<PAGE>
As filed with the Securities and Exchange Commission on March 19, 1999.
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
Scient Corporation
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7379 94-3288107
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
One Front Street, 28th Floor
San Francisco, CA 94111
(415) 733-8200
(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive offices)
---------------
William H. Kurtz
Chief Financial Officer, Executive Vice President, Treasurer and Secretary
Scient Corporation
One Front Street, 28th Floor
San Francisco, CA 94111
(415) 733-8200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Robert V. Gunderson, Jr., Esq. Gregory M. Gallo, Esq.
David T. Young, Esq. Paul A. Blumenstein, Esq.
Gunderson Dettmer Stough Gray Cary Ware & Freidenrich LLP
Villeneuve Franklin & Hachigian, LLP 400 Hamilton Avenue
155 Constitution Drive Palo Alto, California 94301
Menlo Park, California 94025 (650) 328-6561
(650) 321-2400
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Securities to be Aggregate Offering Amount of
Registered Price (1) Registration Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.0001 par value per
share.................................... $50,700,000 $14,094
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1)Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued March 19, 1999
Shares
[SCIENT CORPORATION LOGO]
COMMON STOCK
-----------
Scient Corporation is offering shares of its
common stock. This is our initial public
offering and no public market currently
exists for our shares. We anticipate
that the initial public offering
price will be between $
and $ per share.
-----------
We have filed an application for the common
stock to be quoted on the Nasdaq National
Market under the symbol "SCNT."
-----------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 7.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Price Discounts Proceeds
to and to
Public Commissions Company
------ ------------ --------
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total.............................................. $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Scient Corporation has granted the underwriters the right to purchase up to an
additional shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares of common stock to
purchasers on , 1999.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
THOMAS WEISEL PARTNERS LLC
, 1999
<PAGE>
[Artwork Page 1]
Scient is a leading provider of a new category of professional services
called eBusiness systems innovation.
We provide eBusiness strategy and technology implementation services to
clients who are creating new eBusinesses or repositioning existing businesses.
[Artwork Page 2]
We target innovative clients seeking the competitive opportunities
presented by eBusiness.
Our clients include major financial institutions, new Internet-based
companies and large existing companies adapting their businesses to take
advantage of eBusiness.
[Corporate logos of clients]
Scient Clients
These examples illustrate the services that we have provided for two of our
clients.
[Screen shot of Realtor.com]
Realtor.com
This pioneering online real estate services site provides a variety of
services to homebuyers and realtors, including online listings. RealSelect
hired Scient to re-architect and re-engineer Realtor.com to enable the site to
be more robust and to support significantly more traffic. Scient executed a
functional redesign of their website to enable RealSelect to remain
competitive and better serve their customers.
[Screen shot of innoVisions]
innoVisions
innoVisions is an integrator and operator of cash access machines, or CAMs,
that provide check cashing services and cash access in casinos and retail
locations. innoVisions hired Scient to design, develop and test its CAM
platform and networking technologies. In approximately 30 weeks, Scient
evaluated the innoVision's needs and architected and engineered a complete
system using the Windows NT operating system, browser technologies, voice-
over-IP networking protocols and third-party facial recognition software.
Further, Scient designed the system to accommodate the addition of new
functionality to their CAMs in the future.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................... 4
Risk Factors......................................................... 7
Use of Proceeds...................................................... 18
Dividend Policy...................................................... 18
Preemptive Rights.................................................... 18
Capitalization....................................................... 19
Dilution............................................................. 20
Selected Financial Data.............................................. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................................................... 22
Business.............................................................. 28
Management............................................................ 41
Certain Transactions.................................................. 52
Principal Stockholders................................................ 55
Description of Capital Stock.......................................... 57
Shares Eligible for Future Sale....................................... 59
Underwriters.......................................................... 61
Legal Matters......................................................... 63
Experts............................................................... 63
Additional Information................................................ 63
Index to Financial Statements......................................... F-1
</TABLE>
Scient Corporation was originally incorporated in California on November 7,
1997. We intend to reincorporate in Delaware in April 1999. Our principal
executive offices are located at One Front Street, 28th Floor, San Francisco,
California 94111 and our telephone number is (415) 733-8200. Our World Wide
Web address is www.scient.com. The information on our website is not
incorporated by reference into this prospectus.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock.
Unless otherwise indicated, all information in this prospectus (1) gives
effect to the conversion of all outstanding shares of preferred stock into
shares of common stock effective upon the closing of the offering, (2) assumes
no exercise of the underwriters' over-allotment option, (3) assumes no
exercise of an outstanding warrant to purchase 25,000 shares of our common
stock and (4) assumes the completion of the reincorporation in Delaware. In
this prospectus, "Scient," "we," "us" and "our" refer to Scient Corporation.
Until , 1999, 25 days after commencement of the offering, all dealers
that buy, sell or trade the common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
We use the following trademarks of Scient in this prospectus: Scient, the
Scient logo and New Bottom Line. This prospectus also includes trademarks of
other companies.
3
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information and
our financial statements and notes appearing elsewhere in this prospectus.
OUR COMPANY
Scient is a leading provider of a new category of professional services
called eBusiness systems innovation. eBusinesses are businesses that combine
the reach and efficiency of the Internet with both emerging and existing
technologies to enable companies to strengthen relationships with customers and
business partners, create new revenue opportunities, reduce costs, improve
operating efficiencies, shorten cycle times and improve communications. As an
eBusiness systems innovator, we provide integrated eBusiness strategy and
technology implementation services to clients who are creating eBusinesses or
are rethinking or expanding their existing businesses to integrate eBusiness
capabilities. These services include strategy consulting, customer experience
design, systems architecture, and application and technology infrastructure
development. Our services are designed to rapidly improve a client's
competitive position through the development of innovative business strategies
enabled by the integration of emerging and existing technologies. We have
developed a methodology, the Scient Approach, that provides a framework for
each stage of a client engagement from helping the client conceive its strategy
to architecting, engineering and extending its eBusiness. We believe that our
integrated methodology allows us to deliver reliable, robust, secure, scalable
and extensible eBusiness systems innovation in rapid timeframes.
We have performed professional services for over 35 clients, including AIG,
Chase Manhattan, eBay, First Union, innoVisions, PlanetRx and RealSelect.
OUR MARKET OPPORTUNITY
Scient believes that most companies seeking to build or enhance their
eBusiness capabilities require a professional services provider with a broad
range of integrated capabilities. Such a service provider must provide
strategic industry insights combined with extensive technological skills to
create applications, technology infrastructure and business systems that are
reliable, robust, secure, scalable and extensible. Moreover, it must have a
structured approach and the skills necessary to achieve the rapid innovation
and deployment of eBusinesses demanded by today's competitive marketplace. Such
a skill set must include the ability to understand and integrate a wide
spectrum of both emerging and existing technologies. Scient believes that
existing service providers are not well suited to address the broad range of
challenges posed by eBusiness. As a result, Scient believes that there is a
growing need for a new, innovative category of service providers called
eBusiness systems innovators.
Scient provides the integrated services required to rapidly design, build
and improve eBusinesses. We provide strategy consulting that combines expertise
in eBusiness with market-specific knowledge in order to produce a combined
business and technology strategy for our clients. We also architect and build
applications and technology infrastructure that support a wide variety of
eBusiness functions. We believe that we have a set of integrated skills that
enable our clients to create or enhance competitive eBusinesses in rapid
timeframes. This skill set includes:
. Broad range of integrated strategy and technology capabilities;
. Strategic industry insight;
. Extensive skill with both emerging and existing technologies;
. Customer experience design expertise;
. Security expertise;
. Structured and integrated approach to client engagements;
. Rapid deployment and execution capabilities; and
. Knowledge management expertise.
4
<PAGE>
OUR STRATEGY
Scient's objective is to build upon its position as a leading eBusiness
systems innovator. Our strategies for achieving that objective are as follows:
Target Critical Engagements for Emerging eBusiness Leaders. To continue to
differentiate our services and achieve recognition as a leading eBusiness
systems innovator, we intend to continue to be selective with respect to the
clients we serve and the engagements we undertake, with a focus on engagements
that are critical to the efforts of emerging market leaders building and
enhancing innovative eBusinesses.
Hire and Retain Outstanding Professionals and Maintain a Culture that
Fosters Innovation. We place a strong focus on attracting, hiring, developing
and retaining outstanding professionals. We also focus on maintaining a one-
firm culture that fosters innovation and emphasizes professional development.
Target Potential Clients Through Market-Specific Business Units. Our
marketing and sales strategy includes targeting potential clients through
market-specific business units that operate globally. Thus far, we have
established four market-specific business units through which we market and
sell our services. We intend to add additional market-specific business units
as our capabilities and client opportunities warrant.
Establish Global Presence to Support Emerging eBusiness Leaders. In order to
better serve the needs of enterprises operating on a worldwide basis, we intend
to expand our geographic presence within the United States and abroad.
Continue to Develop and Refine the Scient Approach and Knowledge
Management. In order to capture, upgrade and refine our intellectual capital,
including the Scient Approach, we intend to continue to invest in our knowledge
management processes and systems. We believe that these processes and systems
will allow us to use our intellectual capital in order to accelerate the
delivery of our services, reduce our costs and leverage our industry expertise.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered............................... shares
Common stock to be outstanding after the offering.. shares(1)
Use of proceeds.................................... For general corporate
purposes, including
working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. SCNT
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
(unaudited)
November 7, 1997
(Inception)
through
March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998
---------------- -------- --------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................ $ 179 $ 1,924 $ 3,094 $ 6,270
Total operating expenses........ 1,394 2,525 4,569 10,207
Loss from operations............ (1,215) (601) (1,475) (3,937)
Net loss........................ (1,159) (523) (1,288) (3,741)
Net loss per share:
Basic and diluted.............. $ (.19) $ (.09) $ (.21) $ (.56)
Weighted average shares........ 5,947 6,048 6,155 6,737
Pro forma net loss per share:
Basic and diluted(2)........... $ (.03) $ (.06) $ (.17)
Weighted average shares(2)..... 18,321 20,937 21,544
</TABLE>
The following table presents our summary balance sheet as of December 31,
1998. The data in the "As Adjusted" column has been adjusted to reflect the
conversion of our preferred stock outstanding as of December 31, 1998 into
14,807,145 shares of common stock and our sale of shares of our
common stock in this offering at an assumed initial public offering price of
$ per share and the application of the estimated net proceeds. See "Use of
Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------
Actual As Adjusted
------------- --------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments...................................... $15,581 $
Working capital................................... 17,147
Total assets...................................... 21,914
Bank borrowings and capital lease obligations,
long-term........................................ 1,187
Total stockholders' equity ....................... 17,651
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1998. Excludes
3,326,800 shares of common stock issuable upon exercise of outstanding
options as of December 31, 1998 at a weighted average exercise price of
$.84. Also excludes 25,000 shares of common stock issuable upon the
exercise of a warrant outstanding as of December 31, 1998 at an exercise
price of $.25 per share. See "Management--Employee Benefit Plans" and Notes
6 and 8 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
number of shares used in per share computations.
6
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Any of the following risks could seriously harm our business, financial
condition or results of operations. As a result, these risks could cause the
decline of the trading price of our common stock, and you may lose all or part
of your investment. You should also refer to the other information set forth
in this prospectus, including our financial statements and the related notes.
We Have a History of Losses and Expect to Incur Losses in the Future
We incurred net losses of $5.6 million during the nine months ended
December 31, 1998. As of December 31, 1998, we had an accumulated deficit of
$6.7 million. We have not had a profitable quarter and may never achieve
profitability. We also expect to continue to incur increasing sales and
marketing, infrastructure development and general and administrative expenses.
As a result, we will need to generate significant revenues to achieve
profitability. If we do achieve profitability, we may not be able to sustain
or increase profitability on a quarterly or annual basis in the future.
Although our revenues have grown in recent quarters, we do not believe that we
can sustain our historical growth rates. Accordingly, you should not view our
historical growth rates as indicative of our future revenues. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Our Quarterly Revenues and Operating Results Are Volatile and May Cause Our
Stock Price to Fluctuate
Our quarterly revenues and operating results are volatile and difficult to
predict. As a result, we believe that period-to-period comparisons of our
results of operations are not a good indication of our future performance. It
is likely that in some future quarter or quarters our operating results will
be below the expectations of public market analysts or investors. In such
event, the market price of our common stock may decline significantly.
Our quarterly operating results have varied in the past and are likely to
vary significantly from quarter to quarter. A number of factors are likely to
cause these variations, including:
. Our ability to obtain new and follow-on client engagements;
. The amount and timing of expenditures by our clients for eBusiness
services;
. Our ability to attract, train and retain skilled management, strategic,
technical, design, sales, marketing and support professionals;
. Our employee utilization rate, including our ability to transition
employees quickly from completed projects to new engagements, for which
we typically receive little or no notice;
. The introduction of new services by us or our competitors;
. Changes in our pricing policies or those of our competitors;
. Our ability to manage costs, including personnel costs and support
services costs;
. Difficulties experienced by our clients or us as a result of Year 2000
issues;
. Costs related to possible acquisitions of other businesses;
. Costs related to the expected opening or expansion of Scient offices in
the United States and international markets; and
. General economic factors.
We derive all of our revenues from professional services, which we
generally provide on a time and materials basis. Revenues pursuant to time and
materials contracts are generally recognized as services are
7
<PAGE>
provided. Since personnel and related costs constitute the substantial
majority of our operating expenses and since we establish these expenses in
advance of any particular quarter, underutilization of our professional
services employees may cause significant reductions in our operating results
for a particular quarter and could result in losses for such quarter. In
addition, we have hired a large number of personnel in core support services,
including knowledge management, technology infrastructure and finance and
administrative, in order to support our anticipated growth. As a result, a
significant portion of our operating expenses are fixed in the short term.
Therefore, any failure to generate revenues according to our expectations in a
particular quarter could result in losses for the quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Although we have limited historical financial data, we have experienced and
expect to continue to experience seasonality in revenues from our electronic
business, or eBusiness, services. These seasonal trends may materially affect
our quarter-to-quarter operating results. Revenues and operating results in
our quarter ending December 31 are typically lower relative to our other
quarters because there are a lower number of billable days in this quarter due
to holidays and vacation days. In addition, operating expenses may increase in
each quarter ending September 30, both on absolute terms and as a percentage
of revenues, due to the potential hiring of large numbers of recent college
graduates each year, which results in increased salary expenses before such
new employees begin to generate substantial revenues for Scient.
Our Ability to Attract, Train and Retain Qualified Employees Is Crucial to Our
Results of Operations and Any Future Growth
As a services company, our personnel are our most valued asset. Our future
success depends in large part on our ability to hire, train and retain project
and engagement managers, technical architects, strategists, engineers, design
professionals, other technical personnel and sales and marketing professionals
of various experience levels. Such skilled personnel are in short supply, and
this shortage is likely to continue for some time. As a result, competition
for these people is intense, and the industry turnover rate for them is high.
Any inability to hire, train and retain a sufficient number of qualified
employees could hinder the growth of our business. In addition, we believe
that prospective employees that we target after the offering may perceive that
the stock option component of our compensation packages is not as valuable as
the component was prior to this offering. Consequently, we may have difficulty
hiring our desired numbers of qualified employees after this offering.
Moreover, even if we are able to expand our employee base, the resources
required to attract and retain such employees may adversely affect our
operating margins. In addition, some companies have adopted a strategy of
suing or threatening to sue former employees and their new employers. As we
hire new employees from our current or potential competitors we are likely to
become a party to one or more lawsuits involving the former employment of one
of our employees. Any future litigation against us or our employees,
regardless of the outcome, may result in substantial costs and expenses to us
and may divert management's attention away from the operation of our business.
We Depend on Certain Key Personnel, and the Loss of Any Key Personnel May
Adversely Affect Our Business
We believe that our success will depend on the continued employment of our
senior management team and key technical personnel. This dependence is
particularly important to our business because personal relationships are a
critical element of obtaining and maintaining client engagements. If one or
more members of our senior management team or key technical personnel were
unable or unwilling to continue in their present positions, such persons would
be very difficult to replace and our business could be seriously harmed. To
date, a majority of our revenues have been generated by the selling efforts of
our senior management. Accordingly, the loss of one or more members of our
senior management team could have a direct adverse impact on our future sales.
In addition, if any of these key employees joins a competitor or forms a
competing company, some of our clients might choose to use the services of
that competitor or new company instead of our own. Furthermore, clients or
other companies seeking to develop in-house eBusiness capabilities may hire
away some of our key employees. This would not only result in the loss of key
employees but could also result in the loss of a client relationship or a new
business opportunity. Any losses of client relationships could seriously harm
our business.
