not be obligated to provide or maintain any security patrol or
security system. Landlord shall not be responsible for the quality of any such
patrol or system which may be provided hereunder or for damage or injury to
Tenant, its employees, invitees or others due to the failure, action or inaction
of such patrol or system.
25.17 NO LIGHT, AIR OR VIEW EASEMENTS
Any diminution or shutting off of light, air or view by any structure which may
be erected on lands of or adjacent to the Project shall in no way affect this
Lease or impose any liability on Landlord.
25.18 RECORDATION
Neither this Lease, nor any notice nor memorandum regarding the terms hereof,
shall be recorded by Tenant. Any such unauthorized recording shall be a Default
for which there shall be no cure or grace period. Tenant agrees to execute and
acknowledge, at the request of Landlord, a memorandum of this Lease, in
recordable form.
25.19 SURVIVAL
The waivers of the right of jury trial, the other waivers of claims or rights,
the releases and the obligations of Tenant under this Lease to indemnify,
protect, defend and hold harmless Landlord and/or Indemnitees shall survive the
expiration or termination of this Lease, and so shall all other obligations or
agreements which by their terms survive expiration or termination of the Lease.
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25.20 RIDERS
All Riders attached hereto and executed both by Landlord and Tenant shall be
deemed to be a part hereof and hereby incorporated herein.
IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in
Section 1.01(4) hereof.
TENANT: LANDLORD:
Calico Commerce, Inc., Metropolitan Life Insurance Company,
a Delaware corporation a New York corporation
By /s/ ALAN NAUMANN By /s/ EDWARD D. HAYES
-------------------------------- ---------------------------------
ALAN NAUMANN Edward D. Hayes
-------------------------------- ---------------------------------
Print name Print name
Its PRESIDENT & CEO Its Assistant Vice President
------------------------------- ---------------------------------
(Chairman of Board,
President or Vice President)
By /s/ ARTHUR F. KNAPP, JR
-------------------------------
ARTHUR F. KNAPP, JR
-------------------------------
Print name
Its VP/CFO
-------------------------------
(Secretary, Assistant Secretary,
CFO or Assistant Treasurer)
32
<PAGE> 1
EXHIBIT 10.2
CALICO COMMERCE, INC.
AMENDED 1997 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Company's 1997 Stock Option Plan (the
"PLAN") was established effective as of June 25, 1997. On March __, 1999, the
Plan was amended and retitled the "Amended 1997 Stock Option Plan," effective as
of the date the Company first registers its Stock under Section 12 of the
Exchange Act.
1.2 PURPOSE. The purpose of the Plan is to advance the interests
of the Participating Company Group and its shareholders by providing an
incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Incentive
Stock Options shall be granted, if at all, within ten (10) years from June 25,
1997.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "BOARD" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means Calico Commerce, Inc., a California
corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(f) "DIRECTOR" means a member of the Board or of the board
of directors of any other Participating Company.
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(g) "DISABILITY" means the inability of the Optionee, in
the opinion of a qualified physician acceptable to the Company, to perform the
major duties of the Optionee's position with the Participating Company group
because of the sickness or injury of the Optionee.
(h) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date, the value
of a share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for
the Stock, the Fair Market Value of a share of Stock shall be the closing sale
price of a share of Stock (or the mean of the closing bid and asked prices of a
share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq
National Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market
for the Stock, the Fair Market Value of a share of Stock shall be as determined
by the Board without regard to any restriction other than a restriction which,
by its terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option intended to
be (as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(m) "NONSTATUTORY STOCK OPTION" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.
(n) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
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(o) "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "OPTIONEE" means a person who has been granted one or
more Options.
(q) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(t) "RULE 16b-3" means Rule 16b-3 under the Exchange Act,
as amended from time to time, or any successor rule or regulation.
(u) "SECTION 162(m)" means Section 162(m) of the Code and
the regulations promulgated thereunder.
(v) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(w) "SERVICE" means an Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining vesting under the
Optionee's Option Agreement. The Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which the Optionee performs Service ceasing to be a Participating Company.
Subject to the foregoing, the Company, in its sole discretion, shall determine
whether the Optionee's Service has terminated and the effective date of such
termination.
(x) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(y) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
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(z) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at
the time an Option is granted to the Optionee, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
a Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered
by the Board. All questions of interpretation of the Plan or of any Option shall
be determined by the Board, and such determinations shall be final and binding
upon all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock
or other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
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conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or
otherwise adjust the exercise price of, or grant a new Option in substitution
for, any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
3.4 COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating
Company is a "publicly held corporation" within the meaning of Section 162(m),
the Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Nine Million Eight Hundred Ten Thousand
(9,810,000) and shall consist of authorized but unissued or reacquired shares of
Stock or any combination thereof (the "SHARE RESERVE"); provided, however, that
the maximum portion of the Share Reserve issuable under the Plan determined at
any time shall be the Share Reserve reduced by the sum of (a) the number of
outstanding shares of Stock issued pursuant to the exercise of options granted
under the Calico Technology, Inc. 1995 Stock Option Plan (the "1995 PLAN"), and
(b) the number of shares of Stock then subject to outstanding options granted
under the 1995 Plan. The Share Reserve will automatically be increased on the
first day of each fiscal year of the Company beginning on or after April 1, 2001
by a number of shares equal to five percent (5%) of the number of shares of
Stock issued and outstanding on the last day of the preceding fiscal year. In
addition, except as adjusted pursuant to Section 4.2, in no event shall more
than Nine Million Eight Hundred Ten
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Thousand (9,810,000) shares of Stock be cumulatively available for issuance
pursuant to the exercise of Incentive Stock Options (the "ISO SHARE ISSUANCE
LIMIT"). If an outstanding Option for any reason expires or is terminated or
canceled or shares of Stock acquired, subject to repurchase, upon the exercise
of an Option are repurchased by the Company, the shares of Stock allocable to
the unexercised portion of such Option, or such repurchased shares of Stock,
shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan, in the ISO Share Issuance Limit and to any outstanding
Options and in the exercise price per share of any outstanding Options. If a
majority of the shares which are of the same class as the shares that are
subject to outstanding Options are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change Event, as defined in
Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares subject to, and the exercise price per share of, the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or
down to the nearest whole number, as determined by the Board, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. The adjustments determined by
the Board pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"EMPLOYEES," "CONSULTANTS" and "DIRECTORS" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationship
with the Participating Company Group. Eligible persons may be granted more than
one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee
on the effective date of the grant of an Option to such person may be granted
only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair
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Market Value of stock shall be determined as of the time the option with respect
to such stock is granted. If the Code is amended to provide for a different
limitation from that set forth in this Section 5.3, such different limitation
shall be deemed incorporated herein effective as of the date and with respect to
such Options as required or permitted by such amendment to the Code. If an
Option is treated as an Incentive Stock Option in part and as a Nonstatutory
Stock Option in part by reason of the limitation set forth in this Section 5.3,
the Optionee may designate which portion of such Option the Optionee is
exercising. In the absence of such designation, the Optionee shall be deemed to
have exercised the Incentive Stock Option portion of the Option first. Separate
certificates representing each such portion shall be issued upon the exercise of
the Option.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. No Option or purported Option shall be a valid and
binding obligation of the Company unless evidenced by a fully executed Option
Agreement. Option Agreements may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and
conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall have an exercise
price per share less than one hundred ten percent (110%) of the Fair Market
Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such Option, (b) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
and (c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences Service with a Participating Company. Subject to the foregoing,
unless otherwise specified by the Board in the grant of an Option, any Option
granted hereunder shall have a term of ten (10) years from the effective date of
grant of the Option.