8
<PAGE>
We Have a Limited Operating History and a Limited Number of Completed
Engagements that Make an Evaluation of Our Business Difficult
We were incorporated in November 1997 and began providing services to
clients in February 1998. Our limited operating history makes an evaluation of
our business and prospects very difficult. Companies in an early stage of
development frequently encounter enhanced risks and unexpected expenses and
difficulties. These risks, expenses and difficulties apply particularly to us
because our market, eBusiness services, is new and rapidly evolving. Our long-
term success will depend on our ability to achieve satisfactory results for
our clients and to form long-term relationships with core clients. We have not
been in operation long enough to judge whether our clients will perceive our
work as being beneficial to their businesses or to form any long-term business
relationships. Also, because of our limited operating history, our business
reputation is based on a limited number of client engagements. All of our
clients have only limited experience with the electronic business systems we
have developed for them. Accordingly, we cannot assure you that the limited
number of electronic business systems we have implemented will be successful
in the longer term. If the electronic business systems we have implemented are
not successful, our brand will be harmed and we may incur liability to our
clients. If one or more of our clients for whom we have done substantial work
suffers a significant failure or setback in its eBusiness, our business
reputation could be severely damaged, whether or not such failure or setback
was caused by our work or within our control. Our ability to obtain new
engagements, retain clients and recruit and retain highly-skilled employees
could be seriously harmed if our work product or our clients' eBusinesses fail
to meet the expectations of our clients.
Failure to Manage Our Growth May Adversely Affect Our Business
We have grown rapidly and expect to continue to grow rapidly both by hiring
new employees and serving new business and geographic markets. For example,
our headcount has grown from 27 as of March 31, 1998 to 228 as of February 28,
1999, and several members of our senior management team have only recently
joined Scient. We do not believe this growth rate is sustainable for the long-
term. In addition, we recently opened a New York office and expect to open
additional offices in the future. To facilitate the creation of new offices,
we have made an investment in developing an infrastructure template that we
call "office in a box." Because we have not yet used our office in a box
template, we cannot guarantee that the template will save us time or money or
that it will be an effective tool in helping us to open new offices.
Our growth has resulted in new and increased responsibilities for
management and will continue to place a significant strain on our management
and our operating and financial systems. In order to accommodate the increased
number of engagements, number of clients and the increased size of our
operations, we will need to hire, train and retain the appropriate personnel
to manage our operations. We will also need to improve our financial and
management controls, reporting systems and operating systems. We are currently
implementing a new enterprise resource planning software system for human
resource functions and some financial functions. We currently plan to redesign
several internal systems, including recruiting and engagement management
systems. We may encounter difficulties in transitioning to the new enterprise
resource planning software system or in developing and implementing other new
systems. Even after we implement these systems, our personnel, systems,
procedures and controls may be inadequate to support our future operations.
Our Success Will Depend on the Development of a Market for eBusiness Systems
Innovation Services
We believe that a new eBusiness systems innovation market is developing,
which is distinct from traditional information technology and systems
integration services markets. We also believe that a different set of skills
and capabilities is necessary to succeed in this new market. We cannot be
certain that a viable market for eBusiness systems innovation services will
emerge or be sustainable. If a viable and sustainable market for our eBusiness
systems innovation services does not develop, Scient will fail. Even if an
eBusiness systems innovation services market develops, we may not be able to
differentiate our services from those of our competitors. If we do not
differentiate our services from those of our competitors, our revenue growth
and operating margins may decline.
9
<PAGE>
Competition from Bigger, More Established Competitors Who Have Greater
Financial Resources Could Result in Price Reductions, Reduced Profitability
and Loss of Market Share
Competition in the eBusiness services market is intense. We compete against
companies selling electronic commerce software and services, and the in-house
development efforts of companies seeking to engage in electronic commerce. We
expect competition to persist and intensify in the future. We cannot be
certain that we will be able to compete successfully with existing or new
competitors. If we fail to compete successfully against current or future
competitors, our business, financial condition and operating results would be
seriously harmed.
Our current competitors include, and may in the future include, the
following:
. Systems integrators that primarily engage in fixed-time/fixed-fee
contracts, such as Cambridge Technology Partners, Sapient and Viant;
. Large systems integrators, such as Andersen Consulting and the consulting
arms of the "Big Five" accounting firms;
. Web consulting firms and online agencies, such as Agency.com, iXL,
Proxicom, Razorfish, USWeb/CKS and US Interactive;
. The professional services groups of computer equipment companies, such as
Compaq, Hewlett-Packard and IBM;
. Outsourcing firms, such as Computer Sciences Corporation, Electronic Data
Systems and Perot Systems;
. Information technology staffing firms, such as Keane and Renaissance
Worldwide;
. General management consulting firms, such as Bain & Company, Booz Allen &
Hamilton, Boston Consulting Group and McKinsey & Company; and
. Internal information technology departments of current and potential
clients.
Because relatively low barriers to entry characterize our market, we also
expect other companies to enter our market. We expect that competition will
continue to intensify and increase in the future. Some large information
technology consulting firms have announced that they will focus more resources
on eBusiness opportunities. Because we contract with our clients on an
engagement-by-engagement basis, we compete for engagements at each stage of
our methodology. There is no guarantee that we will be retained by our
existing or future clients on later stages of work.
The vast majority of our current competitors have longer operating
histories, a larger client base, larger professional staffs, greater brand
recognition and greater financial, technical, marketing and other resources
than we do. This may place us at a disadvantage in responding to our
competitors' pricing strategies, technological advances, advertising
campaigns, strategic partnerships and other initiatives. In addition, many of
our competitors have well-established relationships with our current and
potential clients and have extensive knowledge of our industry. As a result,
our competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements and they may also be able to
devote more resources to the development, promotion and sale of their services
than we can. Competitors that offer more standardized or less customized
services than we do may have a substantial cost advantage, which could force
us to lower our prices, adversely affecting our operating margins.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
10
<PAGE>
We Have Relied and Expect to Continue to Rely on a Limited Number of Clients
for a Significant Portion of Our Revenues
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of clients. For the nine months ended
December 31, 1998, our five largest clients accounted for 60% of our revenues,
with First Union, PlanetRx and RealSelect accounting for 20%, 13% and 12%,
respectively, of such revenues. The volume of work that we perform for a
specific client is likely to vary from period to period, and a significant
client in one period may not use our services in a subsequent period. To the
extent that any significant client uses less of our services or terminates its
relationship with us, our revenues could decline substantially. As a result,
the loss of any significant client could seriously harm our business,
financial condition and operating results.
Our Lack of Long-Term Contracts with Clients Reduces the Predictability of Our
Revenues
Our clients retain us on an engagement-by-engagement basis, rather than
under long-term contracts. While it is our goal to design and build complete
eBusiness systems for our clients, we are generally retained to design and
build discrete segments of an overall eBusiness system on an engagement-by-
engagement basis. Since large client projects involve multiple engagements or
stages, there is a risk that a client may choose not to retain us for
additional stages of a project or that the client will cancel or delay
additional planned projects. Such cancellations or delays could result from
factors unrelated to our work product or the progress of the project, but
could be related to general business or financial conditions of the client.
For example, many of our current or potential clients that are in the early
stages of development may be unable to retain our services because of
financial constraints. In addition, our existing clients can generally reduce
the scope of or cancel their use of our services without penalty and with
little or no notice. If a client defers, modifies or cancels an engagement or
chooses not to retain us for additional phases of a project, we must be able
to rapidly redeploy our employees to other engagements in order to minimize
underutilization of employees and the resulting harm to our operating results.
Our operating expenses are relatively fixed and cannot be reduced on short
notice to compensate for unanticipated variations in the number or size of
engagements in progress. These factors make it difficult for us to predict our
revenues and operating results. Our failure to accurately predict our revenues
may seriously harm our financial condition and results of operations because
we incur costs based on our expectations of future revenues.
We May Lose Money on Fixed-Fee Contracts
To date, we have generally entered into contracts with our clients on a
time and materials basis, though we sometimes work on a fixed-fee basis or cap
the amount we may invoice. In the future we anticipate that an increasing
percentage of our client engagements will be subject to fixed-fee
arrangements. If we miscalculate the resources or time we need to complete
engagements with capped or fixed fees, our operating results could be
seriously harmed. The risk of such miscalculations for us is high because we
work with complex technologies in compressed timeframes and therefore it is
difficult to judge the time and resources necessary to complete a project.
We Sometimes Agree Not to Perform Services for Our Clients' Competitors
We sometimes agree not to perform services for competitors of certain of
our clients for limited periods of time, which have been as long as two years.
These non-compete agreements reduce the number of our prospective clients. In
addition, these agreements increase the significance of our client selection
process because many of our clients compete in markets where only a limited
number of players gain meaningful market share. If we agree not to perform
services for a particular client's competitors and our client fails to capture
a significant portion of its market, we are unlikely to receive future
revenues in that particular market.
Our Efforts to Develop Brand Awareness of Our Services May Not Be Successful
An important element of our business strategy is to develop and maintain
widespread awareness of the Scient brand name. To promote our brand name, we
plan to increase our marketing expenses, which may cause
11
<PAGE>
our operating margins to decline. Moreover, our brand may be closely
associated with the business success or failure of some of our high-profile
clients, many of whom are pursuing unproven business models in competitive
markets. As a result, the failure or difficulties of one of our high-profile
clients may damage our brand. If we fail to successfully promote and maintain
our brand name or incur significant related expenses, our operating margins
and our growth may decline.
Our Success Depends on Increased Adoption of the Internet as a Means for
Commerce
Our future success depends heavily on the acceptance and use of the
Internet as a means for commerce. The widespread acceptance and adoption of
the Internet for conducting business is likely only in the event that the
Internet provides businesses with greater efficiencies and improvements. If
commerce on the Internet does not continue to grow, or grows more slowly than
expected, our growth would decline and our business would be seriously harmed.
Consumers and businesses may reject the Internet as a viable commercial medium
for a number of reasons, including:
. Potentially inadequate network infrastructure;
. Delays in the development of Internet enabling technologies and
performance improvements;
. Delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
. Delays in the development of security and authentication technology
necessary to effect secure transmission of confidential information;
. Increased governmental regulation;
. Changes in sales tax laws;
. Changes in, or insufficient availability of, telecommunications services
to support the Internet; and
. Failure of companies to meet their customers' expectations in delivering
goods and services over the Internet.
Our Business is Dependent on our Ability to Keep Pace with the Latest
Technological Changes
Our market and the enabling technologies used by our clients are
characterized by rapid technological change. We have derived, and we expect to
continue to derive, a substantial portion of our revenues from creating
eBusiness systems that are based upon today's leading technologies and that
are capable of adapting to future technologies. As a result, our success will
depend, in part, on our ability to offer services that keep pace with
continuing changes in technology, evolving industry standards and changing
client preferences. In addition, we must hire, train and retain professionals
who are apprised of technological advances and developments so that they can
fulfill the increasingly sophisticated needs of our clients. If we are unable
to successfully respond to these technological developments or do not respond
in a timely or cost-effective way, our business and operating results will be
seriously harmed.
Our Planned International Operations Face Special Risks
To date, we have not generated significant revenues from engagements with
international clients. However, we intend to expand our operations
internationally in future periods by opening international offices and hiring
international management, strategic, technical, design, sales, marketing and
support personnel. We have limited experience in marketing, selling and
supporting our services in foreign countries. Development of such skills may
be more difficult or take longer than we anticipate, especially due to
language barriers, currency exchange risks and the fact that the Internet
infrastructure in foreign countries may be less advanced than the United
States' Internet infrastructure.
12
<PAGE>
We may be unable to successfully market, sell, deliver and support our
services internationally. If we are unable to expand our international
operations successfully and in a timely manner, our business, financial
condition and operating results could be seriously harmed. We will need to
devote significant management and financial resources to our international
expansion. In particular, we will have to attract and retain experienced
management, strategic, technical, design, sales, marketing and support
personnel for our international offices. Competition for such personnel is
intense and we may be unable to attract and retain qualified staff.
Moreover, international operations are subject to a variety of additional
risks that could seriously harm our financial condition and operating results.
These risks include the following:
. Problems in collecting accounts receivable;
. The impact of recessions in economies outside the United States;
. Longer payment cycles;
. Unexpected changes in regulatory requirements;
. Fluctuations in currency exchange rates;
. Restrictions on the import and export of certain technologies;
. Reduced protection for intellectual property rights in some countries;
. Seasonal reductions in business activity in certain parts of the world,
such as during the summer months in Europe;
. Potentially adverse tax consequences;
. Increases in tariffs, duties, price controls or other restrictions on
foreign currencies; and
. Trade barriers imposed by foreign countries.
Our Failure to Meet Client Expectations or Deliver Error-Free Services Could
Result in Losses and Negative Publicity
Our client engagements involve the creation, implementation and maintenance
of eBusiness systems and other applications that are critical to our clients'
businesses. Any defects or errors in these applications or failure to meet
clients' expectations could result in:
. Delayed or lost revenues due to adverse client reaction;
. Rendering additional services to a client at no charge;
. Negative publicity regarding us and our services, which could adversely
affect our ability to attract or retain clients; and
. Claims for substantial damages against us, regardless of our
responsibility for such failure.
Our contracts generally limit our damages arising from negligent acts,
errors, mistakes or omissions in rendering services to our clients. However,
we cannot be sure that these contractual provisions will protect us from
liability for damages in the event we are sued. Furthermore, our general
liability insurance coverage may not continue to be available on reasonable
terms or in sufficient amounts to cover one or more large claims, or the
insurer may disclaim coverage as to any future claim. The successful assertion
of any such large claim against us could seriously harm our business,
financial condition and operating results.
We May Need to Raise Additional Capital that May Not Be Available
We expect that the net proceeds from this offering will be sufficient to
meet our working capital and capital expenditure needs for at least the next
12 months. After that, we may need to raise additional funds, and
13
<PAGE>
we cannot be certain that we will be able to obtain additional financing on
favorable terms, if at all. If we need additional capital and cannot raise it
on acceptable terms, we may not be able to:
. Open new offices, in the United States or internationally;
. Create additional market-specific business units;
. Enhance our infrastructure and leveragable assets;
. Hire, train and retain employees;
. Respond to competitive pressures or unanticipated requirements; or
. Pursue acquisition opportunities.
Our failure to do any of these things could seriously harm our financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
Our Business Could Be Affected by Year 2000 Issues
Many currently installed computer systems and software products are coded
to accept only two-digit year entries in the date code field. Consequently, on
January 1, 2000, many of these systems could fail or malfunction because they
may not be able to distinguish 21st century dates from 20th century dates. As
a result, computer systems and software used by many companies, including our
clients and our potential clients, may need to be upgraded to comply with such
"Year 2000" requirements.
Although we believe that our principal internal systems are Year 2000
compliant, some systems are not yet certified. Because we are dependent, to a
very substantial degree, upon the proper functioning of our computer systems,
a failure of our systems to correctly recognize dates beyond December 31, 1999
could materially disrupt our operations, which could seriously harm our
business.
The Year 2000 problem may also affect third parties that license software
products to us so that we may incorporate these products into the business
systems that we create for our clients. We generally discuss Year 2000 issues
with these suppliers and sometimes perform internal testing on their products,
but we cannot guarantee that the software licensed by these suppliers is
Year 2000 compliant. Any failure on our part to provide Year 2000 compliant
eBusiness systems to our clients could result in financial loss, harm to our
reputation and liability to others and could seriously harm our business,
financial condition and operating results.
We do not currently have any information concerning the Year 2000
compliance status of our clients. Our current or potential clients may incur
significant expenses to achieve Year 2000 compliance. If our clients are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate the budgets that current or potential clients could have for
purchases of our services. In addition, we anticipate that many of our
financial services clients will institute a standstill on electronic services
spending during the second half of 1999 as they attend to Year 2000 issues. As
a result, our operating results could be seriously harmed.
For a more detailed description of our Year 2000 assessment, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness."
We May Not Be Able to Protect Our Intellectual Property and Proprietary Rights
We cannot guarantee that the steps we have taken to protect our proprietary
rights will be adequate to deter misappropriation of our intellectual
property, and we may not be able to detect unauthorized use and take
appropriate steps to enforce our intellectual property rights. If third
parties infringe or misappropriate our trade secrets, copyrights, trademarks
or other proprietary information, our business could be seriously harmed. In
14
<PAGE>
addition, although we believe that our proprietary rights do not infringe on
the intellectual property rights of others, other parties may assert
infringement claims against us or claim that we have violated their
intellectual property rights. Such claims, even if not true, could result in
significant legal and other costs and may be a distraction to management.
Protection of intellectual property in many foreign countries is weaker and
less reliable than in the United States, so if our business expands into
foreign countries, risks associated with protecting our intellectual property
will increase.
Increasing Government Regulation Could Affect Our Business
We are subject not only to regulations applicable to businesses generally,
but also laws and regulations directly applicable to electronic commerce.
Although there are currently few such laws and regulations, both state,
federal and foreign governments may adopt a number of these laws and
regulations. Any such legislation or regulation could dampen the growth of the
Internet and decrease its acceptance as a communications and commercial
medium. If such a decline occurs, companies may decide in the future not to
use our services to create an electronic business channel. This decrease in
the demand for our services would seriously harm our business and operating
results.