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6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (as determined by the Company without regard
to any restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for the
Company) not less than the exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall
be permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to
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accept from the Optionee the tender of, a number of whole shares of Stock having
a Fair Market Value, as determined by the Company, equal to all or any part of
the federal, state, local and foreign taxes, if any, required by law to be
withheld by the Participating Company Group with respect to such Option or the
shares acquired upon the exercise thereof. Alternatively or in addition, in its
sole discretion, the Company shall have the right to require the Optionee,
through payroll withholding, cash payment or otherwise, including by means of a
Cashless Exercise, to make adequate provision for any such tax withholding
obligations of the Participating Company Group arising in connection with the
Option or the shares acquired upon the exercise thereof. The Company shall have
no obligation to deliver shares of Stock or to release shares of Stock from an
escrow established pursuant to the Option Agreement until the Participating
Company Group's tax withholding obligations have been satisfied by the Optionee.
6.5 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier termination
of the Option as otherwise provided herein, an Option shall be exercisable after
an Optionee's termination of Service as follows:
(i) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such other period of time as determined by the
Board, in its sole discretion) after the date on which the Optionee's Service
terminated, but in any event no later than the date of expiration of the
Option's term as set forth in the Option Agreement evidencing such Option (the
"OPTION EXPIRATION DATE").
(ii) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twelve
(12) months (or such other period of time as determined by the Board, in its
sole discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months after the Optionee's termination of Service.
(iii) OTHER TERMINATION OF SERVICE. If the
Optionee's Service with the Participating Company Group terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within three (3) months (or such
longer period of time as determined by the Board, in its sole discretion) after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in
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Section 6.6(a) is prevented by the provisions of Section 12 below, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 GENERAL. Unless otherwise provided by the Board at the time
the Option is granted, an Option shall comply with and be subject to the terms
and conditions set forth in the standard form of Option Agreement adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
7.2 AUTHORITY TO VARY TERMS. The Board shall have the authority
from time to time to vary the terms of the standard form of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement shall be in
accordance with the terms of the Plan.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the shareholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company
is a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial
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ownership of more than fifty percent (50%) of the total combined voting power of
the outstanding voting stock of the Company or the corporation or corporations
to which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Change in
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Change in Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Change in Control was entitled. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control shall
terminate and cease to be outstanding effective as of the date of the Change in
Control. Notwithstanding the foregoing, shares acquired upon exercise of an
Option prior to the Change in Control and any consideration received pursuant to
the Change in Control with respect to such shares shall continue to be subject
to all applicable provisions of the Option Agreement evidencing such Option
except as otherwise provided in such Option Agreement. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Options immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Change in Control is the surviving
or continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the outstanding Options
shall not terminate unless the Board otherwise provides in its sole discretion.
9. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.
10. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock
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upon exercise would constitute a violation of any applicable federal, state or
foreign securities laws or other law or regulations or the requirements of any
stock exchange or market system upon which the Stock may then be listed. In
addition, no Option may be exercised unless (a) a registration statement under
the Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
11. INDEMNIFICATION.
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
12. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's shareholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's shareholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
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13. SHAREHOLDER APPROVAL.
The Plan or any increase in the maximum number of shares of Stock
issuable thereunder as provided in Section 4.1 (the "MAXIMUM SHARES") shall be
approved by the shareholders of the Company within twelve (12) months of the
date of adoption thereof by the Board. Options granted prior to shareholder
approval of the Plan or in excess of the Maximum Shares previously approved by
the shareholders shall become exercisable no earlier than the date of
shareholder approval of the Plan or such increase in the Maximum Shares, as the
case may be.
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PLAN HISTORY
June 25, 1997 Board adopts Plan, with an initial reserve
of 1,050,000 shares.
July 7, 1997 Shareholders approve Plan, with an initial reserve
of 1,050,000 shares.
November 18, 1997 Board amends Plan to increase the share reserve to
5,500,000 shares, reduced at any time by (a) the
number of outstanding shares issued under the 1995
Plan, and (b) the number of shares subject to
options outstanding under the 1995 Plan.
November 18, 1997 Shareholders approve Plan with a share reserve of
5,500,000 shares, reduced at any time by (a) the
number of outstanding shares issued under the 1995
Plan, and (b) the number of shares subject to
options outstanding under the 1995 Plan.
<PAGE> 15
CALICO COMMERCE, INC.
STOCK OPTION AGREEMENT
The Company has granted to the Optionee pursuant to the Calico Commerce,
Inc. Amended 1997 Stock Option Plan (the "PLAN") an option to purchase certain
shares of Stock, upon the terms and conditions set forth in the Notice of Stock
Option Grant (the "GRANT NOTICE") and this Agreement (the "OPTION"). The Option
shall in all respects be subject to the terms and conditions of the Plan, the
provisions of which are incorporated herein by reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Grant Notice and the
Plan.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Agreement. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
2. TAX STATUS OF OPTION.
As indicated in the Grant Notice, this Option is intended to be an
either an Incentive Stock Option within the meaning of Section 422(b) of the
Code or a Nonstatutory Stock Option. The Optionee should consult with the
Optionee's own tax advisor regarding the tax effects of this Option and the
requirements necessary to obtain favorable income tax treatment under Section
422 of the Code, including, but not limited to, holding period requirements.
3. ADMINISTRATION.
All questions of interpretation concerning this Agreement shall be
determined by the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the date indicated in the Grant Notice
and prior to the termination of the Option (as provided in Section 6) in an
amount not to exceed the number of Vested Shares less the number of shares
previously acquired upon exercise of the Option.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to
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the Company which must state the election to exercise the Option, the number of
whole shares of Stock for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by (i) full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased and
(ii) an executed copy, if required herein, of the then current forms of escrow
and security agreement referenced below. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreements.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by the Optionee's
promissory note in a form approved by the Company, or (v) by any combination of
the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall
be permitted if an exercise of the Option using a promissory note would be a
violation of any law.
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<PAGE> 17
Unless otherwise specified by the Board at the time the Option is granted, the
promissory note permitted in clause (iv) of Section 4.3(a) shall be a full
recourse note in a form satisfactory to the Company, with principal payable no
more than four (4) years after the date the Option is exercised. Interest on the
principal balance of the promissory note shall be payable in annual installments
at the minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. Such recourse promissory note shall be secured
by the shares of Stock acquired pursuant to the then current form of security
agreement as approved by the Company. At any time the Company is subject to the
regulations promulgated by the Board of Governors of the Federal Reserve System
or any other government entity affecting the extension of credit in connection
with the Company's securities, any promissory note shall comply with such
applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations. Except as the Company in its sole discretion shall determine, the
Optionee shall pay the unpaid principal balance of the promissory note and any
accrued interest thereon upon termination of the Optionee's Service with the
Participating Company Group for any reason, with or without cause.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares or
release such shares from any escrow provided for herein.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with
3
<PAGE> 18
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the Optionee only by
the Optionee or the Optionee's guardian or legal representative and may not be
assigned or transferred in any manner except by will or by the laws of descent
and distribution. Following the death of the Optionee, the Option, to the extent
provided in Section 7, may be exercised by the Optionee's legal representative
or by any person empowered to do so under the deceased Optionee's will or under
the then applicable laws of descent and distribution.
6. TERMINATION OF THE OPTION.
The Option shall terminate and may no longer be exercised on the first
to occur of (a) the Option Expiration Date, (b) the last date for exercising the
Option following termination of the Optionee's Service as described in Section
7, or (c) a Change in Control to the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. (NOTE: If
the Option is exercised more than three (3) months after the date on which the
Optionee's Service as an Employee terminated as a
4
<PAGE> 19
result of a Disability other than a permanent and total disability as defined in
Section 22(e)(3) of the Code, the Option will be treated as a Nonstatutory Stock
Option and not as an Incentive Stock Option to the extent required by Section
422 of the Code.)
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date. The Optionee's Service shall
be deemed to have terminated on account of death if the Optionee dies within
three (3) months after the Optionee's termination of Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
7.2 ADDITIONAL LIMITATION ON OPTION EXERCISE. Except as the
Company and the Optionee otherwise agree, the exercise of the Option pursuant to
Section 7.1 following termination of the Optionee's Service may not be made by
delivery of a promissory note as provided in Section 4.3(a).
7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as to
the tax consequences of any such delayed exercise. The Optionee should consult
with the Optionee's own tax advisor as to the tax consequences of any such
delayed exercise.
7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisor as to the tax consequences of any such delayed exercise.
8. CHANGE IN CONTROL.
5
<PAGE> 20
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the shareholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(ii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Change in Control, the Option confers
the right to purchase in accordance with its terms and conditions, for each
share of Stock subject to the Option immediately prior to the Change in Control,
the consideration (whether stock, cash or other securities or property) to which
a holder of a share of Stock on the effective date of the Change in Control was
entitled. The Option shall terminate and cease to be outstanding effective as of
the date of the Change in Control to the extent that the Option is neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control.
Notwithstanding the foregoing, shares acquired upon exercise of the Option prior
to the Change in Control and any consideration received pursuant to the Change
6
<PAGE> 21
in Control with respect to such shares shall continue to be subject to all
applicable provisions of this Agreement except as otherwise provided herein.
Furthermore, notwithstanding the foregoing, if the corporation the stock of
which is subject to the Option immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Change in Control is the surviving
or continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the Option shall not
terminate unless the Board otherwise provides in its sole discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.
The Optionee shall have no rights as a shareholder with respect to any
shares covered by the Option until the date of the issuance of a certificate for
the shares for which the Option has been exercised (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions
or other rights for which the record date is prior to the date such certificate
is issued, except as provided in Section 9. If the Optionee is an Employee, the
Optionee understands and acknowledges that, except as otherwise provided in a
separate, written employment agreement between a Participating Company and the
Optionee, the Optionee's employment is "at will" and is for no specified term.
Nothing in this Agreement shall confer upon the Optionee any right to continue
in the Service of a Participating Company or interfere in any way with any right
of the Participating Company Group to terminate the Optionee's Service as an
Employee or Consultant, as the case may be, at any time.
11. ESCROW.
11.1 ESTABLISHMENT OF ESCROW. To ensure that shares securing any
promissory note will be available for repurchase, the Company may require the
Optionee to deposit the
7
<PAGE> 22
certificate evidencing the shares which the Optionee purchases upon exercise of
the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to any security interest held by the Company shall be
immediately subject to the escrow to the same extent as such shares of Stock
immediately before such event. The Company shall bear the expenses of the
escrow.
11.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
the full repayment of any promissory note secured by the shares or other
property in escrow, the escrow agent shall deliver to the Optionee the shares
and any other property no longer securing any promissory note.
12. STOCK DISTRIBUTIONS SUBJECT TO THIS AGREEMENT.
If, from time to time, there is any stock dividend, stock split or other
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Agreement, then in such event any and all new, substituted or
additional securities to which the Optionee is entitled by reason of the
Optionee's ownership of the shares acquired upon exercise of the Option shall be
immediately subject to any security interest held by the Company with the same
force and effect as the shares subject to such security interest immediately
before such event.
13. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION.
The Optionee shall dispose of the shares acquired pursuant to the Option
only in accordance with the provisions of this Agreement. In addition, the
Optionee shall promptly notify the Chief Financial Officer of the Company if the
Optionee disposes of any of the shares acquired pursuant to the Option within
one (1) year after the date of the Optionee exercises all or part of the Option
or within two (2) years after the Date of Option Grant. Until such time as the
Optionee disposes of such shares in a manner consistent with the provisions of
this Agreement, unless otherwise expressly authorized by the Company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
after the exercise of the Option and the two-year period immediately after Date
of Option Grant. At any time during the one-year or two-year periods set forth
above, the Company may place a legend on any certificate representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate
8
<PAGE> 23
pursuant to the preceding sentence.
14. LEGENDS.
The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions, and if applicable, that
the Option is an Incentive Stock Option, on all certificates representing shares
of stock subject to the provisions of this Agreement. The Optionee shall, at the
request of the Company, promptly present to the Company any and all certificates
representing shares acquired pursuant to the Option in the possession of the
Optionee in order to carry out the provisions of this Section.
15. RESTRICTIONS ON TRANSFER OF SHARES.
No shares acquired upon exercise of the Option may be sold, exchanged,
transferred (including, without limitation, any transfer to a nominee or agent
of the Optionee), assigned, pledged, hypothecated or otherwise disposed of,
including by operation of law, in any manner which violates any of the
provisions of this Agreement, and any such attempted disposition shall be void.
The Company shall not be required (a) to transfer on its books any shares which
will have been transferred in violation of any of the provisions set forth in
this Agreement or (b) to treat as owner of such shares or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
will have been so transferred.
16. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, executors, administrators, successors and assigns.
17. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any time;
provided, however, that except as provided in Section 8.2 in connection with a
Change in Control, no such termination or amendment may adversely affect the
Option or any unexercised portion hereof without the consent of the Optionee
unless such termination or amendment is necessary to comply with any applicable
law or government regulation or is required to enable an Option designated as an
Incentive Stock Option to qualify as an Incentive Stock Option. No amendment or
addition to this Agreement shall be effective unless in writing.
18. NOTICES.
Any notice required or permitted hereunder shall be given in writing and
shall be deemed effectively given (except to the extent that this Agreement
provides for effectiveness only upon actual receipt of such notice) upon
personal delivery or upon deposit in the United States Post Office, by
registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address shown below that party's signature on the Grant
Notice or at such other address as such party may designate in writing from time
to time to the other party.
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<PAGE> 24
19. INTEGRATED AGREEMENT.
The Grant Notice, this Agreement and the Plan constitute the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein and therein and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein or therein. To the
extent contemplated herein or therein, the provisions of this Agreement shall
survive any exercise of the Option and shall remain in full force and effect.
20. APPLICABLE LAW.
This Agreement shall be governed by the laws of the State of California
as such laws are applied to agreements between California residents entered into
and to be performed entirely within the State of California.
10
<PAGE> 25
Optionee:
EXERCISE NOTICE
[Public Company/Registered Shares]
Calico Commerce, Inc.
4 North Second Street, Suite 1350
San Jose, CA 95113
Attention: Chief Financial Officer
Ladies and Gentlemen:
1. OPTION. I was granted an option ("OPTION") to purchase shares of the
common stock of Calico Commerce, Inc. ("COMPANY") pursuant to the Company's
Amended 1997 Stock Option Plan (the "PLAN"), and a Stock Option Grant Agreement
and related Stock Option Agreement (collectively, the "OPTION AGREEMENT") as
follows:
Grant Number: ________________________
Date of Option Grant: ________________________
Number of Option Shares: ________________________
Exercise Price per Share: $ ______________________
2. EXERCISE OF OPTION. I hereby elect to exercise the Option to purchase
____________ shares of the Company's Common Stock (the "SHARES"), all of which
have vested in accordance with the Option Agreement.
3. PAYMENT. I enclose payment in full or have made arrangements for
payment from the sales proceeds of the Shares of the total exercise price for
the Shares in the following form(s), as authorized by my Option Agreement:
<TABLE>
<S> <C>
[ ] Cash: $ ______________________
[ ] Check: $ ______________________
[ ] Tender of Company shares: $ ______________________
[ ] Cashless exercise (same-day-sale): $ ______________________
[ ] Promissory note (if permitted) $_______________________
</TABLE>
4. TAX WITHHOLDING. I authorize payroll withholding and otherwise will
make adequate provision for federal, state, local and foreign tax withholding
obligations of the Company, if any, in connection with my exercise of the Option
and my subsequent disposition of the Shares.
5. NOTICE OF DISQUALIFYING DISPOSITION. I agree that, if the Option is
designated an
<PAGE> 26
Incentive Stock Option, I will promptly notify the Chief Financial Officer of
the Company if I transfer any of the Shares within one (1) year from the date I
exercise all or part of the Option or within two (2) years of the Date of Option
Grant.