Any new laws and regulations may govern or restrict any of the following
issues:
. User privacy;
. The pricing and taxation of goods and services offered over the Internet;
. The content of websites;
. Copyrights;
. Consumer protection;
. The online distribution of specific material or content over the
Internet; and
. The characteristics and quality of products and services offered over the
Internet.
For example, the Telecommunications Act of 1996 prohibits the transmission
of certain types of information and content over the Internet. The scope of
the Act's prohibition is currently unsettled. In addition, although courts
recently held unconstitutional substantial portions of the Communications
Decency Act, federal or state governments may enact, and courts may uphold,
similar legislation in the future. Future legislation could expose companies
involved in Internet commerce to liability.
Potential Future Acquisitions Could Be Difficult to Integrate, Disrupt Our
Business, Dilute Stockholder Value and Adversely Affect Our Operating Results
We may acquire other businesses in the future, which may complicate our
management tasks. We may need to integrate widely dispersed operations with
distinct corporate cultures. Such integration efforts may not succeed or may
distract our management from servicing existing business. Our failure to
successfully manage future acquisitions could seriously harm our operating
results. Also, our stockholders would be diluted if we finance the
acquisitions by incurring debt or issuing equity securities.
A Few Individuals Own Much of Our Stock
Upon completion of this offering, our directors, executive officers and
each of their affiliates will beneficially own, in the aggregate,
approximately % of our outstanding common stock. This percentage will be
% if the underwriters exercise their over-allotment option in full. As a
result, these stockholders will be able to exercise control over all matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of
ownership may also have the effect of delaying or preventing a change in
control of Scient. See "Principal Stockholders."
15
<PAGE>
We Have Various Mechanisms in Place to Discourage Takeover Attempts
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control of Scient that a stockholder
may consider favorable. These provisions include:
. Authorizing the issuance of "blank check" preferred stock;
. Providing for a classified board of directors with staggered, three-year
terms;
. Prohibiting cumulative voting in the election of directors;
. Requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
. Limiting the persons who may call special meetings of stockholders;
. Prohibiting stockholder action by written consent; and
. Establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporations Law and our
stock incentive plans may discourage, delay or prevent a change in control of
Scient. See "Management--Employee Benefits Plans" and "Description of Capital
Stock--Anti-takeover Effects of Provisions and the Certificate of
Incorporation, Bylaws and Delaware Law."
Our Stock Price May Be Volatile Because Our Shares Have Not Been Publicly
Traded Before
Prior to this offering, you could not buy or sell our common stock
publicly. Accordingly, we cannot assure you that an active public trading
market for our stock will develop or be sustained after this offering. The
market price after this offering may vary significantly from the initial
offering price in response to any of the following factors, some of which are
beyond our control:
. Variations in our quarterly operating results;
. Changes in financial estimates or investment recommendations by
securities analysts relating to our stock;
. Changes in market valuations of electronic commerce software and service
providers or electronic businesses;
. Announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. Loss of a major client;
. Additions or departures of key personnel;
. Future sales of our common stock; and
. Fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the traditionally volatile
technology sector.
We Are at Risk of Securities Class Action Litigation Due to Our Expected Stock
Price Volatility
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Due to the potential volatility of our stock price, we may be the
target of similar litigation in the future. Securities litigation could result
in substantial costs and divert management's attention and resources, which
could seriously harm our financial condition and operating results.
16
<PAGE>
Purchasers in this Offering Will Incur Immediate and Substantial Dilution
The initial public offering price of our common stock will be substantially
higher than the book value per share of the outstanding common stock. As a
result, investors purchasing common stock in this offering will incur
immediate and substantial dilution. 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. Such issuances may cause further dilution to investors.
Shares Becoming Available for Sale Could Affect Our Stock Price
Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of our common stock and could impair
our ability to raise capital through the sale of additional equity securities.
For a description of the shares of our common stock that are available for
future sale, see "Shares Eligible for Future Sale."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus.
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events
or results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outlined under
"Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to Scient from the sale of the shares of common
stock offered hereby are estimated to be $ , assuming an initial public
offering price of $ per share, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses. The net proceeds of
this offering are estimated to be $ if the underwriters' over-
allotment option is exercised in full. The primary purposes of this offering
are to obtain additional equity capital, create a public market for the common
stock, and facilitate future access to public markets. We expect to use the
net proceeds for general corporate purposes, including working capital. A
portion of the net proceeds may also be used for the acquisition of businesses
that are complementary to ours. We have no current plans, agreements or
commitments and are not currently engaged in any negotiations with respect to
any such transaction. Pending such uses, we will invest the net proceeds of
this offering in investment grade, interest-bearing securities.
DIVIDEND POLICY
We have not paid any cash dividends since our inception and do not intend
to pay any cash dividends in the foreseeable future.
PREEMPTIVE RIGHTS
As of the date of this prospectus, certain holders of our Series C
Preferred Stock have preemptive rights that entitle them to purchase
approximately three percent of the shares to be issued in this offering. The
number of shares that may be purchased under these rights, however, may be
limited at the discretion of the underwriters. Shares purchased by these
stockholders under their preemptive rights will reduce the number of shares
available to new investors in this offering.
18
<PAGE>
CAPITALIZATION
The following table sets forth our short-term debt and capitalization as of
December 31, 1998. The pro forma information reflects the filing of an amended
and restated certificate of incorporation to provide for authorized capital
stock of 125,000,000 shares of common stock and 10,000,000 shares of
undesignated preferred stock and the conversion of all shares of preferred
stock outstanding as of December 31, 1998 into 14,807,145 shares of common
stock upon completion of this offering. The pro forma as adjusted information
reflects the receipt of the estimated net proceeds from the sale by us of
shares of common stock in this offering at an assumed initial
offering price of $ per share (after deducting the estimated underwriting
discounts and commissions and estimated offering expenses). This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and
accompanying notes.
<TABLE>
<CAPTION>
As of December 31, 1998
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Bank borrowings, current....................... $ 225 $ 225 $
Capital lease obligations, current............. 138 138
-------- -------- -----
Total short-term debt...................... $ 363 $ 363 $
======== ======== =====
Bank borrowings, long-term..................... $ 998 $ 998 $
Capital lease obligations, long-term........... 189 189
-------- -------- -----
Total long-term debt....................... 1,187 1,187
-------- -------- -----
Stockholders' equity:
Convertible preferred stock, $.0001 par value
per share, 11,500,000 shares authorized;
8,523,811 shares outstanding actual;
10,000,000 shares authorized, no shares
outstanding pro forma; 10,000,000 shares
authorized, no shares outstanding pro forma
as adjusted................................. 1 --
Common stock, $.0001 par value per share,
33,500,000 shares authorized, 13,974,782
shares issued and outstanding actual;
125,000,000 shares authorized, 28,781,927
shares outstanding pro forma; 125,000,000
shares authorized, shares
outstanding pro forma as adjusted(1)........ 1 3
Additional paid-in capital................... 42,156 42,155
Stock subscription receivable................ (873) (873)
Unearned compensation........................ (16,923) (16,923)
Accumulated deficit.......................... (6,711) (6,711)
-------- -------- -----
Total stockholders' equity................. 17,651 17,651
-------- -------- -----
Total capitalization..................... $ 18,838 $ 18,838 $
======== ======== =====
</TABLE>
- --------
(1) The share numbers exclude:
. 3,326,800 shares of common stock issuable upon exercise of stock options
outstanding as of December 31, 1998 at a weighted average exercise price
of $.84 per share;
. 491,750 shares of common stock available for issuance under our 1997
Stock Option Plan as of December 31, 1998;
. 25,000 shares of common stock issuable upon the exercise of a warrant
outstanding as of December 31, 1998 at an exercise price of $.25 per
share; and
. 1,000,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan.
19
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of December
31, 1998, giving effect to the conversion of all shares of preferred stock
outstanding as of December 31, 1998 into common stock on the closing of this
offering, was $17,651,000, or approximately $.61 per share. Pro forma net
tangible book value per share represents the amount of our stockholders'
equity less intangible assets, divided by 28,781,927 shares of common stock
outstanding after giving effect to the conversion of the preferred stock
outstanding as of December 31, 1998 into shares of common stock.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of common stock in
this offering and the pro forma net tangible book value per share of common
stock immediately after completion of this offering. After giving effect to
the sale by us of shares of common stock in this offering at an
assumed initial offering price of $ per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses and the application of the estimated net proceeds therefrom, our pro
forma net tangible book value as of December 31, 1998, would have been
$ , or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to
purchasers of common stock in this offering. The following table illustrates
the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $
Pro forma net tangible book value per share as of December
31, 1998.................................................. $ .61
Increase per share attributable to new investors...........
-------
Pro forma net tangible book value per share after this
offering....................................................
-----
Dilution per share to new investors.......................... $
=====
</TABLE>
The following table sets forth on a pro forma basis as of December 31,
1998, after giving effect to the conversion of all outstanding shares of
preferred stock into common stock upon completion of this offering, the
difference between the number of shares of common stock purchased from Scient,
the total consideration paid to Scient and the average price paid by existing
stockholders and by new investors, before deduction of estimated discounts and
commission and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 28,781,927 % $21,373,000 % $.74
New stockholders............
---------- ----- ----------- -----
Totals.................. 100.0% 100.0%
========== ===== =========== =====
</TABLE>
As of December 31, 1998, there were options outstanding to purchase a total
of 3,326,800 shares of common stock at a weighted average exercise price of
$.84 per share under our 1997 Stock Option Plan. In addition, as of December
31, 1998, there was a warrant outstanding to purchase a total of 25,000 shares
of common stock at an exercise price of $.25 per share. To the extent
outstanding options or warrants are exercised, there will be further dilution
to new investors.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and is qualified by reference to financial statements and notes
thereto and appearing elsewhere in this prospectus. The statement of
operations data for the period from November 7, 1997 (inception) through March
31, 1998 and the nine months ended December 31, 1998 and the balance sheet
data at March 31, 1998 and December 31, 1998, are derived from, and are
qualified by reference to, the audited financial statements of Scient included
elsewhere in this prospectus. The historical results are not necessarily
indicative of results to be expected in any future period.
<TABLE>
<CAPTION>
Nine Months
November 7, 1997 Ended
(Inception) through December 31,
March 31, 1998 1998
------------------- ------------
(in thousands, except per
share data)
<S> <C> <C>
Statement of Operations Data:
Revenues..................................... $ 179 $11,288
Operating expenses:
Professional services....................... 102 5,738
Selling, general and administrative......... 1,228 7,707
Stock compensation.......................... 64 3,856
------- -------
Total operating expenses..................... 1,394 17,301
------- -------
Loss from operations......................... (1,215) (6,013)
Interest income, net......................... 56 461
------- -------
Net loss..................................... $(1,159) $(5,552)
======= =======
Net loss per share:
Basic and diluted.......................... $ (.19) $ (.88)
======= =======
Weighted average shares.................... 5,947 6,315
Pro forma net loss per share:
Basic and diluted (unaudited).............. $ (.27)
=======
Weighted average shares (unaudited)........ 20,275
<CAPTION>
As of
As of December 31,
March 31, 1998 1998
------------------- ------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments................................. $ 3,301 $15,581
Working capital.............................. 3,299 17,147
Total assets................................. 4,225 21,914
Bank borrowings and capital lease
obligations, long-term...................... 26 1,187
Total stockholders' equity................... 3,805 17,651
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Scient should be read in conjunction with "Selected
Financial Data" and Scient's financial statements and notes thereto appearing
elsewhere in this prospectus. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. Our
actual results may differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including, but not limited
to, those set forth under "Risk Factors" and elsewhere in this prospectus.
Overview
Scient is a leading provider of a new category of professional services
called eBusiness systems innovation. As an eBusiness systems innovator, we
provide integrated eBusiness strategy and technology implementation services
to clients who are creating eBusinesses or are rethinking or expanding their
existing businesses to integrate eBusiness capabilities. These services
include strategy consulting, customer experience design, systems architecture,
and application and technology infrastructure development. From our
incorporation on November 7, 1997 through March 31, 1998 (the "Inception
Period"), our operating activities consisted primarily of recruiting key
technical and management personnel, establishing a business and operations
plan, opening a temporary office, developing marketing materials and
establishing relationships with potential clients. We began providing services
to our first client in February 1998. Accordingly, for the Inception Period,
we recognized revenues of $179,000 and incurred a net loss of $1.2 million.
Our current fiscal year began on April 1, 1998. For the nine months ended
December 31, 1998, we increased the number of clients served, hired strategy
consultants, technical personnel and core services staff to execute client
engagements, opened permanent offices in San Francisco and New York, and began
building an operational infrastructure to support the projected growth of our
business. Our headcount grew from 27 as of March 31, 1998, to 163 as of
December 31, 1998. Through the nine months ended December 31, 1998 we realized
revenues of $11.3 million and incurred a net loss of $5.6 million, of which
$3.9 million consisted of non-cash stock compensation expense. Our limited
operating history makes an evaluation of our business and prospects very
difficult. In addition, we cannot be certain that a viable market for our
eBusiness systems innovation services will emerge or be sustainable.
Our revenues are derived primarily from providing professional services to
clients who are creating eBusinesses or are rethinking or expanding their
existing businesses to integrate eBusiness capabilities. We expect that our
revenues will be driven primarily by the number and scope of our client
engagements and by our professional services headcount. In the nine months
ended December 31, 1998, five clients accounted for approximately 60% of our
revenues, with First Union, Planet Rx and RealSelect accounting for 20%, 13%
and 12%, respectively, of our revenues. Revenues from any given client will
vary from period to period; however, we expect that significant customer
concentration will continue for the foreseeable future. To the extent that any
significant client uses less of our services or terminates its relationship
with us, our revenues could decline substantially. As a result, the loss of
any significant client could seriously harm our business and results of
operations.
We market and sell our services through a marketing and direct sales force
organized by market-specific business units. We generally provide our services
on a time and materials basis. For the nine months ended December 31, 1998,
approximately 71% of revenues were derived from time and materials contracts,
including completed capped contracts that were appropriately recognized on a
time and materials basis. Revenues pursuant to time and materials contracts
are generally recognized as services are provided. Revenues pursuant to fixed-
fee contracts are generally recognized as services are rendered using the
percentage-of-completion method of accounting (based on the ratio of costs
incurred to total estimated costs). Revenues exclude reimbursable expenses
charged to clients. We anticipate that a larger percentage of revenues will be
derived from fixed-fee contracts and capped time and materials contracts in
the future. In the nine months ended December 31, 1998, all clients were
located within North America and all revenues were denominated in
U.S. dollars.
22
<PAGE>
Professional services expenses consist primarily of compensation and
benefits of our employees engaged in the delivery of professional services.
Professional services margins reflect revenues less the professional services
expenses whether or not the employee's time is billed to a client. We expect
that our per capita professional services expenses will increase over time due
to wage increases and inflation. In addition, these expenses may increase
after the offering, as it may become more difficult to attract and hire
professional services employees. Our professional services margins are
affected by trends in client billability, defined as the percentage of
professional services employees' time that is billed to clients, and, as such,
will vary in the future. Any significant decline in fees billed to clients or
the loss of a significant client would materially adversely affect our
professional services margins. Client engagements currently average three to
six months' duration. If a client engagement ends earlier than we expect, we
must re-deploy professional services personnel. Any resulting unbillable time
will adversely affect professional services margins. See "Risk Factors--Our
Quarterly Revenues and Operating Results Are Volatile and May Cause Our Stock
Price to Fluctuate."
Selling, general and administrative expenses consist of salaries,
commissions, and related expenses for personnel engaged in sales; salaries and
related expenses for executive recruiting, human resources, knowledge
management, information technology, finance and administrative personnel;
office facilities and information technology expenditures; professional fees;
trade shows; promotional expenses; and other general corporate expenses. We
expect selling, general and administrative expenses to increase in absolute
dollars as we expand our direct sales force, continue expenditures on
knowledge management and information technology infrastructure, open new
offices, increase our recruiting efforts and incur additional costs related to
the growth of our business and operation as a public company.
Stock compensation expenses consist of non-cash compensation expenses
arising from option grants. We have recorded aggregate unearned stock
compensation totaling $34.6 million in connection with certain stock option
grants through February 28, 1999. This stock compensation expense will be
recognized over a period ending February 28, 2003, which is the end of the
vesting period for the related options.
Despite growth in our revenues, we have not been profitable and we expect
to continue to incur net losses. Our net losses may not decrease
proportionately with the increase in our revenues primarily because of
increased expenses related to the expansion of the number of company-owned
offices, increased investment in our knowledge management and operations
infrastructure, and increased marketing and sales efforts. To the extent that
future revenues do not increase significantly in the same periods in which
operating expenses increase, our operating results would be adversely
affected. See "Risk Factors--We Have a History of Losses and Expect to Incur
Losses in the Future."
23
<PAGE>
Results of Operations
Given our limited operating history and the fact that we did not begin to
generate significant amounts of revenues until our current fiscal year, we do
not believe that year-over-year comparisons for our financial results are
meaningful; therefore, we have included the results from operations on a
quarterly basis.