6. OPTIONEE INFORMATION.
My address is:
_________________________________________________________________
_________________________________________________________________
My Social Security Number is: ___________________________________
I understand that I am purchasing the Shares pursuant to the terms of
the Plan and my Option Agreement, copies of which I have received and carefully
read and understand.
Very truly yours,
________________________________________
Receipt of the above is hereby acknowledged.
CALICO COMMERCE, INC.
By:
Title:
Dated:
<PAGE> 27
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN QUALIFIED
WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
CALICO TECHNOLOGY, INC.
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION AGREEMENT
THIS IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT (the
"OPTION AGREEMENT") is made and entered into as of January 21, 1998, by and
between Calico Technology, Inc. and Dena Evans (the "OPTIONEE").
The Company has granted to the Optionee pursuant to the Calico Technology,
Inc. 1997 Stock Option Plan (the "PLAN") an option to purchase certain shares of
Stock, upon the terms and conditions set forth in this Option Agreement (the
"OPTION"). The Option shall in all respects be subject to the terms and
conditions of the Plan, the provisions of which are incorporated herein by
reference.
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Plan. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "DATE OF OPTION GRANT" means January 21, 1998.
(b) "NUMBER OF OPTION SHARES" means 2,000 shares of Stock,
as
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<PAGE> 28
adjusted from time to time pursuant to Section 9.
(c) "EXERCISE PRICE" means $1.05 per share of Stock, as
adjusted from time to time pursuant to Section 9.
(d) "INITIAL EXERCISE DATE" means the Date of Option.
(e) "VESTED SHARES" means, on any relevant date, a number of
shares of Stock, as adjusted from time to time pursuant to Section 9, determined
as follows:
(i) For each hour of the Optionee's Service after
January 1, 1998, the date the Optionee's Service commenced, the number of Vested
Shares shall be increased by six (6) shares of Stock.
(ii) In no event shall the number of Vested Shares
exceed the Number of Option Shares.
(f) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(g) "SERVICE" means the Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
the Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. The Optionee's Service shall be deemed to
have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its sole
discretion, shall determine whether the Optionee's Service has terminated and
the effective date of such termination.
1.2. CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. TAX CONSEQUENCES.
2.1. TAX STATUS OF OPTION. This Option is intended to be a
Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option
within the meaning of
2
<PAGE> 29
Section 422(b) of the Code.
2.2. ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee
exercises this Option to purchase shares of Stock that are both nontransferable
and subject to a substantial risk of forfeiture, the Optionee understands that
the Optionee should consult with the Optionee's tax advisor regarding the
advisability of filing with the Internal Revenue Service an election under
Section 83(b) of the Code, which must be filed no later than thirty (30) days
after the date on which the Optionee exercises the Option. Shares acquired upon
exercise of the Option are nontransferable and subject to a substantial risk of
forfeiture if, for example, (a) they are unvested and are subject to a right of
the Company to repurchase such shares at the Optionee's original purchase price
if the Optionee's Service terminates, (b) the Optionee is an Insider and, under
certain circumstances, exercises the Option within six (6) months of the Date of
Option Grant (if a class of equity security of the Company is registered under
Section 12 of the Exchange Act), or (c) the Optionee is subject to a restriction
on transfer to comply with "Pooling-of-Interests Accounting" rules. Failure to
file an election under Section 83(b), if appropriate, may result in adverse tax
consequences to the Optionee. The Optionee acknowledges that the Optionee has
been advised to consult with a tax advisor prior to the exercise of the Option
regarding the tax consequences to the Optionee of the exercise of the Option. AN
ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON
WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE
OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE
OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
3. ADMINISTRATION.
All questions of interpretation concerning this Option Agreement shall be
determined by the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1. RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares less the number of shares previously acquired
upon exercise of the Option, subject to the Optionee's agreement that any shares
purchased upon exercise are subject to the Company's repurchase rights set forth
in Section 11, Section 12 and Section 14.
4.2. METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to
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the Optionee's investment intent with respect to such shares as may be required
pursuant to the provisions of this Option Agreement. The written notice must be
signed by the Optionee and must be delivered in person, by certified or
registered mail, return receipt requested, by confirmed facsimile transmission,
or by such other means as the Company may permit, to the Chief Financial Officer
of the Company, or other authorized representative of the Participating Company
Group, prior to the termination of the Option as set forth in Section 6,
accompanied by (i) full payment of the aggregate Exercise Price for the number
of shares of Stock being purchased and (ii) an executed copy, if required
herein, of the then current forms of escrow and security agreement referenced
below. The Option shall be deemed to be exercised upon receipt by the Company of
such written notice, the aggregate Exercise Price, and, if required by the
Company, such executed agreements.
4.3. PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) on the
Company's sole discretion at the time the Option is exercised, by the Optionee's
promissory note in a form approved by the Company, or (v) by any combination of
the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable no more than four (4) years after the Date the Option is
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exercised. Interest on the principal balance of the promissory note shall be
payable in annual installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
current form of security agreement as approved by the Company. At any time the
Company is subject to the regulations promulgated by the Board of Governors of
the Federal Reserve System or any other government entity affecting the
extension of credit in connection with the Company's securities, an promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's Service with the Participating Company Group for any reason, with or
without cause.
4.4. TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5. CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6. RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act.
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THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability
of the Company to obtain from any regulatory body having jurisdiction the
authority, if any, deemed by the Company's legal counsel to be necessary to the
lawful issuance and sale of any shares subject to the Option shall relieve the
Company of any liability in respect of the failure to issue or sell such shares
as to which such requisite authority shall not have been obtained. As a
condition to the exercise of the Option, the Company may require the Optionee to
satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation and to make any representation
or warranty with respect thereto as may be requested by the Company.
4.7. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION.
The Option may be exercised during the lifetime of the Optionee only by
the Optionee or the Optionee's guardian or legal representative and may not be
assigned or transferred in any manner except by will or by the laws of descent
and distribution. Following the death of the Optionee, the Option, to the extent
provided in Section 7, may be exercised by the Optionee's legal representative
or by any person empowered to do so under the deceased Optionee's will or under
the then applicable laws of descent and distribution.
6. TERMINATION OF THE OPTION.
The Option shall terminate and may no longer be exercised on the first to
occur of (a) the Option Expiration Date, (b) the last date for exercising the
Option following termination of the Optionee's Service as described in Section
7, or (c) a Change in Control to the extent provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1. OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the
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Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date. The
Optionee's Service shall be deemed to have terminated on account of death if the
Optionee dies within three (3) months after the Optionee's termination of
Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
7.2. ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the
provisions of Section 7.1, the Option may not be exercised after the Optionee's
termination of Service to the extent that the shares to be acquired upon
exercise of the Option would be subject to the Unvested Share Repurchase Option
as provided in Section 11. Except as the Company and the Optionee otherwise
agree, exercise of the Option pursuant to Section 7.1 following termination of
the Optionee's Service may not be made by delivery of a promissory note as
provided in Section 4.3(a).
7.3. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.4. EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. CHANGE IN CONTROL.
8.1. DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the shareholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
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(ii) a merger or consolidation in which the Company is
a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the shareholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2. EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a
Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. For purposes of this Section 8.2, the Option
shall be deemed assumed if, following the Change in Control, the Option confers
the right to purchase in accordance with its terms and conditions, for each
share of Stock subject to the Option immediately prior to the Change in Control,
the consideration (whether stock, cash or other securities or property) to which
a holder of a share of Stock on the effective date of the Change in Control was
entitled. The Option shall terminate and cease to be outstanding effective as of
the date of the Change in Control to the extent that the Option is neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control.
Notwithstanding the foregoing, shares acquired upon exercise of the Option prior
to the Change in Control and any consideration received pursuant to the Change
in Control with respect to such shares shall continue to be subject to all
applicable provisions of this Option Agreement except as otherwise provided
herein. Furthermore, notwithstanding the foregoing, if the corporation the stock
of which is subject to the Option immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Change in Control is the surviving
or continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code,
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the Option shall not terminate unless the Board otherwise provides in its sole
discretion.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.
The Optionee shall have no rights as a shareholder with respect to any
shares covered by the Option until the date of the issuance of a certificate for
the shares for which the Option has been exercised (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions
or other rights for which the record date is prior to the date such certificate
is issued, except as provided in Section 9. If the Optionee is an Employee, the
Optionee understands and acknowledges that, except as otherwise provided in a
separate, written employment agreement between a Participating Company and the
Optionee, the Optionee's employment is "at will" and is for no specified term.
Nothing in this Option Agreement shall confer upon the Optionee any right to
continue in the Service of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's Service
as an Employee or Consultant, as the case may be, at any time.
11. UNVESTED SHARE REPURCHASE OPTION.
11.1. GRANT OF UNVESTED SHARE REPURCHASE OPTION. In the event the
Optionee's Service with the Participating Company Group is terminated for any
reason or no reason, with or without cause, or, if the Optionee, the Optionee's
legal representative, or other holder of shares acquired upon exercise of the
Option attempts to sell, exchange, transfer, pledge, or otherwise dispose of
(other than pursuant to an Ownership Change Event) any shares acquired upon
exercise of the Option which exceed the Vested Shares as defined in Section 11.2
below (the "UNVESTED SHARES"), the Company shall have the right to repurchase
the Unvested Shares under the terms and subject to the conditions set forth in
this Section 11 (the "UNVESTED SHARE REPURCHASE OPTION").
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11.2. UNVESTED SHARES DEFINED. On such given date, the "Unvested
Shares" shall mean the number of shares of Stock acquired upon exercise of the
Option which exceed the Vested Shares determined as of such date.
11.3. EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may
exercise the Unvested Share Repurchase Option by written notice to the Optionee
within sixty (60) days after (a) termination of the Optionee's Service (or
exercise of the Option, if later) or (b) the Company has received notice of the
attempted disposition of Unvested Shares. If the Company fails to give notice
within such sixty (60) day period, the Unvested Share Repurchase Option shall
terminate unless the Company and the Optionee have extended the time for the
exercise of the Unvested Share Repurchase Option. The Unvested Share Repurchase
Option must be exercised, if at all, for all of the Unvested Shares, except as
the Company and the Optionee otherwise agree.
11.4. PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The
purchase price per share being repurchased by the Company shall be an amount
equal to the Optionee's original cost per share, as adjusted pursuant to Section
9 (the "REPURCHASE PRICE"). The Company shall pay the aggregate Repurchase Price
to the Optionee in cash within thirty (30) days after the date of the written
notice to the Optionee of the Company's exercise of the Unvested Share
Repurchase Option. For purposes of the foregoing, cancellation of any
indebtedness of the Optionee to any Participating Company shall be treated as
payment to the Optionee in cash to the extent of the unpaid principal and any
accrued interest canceled. The shares being repurchased shall be delivered to
the Company by the Optionee at the same time as the delivery of the Repurchase
Price to the Optionee.
11.5. ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company
shall have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one or more persons as may be
selected by the Company.
11.6. OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership
Change Event, any and all new, substituted or additional securities or other
property to which the Optionee is entitled by reason of the Optionee's ownership
of Unvested Shares shall be immediately subject to the Unvested Share Repurchase
Option and included in the terms "Stock" and "Unvested Shares" for all purposes
of the Unvested Share Repurchase Option with the same force and effect as the
Unvested Shares immediately prior to the Ownership Change Event. While the
aggregate Repurchase Price shall remain the same after such Ownership Change
Event, the Repurchase Price per Unvested Share upon exercise of the Unvested
Share Repurchase Option following such Ownership Change Event shall be adjusted
as appropriate. For purposes of determining the Vested Shares following an
Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating Company at the time the Service is
rendered, whether or not such corporation is a Participating Company both before
and after the Ownership Change Event.
12. RIGHT OF FIRST REFUSAL.
12.1. GRANT OF RIGHT OF FIRST REFUSAL. Except as provided in Section
12.7 below, in
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the event the Optionee, the Optionee's legal representative, or other holder of
shares acquired upon exercise of the Option proposes to sell, exchange,
transfer, pledge, or otherwise dispose of any Vested Shares (the "TRANSFER
SHARES") to any person or entity, including, without limitation, any shareholder
of the Participating Company Group, the Company shall have the right to
repurchase the Transfer Shares under the terms and subject to the conditions set
forth in this Section 12 (the "RIGHT OF FIRST REFUSAL").For purposes of this
Section 12.1, a change in record ownership of any shares acquired upon the
exercise of the Option, including, without limitation, any such change pursuant
to a decree of divorce or marital separation, shall be deemed a transfer subject
to the Right of First Refusal whether or not such change in record ownership
results in a change in the beneficial ownership of such shares.
12.2. NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
the Transfer Shares, the Optionee shall deliver written notice (the "TRANSFER
NOTICE") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"PROPOSED TRANSFEREE") and, if the transfer is voluntary, the proposed transfer
price, and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary transfer,
the proposed transfer price shall be deemed to be the Fair Market Value of the
Transfer Shares, as determined by the Board in good faith, subject to Section 16
below. If the Optionee proposes to transfer any Transfer Shares to more than one
Proposed Transferee, the Optionee shall provide a separate Transfer Notice for
the proposed transfer to each Proposed Transferee. The Transfer Notice shall be
signed by both the Optionee and the Proposed Transferee and must constitute a
binding commitment of the Optionee and the Proposed Transferee for the transfer
of the Transfer Shares to the Proposed Transferee subject only to the Right of
First Refusal.
12.3. BONA FIDE TRANSFER. If the Company determines that the
information provided by the Optionee in the Transfer Notice is insufficient to
establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this Section 12, and the Optionee shall have no right
to transfer the Transfer Shares without first complying with the procedure
described in this Section 12. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
12.4. EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company determines
the proposed transfer to be bona fide, the Company shall have the right to
purchase all, but not less than all, of the Transfer Shares (except as the
Company and the Optionee otherwise agree) at the purchase price and on the terms
set forth in the Transfer Notice by delivery to the Optionee of a notice of
exercise of the Right of First Refusal within twenty-five (25) days after the
date the Transfer Notice is delivered to the Company. The Company's exercise or
failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's right to
exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on
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the terms set forth in the Transfer Notice within five (5) days after the date
the Transfer Notice is delivered to the Company (unless a longer period is
offered by the Proposed Transferee); provided, however, that in the event the
Transfer Notice provides for the payment for the Transfer Shares other than in
cash, the Company shall have the option of paying for the Transfer Shares by the
present value cash equivalent of the consideration described in the Transfer
Notice as reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
12.5. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
fails to exercise the Right of First Refusal in full (or to such lesser extent
as the Company and the Optionee otherwise agree) within the period specified in
Section 12.4 above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than thirty (30) days
following delivery to the Company of the Transfer Notice. The Company shall have
the right to demand further assurances from the Optionee and the Proposed
Transferee (in a form satisfactory to the Company) that the transfer of the
Transfer Shares was actually carried out on the terms and conditions described
in the Transfer Notice. No Transfer Shares shall be transferred on the books of
the Company until the Company has received such assurances, if so demanded, and
has approved the proposed transfer as bona fide. Any proposed transfer on terms
and conditions different from those described in the Transfer Notice, as well as
any subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this Section 12.
12.6. TRANSFEREES OF TRANSFER SHARES. All transferees of the
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interest therein subject to all of the terms and conditions
of this Option Agreement, including this Section 12 providing for the Right of
First Refusal with respect to any subsequent transfer. Any sale or transfer of
any shares acquired upon exercise of the Option shall be void unless the
provisions of this Section 12 are met.