The following table sets forth, for the periods presented, certain data
from our statement of operations in dollars and as a percentage of revenues.
The statement of operations data has been derived from our unaudited financial
statements except for the Inception Period. In our opinion, the unaudited
statements have been prepared on substantially the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information for the periods presented. This information should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this prospectus. The period from November 7, 1997 (inception) through
December 31, 1997 has been combined with the three months ended March 31, 1998
since the period from inception through December 31, 1998 only included
insignificant interest income. The operating results in any quarter or other
period are not necessarily indicative of the results that may be expected for
any future period. We have incurred net losses in each quarter since inception
and expect to continue to incur net losses for the foreseeable future.
<TABLE>
<CAPTION>
Nov. 7, 1997 Three Months Ended
(Inception) -----------------------------
through (unaudited)
March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998
------------ -------- --------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues....................... $ 179 $1,924 $ 3,094 $ 6,270
Operating expenses:
Professional services......... 102 942 1,796 3,000
Selling, general and
administrative............... 1,228 1,225 1,630 4,852
Stock compensation............ 64 358 1,143 2,355
------- ------ ------- -------
Total operating expenses....... 1,394 2,525 4,569 10,207
------- ------ ------- -------
Loss from operations........... (1,215) (601) (1,475) (3,937)
Interest income, net........... 56 78 187 196
------- ------ ------- -------
Net loss....................... $(1,159) $ (523) $(1,288) $(3,741)
======= ====== ======= =======
As a Percentage of Net
Revenues:
Revenues....................... 100% 100% 100% 100%
Operating expenses:
Professional services......... 57 49 58 48
Selling, general and
administrative............... 686 64 53 77
Stock compensation............ 35 18 37 38
------- ------ ------- -------
Total operating expenses....... 778 131 148 163
------- ------ ------- -------
Loss of operations............. (678) (31) (48) (63)
Interest income, net........... 31 4 6 3
------- ------ ------- -------
Net loss....................... (647)% (27)% (42)% (60)%
======= ====== ======= =======
</TABLE>
Revenues
Our revenues increased in each of the periods presented. The increase in
revenues in these periods reflected the introduction of our eBusiness
professional services in February 1998, the increase in the number of clients
and scope of engagements in each quarter and increased capacity due to
increased investment in our sales and professional services organizations.
24
<PAGE>
Operating Expenses
Professional Services. Our professional services expenses increased in
absolute dollars in each of the periods presented. These increases were
primarily a result of increases in the number of professional services
personnel.
Selling, General and Administrative. Selling, general and administrative
expenses increased in the quarters ended September 30, 1998 and December 31,
1998. The increases in absolute dollars were primarily due to expenses related
to the addition of sales, recruiting, knowledge management, technology,
finance and administration personnel and leased office space to support our
growth. The slight decrease in absolute dollars for the quarter ended June 30,
1998, was primarily due to the fact that the preceding quarter had included a
one-time signing bonus granted to an officer.
Stock Compensation. In the Inception Period and the nine months ended
December 31, 1998, we recorded aggregate unearned stock compensation totaling
$20.8 million in connection with certain stock option grants. We will record
additional unearned compensation totaling $13.8 million for employee stock
options granted from January 1, 1999 through February 28, 1999. Stock
compensation expense is being recognized over the vesting period of the
related options (generally four years). During the Inception Period and the
three quarters ended December 31, 1998, stock compensation of $3.9 million was
recognized. See Note 8 of Notes to Financial Statements.
Interest Income, Net
Interest income increased in each of the periods presented. This increase
was due primarily to interest income earned on the invested portion of the
proceeds of our private financing activities during 1997 and 1998. Interest
income was offset by insignificant interest expense generated from our
increased drawings under our lines of credit necessary to support our internal
growth.
Provision for Income Taxes
From inception through December 31, 1998, we incurred net losses for
federal and state tax purposes and have not recognized any tax provision or
benefit. As of December 31, 1998, we had approximately $2.4 million of federal
and state net operating loss carryforwards to offset future taxable income
which expire in varying amounts beginning in 2018 and 2006, respectively.
Given our limited operating history, losses incurred to date, and the
difficulty in accurately forecasting our future results, we do not believe
that the realization of the related deferred income tax asset meets the
criteria required by generally accepted accounting principles. Accordingly, a
100% valuation allowance has been recorded. See Note 3 of Notes to Financial
Statements.
Liquidity and Capital Resources
We have raised $31.8 million of equity capital from the sale of preferred
stock through February 1999, net of issuance costs. Since inception we have
financed our operations and capital expenditures primarily through the sale of
preferred stock and capital lease and other debt financing. Cash used in
operations for the Inception Period and each of the quarters ended June 30,
1998, September 30, 1998 and December 31, 1998 was $1.2 million, $1 million,
$1.1 million and $1.2 million, respectively. As of December 31, 1998 we had
$15.6 million in cash, cash equivalents and short-term investments. We expect
that accounts receivable will continue to increase to the extent our revenues
continue to rise. Any such increase that occurs at a greater rate than
increases in revenues can be expected to reduce cash, cash equivalents and
short-term investments.
We have a revolving line of credit for $2.0 million with Venture Banking
Group, a subsidiary of Cupertino National Bank and Trust. Borrowings under
this line of credit bear interest at the bank's prime rate plus .5%. As of
December 31, 1998, there were no outstanding borrowings under this line of
credit. Two standby letters of credit totaling $650,000 have been issued
against this line of credit as security for leased space in San Francisco,
25
<PAGE>
California, and New York, New York. We also have a capital equipment line with
Venture Banking Group for $2.8 million. Borrowings under this capital
equipment line bear interest at the bank's prime rate plus 1.0%. This
agreement requires that we maintain certain financial ratios and levels of
tangible net worth, profitability and liquidity. As of December 31, 1998,
borrowings under this capital equipment line were approximately $1.2 million.
Capital expenditures for the Inception Period and each of the quarters
ended June 30, 1998, September 30, 1998 and December 31, 1998 were
approximately $334,000, $392,000, $668,000 and $586,000, respectively.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which established standards for reporting
information about operating segments in annual financial statements. It also
established standards for related disclosures about products and services,
geographic areas and major customers. Statement of Financial Accounting
Standards No. 131 is effective for fiscal years beginning after December 15,
1997. We will adopt the provisions of Statement of Financial Accounting
Standards No. 131 in connection with the preparation of our financial
statements for the fiscal year ending March 31, 1999.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." Statement of Position 98-1
is effective for financial statements for years beginning after December 15,
1998. Statement of Position 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 such costs. We
will adopt the provisions of Statement of Position 98-1 in our year ending
March 31, 2000, and we do not expect such adoption to have a material effect
on our financial condition, operating results or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative and Hedging
Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The adoption of Statement of
Financial Accounting Standards No. 133 is not expected to have an impact on
our results of operations, financial position or cash flows.
Market Risk Disclosure
At December 31, 1998, we had an investment portfolio of fixed income
securities excluding those classified as cash and cash equivalents of $4.5
million (see Note 1 of Notes to Financial Statements). These securities, like
all fixed income instruments, are subject to interest rate risk and will fall
in value if market interest rates increase. If market interest rates were to
increase immediately and uniformly by 10% from levels as of December 31, 1998,
the decline of the fair value of the portfolio would not be material.
Year 2000 Readiness
Many currently installed computer systems and software products are coded
to accept only two-digit year entries in the date code field. Consequently, on
January 1, 2000, many of these systems could fail or malfunction because they
may not be able to distinguish 21st century dates from 20th century dates. As
a result, computer systems and software used by many companies, including our
clients and our potential clients, may need to be upgraded to comply with such
"Year 2000" requirements.
Although we believe that our principal internal systems are Year 2000
compliant, some systems are not yet certified. Because we and our clients are
dependent, to a very substantial degree, upon the proper functioning of our
computer systems, a failure of our systems to correctly recognize dates beyond
December 31, 1999 could materially disrupt our operations, which could
seriously harm our business.
26
<PAGE>
The Year 2000 problem may also affect third parties that license software
products to us so that we may incorporate these products into the business
systems that we create for our clients. We generally discuss Year 2000 issues
with these suppliers and sometimes perform internal testing on their products,
but we cannot guarantee that the software licensed by these suppliers is Year
2000 compliant. Any failure on our part to provide Year 2000 compliant
eBusiness systems to our clients could result in financial loss, harm to our
reputation and liability to others and could seriously harm our business,
financial condition and operating results.
We do not currently have any information concerning the Year 2000
compliance status of our clients. Our current or potential clients may incur
significant expenses to achieve Year 2000 compliance. If our clients are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce
or eliminate the budgets that current or potential clients could have for
purchases of our services. In addition, we anticipate that many of our
financial services clients will institute a standstill on electronic services
spending during the second half of 1999 as they attend to Year 2000 issues. As
a result, our operating results could be seriously harmed.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have
not been material. We will incur additional costs related to Year 2000
compliance for administrative personnel to manage the engagement, outside
contractor assistance, engineering and client satisfaction. In addition, we
may experience material problems and costs with Year 2000 compliance that
could seriously harm our business, financial condition and operating results.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our
critical operations. The cost of developing and implementing such a plan may
be material.
27
<PAGE>
BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in
such forward-looking statements. See "Special Note Regarding Forward-Looking
Statements."
Overview
Scient is a leading provider of a new category of professional services
called eBusiness systems innovation. eBusinesses are businesses that combine
the reach and efficiency of the Internet with both emerging and existing
technologies to enable companies to strengthen relationships with customers
and business partners, create new revenue opportunities, reduce costs, improve
operating efficiencies, shorten cycle times and improve communications. As an
eBusiness systems innovator, we provide integrated eBusiness strategy and
technology implementation services to clients who are creating eBusinesses or
are rethinking or expanding their existing businesses to integrate eBusiness
capabilities. These services include strategy consulting, customer experience
design, systems architecture, and application and technology infrastructure
development. Our services are designed to rapidly improve a client's
competitive position through the development of innovative business strategies
enabled by the integration of emerging and existing technologies. We have
developed a methodology, the Scient Approach, that provides a framework for
each stage of a client engagement from helping the client conceive its
strategy to architecting, engineering and extending its eBusiness. We believe
that our integrated methodology allows us to deliver reliable, robust, secure,
scalable and extensible eBusiness systems innovation in rapid timeframes.
We have performed professional services for over 35 clients, including AIG,
Chase Manhattan, eBay, First Union, innoVisions, PlanetRx and RealSelect.
Industry Background
The emergence and acceptance of the Internet has fundamentally changed the
way that consumers and businesses communicate, obtain information, purchase
goods and services and transact business. International Data Corporation, or
IDC, estimates that the number of Internet users worldwide will grow from
approximately 70 million in 1997 to 320 million in 2002 and that revenues
generated from Internet commerce in 2002 will exceed $400 billion. The
Internet has emerged as a fundamental opportunity to transform the way
business is conducted, joining the telephone, paper-based communication and
face-to-face interaction as one of the primary means of doing business.
Initially, companies used the Internet as a means of advertising or
promoting their businesses. Typically they published websites with "read
only," brochure-like information that was intended to enhance internal and
external communications. Companies either used their own internal design and
information technology resources or hired online advertising agencies and web
design firms to develop and deploy their initial websites.
Businesses quickly recognized the Internet's potential, beyond "brochure-
ware," to enhance their ability to attract and serve clients. Thus, the next
stage in the adoption of the Internet as a business medium typically involved
the construction of systems that enabled limited types of transactions to be
conducted over the Internet or that focused on improvements in procurement and
distribution. At this stage, companies generally viewed the Internet primarily
as another channel or adjunct to their core business. In order to build these
sorts of electronic business systems, companies were required to shift their
focus from simple web design to the integration of client/server applications
with those systems. As internal information technology, or IT, departments
often lacked the resources or capabilities to build these systems, firms
increasingly began to hire traditional IT services firms focused on the
integration of client/server systems to complement the services of web design
firms.
Today, many companies are recognizing that the Internet offers even greater
potential for enhancing or defending competitive positions. These companies
understand that the Internet is not simply going to play an ancillary role in
business, but is going to redefine the key determinants of business success
and the way business is conducted. This understanding has led to the emergence
of a new business model, known as eBusiness. eBusiness
28
<PAGE>
combines the reach and efficiency of the Internet with both emerging and
existing technologies to enable companies to strengthen relationships with
customers and business partners, create new revenue opportunities, reduce
costs, improve operating efficiencies, shorten cycle times and improve
communications. In short, eBusiness extends beyond the Internet and represents
a means to improve a company's competitive position through the development of
innovative business strategies enabled by the integration of emerging and
existing technologies.
The emergence of eBusiness is significant for virtually all companies
regardless of industry or location. In many industries, physical or capital
assets are becoming less important as barriers to entry. The increasingly
interconnected world, in which the Internet and other technologies create the
potential to link any communication device to any other, is reducing the
effect of geographic barriers, providing access to the best prices worldwide
and challenging the way many businesses have historically competed.
Competition can come from new, unexpected sources, in addition to traditional
ones. The ability to differentiate products or services and to price
advantageously is greatly reduced as the consumer is given more information,
choice and power. In light of all of these factors, many new and established
companies are rethinking, expanding or creating their businesses to integrate
eBusiness capabilities. They are doing so with the recognition that
establishing and maintaining customer relationships are increasingly important
to success. In addition, as the advantage of being a first mover becomes
increasingly clear, new and existing businesses are eager to establish
eBusinesses in rapid timeframes, with cost being a secondary consideration.
Thus, a continued focus on rapid innovation will be critical as more
eBusinesses emerge and the nature of competition continues to evolve.
In order to develop and implement a successful eBusiness capability in the
required timeframe, companies are increasingly hiring outside service
providers to augment internal resources. However, many companies find that
existing service providers, such as web design firms and traditional IT
service firms, are not well suited to address the broad range of challenges
posed by eBusiness. Web design firms typically focus on user interfaces and
front-end design and do not offer a broad scope of expertise for rapid
development and deployment of innovative eBusiness systems and capabilities.
Traditional IT service firms are currently focused primarily on legacy systems
enhancements, Year 2000 compliance and the implementation of traditional
business applications. Their methodology for delivery is focused on
client/server application development, which is not conducive to short
development cycles and methods required for eBusiness. Hence, they have not
cultivated the skills necessary to design and implement eBusiness systems in a
timeframe consistent with market requirements. Companies that are seeking to
build or enhance their eBusiness capabilities require a professional services
provider that has developed a broad range of integrated capabilities. Such a
services provider must provide strategic industry insights combined with
extensive technological skills to create infrastructure, applications and
business systems that are reliable, robust, secure, scalable and extensible.
Moreover, it must have a structured approach and the skills necessary to
achieve the rapid innovation and deployment of eBusinesses. Such a services
firm must be able to understand and integrate a wide spectrum of emerging
technologies and existing systems. In short, Scient believes that there is a
growing need for a new, innovative category of services providers called
eBusiness systems innovators.
The Scient Solution
Scient was established for the specific purpose of becoming the leading
eBusiness systems innovator. Scient provides integrated eBusiness strategy and
technology implementation services to clients who are creating eBusinesses or
are rethinking or expanding their existing businesses to integrate eBusiness
capabilities. Our services are designed to rapidly improve a client's
competitive position through the development of innovative business strategies
enabled by the integration of emerging and existing technologies. By
exclusively focusing on eBusiness services, Scient believes that it can better
serve its clients, as well as enhance its own eBusiness capabilities.
29
<PAGE>
Because eBusiness requires knowledge that extends beyond the Internet, a
broad range of integrated capabilities is required. Scient believes that it
has a set of integrated skills that enable its clients to create or enhance
competitive eBusinesses in rapid timeframes. This skill set includes:
. Broad range of integrated strategy and technology capabilities;
. Strategic industry insight;
. Extensive skill with both emerging and existing technologies;
. Customer experience design expertise;
. Security expertise;
. Structured and integrated approach to client engagements;
. Rapid deployment and execution capabilities; and
. Knowledge management expertise.
Scient provides the services required to design, build and improve an
eBusiness. Scient provides strategy consulting that combines expertise in
eBusiness with industry specific knowledge in order to produce a combined
business and technology strategy for its clients and architects and builds
applications and technology infrastructure that supports a wide variety of
eBusiness functions. Scient works with a wide variety of software and hardware
vendors in order to best address a client's needs. Scient maintains the skills
necessary to build systems that are reliable, robust, secure, scalable and
extensible.
Scient has developed an integrated methodology, the Scient Approach, that
provides a framework for each stage of a client engagement, from helping the
client conceive its strategy to architecting, engineering and extending its
eBusiness. We believe that our integrated methodology allows us to deliver
robust eBusiness systems innovation in rapid timeframes. Scient is also
developing knowledge management systems and processes with the goal of being
able to capture and disseminate intellectual capital and experience throughout
Scient to optimize the execution of client engagements and to continually
update and innovate the Scient Approach. By quickly and efficiently sharing
Scient's intellectual capital with all of our employees, whom we call
"colleagues," we believe we will be able to help our clients achieve faster
time to market and reduce the risks associated with the application and
integration of emerging technologies.