12.7. TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of
First Refusal shall not apply to any transfer or exchange of the shares acquired
upon exercise of the Option if such transfer or exchange is in connection with
an Ownership Change Event. If the consideration received pursuant to such
transfer or exchange consists of stock of a Participating Company, such
consideration shall remain subject to the Right of First Refusal unless the
provisions of Section 12.9 below result in a termination of the Right of First
Refusal.
12.8. ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not there
has been an attempted transfer, to one or more persons as may be selected by the
Company.
12.9. EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The other
provisions of this Option Agreement notwithstanding, the Right of First Refusal
shall terminate and be of no
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further force and effect upon (a) the occurrence of a Change in Control, unless
the Acquiring Corporation assumes the Company's rights and obligations under the
Option or substitutes a substantially equivalent option for the Acquiring
Corporation's stock for the Option, or (b) the existence of a public market for
the class of shares subject to the Right of First Refusal. A "PUBLIC MARKET"
shall be deemed to exist if (i) such stock is listed on a national securities
exchange (as that term is used in the Exchange Act) or (ii) such stock is traded
on the over-the-counter market and prices therefor are published daily on
business days in a recognized financial journal.
13. ESCROW.
13.1. ESTABLISHMENT OF ESCROW. To ensure that shares subject to the
Unvested Share Repurchase Option or securing any promissory note will be
available for repurchase, the Company may require the Optionee to deposit the
certificate evidencing the shares which the Optionee purchases upon exercise of
the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to the Unvested Share Repurchase Option or any security
interest held by the Company shall be immediately subject to the escrow to the
same extent as such shares of Stock immediately before such event. The Company
shall bear the expenses of the escrow.
13.2. DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
the expiration of the Unvested Share Repurchase Option and after full repayment
of any promissory note secured by the shares or other property in escrow, but
not more frequently than twice each calendar year, the escrow agent shall
deliver to the Optionee the shares and any other property no longer subject to
such restriction and no longer securing any promissory note.
13.3. NOTICES AND PAYMENTS. In the event the shares and any other
property held in escrow are subject to the Company's exercise of the Unvested
Share Repurchase Option or the Right of First Refusal, the notices required to
be given to the Optionee shall be given to the escrow agent, and any payment
required to be given to the Optionee shall be given to the escrow agent. Within
thirty (30) days after payment by the Company, the escrow agent shall deliver
the shares and any other property which the Company has purchased to the Company
and shall deliver the payment received from the Company to the Optionee
14. REPURCHASE RIGHTS UPON MARITAL DISSOLUTION.
14.1. REPURCHASE FROM SPOUSE.
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<PAGE> 40
(a) In the event of the dissolution of the Optionee's
marriage or the Optionee's legal separation from his or her spouse, the Optionee
shall have the right and the option to purchase from his or her spouse all or
any portion of the shares acquired upon an exercise of the Option (i) awarded to
the spouse pursuant to a decree of dissolution of marriage or separation or any
order by any court of competent jurisdiction or by an property settlement
agreement (whether or not incorporated by reference in any such decree) or (ii)
transferred by the Optionee to the spouse by gift prior to the dissolution or
separation. The Optionee shall purchase such shares for a price equal to the
Fair Market Value of such shares as determined by the Board in good faith,
subject to Section 16 below, and upon the terms set forth below. The Optionee
shall exercise his or her right, if at all, within the thirty (30) days of entry
of any such decree or property settlement agreement by delivery to the
Optionee's spouse of written notice of exercise, specifying the number of shares
that the Optionee elects to purchase. The purchase price for the shares shall be
paid by delivery of a check for the purchase price.
(b) In the event the Optionee does not exercise his or her
right to purchase all of the shares acquired upon the exercise of the Option
which are awarded to the Optionee's spouse, the Optionee shall provide written
notice to the Company of the number of such shares available for purchase within
thirty (30) days of the entry of the decree or property settlement. The Company
shall then have the right to purchase at any time within the thirty (30) days
after delivery of such notice any of the shares not acquired by the Optionee
directly from the Optionee's spouse at the same price and otherwise on the same
terms that were available to the Optionee.
(c) The rights of the Optionee and the Company pursuant to
this Section 14 are hereinafter referred to as the "REPURCHASE RIGHTS UPON
MARITAL DISSOLUTION".
14.2. EFFECT ON RIGHT OF FIRST REFUSAL. The Right of First Refusal
set forth in Section 12 above shall apply to any gift of shares acquired upon
exercise of the Option made by the Optionee to the Optionee's spouse at the time
of any such gift, but shall not apply in the case of any award of shares to the
Optionee's spouse pursuant to a court decree or property settlement or, at the
time of any dissolution of the Optionee's marriage or marital separation, with
respect to shares transferred by the Optionee by gift to the spouse prior to the
dissolution, all of which transfers shall be subject to the Repurchase Rights
Upon Marital Dissolution.
14.3. OWNERSHIP CHANGE EVENT. Consideration consisting of stock of a
Participating Company received pursuant to an Ownership Change Event with
respect to shares acquired upon exercise of the Option shall remain subject to
the Repurchase Rights Upon Marital Dissolution unless the provisions in Section
14.4 below result in a termination of such rights.
14.4. EARLY TERMINATION OF REPURCHASE RIGHTS UPON MARITAL
DISSOLUTION. The other provision of this Section 14 notwithstanding the
foregoing, the Repurchase Rights Upon Marital Dissolution shall terminate and no
further force and effect upon (a) the occurrence of a Transfer of Control,
unless the Acquiring Corporation assumes the Company's rights and obligations
under the Option or substitutes a substantially equivalent options for the
Acquiring Corporation's stock for the Option, or (ii) the existence of a public
market, as defined in Section
14
<PAGE> 41
12.9 above, for the class of shares subject to the Repurchase Rights Upon
Marital Dissolution.
15. SPOUSAL CONSENT. If the Optionee is married on the date of this
Option Agreement, the Optionee's spouse shall execute a Consent of Spouse in the
form of Exhibit A hereto, effective the date hereof. Such consent shall not be
deemed to confer or convey to the spouse any rights in the Option or the shares
issuable upon the exercise thereof that do not otherwise exist by operation of
law or the agreement of the parties. If the Optionee should marry or remarry
subsequent to the date of this Option Agreement, the Optionee shall within
thirty (30) days thereafter obtain his or her new spouse's acknowledgment of and
consent to the existence and binding effect of all restrictions contained in
this Option Agreement by signing an additional Consent of Spouse in the form of
Exhibit A. Failure to provide an additional Consent of Spouse shall be treated
as a transfer of all the shares previously acquired by the Optionee upon the
exercise of the Option, if any, to such spouse and trigger the Company's Right
of First Refusal under Section 12 above.
16. APPRAISAL.
In the case of (a) the Company's exercise of its Right of First Refusal
pursuant to Section 12 above with respect to a bona fide gift or involuntary
transfer referred to therein, or (b) the Optionee's or Company's exercise their
Repurchase Rights Upon Marital Dissolution pursuant to Section 14 above, if the
Objecting Party (as defined below) disagrees with the valuation determined by
the Board, the Objecting Party may, by giving written notice to the Company
within ten (10) days after being informed of the valuation, request that the
value of shares at issue be determined by an independent appraiser to be
selected by the Company. The Company shall select an appraiser to determine the
value of each share within twenty (20) days after the Company's actual receipt
of the Objecting Party's notice disputing the valuation determined by the Board.
Such appraiser shall be subject to approval of the Objecting Party, which
approval the Objecting Party shall not unreasonably withhold or delay. The
Objecting Party's approval or refusal to approve the appraiser must be given
before the appraiser announces valuation. The value of such shares, as
determined by the appraiser, shall be conclusively binding on all of the parties
concerned. The expenses of the appraisal shall be borne equally to the Company
and the Objecting Party. Any time required to resolve a valuation dispute shall
be added to the time periods in which the Company may exercise its rights under
Sections 12, and 14 above. As used in this Section 16, the term "Objecting
Party" means the Optionee or, in the case of this Section 14 above only, the
Optionee's Spouse.
17. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT.
If, from time to time, there is any stock dividend, stock split or other
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, then in such event any and all new,
substituted or additional securities to which the Optionee is entitled by reason
of the Optionee's ownership of the shares acquired upon exercise of the Option
shall be immediately subject to the Unvested Share Repurchase Option, the Right
of First Refusal, the Repurchase Right Upon Marital Dissolution and any security
interest held by the Company with the same force and effect as the shares
subject to the Unvested Share Repurchase Option, the Right of
15
<PAGE> 42
First Refusal, the Repurchase Right Upon Marital Dissolution, and such security
interest immediately before such event.
18. LEGENDS.
The Company may at any time place legends referencing the Unvested Share
Repurchase Option, the Right of First Refusal, and any applicable federal, state
or foreign securities law restrictions on all certificates representing shares
of stock subject to the provisions of this Option Agreement. The Optionee shall,
at the request of the Company, promptly present to the Company any and all
certificates representing shares acquired pursuant to the Option in the
possession of the Optionee in order to carry out the provisions of this Section.
Unless otherwise specified by the Company, legends placed on such certificates
may include, but shall not be limited to, the following:
18.1. "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
18.2. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
18.3. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
18.4. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
REPURCHASE RIGHT UPON MARITAL DISSOLUTION IN FAVOR OF THE CORPORATION OR ITS
ASSIGNEE SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS CORPORATION."
19. PUBLIC OFFERING.
16
<PAGE> 43
The Optionee hereby agrees that in the event of any underwritten public
offering of stock, including an initial public offering of stock, made by the
Company pursuant to an effective registration statement filed under the
Securities Act, the Optionee shall not offer, sell, contract to sell, pledge,
hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such public offering. The foregoing
limitation shall not apply to shares registered in the public offering under the
Securities Act. The Optionee shall be subject to this Section provided and only
if the officers and directors of the Company are also subject to similar
arrangements.
20. RESTRICTIONS ON TRANSFER OF SHARES.
No shares acquired upon exercise of the Option may be sold, exchanged,
transferred (including, without limitation, any transfer to a nominee or agent
of the Optionee), assigned, pledged, hypothecated or otherwise disposed of,
including by operation of law, in any manner which violates any of the
provisions of this Option Agreement and, except pursuant to an Ownership Change
Event, until the date on which such shares become Vested Shares, and any such
attempted disposition shall be void. The Company shall not be required (a) to
transfer on its books any shares which will have been transferred in violation
of any of the provisions set forth in this Option Agreement or (b) to treat as
owner of such shares or to accord the right to vote as such owner or to pay
dividends to any transferee to whom such shares will have been so transferred.
21. BINDING EFFECT.
Subject to the restrictions on transfer set forth herein, this Option
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective heirs, executors, administrators, successors and assigns.
22. TERMINATION OR AMENDMENT.
The Board may terminate or amend the Plan or the Option at any time;
provided, however, that except as provided in Section 8.2 in connection with a
Change in Control, no such termination or amendment may adversely affect the
Option or any unexercised portion hereof without the consent of the Optionee
unless such termination or amendment is necessary to comply with any applicable
law or government regulation. No amendment or addition to this Option Agreement
shall be effective unless in writing.
23. NOTICES.
Any notice required or permitted hereunder shall be given in writing and
shall be deemed
17
<PAGE> 44
effectively given (except to the extent that this Option Agreement provides for
effectiveness only upon actual receipt of such notice) upon personal delivery or
upon deposit in the United States Post Office, by registered or certified mail,
with postage and fees prepaid, addressed to the other party at the address shown
below that party's signature or at such other address as such party may
designate in writing from time to time to the other party.
24. INTEGRATED AGREEMENT.
This Option Agreement and the Plan constitute the entire understanding and
agreement of the Optionee and the Participating Company Group with respect to
the subject matter contained herein and therein and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Participating Company Group with respect to such subject matter other
than those as set forth or provided for herein or therein. To the extent
contemplated herein or therein, the provisions of this Option Agreement shall
survive any exercise of the Option and shall remain in full force and effect.
25. APPLICABLE LAW.
This Option Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within the State of California.
CALICO TECHNOLOGY, INC.
By:
Title:
Address: 4 North Second Street, Suite 1350
San Jose, CA 95113
18
<PAGE> 45
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Unvested Share Repurchase
Option set forth in Section 11 and the Right of First Refusal set forth in
Section 12, and the Repurchase Right Upon Marital Dissolution set forth in
Section 14 and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under this Option Agreement. The undersigned acknowledges receipt of a
copy of the Plan.
OPTIONEE
Date:
Optionee's Address:
19
<PAGE> 46
EXHIBIT A
CONSENT OF SPOUSE
The undersigned, being the spouse of ____________ does hereby acknowledge
that the undersigned has read and is familiar with the provisions of the above
Option Agreement. The undersigned is aware that Section 14 provides my spouse
and the Company the option to purchase all of the shares of stock acquired by my
spouse upon the exercise of the Option (the "SHARES") of which I may become
possessed as a result of a gift from my spouse or a court decree or any property
settlement in any domestic litigation.
I hereby agree that my interest, if any, in the Shares will be irrevocably
bound by the Option Agreement and further understand and agree that any
community property interest that I may have in the Shares will be similarly
bound by the Option Agreement.
I agree to the sale and the purchase described in Section 14 of the Option
Agreement and I hereby consent to the sale of the Shares by my spouse or my
spouse's legal representative in accordance with the provisions of this Option
Agreement. Further, as part of the consideration for the Option Agreement, I
agree that at my death, if I have not disposed of any interest of mine in the
Shares by an outright bequest of said shares of my spouse, then my spouse and
the Company will have the same rights against my legal representative to
purchase any interest of mine in the Shares as they would have had pursuant to
Section 14 of the Option Agreement if I had acquired the Shares pursuant to a
court decree in domestic litigation.
I AM AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN THE
OPTION AGREEMENT ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL
GUIDANCE OR COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER SOUGHT SUCH
GUIDANCE OR COUNSEL OR DETERMINED THAT AFTER REVIEWING THE OPTION AGREEMENT
CAREFULLY THAT I WAIVE SUCH RIGHT.
Dated:
Signature
Name printed
<PAGE> 47
Date: ________________________
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION
EXERCISE NOTICE
Calico Technology, Inc.
4 North Second Street, Suite 1350
San Jose, CA 95113
Attention: Chief Financial Officer
Ladies and Gentlemen:
1. Exercise of Option. I was granted a nonstatutory stock option (the
"OPTION") to purchase shares of the common stock of Calico Technology, Inc. (the
"COMPANY") on ___________________, 19___, pursuant to the Company's 1997 Stock
Option Plan (the "PLAN") and pursuant to the Immediately Exercisable
Nonstatutory Stock Option Agreement dated __________________, 19___ (the "OPTION
AGREEMENT"). The Grant Number of the Option is _____________. I hereby elect to
exercise the Option as to a total of __________________ shares of the common
stock of the Company (the "SHARES"), of which ________________ are Vested Shares
and ______________ are Unvested Shares as determined in accordance with the
Option Agreement.
2. Payments. Enclosed herewith is full payment in the aggregate amount
of $_____________ (representing $_______ per share) for the Shares in the manner
set forth in the Option Agreement. I authorize payroll withholding and otherwise
will make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any.
3. Binding Effect. I agree that the Shares are being acquired in
accordance with and subject to the terms, provisions and conditions of the
Option Agreement, including the Unvested Share Repurchase Option, the Right of
First Refusal and the Repurchase Right Upon Marital Dissolution set forth
therein, to all of which I hereby expressly assent. This Agreement shall inure
to the benefit of and be binding upon the my heirs, executors, administrators,
successors and assigns. I agree to deposit the certificate or certificates
evidencing the Shares, along with a blank stock assignment separate from
certificate executed by me, with an escrow agent designated by the Company, to
be held by such escrow agent pursuant to the Company's standard Joint
<PAGE> 48
Escrow Instructions, an executed copy of which I have delivered herewith.