Strategy
Scient's objective is to build upon its position as a leading eBusiness
systems innovator. Our strategies for achieving that objective are as follows:
Target Critical Engagements for Emerging eBusiness Leaders. We focus on
attracting clients that understand and intend to capture the competitive
advantages provided by eBusiness. To continue to differentiate our services
and achieve recognition as a leading eBusiness systems innovator, we intend to
continue to be selective with respect to the clients we serve and the
engagements we undertake, with a focus on engagements that are critical to the
efforts of emerging market leaders building and enhancing innovative
eBusinesses. Attracting engagements that are critical for existing and
emerging eBusiness leaders enhances our ability to hire outstanding
professionals that desire to work on such projects and provides the
opportunity to add to our intellectual capital.
Hire and Retain Outstanding Professionals and Maintain a Culture that
Fosters Innovation. We believe that attracting and retaining outstanding
professionals is essential to our growth. We place a strong focus on
attracting, hiring, developing and retaining outstanding personnel. To
facilitate ongoing professional development and innovation, we have
established Innovation Centers that focus on five key skill competencies:
strategic consulting, customer experience, application development,
infrastructure and just-in-time innovation. We also have created a dedicated
recruiting organization that is incentivized to recruit high-quality
professionals to support our growth. In addition, we focus on maintaining a
culture that fosters innovation and emphasizes professional development. Our
culture embodies our values of spirit, growth, innovation, urgency, community
and excellence. In addition, our one-firm concept, in which the entire company
is operated on a single profit and loss basis, fosters teamwork and
cooperation throughout the company.
30
<PAGE>
Target Potential Clients Through Market-Specific Business Units. Our
marketing and sales strategy includes targeting potential clients through
market-specific business units that operate globally. Thus far, we have
established four such market-specific business units through which we market
and sell our services. We intend to add additional market-specific business
units as our capabilities and client opportunities warrant. Market-specific
expertise helps us attract and service the leading clients that we target. We
believe our market-specific expertise enables us to win the confidence of
target clients' senior management, resulting in engagements that focus on our
clients' most vital issues.
Establish Global Presence to Support Emerging eBusiness Leaders. In order
to better serve the needs of enterprises operating on a worldwide basis, we
intend to expand our geographic presence within the United States and abroad.
We intend to open offices in Asia and Europe and additional offices in the
United States over the next 12 months. In addition, we intend to build our
brand name globally to support our geographic expansion.
Continue to Develop and Refine the Scient Approach and Knowledge
Management. The market for eBusiness systems innovations is evolving rapidly,
and we believe that the leaders in this market will be those who can respond
quickly to changing market conditions and the evolving needs of clients. We
believe that our integrated methodology, the Scient Approach, allows us to
deliver robust and cost-effective business systems innovation in rapid
timeframes. In order to capture, upgrade and refine our intellectual capital,
including the Scient Approach, we intend to continue to invest in our
knowledge management processes and systems. We believe that these processes
and systems will allow us to use our intellectual capital in order to
accelerate the delivery of our services, reduce our costs and leverage our
industry expertise.
Services
We offer professional services to build and enhance eBusinesses. These
services include strategy consulting, customer experience design, systems
architecture, and application and technology infrastructure development.
Recognizing that all clients have different needs at different times, we use
our proprietary methodology, the Scient Approach, to customize our service
offerings based on each client's requirements. The following descriptions
highlight the primary services that we offer.
Strategy Consulting. We work with clients to tailor an eBusiness strategy
designed to provide them with a measurable competitive advantage in a short
timeframe. Our goal is to leverage the industry experience and knowledge base
of our professionals along with the experiences of our clients' senior
executives to formulate innovative, executable and flexible eBusiness
strategies.
Customer Experience Design. Scient develops user interface designs for
clients. Because Scient considers the user interface to be more than just
visual design, we incorporate our abilities in information architecture, user
interface engineering, editorial services and usability research to develop
systems with innovative customer experiences. In addition to offering these
services directly to our clients, Scient also partners with third party design
firms to achieve our clients' specific visual design requirements.
Systems Architecture. Using the Internet and emerging technologies, we
architect and design eBusiness applications and technology infrastructure for
clients in rapid timeframes. We offer application designs that range from
intranet solutions to complex business-to-business and business-to-consumer
innovations. Recognizing that the technical infrastructure becomes the
foundation for any future application development, our technology
infrastructure design services focus on enabling eBusiness applications to be
reliable, robust, secure, scalable and extensible.
Application and Technology Infrastructure Development. We build and
implement innovative eBusiness applications and technology infrastructure that
take into account the current and future business needs of our clients. We
recognize that new types of communications devices are proliferating, network
usage is expanding, and the future of eBusiness will be dependent upon the
development and integration of a variety of technologies.
31
<PAGE>
We build applications and technology infrastructure to be able to accommodate
these changes in the eBusiness environment. Our applications and technology
infrastructure development services utilize our capabilities in application
software, networks, systems, security and infrastructure architecture. Scient
develops applications and technology infrastructure to be robust and to serve
as the foundation for eBusiness innovations that can link to existing systems
and technologies.
We intend in the near future to offer our clients, upon completion of
engagements with them, services to help them extend, enhance and innovate
their eBusinesses. These services draw from all of our major competencies in
order to provide our clients with iterative innovation in all aspects of their
eBusiness implementations. To date we have not been engaged to provide these
services for a client.
CLIENT CASE STUDIES
The following case studies illustrate the services that we have provided
for two of our clients.
Realtor.com. Realtor.com is RealSelect's real estate site designed to make
it easier for home shoppers to look for and buy a home. Realtor.com enables
homebuyers to search conveniently for homes and realtors nationwide using the
online listings of the National Association of Realtors, to store home
selection criteria in personalized profiles, to receive updates when new homes
become listed and to access information regarding realtors, moving, financing
and other topics relating to home ownership.
RealSelect launched Realtor.com in 1996. RealSelect hired Scient to re-
architect and re-engineer Realtor.com to enable the site to be more robust and
responsive and to support significantly more traffic. In addition, because the
market for real estate information and online services has become highly
competitive, RealSelect asked Scient to work with its technical staff to add
specific functional capabilities to the Realtor.com website in a very short
timeframe to enable RealSelect to remain competitive and better serve
consumers.
Over a six month period, Scient analyzed RealSelect's requirements and
goals, evaluated Realtor.com's design and capabilities, determined the
appropriate hardware and software solutions, redesigned and re-engineered the
site using current Internet tools and technologies, and created new customized
software to provide new user functionality. This new functionality included
Personal Planner, an online tool for storing and retrieving personalized
search criteria and other information, receiving e-mail updates on new home
listings and calculating the proximity of a home to other destinations of
interest. Scient also added Find a Neighborhood, an online application that
integrates third-party information with Realtor.com to provide consumers with
information on neighborhoods such as schools, income, crime and cultural
attributes and to enable consumers to search for neighborhoods based on
criteria they select in their search queries.
innoVisions. innoVisions is an integrator and operator of cash access
machines, or CAMs, that provide check cashing services and cash access in
casinos and retail locations. innoVisions has recently developed CAMs based on
open systems technologies, and which use emerging technologies to identify
individuals based on facial recognition.
innoVisions hired Scient to design, develop and test its CAM platform and
networking technologies. In approximately 30 weeks, Scient evaluated the
client's needs, and architected and engineered an integrated system using the
Windows NT operating system, browser technologies, voice-over-IP networking
protocols and third-party facial recognition software. Further, Scient
designed the system to accommodate the addition of new functionality to their
CAMs in the future.
32
<PAGE>
The Scient Approach
The Scient Approach is a well-defined methodology that helps us efficiently
and successfully deliver our services. This methodology provides a framework
that facilitates the distribution of knowledge within an engagement and across
all parts of our firm. The Scient Approach is designed to allow us to provide
consistent quality across engagements and to deliver high value to clients in
all aspects of our services.
The key to the Scient Approach is the iterative improvement of the
eBusiness innovations that we deliver. Because the needs of our clients are
dynamic, we have designed the Scient Approach with built-in feedback and
iteration processes in order to improve the services delivered to clients and
to enhance the approach itself. The approach is results-based and focuses on
delivering client-specific economic results that Scient calls the New Bottom
Line. The New Bottom Line measures quantitative and qualitative improvements
specific to a client's business resulting from eBusiness innovations. It
measures the future results to be derived from new markets and audiences,
enhanced relationships and other benefits sought by each client. These metrics
serve as a critical feedback tool that assists Scient in designing and
extending eBusiness systems innovations.
The following diagram illustrates the Scient Approach:
[GRAPHIC APPEARS HERE]
Conceive. During the Conceive stage of the approach, Scient works closely
with the client to define the initiatives, strategy and the expected New
Bottom Line results for the engagement. This stage occurs in two phases,
Conceive-Strategy and Conceive-Technical.
. Conceive-Strategy. In this phase Scient develops a high-level eBusiness
strategy that leverages technology to innovate and support the client's
overall business strategy.
. Conceive-Technical. During this portion of the Conceive stage, Scient
examines the client's current technology infrastructure and
organizational structure in order to target and define strategically
critical engagements and associated initiatives.
Upon completion of the Conceive stage, Scient should have the information
necessary to define key business success factors and to prioritize the
client's engagements based on a common understanding of the client's eBusiness
objectives.
Architect. In the Architect stage, Scient defines the scope of the
eBusiness applications to be developed and designs applications to enable
clients to meet their objectives. Scient also scopes and designs the
underlying software, network and hardware infrastructure necessary to support
the applications, including the evaluation of any third party software. The
architect stage occurs in two phases, Architect-Scope and Architect-Design.
. Architect-Scope. The goal of this phase is to collect application and
process requirements to develop a baseline for the Architect-Design
phase.
. Architect-Design. During this phase, Scient defines the processes,
components and timeline necessary to realize the application goals. The
goal of this phase is to create a complete plan that allows the
applications to be constructed, tested and implemented on time and within
budget.
33
<PAGE>
After the Architect stage, the client has a "blueprint" for its eBusiness
development. This blueprint identifies in detail the tasks necessary to meet
the objectives and overall strategy goals as defined in the Conceive stage.
Engineer. In this stage, Scient iteratively builds and delivers the
eBusiness applications, which may include the incorporation or integration of
third party software. Within this stage are three phases that are focused on
successfully implementing the applications defined during the Architect stage.
. Engineer-Detailed Design. In this phase Scient works with the client to
add more specific details to the requirements, including the user
interface and key technical designs.
. Engineer-Implement. In this phase applications are built and refined
until they are ready for testing. This phase is aimed at producing the
tangible results for the client that were identified in the earlier
stages of the Approach. During the Engineer-Implement phase, Scient also
trains both internal and external users on newly built applications.
. Engineer-Test. In this phase applications are rigorously tested to ensure
they meet all functional, technical and user requirements. This phase
intends to ensure that the engineered applications perform in accordance
with the requirements defined in the Architect stage.
Upon completion of the Engineer stage, Scient delivers the applications to
the client.
Extend. In the Extend stage, Scient establishes a plan for ongoing
application development and content management designed to keep the client on
the leading edge of innovation. By utilizing Scient for the ongoing management
and innovation of its eBusiness systems, the client can focus on its core
competencies. The Extend stage is delivered in five distinct phases.
. Extend-Define. During this phase, Scient assesses the client's
established eBusiness system and defines future operational objectives.
. Extend-Transition. Transition activities focus on achieving the future
operational objectives as outlined in the Define phase. These activities
focus on technical, process and user-oriented aspects of further
transforming the client's eBusiness.
. Extend-Manage. The Manage phase involves the ongoing management of the
eBusiness systems, including application management, performance
management and system security management.
. Extend-Infrastructure Evolution. During this phase, Scient identifies and
innovates new technology infrastructure and capacity and performance
specifications on an ongoing basis.
. Extend-Application Innovation. During this phase Scient helps the client
to incorporate new features into its eBusiness.
Given the iterative nature of the entire Scient Approach, the Extend stage
can include all stages of the process starting with Conceive.
Sales and Marketing
Through our direct sales force and marketing organization, we market and
sell our services to clients who are creating eBusinesses or are rethinking or
expanding their existing businesses to integrate eBusiness capabilities. Our
sales professionals are aligned with market-specific business units. We
currently target four principal markets:
. Financial Services Markets, including financial products and services
providers such as banks, brokerage firms, capital markets and securities
firms and insurance companies;
. Electronic Markets, which we define as companies whose business models
rely primarily on new electronic delivery channels;
34
<PAGE>
. Enterprise Markets, which includes large companies facing the challenges
of adapting their businesses' traditional procurement and distribution
networks to take advantage of eBusiness capabilities; and
. Telecommunications Services Markets, including large international
telecommunications companies, competitive local exchange carriers,
internet service providers and entities delivering voice, data and video
services to their customers through various delivery technologies.
As of February 28, 1999, our sales group and our marketing group consisted
of seven and five professionals, respectively. We employ a team selling
approach, whereby our sales people collaborate with our business unit
professionals and management to identify prospects, conduct sales and manage
client relationships. Due to the strategic nature of our engagements, we
typically negotiate with the senior business and technical management
personnel of our current and potential clients.
Our marketing efforts are focused on creating awareness of the eBusiness
systems innovation category, establishing Scient as the leader in this new
category and building the Scient brand. Scient uses a broad mix of programs to
accomplish these goals, including market research, brochures, information
pieces published for industry forums, public relations activities, marketing
programs, seminars and speaking engagements and website marketing. The goal of
these activities is to promote Scient as a leading authority on eBusiness.
Clients
We have performed professional services for a variety of clients in many
industries. We are currently focused on serving companies in the Financial
Services, Electronic, Enterprise and Telecommunications Services markets. We
have only recently hired the resources to serve the Telecommunications
Services Market and do not yet have clients in that market. In addition,
because of the strategic and competitively sensitive nature of the engagements
we perform for many of our clients, we have agreed to keep some clients'
identities confidential. Accordingly, the following is only a partial list of
our clients that we believe is representative of our overall client base:
<TABLE>
<CAPTION>
Financial Services Electronic Markets Enterprise Markets
------------------ ------------------ ------------------
<S> <C> <C>
AIG eBay Hawaii Medical Service
Bank of Montreal ePhysician Association
Chase Manhattan Exodus Communications S.C. Johnson & Son
First Union ForMyHome
Global Sourcing Internet Travel Network
Solutions
innoVisions Naxon
NationsBanc Montgomery PlanetRx
Securities RealSelect (Realtor.com)
Recording Industry Association
of America
</TABLE>
For the nine months ended December 31, 1998, our five largest clients
accounted for approximately 60% of our revenues, with First Union, PlanetRx
and RealSelect accounting for 20%, 13% and 12%, respectively, of such
revenues.
We generally enter into contracts with our clients on a time and materials
basis, though we sometimes work on a fixed-fee basis or cap the amounts we may
invoice. In the future, we anticipate an increasing percentage of our client
engagements will be under fixed-fee arrangements. If we miscalculate the
resources or time we need to complete engagements with capped or fixed fees,
our operating results could be seriously harmed. Because of the strategic and
competitively sensitive nature of the engagements we perform for some of our
clients, we sometimes agree not to perform services for our clients'
competitors or in a particular field for limited periods of time which to date
have been as long as two years. These non-compete agreements reduce the number
of our prospective clients and reinforce the importance of our client
selection.
35
<PAGE>
We have also purchased a minority interest in one of our clients and may do
so with other clients in the future. We believe that such equity investments
provide an opportunity to enhance our relationship with our clients and allow
us to share in the potential appreciation of our client's stock, which we
believe will be based in part on our engagement with the client.
Innovation Centers
Scient's professional services colleagues are organized into areas of
expertise and core competencies called Innovation Centers. Our Innovation
Centers are designed to address the full range of expertise and competencies
needed in order to address the eBusiness needs of clients in our targeted
markets. When we deliver services to our clients, we typically build an
integrated team of professionals from several or all of our Innovation
Centers. In addition, the Innovation Centers promote the development of
specialized knowledge, techniques and experience and foster the training,
mentoring and professional development of its members. Each of Scient's
professional services colleagues is in one of the following Innovation
Centers:
. Strategy Innovation Center--Includes strategy consultants and industry
experienced managers, each of whom is focused on one of Scient's targeted
markets;
. Customer Experience Innovation Center--Integrates the disciplines of
information architecture, user interface engineering, visual design,
editorial services and usability research;
. Applications Innovation Center--Builds, tests and implements software
applications and manages Scient's relationships with third party
applications vendors;
. Infrastructure Innovation Center--Focuses on the areas of network,
systems, security, data and infrastructure architecture; and
. Just-In-Time Extend Innovation Center--Develops approaches for achieving
continuing, iterative improvements and enhancements in clients'
eBusinesses.
Knowledge Management
Our knowledge management processes and systems, which we refer to as
Knowledge Management, enable the development and re-use of Scient's
intellectual capital. We have found that while there are unique features to
each client engagement, there is often a degree of commonality. Scient's focus
on particular industries, business processes and technologies creates
intellectual capital that can be adapted for use in different industries and
applications provided that it is not proprietary to a client. Knowledge
Management is designed to enable each engagement team to bring the experiences
of our entire company to bear on each client engagement.
We believe Knowledge Management is important to every aspect of our
business as an eBusiness systems innovator. Our client engagements generate
many forms of knowledge, including requirements, security evaluations,
operational processes, designs, specifications, evaluations, implementations,
technology assessments and project reviews. We have made, and will continue to
make, a substantial investment in Knowledge Management, treating it not just
as desirable infrastructure, but as a core capability. In our view, the
knowledge from all of the functional groups in our organization, including our
Innovation Centers, market-specific business units and administration and
support groups, is part of an integrated whole. By establishing a single,
corporate-wide format for sharing data, we enable information to be accessed
throughout Scient.
Knowledge Management facilitates access to the Scient Approach and helps
our colleagues determine what services to deliver to clients and when to
perform the services during the different steps of the approach. Resources
available through Knowledge Management include tutorial materials, templates,
expert contacts and sample outputs for the different process steps. We are
also constructing an interactive, dynamic environment, the Scient Workbench,
which is being designed to provide our colleagues with a comprehensive context
for creating client deliverables. In addition, we are developing a system to
help us staff engagements that will query our Scient Approach process database
to determine what skills are needed for an engagement and examine our skills
inventory to identify available colleagues with the appropriate skills.
36
<PAGE>
A knowledge-sharing expert is assigned to each client engagement. During
the course of an engagement this person is responsible for:
. Guiding the Scient team to information that can be extracted from
Knowledge Management;
. Instructing colleagues on the use of Knowledge Management;
. Incorporating new content and information developed during the engagement
into Knowledge Management, to the extent that such content and
information is not proprietary to the client; and
. Providing feedback to Knowledge Management staff about the use of
Knowledge Management's products and services.
An explicit goal of each engagement is knowledge transfer to our clients.
Through the development of our extranet we intend to share information online
in a secure way with each of our clients.
Adoption of Knowledge Management and its integration into the workflow is
reinforced through our training programs. Learning opportunities for our
colleagues include classroom instruction, informal forums, conferences, client
engagements, mentoring, sponsorship and certification programs.
We have invested significantly in Knowledge Management with the intent that
such expenditures will allow us to use our intellectual capital in order to
accelerate the delivery of our services, reduce our costs and leverage our
industry experience. However, we cannot guarantee that Knowledge Management
will help us achieve these goals or will be adequate to support our future
operations.
Applied Technology Center
We have begun to establish and staff an Applied Technology Center, or Tech
Center, that is responsible for identifying and evaluating new hardware and
software products and emerging technologies. The Tech Center also supports
engagement teams during the initial implementations of new products and
technologies. In addition, the Tech Center is responsible for integrating new
products and technologies into the Scient Approach, in order to help us manage
the risk to clients of working with new products and emerging technologies. We
believe that gaining experience with these new technologies and products in
the Tech Center enables us to develop and implement applications and systems
for clients more quickly than we otherwise could and with less interruption to
and reliance on clients' systems during engagements.
Recruiting, Training, Retention and Culture
To succeed, we must continue to identify, recruit, hire, professionally
develop and retain outstanding professionals. We believe that our success in
recruiting and retaining such individuals will depend significantly on our
ability to provide a rich learning environment, to provide a one-firm culture
and to offer continued professional development as well as financial rewards
and incentives.
Recruiting
We dedicate significant resources to our recruiting efforts and manage it
similar to a sales function. As of February 28, 1999, we employed 8
professionals that focused full-time on recruiting. Our recruiting efforts are
targeted at three levels: executive, technical and college recruiting. In
addition to the efforts of our in-house recruiting group, we seek to meet our
hiring needs through referrals from existing Scient colleagues and through
technical and executive search firms. While recruiting personnel are
responsible for screening candidates, business, functional or administrative
managers make hiring decisions for their own groups in order to help ensure
high-quality hires.
37
<PAGE>
Career Development
We believe that our continuous focus on career development will help us
retain our colleagues. Upon joining our company, each new colleague
participates in a multi-day training program that covers a broad range of
topics, including technology, consulting and the Scient culture. During their
first year with Scient, we expect that recent college graduates will receive
approximately three to four weeks of training and experienced hires will
receive approximately two weeks of training. We have also created a sponsorship
program where experienced colleagues provide ongoing career development,
mentorship and training to less-experienced colleagues. Our existing colleagues
attend professional development and training programs and keep apprised of
technological advances and developments through on-the-job exposure to relevant
technology and the efforts of our Tech Center.
Corporate Culture
We believe that developing a rich environment and a one-firm concept with a
shared culture is critical to Scient becoming an employer of choice for
management, strategic, technical, design, sales, marketing and support
professionals of all levels. We actively foster a set of core values that were
developed jointly by management and Scient's colleagues. These values include a
dedication to maintaining an innovative and empowering environment where we
work as a team to achieve total client satisfaction and provide our colleagues
with personal and professional growth opportunities. In addition, we believe
that by linking employee compensation to the success of Scient through our
incentive compensation program, we encourage an owner attitude which we believe
results in decisions that benefit our clients, our colleagues and our company.
We believe that our growth and success in attracting and retaining high-caliber
colleagues will be in large part dependent on our adherence to a one-firm
culture supported by the following values:
<TABLE>
<S> <C>
. Spirit .Growth
. Community .Innovation
. Excellence .Urgency
</TABLE>
Operational Infrastructure
Information Technology Infrastructure
We currently have in place an information technology infrastructure which
supports our internal computer network, website, intranet and extranet. Because
Knowledge Management is a significant component of the Scient Approach, we
believe a scalable and robust information technology infrastructure is critical
to our success. Accordingly, we have invested and will continue to invest
significant resources in our information technology personnel, software and
hardware.
Office in a Box
In order to facilitate the creation of new offices both internationally and
in the United States, we are developing an infrastructure template that we call
"office in a box." The template will include policies, procedures and systems
for a new office to become operational, including technology, recruiting,
information and management infrastructures. We anticipate implementing the
office in a box template in the next office we open. However, since we have not
yet used our office in a box template we cannot guarantee that the template
will save us time or money or that it will be an effective tool in helping us
to open new offices.
Management Systems
We are currently implementing a new enterprise resource planning software
system for human resource functions and some financial functions. We currently
plan to redesign several internal systems, including recruiting and engagement
management systems, and to add other financial systems. We may encounter
difficulties in transitioning to the new enterprise resource planning software
system or in developing and implementing other new systems. Even once these
systems are established, we cannot guarantee that our personnel, systems,
procedures and controls will be adequate to support our future operations.
Difficulties encountered with developing, implementing or operating such
systems could seriously harm our business.
38
<PAGE>
Competition
Competition in the eBusiness services market is intense. We compete against
companies selling electronic commerce software and services, and the in-house
development efforts of companies seeking to engage in electronic commerce.
Our current competitors include, and may in the future include, the
following:
. Systems integrators that primarily engage in fixed-time/fixed-fee
contracts, such as Cambridge Technology Partners, Sapient and Viant;
. Large systems integrators, such as Andersen Consulting and the consulting
arms of the "Big Five" accounting firms;
. Web consulting firms and online agencies, such as Agency.com, iXL,
Proxicom, Razorfish, USWeb/CKS and US Interactive;
. The professional services groups of computer equipment companies, such as
Compaq, Hewlett-Packard and IBM;
. Outsourcing firms, such as Computer Sciences Corporation, Electronic Data
Systems and Perot Systems;
. IT staffing firms, such as Keane and Renaissance Worldwide;
. General management consulting firms, such as Bain & Company, Booz Allen &
Hamilton, Boston Consulting Group and McKinsey & Company; and
. Internal IT departments of current and potential clients.
Because relatively low barriers to entry characterize our market, we also
expect other companies to enter our market.
We believe that the principal competitive factors in our industry are the
speed of development and implementation of eBusiness systems, the quality of
services and deliverables, technical and strategic expertise, project
management capabilities, reputation and experience of professionals delivering
the service, the effectiveness of sales and marketing efforts, brand
recognition, size of firm and value of the services provided compared to the
price of such services. We believe that we presently compete favorably with
respect to most of these factors. However, the market for eBusiness services is
evolving and we cannot be certain that we will compete successfully in the
future. We expect that competition will continue to intensify and increase in
the future, particularly if large IT consulting firms focus more resources on
eBusiness opportunities. Because we contract with our clients on an engagement-
by-engagement basis, we compete for engagements at each stage of our
methodology. There is no guarantee that we will be retained by our existing or
future clients on later stages of work.
The vast majority of our current competitors have longer operating
histories, a larger client base, larger professional staffs, greater brand
recognition and greater financial, technical, marketing and other resources
than we do. This may place us at a disadvantage in responding to our
competitors' pricing strategies, technological advances, advertising campaigns,
strategic partnerships and other initiatives. In addition, many of our
competitors have well-established relationships with our current and potential
clients and have extensive knowledge of our industry. As a result, our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements and they may also be able to devote more
resources to the development, promotion and sale of their services than we can.
Competitors that offer more standardized or less customized services than we do
may have a substantial cost advantage, which could force us to lower our
prices, adversely affecting our operating margins.
Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
39
<PAGE>
Proprietary Rights
We cannot guarantee that the steps we have taken to protect our proprietary
rights will be adequate to deter misappropriation of our intellectual property,
and we may not be able to detect unauthorized use and take appropriate steps to
enforce our intellectual property rights. If third parties infringe or
misappropriate our trade secrets, copyrights, trademarks or other proprietary
information, our business could be seriously harmed. In addition, although we
believe that our proprietary rights do not infringe on the intellectual
property rights of others, other parties may assert infringement claims against
us or claim that we have violated their intellectual property rights. Such
claims, even if not true, could result in significant legal and other costs and
may be a distraction to management. Protection of intellectual property in many
foreign countries is weaker and less reliable than in the United States, so if
our business expands into foreign countries, risks associated with protecting
our intellectual property will increase.
Colleagues
We use the term "colleagues" instead of "employees" to reinforce our one-
firm concept and collegial culture. As of February 28, 1999, we had a total of
228 colleagues. Of these, 153 were in professional services, 12 in sales and
marketing, and 63 in core services, including Knowledge Management, the Tech
Center, finance and administration. Our future success will depend in part on
our ability to attract, retain and motivate highly qualified technical and
management personnel, for whom competition is intense. None of our colleagues
is represented by any collective bargaining unit, and we have never experienced
a work stoppage. We believe our relations with our colleagues are good.
Facilities
In October 1998, we moved our headquarters to a new facility in San
Francisco, California, consisting of approximately 36,000 square feet of office
space. We have leased this new facility through April 2001. We also currently
lease office space in New York, New York, consisting of approximately 38,000
square feet of office space. This lease expires in September 2009. We continue
to be obligated under a lease for our prior headquarters facility in San
Francisco, California. We have leased all space in our prior headquarters
facility to a subtenant. The lease and corresponding sublease expire in
February 2000.
40
<PAGE>
MANAGEMENT
Officers and Directors
The executive officers and directors and other key employees of Scient, and
their ages as of February 28, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Executive Officers and
Directors
Eric Greenberg.......... 34 Chairman and Founder
Robert M. Howe.......... 54 President, Chief Executive Officer and Director
Stephen A. Mucchetti.... 57 Chief Operating Officer and Executive Vice President
William H. Kurtz........ 42 Chief Financial Officer, Executive Vice President,
Treasurer and Secretary
David M. Beirne(1)...... 35 Director
Frederick W. Gluck(2)... 63 Director
Douglas Leone(1)(2)..... 42 Director
Other Key Employees
Robert N. Beck.......... 59 Vice President, People
Diana L. Brown.......... 42 Vice President and General Manager, Financial Services
Nicholas J. DiGiacomo... 46 Vice President and General Manager, Electronic Markets
Aron Dutta.............. 35 Vice President and General Manager, Enterprise Markets
C. Scott Frisbie........ 43 Chief Technology Officer
Joseph G. Galuszka...... 42 Vice President, Recruiting
Andres Gutierrez........ 45 Master Architect
Douglas I. Kalish....... 46 Chief Knowledge Officer
William P. Kim.......... 34 Vice President, Operations
Christopher W. 30 Chief Marketing Officer
Lochhead...............
Randall McComas......... 49 Vice President and General Manager, Telecommunications
James McKee............. 33 Vice President, Sales
Jeff B. Van Zanten...... 39 Vice President, Finance and Administration
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Executive Officers and Directors
Eric Greenberg founded Scient and has served as our Chairman since November
1997. Mr. Greenberg served as our President and Chief Executive Officer from
December 1997 to February 1998. Prior to founding Scient, from February 1996
to November 1996, Mr. Greenberg was Founder, Chairman and Chief Executive
Officer at Viant, a systems integrator. Prior to founding Viant, he held
various positions at Gartner Group, a market research company, from April 1992
to December 1995, most recently as the Vice President of Sales and Marketing
for the @vantage Online Service. Mr. Greenberg previously served as a
management consultant with Price Waterhouse and Andersen Consulting.
Mr. Greenberg received a Bachelor of Business Administration in Finance from
the University of Texas at Austin in 1985.
Robert M. Howe has served as our President and Chief Executive Officer
since February 1998. He is also a member of our board of directors. Prior to
joining Scient, Mr. Howe was General Manager of the IBM Worldwide Banking,
Finance and Securities Industry Group from January 1996 to March 1998. From
November 1994 to January 1996, Mr. Howe managed IBM's North American Banking,
Finance and Securities Industry Group. From March 1991 to November 1994, Mr.
Howe founded and ran the IBM Consulting Group. From January 1976 to February
1991, Mr. Howe was a consultant at Booz Allen & Hamilton, a management
consulting
41
<PAGE>
firm. Mr. Howe is a member of the boards of directors of the Development Bank
of Singapore and S.C. Johnson Commercial Markets. Mr. Howe received a Bachelor
in Business Administration from Southern Methodist University and a Master in
Business Administration from the Harvard University Graduate School of
Business.
Stephen A. Mucchetti has served as our Chief Operating Officer since
October 1998. Prior to joining us, Mr. Mucchetti was the General Manager of
IBM's Telecommunications and Media Group from October 1992 to October 1998.
Prior to joining IBM, Mr. Mucchetti was a Partner in the consulting division
of Coopers & Lybrand from January 1984 to November 1989 and was Managing
Partner for Coopers & Lybrand's northeast United States region from November
1989 to October 1992. Prior to joining Coopers & Lybrand, he was a consultant
at Booz Allen & Hamilton. from December 1975 to January 1984. Mr. Mucchetti
received a Bachelor of Science in Electrical Engineering from Villanova
University.
William H. Kurtz has served as our Chief Financial Officer since August
1998. Before joining Scient, Mr. Kurtz served in various capacities at AT&T
from July 1983 to August 1998, including Vice President of Cost Management and
Chief Financial Officer of AT&T's Business Markets Division. Prior to joining
AT&T, he worked at Price Waterhouse from June 1979 to July 1983. Mr. Kurtz is
a certified pubic accountant and received a Bachelor of Science in Accounting
from Rider University and a Master of Science in Management from the Stanford
University Graduate School of Business.
David M. Beirne has served as a member of our board of directors since
December 1997. Mr. Beirne has been a Managing Member of Benchmark Capital
Management Co. II, L.P., a venture capital firm, since June 1997. Prior to
joining Benchmark, Mr. Beirne founded Ramsey/Beirne Associates, an executive
search firm, and served as its Chief Executive Officer from October 1987 to
June 1997. Mr. Beirne serves as a director to several private companies. Mr.
Beirne received a Bachelor of Science in Management from Bryant College.
Frederick W. Gluck has served has as a member of our board of directors
since March 1998. Since July 1998, Mr. Gluck has served as Of Counsel at
McKinsey & Company, a management consulting firm. From February 1995 to June
1998, he served as Vice Chairman and Director at Bechtel Corporation, an
industrial corporation. From June 1967 to February 1995, Mr. Gluck was a
consultant at McKinsey & Company, holding a variety of positions, including
Managing Director of the firm. Mr. Gluck serves as a director to Amgen, ACT
Networks, Columbia/HCA Healthcare Corporation, Thinking Tools, Inc. and
several private companies. Mr. Gluck received a Bachelor of Science in
Electrical Engineering from Manhattan College and a Master of Science in
Electrical Engineering from New York University.
Douglas Leone has served as a member of our board of directors since
December 1997. Mr. Leone has been at Sequoia Capital, a venture capital firm,
since August 1988, most recently as a General Partner. He is a member of the
board of directors of Hybrid Networks, Inc. as well as several private
companies. Mr. Leone received a Bachelor of Mechanical Engineering from
Cornell University, a Master of Industrial Engineering from Columbia
University and a Master of Management from Massachusetts Institute of
Technology, Sloan School of Management.