4. Transfer. I am aware that Rule 144, promulgated under the Securities
Act, which permits limited public resale of securities acquired in a nonpublic
offering, is not currently available with respect to the Shares and, in any
event, is available only if certain conditions are satisfied. I understand that
any sale of the Shares that might be made in reliance upon Rule 144 may only be
made in limited amounts in accordance with the terms and conditions of such rule
and that a copy of Rule 144 will be delivered to me upon request.
My address of record is:
_______________________________________________________________
_______________________________________________________________
My Social Security Number is:
__________________________________________
5. Election Under Section 83(b) of the Code. I understand and
acknowledge that if I am exercising the Option to purchase Unvested Shares
(i.e., shares that remain subject to the Company's Unvested Share Repurchase
Option), that I should consult with my tax advisor regarding the advisability of
filing with the Internal Revenue Service an election under Section 83(b) of the
Code, which must be filed no later than thirty (30) days after the date on which
I exercise the Option.
I acknowledge that I have been advised to consult with a tax advisor prior
to the exercise of the Option regarding the tax consequences to me of exercising
the Option. AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER
THE DATE ON WHICH I PURCHASE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. I
ACKNOWLEDGE THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS MY SOLE
RESPONSIBILITY, EVEN IF I REQUEST THE COMPANY OR ITS REPRESENTATIVES TO FILE
SUCH ELECTION ON MY BEHALF.
I understand that I am purchasing the Shares pursuant to the terms of the
Calico Technology, Inc. 1997 Stock Option Plan and my Option Agreement, copies
of which I have received and carefully read and understand.
Very truly yours,
<PAGE> 49
------------------------------------
(Signature)
------------------------------------
(Optionee's Name Printed)
<PAGE> 50
Receipt of the above is hereby acknowledged.
CALICO TECHNOLOGY, INC.
By:
Title:
<PAGE> 51
CALICO COMMERCE, INC.
NOTICE OF STOCK OPTION GRANT
_______________ (the "OPTIONEE") has been granted an option (the "OPTION")
to purchase shares of the Common Stock of Calico Commerce, Inc. (the "COMPANY")
pursuant to this Notice of Stock Option Grant, the Company's Amended 1997 Stock
Option Plan (the "PLAN") and a form of Stock Option Agreement (the "OPTION
AGREEMENT"), the provisions of each of which are incorporated herein by
reference. The following terms shall have their respective meanings as set forth
below or in the Plan.
DATE OF OPTION GRANT:
NUMBER OF OPTION SHARES:
EXERCISE PRICE: $ per share
INITIAL VESTING DATE: The date occurring one (1) year
after _________________
OPTION EXPIRATION DATE: The date ten (10) years after the Date of
Option Grant.
TAX STATUS OF OPTION: Stock Option. (Enter "Incentive" or
"Nonstatutory." If blank, this Option will
be a Nonstatutory Stock Option.)
VESTED SHARES: The number of Vested Shares (disregarding any resulting
fractional share) as of any date is determined by multiplying the Number
of Option Shares by the "VESTED RATIO" determined as of such date as
follows:
(i) Prior to the Initial Vesting Date, the Vested Ratio shall be
zero.
(ii) On the Initial Vesting Date, the Vested Ratio shall be
increased by 1/4, provided the Optionee's Service has not terminated prior to
such date.
(iii) For each full month of the Optionee's continuous Service after
the Initial Vesting Date, the Vested Ratio shall be increased by 1/48 until the
Vested Ratio is 1/1.
The Optionee represents that he/she is familiar with the terms and
provisions of the Option Agreement, and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under the Option. The Optionee acknowledges receipt of a
copy of the Plan.
OPTIONEE CALICO COMMERCE, INC.
By:
Optionee's signature Its:
Address: ________________________ Address:
_________________________________
_________________________________
_________________________________
<PAGE> 52
Attachments: Amended 1997 Stock Option Plan
Stock Option Agreement
<PAGE> 1
EXHIBIT 10.10
September 15, 1999
Mr. Arthur Knapp
CFO
Calico Commerce, Inc.
333 West San Carlos Street
Suite 300
San Jose, California 95110
Dear Art:
Over the past few months, our firms have worked toward creating a comprehensive
and robust relationship that we each believe will benefit our respective
businesses. In our discussions, we have outlined an arrangement whereby Calico
will commit to purchase a specified minimum level of consulting services from
Andersen Consulting over the course of the next eighteen months and we will
enter into a joint marketing alliance to market Calico's software and Andersen
Consulting's integration services.
This letter documents more specifically our agreement with respect to Calico's
purchase of consulting services. Under this arrangement, Calico agrees to
engage Andersen Consulting to provide a minimum $1 million of consulting
services over the following eighteen month period (the "Service Period"). The
specifics of scope of work and costs will be documented in separate
arrangements discussed below. The total Andersen Consulting billings arranged
for under this agreement will be a minimum of $1 million including both fees
and any of our out of pocket expenses. These services provided to Calico, will
be priced reflecting a customary discount from our standard rates that we would
offer our other large clients performing similar types of work. This letter is
a binding commitment on Calico to arrange for these services, or pay Andersen
Consulting the difference between total billings under this arrangement and $1
million at the time the Service Period concludes or, if earlier, at the time
you terminate the Consulting Services Agreement (as defined below).
These services will be performed under the terms of our Consulting Services
Agreement dated September 15, 1999. We will work with you and your management
team to determine the specific nature of these services. A detailed description
of the scope of our services will be contained in arrangement letters to which
we will both agree prior to the commencement of any work. Each arrangement
letter will be subject to the terms of the Consulting Services Agreement.
The kinds of services we would expect to provide under these arrangements
include creation of prototypes and demos for external presentations,
development of training
Calico Technology & 1 of 2
Andersen Consulting CONFIDENTIAL & PROPRIETARY Limited Distribution
<PAGE> 2
materials and potentially conducts of the training, product testing, and other
activities to support Calico's product releases. In addition, Calico may
determine that we should work on projects related to the development and
deployment of your business capabilities, for example, deployment of business
systems, planning and analysis work related to marketing, deployment of
technology infrastructure to support your business activities, etc. We do not
expect that we would be involved in Calico's product development, where the
results of our work would be a material element in a product that Calico sells
and licenses.
Under the joint Marketing Alliance, Andersen Consulting will acquire rights to
market integration services related to Calico's software and Calico will
promote Andersen Consulting as the preferred integrator of Calico software
solutions. We will prepare and update on approximately a semi-annual basis a
plan that sets forth in detail the actions of the parties intended to further
the goals of alliance.
Andersen Consulting has also indicated its interest in purchasing $4 million of
Calico's Common Stock in Calico's initial public offering ("IPO"). If Andersen
Consulting purchases that amount of Common Stock in the IPO, Andersen
Consulting would expect to have a mutually agreed upon representative elected
to Calico's Board of Directors.
Sincerely,
/s/ PHILIP TAMMINGA
Andersen Consulting, LLP
Philip Tamminga
Partner
Agreed and accepted:
CALICO COMMERCE, INC.
By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------
Name: [ILLEGIBLE]
Title: EVP & COO
Date: 9/16/99
Calico Technology & 2 of 2
Andersen Consulting CONFIDENTIAL & PROPRIETARY Limited Distribution
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated July 13, 1999, except for Note 12, which is as of September 18,
1999, relating to the consolidated financial statements of Calico Commerce,
Inc., which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 21, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 10, 1998, with respect to the financial
statements of FirstFloor Software, Inc. included in the Registration Statement
(Form S-1) and related Prospectus of Calico Commerce, Inc. for the registration
of shares of its common stock.
/s/ ERNST & YOUNG LLP
Palo Alto, California
September 21, 1999