Other Key Employees
Robert N. Beck has served as Vice President, People since August 1998.
Prior to joining Scient, Mr. Beck was President and Managing Director of Beck
& Associates, a consulting firm, from January 1998 to August 1998. From June
1995 to December 1997, Mr. Beck was Senior Vice President of Global Human
Resources at Gateway 2000, a computer company. Prior to joining Gateway, he
served as Senior Vice President of Human Resources at Abbott Laboratories, a
pharmaceutical company, from March 1992 to May 1995. Mr. Beck received a
Bachelor of Science in Business and a Master of Science in Business from San
Diego State University.
Diana L. Brown has served as Vice President and General Manager, Financial
Services since April 1998. Prior to joining Scient, Ms. Brown served in
various capacities at IBM from July 1978 to March 1998, including Vice
President, eBusiness Solutions for the Global Banking, Finance and Securities
Industry Group. Ms. Brown received a Bachelor of Science in Physics from St.
Lawrence University and a Master of Business Administration from New York
University, Stern School of Business.
42
<PAGE>
Nicholas J. DiGiacomo has served as Vice President and General Manager,
Electronic Markets since July 1998. From July 1993 to July 1998, Mr. DiGiacomo
was Senior Vice President at Science Applications International Corporation,
or SAIC, a technology services company. While at SAIC, he began the Global
Integrity Corporation and Tenth Mountain Systems, both subsidiaries of SAIC.
Mr. DiGiacomo received a Bachelor of Science in Physics from Siena College, a
Master of Physics from the University of Colorado at Boulder and a Ph.D. in
Physics from the University of Colorado at Boulder.
Aron Dutta has served as Vice President and General Manager, Enterprise
Markets since January 1999. Prior to joining Scient, Mr. Dutta was Vice
President, General Manager of the New York Market at Viant from October 1996
to January 1999. From February 1992 to October 1996, Mr. Dutta was a principal
at Booz Allen & Hamilton. Mr. Dutta received a Bachelor of Science in
Electrical Engineering from Polytechnic University.
C. Scott Frisbie has served as Chief Technology Officer since July 1998.
Prior to joining Scient, Mr. Frisbie served in various capacities at IBM from
April 1984 to July 1998, most recently as Manager of Advanced Technology and
Strategy for the Worldwide Banking, Finance and Securities Industry Group.
Joseph G. Galuszka has served as Vice President, Recruiting since April
1998. Prior to joining Scient, Mr. Galuszka served in various capacities at
Gartner Group from May 1986 to April 1998, most recently as Regional Vice
President, Sales. Mr. Galuskza received a Bachelor of Science in Mechanical
Engineering from the University of Buffalo, State University of New York.
Andres Gutierrez has served as Master Architect since February 1998. Prior
to joining Scient, Mr. Gutierrez served in various capacities at Pacific Bell,
a division of SBC Communications, a telecommunications company, from October
1984 to February 1998. Mr. Gutierrez received a Bachelor of Science in
Education from New Mexico State University and a Master of Business
Administration, emphasis in Finance, from New Mexico State University.
Douglas I. Kalish has served as Chief Knowledge Officer since April 1998.
Prior to joining Scient, Mr. Kalish served in various capacities at Price
Waterhouse from October 1984 to April 1998, including Director of Systems of
the Consumer Financial Institute Division, Chief Operating Partner and
Managing Partner of the Price Waterhouse Technology Centre and Managing
Partner of the Electronic Business Solutions Center. Mr. Kalish received an
Bachelor of Arts in Neurobiology from the University of Michigan, a Master of
Arts in Biology from Harvard University and a Ph.D. in Biology from Harvard
University.
William P. Kim has served as Vice President, Operations since April 1998.
Prior to joining Scient, Mr. Kim was Vice President, Product Management at
Vivant! a software company, from October 1997 to April 1998. From July 1988 to
July 1997, Mr. Kim was a Managing Partner at Cambridge Technology Partners, a
systems integrator. Mr. Kim received a Bachelor of Arts in Electrical
Engineering and Music from Massachusetts Institute of Technology.
Christopher W. Lochhead has served as Chief Marketing Officer since April
1998. Prior to joining Scient, Mr. Lochhead was Executive Vice President,
Strategic Marketing at The Vantive Corporation, a software company, from June
1996 to April 1998. From November 1993 to June 1996, Mr. Lochhead was
President and Chief Executive Officer of Always an Adventure, a consulting
firm.
Randall McComas has served as Vice President and General Manager,
Telecommunications since February 1999. Prior to joining Scient, Mr. McComas
served in various capacities at IBM from July 1983 to February 1999, including
Vice President of Telecommunications for Global Telecommunications and Media
Industries. Mr. McComas received a Bachelor of Science in Civil/Structural
Engineering from The Citadel.
James McKee has served as Vice President, Sales since February 1999. Prior
to joining Scient, Mr. McKee served in various capacities at Renaissance
Worldwide, an information technology staffing firm, from November 1991 to
January 1999, most recently as Vice President, Business Development.
43
<PAGE>
Jeff B. Van Zanten has served as Vice President, Finance and Administration
since January 1999. Prior to joining Scient, Mr. Van Zanten was Chief
Financial Officer at Purple Moon Media, a software company, from August 1997
to August 1998. From September 1989 to June 1997, Mr. Van Zanten was Vice
President, Finance and Operations at Advent Software. Mr. Van Zanten is a
certified public accountant and received a Bachelor of Science in Accounting
from the University of Southern California.
Board of Directors
Scient currently has authorized six directors. Upon the completion of the
offering, the terms of the office of the board of directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
the stockholders to be held in 1999; Class II, whose term will expire at the
annual meeting of stockholders to be held in 2000; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2001. The
Class I director will be Frederick Gluck; the Class II directors will be David
Beirne and Douglas Leone; and the Class III director will be Eric Greenberg
and Robert Howe. At each annual meeting of stockholders after the initial
classification, each elected director will serve from the time of his election
and qualification until the third annual meeting following his election. This
classification of the board of directors may have the effect of delaying or
preventing changes in control or management of Scient. All of our officers
serve at the discretion of the board of directors. There are no family
relationships among the directors and officers of Scient.
Board Committees. Our board of directors has an audit committee and a
compensation committee. The audit committee consists of Messrs. Beirne and
Leone. The audit committee makes recommendations to the board of directors
regarding the selection of independent accountants, reviews the results and
scope of audit and other services provided by our independent accountants and
reviews and evaluates our audit and control functions. The compensation
committee consists of Messrs. Leone and Gluck. The compensation committee
administers our stock plans and makes decisions concerning salaries and
incentive compensation for our employees.
Director Compensation. Currently we do not provide our directors with cash
compensation for their services as members of the board of directors, although
members are reimbursed for some expenses in connection with attendance at
board and committee meetings. In each calendar quarter after this offering,
our non-employee directors will automatically receive options to purchase
2,500 shares of our common stock under our 1999 Equity Incentive Plan. See
"Employee Stock Plans--1999 Equity Incentive Plan: Automatic Grants to Non-
Employee Directors."
In March 1998, when we appointed Mr. Gluck to our board of directors, we
granted him an option to purchase 240,000 shares of our common stock at an
exercise price of $.05 per share, subject to our repurchase right. In April
1998, when we appointed Morton H, Meyerson to our board of directors, we
granted him an option to purchase 240,000 shares of our common stock at an
exercise price of $.25 per share, subject to our repurchase right. In
connection with his resignation from our board of directors, we intend to
repurchase 142,500 shares of unvested common stock from Mr. Meyerson for $.25
per share, his original exercise price.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is currently or has been
at any time since the formation of Scient, an officer or employee of Scient.
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.
Indemnification
Scient has entered into indemnification agreements with each of our
directors and executive officers. The form of indemnity agreement provides
that we will indemnify our directors or executive officers for expenses
incurred because of their status as a director or executive officer, to the
fullest extent permitted by Delaware law, our certificate of incorporation and
our bylaws.
44
<PAGE>
Scient's certificate of incorporation and bylaws contain provisions
relating to the limitation of liability and indemnification of our directors
and officers. The certificate of incorporation provides that directors shall
not be personally liable to Scient or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except for liability:
. for any breach of a director's duty of loyalty to Scient or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. in respect of certain unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
. for any transaction from which the director derives any improper personal
benefit.
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended to authorize corporate action further eliminating
or limiting the personal liability of directors after our stockholders approve
the certificate of incorporation, then the liability of our directors shall be
eliminated or limited to the fullest extent permitted by the amended Delaware
General Corporation Law. The foregoing provisions of our certificate of
incorporation are not intended to limit the liability of directors or officers
for any violation of applicable federal securities laws. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, our bylaws
provide that:
. we are required to indemnify our directors and executive officers to the
fullest extent permitted by the Delaware General Corporation Law;
. we may, in our discretion, indemnify other officers, employees and agents
to the fullest extent permitted by the Delaware General Corporation Law;
. we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law (subject to
certain exceptions);
. the rights conferred in the bylaws are not exclusive;
. we may, in our discretion, enter into indemnification agreements with our
directors, officers, employees and agents; and
. we may not retroactively amend the bylaw provisions relating to indemnity
in a way that would adversely affect the rights of our directors or
executive officers.
Our bylaws further provide that we shall indemnify our directors to the
fullest extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law.
45
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the nine-month period ended December 31, 1998 that we paid for services by our
Chief Executive Officer and our three other executive officers, collectively
referred to as the Named Executive Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)
--------------------------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C>
Robert M. Howe.............. $187,500 $ -- -- $52,474
President and Chief
Executive Officer
Eric Greenberg.............. 176,374 -- -- --
Chairman of the Board of
Directors
Stephen Mucchetti(2)........ 55,929 -- 750,000 40,441
Chief Operating Officer and
Executive Vice President
William H. Kurtz(3)......... 96,635 -- 500,000 68,427
Chief Financial Officer,
Executive Vice President,
Treasurer and Secretary
</TABLE>
- --------
(1) Amount shown for Mr. Howe includes $45,808 in relocation expenses and
$6,666 for reimbursement of taxes paid by him. Amount shown for Mr.
Mucchetti includes $23,597 in commuting expenses and $16,844 for
reimbursement of taxes paid by him. Amount shown for Mr. Kurtz includes
$66,674 in relocation expenses and $1,753 for reimbursement of taxes paid
by him.
(2) Mr. Mucchetti commenced employment with Scient in October 1998.
(3) Mr. Kurtz commenced employment with Scient in August 1998.
46
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth the stock options we granted during the
nine-month period ended December 31, 1998, to each of the Named Executive
Officers. Generally, our stock options are immediately exercisable. We have
the right to repurchase all unvested shares at the original exercise price
upon the optionee's cessation of service. Generally, our repurchase right
lapses and the optionee vests in 25% of his option shares upon completion of
12 months of service from the vesting start date and vests in the balance in a
series of equal monthly installments over the next three years of service. The
option shares will vest upon an acquisition of Scient by merger or asset sale,
unless we transfer our repurchase right with respect to the unvested option
shares to the acquiring entity. Each of the options has a ten-year term,
subject to earlier termination in the event of the optionee's cessation of
service.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(3)
------------------------------------------------------- -------------------------
Percent of Total
Number of Options Granted to
Securities Employees during
Underlying the nine month Exercise
Options period ended Price Expiration
Name Granted December 31, 1998(1) ($/share)(2) Date 5% 10%
- ---- ---------- -------------------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Howe.......... -- -- -- -- -- --
Eric Greenberg.......... -- -- -- -- -- --
Stephen A.
Mucchetti(4)........... 500,000 9.0% $1.60 10/12/08 $503,116 $ 1,274,994
100,000 1.8 1.60 11/10/08 100,623 254,999
150,000 2.7 1.60 12/22/08 150,935 382,498
William H. Kurtz(5)..... 500,000 9.0 .65 8/12/08 204,391 517,966
</TABLE>
- --------
(1) The percentages in this column are based on an aggregate of 5,550,250
options granted to employees of Scient under the 1997 Stock Plan during
the nine months ended December 31, 1998.
(2) The exercise price was equal to the fair market value of our common stock
as determined by the board of directors on the date of grant. The exercise
price may be paid in cash, in shares of our common stock valued at fair
market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares. We may also finance the
option exercise by loaning the optionee sufficient funds to pay the
exercise price for the purchased shares, together with any federal and
state income tax liability incurred by the optionee in connection with
such exercise. The fair market value of our common stock was estimated by
the board of directors on the basis of the purchase price paid by
investors for shares of our preferred stock, taking into account the
liquidation preferences and other rights, privileges and preferences
associated with the preferred stock, and an evaluation by the board of our
revenues, operating history and prospects.
(3) We calculated the potential realizable value based on the ten year term of
the option at the time of grant. For purposes of this column, we have
assumed stock price appreciation of 5% and 10% pursuant to rules
promulgated by the Securities and Exchange Commission. These rates of
appreciation do not represent our prediction of our stock price
performance. We calculated the potential realizable values at 5% and 10%
appreciation by assuming that the estimated fair market value on the date
of grant appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price. See footnote 2 for
information on how we determined the fair market value of our common
stock. The initial public offering price will be higher than the estimated
fair market value on the date of grant. Therefore, the potential
realizable value of the option grants would be significantly higher than
the numbers shown in this column if future stock prices were projected to
the end of the option term by applying the same annual rates of stock
price appreciation to the initial public offering price.
(4) For the options granted on October 12, 1998, Mr. Mucchetti was immediately
vested in 20% of these option shares, and he will vest in an additional
20% of these option shares upon completion of his first 12 months of
service from the vesting start date. After that, he will vest in the
balance in a series of equal monthly installments over the next three
years of service. For the options granted on November 10, 1998, Mr.
Mucchetti will become fully vested after 60 months of continuous service
to Scient. For the options granted on December 22, 1998, Mr. Mucchetti
will vest after 48 months of continuous service to Scient. If we discharge
him without cause or if he resigns because we reduce his salary,
Mr. Mucchetti will receive an additional 12 months of service credit. If
Scient is acquired but Mr. Mucchetti's remaining option shares do not vest
in full, Mr. Mucchetti will receive an additional 12 months of service
credit if he is discharged or if he resigns because his salary is reduced
or he is not designated as the Chief Operating Officer, or a higher
position, of the surviving company.
(5) If Scient is acquired but Mr. Kurtz's option shares do not vest in full,
Mr. Kurtz receives an additional 12 months of service credit if he is
discharged or if he resigns because his salary is reduced or he is not
designated as the Chief Financial Officer of the surviving company.
47
<PAGE>
Aggregated Option Exercises in the Nine Months Ended December 31, 1998 and
Option Values at December 31, 1998
The following table sets forth for each of the Named Executive Officers
options exercised during the nine-month period ended December 31, 1998, and the
number and value of securities underlying unexercised options that were held by
the Named Executive Officers at December 31, 1998.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-the-Money
Number of Unexercised Options at Options at
Shares December 31, 1998(2) December 31, 1998(3)
Acquired on Value ---------------------- ---------------------
Name Exercise Realized(1) Vested Unvested Vested Unvested
- ---- ----------- ----------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Howe.......... -- $ -- -- -- $ -- $ --
Eric Greenberg.......... -- -- -- -- -- --
Stephen Mucchetti....... -- -- 100,000 650,000 -- --
William H. Kurtz........ 350,000 142,500 -- 150,000 -- 142,500
</TABLE>
- --------
(1) The numbers in this column are equal to the fair market value of the
purchased shares on the option exercise date, less the exercise price paid
for such shares.
(2) Generally, our stock options are immediately exercisable. We have the right
to repurchase all unvested option shares at the original exercise price
upon the optionee's cessation of service. The heading "Vested" refers to
shares no longer subject to our right of repurchase; the heading "Unvested"
refers to shares subject to our right of repurchase as of December 31,
1998.
(3) The numbers in this column are based on the fair market value of our common
stock at December 31, 1998 as determined by our board of directors, $1.60,
less the exercise price payable for such shares. The fair market value of
our common stock at December 31, 1998 was estimated by the board of
directors on the basis of the purchase price paid by investors for shares
of our preferred stock (taking into account the liquidation preferences and
other rights, privileges and preferences associated with the preferred
stock) and an evaluation by the board of our revenues, operating history
and prospects. The initial public offering price will be higher than the
estimated fair market value at December 31, 1998. Consequently, the value
of unexercised options would be higher than the numbers shown in the table
if the values were calculated by subtracting the option's exercise price
from the initial public offering price.
Employment Agreements and Change of Control Arrangements
We have entered into an employment agreement, dated December 10, 1997, with
Eric Greenberg, our Chairman, which provides for annual base salary of
$200,000, annual bonus at the discretion of our board of directors and
participation in our employee benefit plans. On June 12, 1998, our board of
directors increased Mr. Greenberg's annual salary to $250,000. The employment
agreement provides that we will pay Mr. Greenberg a lump sum equal to 100% of
the greater of (1) his then current annual base compensation or (2) his actual
base compensation plus bonus for the most recently completed fiscal year if we
terminate Mr. Greenberg without his consent for any reason other than for cause
or permanent disability. In addition, we have the right to repurchase Mr.
Greenberg's shares, subject to a vesting schedule. Our repurchase right will
lapse in its entirety upon a change of control of Scient, or upon Mr.
Greenberg's involuntary termination.
We have entered into an employment agreement, dated February 9, 1998, with
Robert Howe, our President and Chief Executive Officer, which provides for
annual base salary of $250,000, annual bonus at the discretion of the board of
directors and participation in our employee benefit plans. The employment
agreement also provides that we will pay Mr. Howe a lump sum equal to 100% of
the greater of (1) his then current annual base compensation or (2) his actual
base compensation plus bonus for the most recently completed fiscal year if we
terminate Mr. Howe without his consent for any reason other than for cause or
permanent disability. In addition, we granted Mr. Howe an immediately
exercisable option to purchase 2,400,000 shares of our common stock upon
commencement of his employment, subject to our right of repurchase which lapses
pursuant to a vesting
48
<PAGE>
schedule. Our repurchase right will lapse with respect to 25% of such shares
if we terminate Mr. Howe without cause, and with respect to 100% of such
shares upon a change of control of Scient. In addition, we made a one-time
payment of $330,000 to Mr. Howe upon his joining Scient.
We have entered into an employment agreement, dated June 12, 1998, with
William Kurtz, our Chief Financial Officer, which provides for annual base
salary of $250,000, annual bonus at the discretion of the board of directors
and participation in our employee benefit plans. The employment agreement also
provides that we will pay Mr. Kurtz a lump sum equal to six months' salary if
we terminate Mr. Kurtz. In addition, we granted Mr. Kurtz an option to
purchase 500,000 shares of our common stock upon commencement of his
employment, subject to our right of repurchase which lapses pursuant to a
vesting schedule. The vesting schedule will be adjusted to provide accelerated
vesting on 12 months' worth of shares if, upon a change of control of Scient,
Mr. Kurtz is terminated or not offered the position of Chief Financial Officer
with the surviving entity.
We have entered into an employment agreement, dated September 14, 1998,
with Stephen Mucchetti, our Chief Operating Officer, which provides for annual
base salary of $250,000, annual bonus of $50,000 for his first two years at
Scient and participation in our employee benefit plans. In addition, we
granted Mr. Mucchetti an option to purchase 500,000 shares of our common stock
upon commencement of his employment, of which 20% was immediately vested and
the remainder was subject to our right of repurchase which lapses pursuant to
a vesting schedule. The employment agreement provides that if we terminate Mr.
Mucchetti, we will pay him a lump sum equal to one year's salary and he will
vest in 12 months' of stock options. The vesting schedule will be adjusted to
provide accelerated vesting on 12 months' worth of shares if, upon a change of
control of Scient, Mr. Mucchetti is terminated or not offered the position of
Chief Operating Officer with the surviving entity.
Employee Stock Plans
1999 Equity Incentive Plan
Share Reserve. Our board of directors adopted our 1999 Equity Incentive
Plan on March 18, 1999. Our stockholders also approved this plan. We have
reserved 1,000,000 shares of our common stock for issuance under the 1999
Equity Incentive Plan. Any shares not yet issued under our 1997 Stock Plan on
the date of this offering will also be available under the 1999 Equity
Incentive Plan. On January 1 of each year, starting with the year 2000, the
number of shares in the reserve will automatically increase by 5% of the sum
of the total number of shares of common stock that are outstanding at that
time plus the number of shares of common stock issuable upon the exercise of
outstanding options at that time or, if less, by 3,000,000 shares. In general,
if options or shares awarded under the 1999 Equity Incentive Plan or the 1997
Stock Plan are forfeited, then those options or shares will again become
available for awards under the 1999 Equity Incentive Plan. We have not yet
granted any options or other awards under the 1999 Equity Incentive Plan.
Administration. The compensation committee of our board of directors
administers the 1999 Equity Incentive Plan. The committee has the complete
discretion to make all decisions relating to the interpretation and operation
of our 1999 Equity Incentive Plan. The committee has the discretion to
determine who will receive an award, what type of award it will be, how many
shares will be covered by the award, what the vesting requirements will be (if
any), and what the other features and conditions of each award will be. The
compensation committee may also reprice outstanding options and modify
outstanding awards in other ways.
Eligibility. The following groups of individuals are eligible to
participate in the 1999 Equity Incentive Plan:
. Employees;
. Members of our board of directors who are not employees; and
. Consultants.
Types of Awards. The 1999 Equity Incentive Plan provides for the following
types of award:
. Options to purchase shares of our common stock;
. Stock appreciation rights;
49
<PAGE>
. Restricted shares of our common stock; and
. Stock units (sometimes called phantom shares).
Options and Stock Appreciation Rights. Options may be incentive stock
options or nonstatutory stock options. An optionee who exercises an incentive
stock option may qualify for favorable tax treatment under Section 422 of the
Internal Revenue Code of 1986. On the other hand, nonstatutory stock options
do not qualify for such favorable tax treatment. The exercise price for all
options and stock appreciation rights granted under the 1999 Equity Incentive
Plan may not be less than 100% of the fair market value of our common stock on
the option grant date. Optionees may pay the exercise price by using:
. Cash;
. Shares of common stock that the optionee already owns;
. A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
. An immediate sale of the option shares through a broker designated by us;
or
. A loan from a broker designated by us, secured by the option shares.
Options and stock appreciation rights vest at the time or times determined
by the compensation committee. In most cases, our options vest over the four-
year period following the date of grant. Options and stock appreciation rights
generally expire 10 years after they are granted, except that they generally
expire earlier if the optionee's service terminates earlier. The 1999 Equity
Incentive Plan provides that no participant may receive options covering more
than 1,000,000 shares and stock appreciation rights covering more than
1,000,000 shares in the same year, except that a newly hired employee may
receive options covering up to 2,000,000 shares and stock appreciation rights
covering up to 2,000,000 shares in the first year of employment.
Restricted Shares. Restricted shares may be awarded under the 1999 Equity
Incentive Plan in return for:
. Cash;
. A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
. Services already provided to us; and
. In the case of treasury shares only, services to be provided to us in the
future.
Restricted shares and stock units vest at the time or times determined by
the compensation committee.
Change in Control. If a change in control of Scient occurs, an option or
other award under the 1999 Equity Incentive Plan will generally become fully
vested, unless the surviving corporation assumes the option or award or
replaces it with a comparable award. In addition, an option or other award
will ordinarily become vested in full--even if it was assumed or replaced--if
the participant is discharged within 12 months after the change in control
other than for cause. For this purpose, a participant is also treated as
having been discharged other than for cause if the participant resigns after
being asked to relocate, after suffering a reduction in compensation, or after
being demoted. A change in control includes:
. A merger of Scient after which our own stockholders own 50% or less of
the surviving corporation (or its parent company);
. A sale of all or substantially all of our assets;
. A proxy contest that results in the replacement of more than one-half of
our directors over a 24-month period; or
. An acquisition of 30% or more of our outstanding stock by any person or
group, other than a person related to Scient (such as a holding company
owned by our stockholders).
50
<PAGE>
Automatic Grants to Non-Employee Directors. The non-employee members of our
board of directors will be eligible for automatic option grants under the 1999
Equity Incentive Plan. After the effective date of this offering, each non-
employee director will receive options for 2,500 shares of our common stock
during each calendar quarter. These options are exercisable immediately after
the grant, and the option shares will be fully vested from the outset.
The exercise price of each non-employee director's option will be equal to
the fair market value of our common stock on the option grant date. A director
may pay the exercise price by using cash, shares of common stock that the
director already owns or an immediate sale of the option shares through a
broker designated by us. The non-employee directors' options have a 10-year
term, except that they expire one year after a director leaves the board (if
earlier).
If a change in control of Scient occurs, a non-employee director's option
granted under the 1999 Equity Incentive Plan will become fully vested, unless
the surviving corporation assumes the option or replaces it with a comparable
option. In addition, a non-employee director's option will become vested in
full--even if it was assumed or replaced--if the director will not serve on
the surviving corporation's board after the change in control. Vesting also
accelerates in the event of the optionee's death, disability or retirement.
Our board may amend or terminate the 1999 Equity Incentive Plan at any
time. If our board amends the plan, it does not need to ask for stockholder
approval of the amendment unless applicable law requires it. The 1999 Equity
Incentive Plan will continue in effect indefinitely, unless the board decides
to terminate the plan.
51
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Directors and Officers
In December 1997, Scient sold shares of Series A Preferred Stock to, among
others, the following stockholders in the amounts indicated for $.90 per
share. These shares of Series A Preferred Stock convert into 10,488,890 shares
of our common stock.
<TABLE>
<CAPTION>
Shares of Series A
Preferred Stock
------------------
<S> <C>
Benchmark Capital Partners II, L.P........................... 2,844,445
Sequoia Capital VII.......................................... 2,196,000
Sequoia Technology Partners VII.............................. 96,000
SQP 1997..................................................... 44,544
Sequoia 1997................................................. 25,056
Sequoia International Partners............................... 38,400
---------
Total Shares............................................. 5,244,445
=========
</TABLE>
Mr. Beirne, a director of Scient, is a managing member of the general partner
of Benchmark Capital Partners II, L.P. Mr. Leone, a director of Scient, is a
managing member of the general partner of the funds affiliated with Sequoia
Capital VII.
In May 1998, Scient sold 950,000 shares of Series A Preferred Stock to the
following director and former director for $1.50 per share. These shares of
Series A Preferred Stock convert into 1,900,000 shares of our common stock.
<TABLE>
<CAPTION>
Shares of Series A
Preferred Stock
------------------
<S> <C>
Frederick W. Gluck........................................... 200,000
Morton H. Meyerson........................................... 750,000
-------
Total Shares............................................. 950,000
=======
</TABLE>
In connection with his purchase of Series A Preferred Stock, we loaned Mr.
Meyerson, one of our former directors, $843,750. Mr. Meyerson issued us a
promissory note dated May 11, 1998 for the principal sum of $843,750, with
interest accruing at 5.5% per annum. The loan is secured by 562,500 shares of
his Series A Preferred Stock pursuant to a Stock Pledge Agreement dated
May 11, 1998. The 562,500 shares of Series A Preferred Stock are also subject
to repurchase by Scient pursuant to an October 31, 1998 Stock Repurchase
Agreement. In connection with his resignation from our board of directors, we
intend to repurchase the 562,500 shares of Series A Preferred Stock pursuant
to the Stock Restriction Agreement and effect such repurchase by canceling the
promissory note.
In June 1998, Scient sold shares of Series B Preferred Stock, to, among
others, the following stockholders in the amounts indicated for $6.35 per
share:
<TABLE>
<CAPTION>
Shares of Series B
Preferred Stock
------------------
<S> <C>
Benchmark Capital Partners II, L.P. ......................... 157,480
Sequoia Capital VII.......................................... 144,094
Sequoia Technology Partners VII.............................. 6,299
SQP 1997..................................................... 2,923
Sequoia 1997................................................. 1,644
Sequoia International Partners............................... 2,520
Smallcap World Fund Inc...................................... 1,417,323
Morgan Stanley Dean Witter Equity Funding, Inc............... 393,700
---------
Total Shares............................................. 2,125,983
=========
</TABLE>
Mr. Beirne, a director of Scient, is a managing member of the general partner
of Benchmark Capital Partners II, L.P. Mr. Leone, a director of Scient, is a
managing member of the general partner of the funds affiliated with Sequoia
Capital VII.
52
<PAGE>
In February 1999, Scient sold shares of Series C Preferred Stock to, among
others, the following stockholders in the amounts indicated for $10.85 per
share:
<TABLE>
<CAPTION>
Shares of Series C
Preferred Stock
------------------
<S> <C>
Sequoia Capital Franchise Fund............................. 460,830
Entities Affiliated with Amerindo Investment Advisors,
Inc....................................................... 483,829
Palantir Partners L.P...................................... 92,165
---------
Total Shares........................................... 1,036,824
=========
</TABLE>
Mr. Leone, a director of Scient, is a managing member of the general partner
of Sequoia Capital Franchise Fund.
We granted Mr. Mucchetti an option to purchase 150,000 shares of our common
stock on December 22, 1998. The option vests in one installment on December
31, 2002, and has an exercise price of $1.60 per share. In connection with the
grant to Mr. Mucchetti, we entered into a stock repurchase agreement with
Mr. Howe, dated December 22, 1998. Under the stock repurchase agreement, Mr.
Howe agreed to sell 150,000 shares of our common stock held by him to us at
$1.60 per share if Mr. Mucchetti vests in his December 22, 1998 option to
purchase 150,000 shares of common stock.
In connection with the recruiting of our Chief Financial Officer and Chief
Technology Officer, we engaged the services of Ramsey/Beirne Associates, Inc.,
an executive search firm. Mr. Beirne, one of our directors, is the chairman of
Ramsey/Beirne, and he owns more than 5% of the stock of Ramsey/Beirne. As
payment for services, we paid Ramsey/Beirne $100,000 and issued a warrant to
purchase 80,000 shares of common stock, with an exercise price of $.10 per
share. Ramsey/Beirne exercised the warrant on September 9, 1998.
In connection with the recruiting of our Vice President of Sales, we again
engaged the services of Ramsey/Beirne. As payment for services, we paid
Ramsey/Beirne $50,000 and issued a warrant to purchase 7,875 shares of common
stock, with an exercise price of $.75 per share.
Two of our directors have interests in some of our clients. Mr. Beirne is a
managing member of the general partner of funds affiliated with Benchmark
Capital Partners. Mr. Leone is a managing member of the general partner of
funds affiliated with Sequoia Capital. Benchmark and Sequoia are venture
capital firms that hold equity interests exceeding ten percent of the total
outstanding equity of several of our clients. In addition, Benchmark and
Sequoia each control a seat on the board of directors of some of these
clients.
Benchmark is a significant shareholder of PlanetRx, ForMyHome, ePhysician
and WebVan and has a right to nominate one member of each company's board of
directors. We have agreements to provide eBusiness services amounting to
approximately $1,774,000 $1,149,000, $702,000 and $78,000, respectively, for
each of these Benchmark portfolio companies. In addition, Benchmark has an
equity interest in eBay, a client for whom we have provided approximately
$168,000 in eBusiness services.
Sequoia is a significant shareholder of PlanetRx and WebVan and has a right
to nominate one member of each company's board of directors. We have
agreements to provide eBusiness services to each of these Sequoia portfolio
companies as discussed above.
In March 1999, Eric Greenberg and Robert M. Howe sold 300,000 shares of
common stock and 150,000 shares of common stock, respectively, to Gryphon
Holdings, L.P. At the closing of the sales, Gryphon made initial payments to
Messrs. Greenberg and Howe equal to $10.85 per share. Additionally, if we
consummate this offering at a per share price greater than $10.85 on or before
March 5, 2001, Messrs. Greenberg and Howe shall receive additional payments
equal to the difference between (1) the initial public offering price and (2)
$10.85. If, however, we do not consummate this offering on or before a sale of
Scient or March 5, 2001, Messrs. Greenberg and Howe will receive additional
payments from Gryphon equal to $4.15 per share on such date. In connection
with the sale by Mr. Greenberg we have waived our right of first refusal. As a
holder of these shares, Gryphon is subject to a restriction from selling the
shares during the 180 day period following this offering.
53
<PAGE>
In addition, we have granted options to and have entered into compensation
agreements and other arrangements with our directors and executive officers.
These transactions are described in "Management."
We believe that we made all of the transactions set forth above on terms no
less favorable to us than we could have obtained from unaffiliated third
parties. A majority of the independent and disinterested outside directors on
our board of directors will approve all future transactions, including loans
between us and our officers, directors, principal stockholders and their
affiliates. Such transactions will continue to be on terms no less favorable
to us than we could have obtained from unaffiliated third parties.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of February 28, 1999, information with
respect to shares beneficially owned by (1) each person who we know to be the
beneficial owner of more than five percent of our outstanding shares of common
stock; (2) each of the Named Executive Officers; (3) each of our directors;
and (4) all current directors and executive officers as a group. The number of
shares shown as beneficially owned by each stockholder is adjusted to reflect
the sale of shares offered in this offering and the conversion of all
outstanding preferred stock and other convertible securities into common
stock. We have determined beneficial ownership in accordance with Rule 13d-3
under the Securities Exchange Act of 1934. Under this rule, certain shares may
be deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the person
has the right to acquire shares (for example, upon exercise of an option or
warrant) within 60 days of the date as of which the information is provided.
In computing the percentage ownership of any person, the number of shares
beneficially owned by him is deemed to include the number of shares
beneficially owned by that person (and only that person) by reason of such
acquisition rights. In general, options to purchase our capital stock are
exercisable in full, with the underlying shares subject to repurchase rights
that lapse as the shares vest. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the person's actual voting power at any particular date. The
percentage of beneficial ownership for the following table is based on
32,380,660 shares of common stock outstanding as of February 28, 1999, and
shares of common stock outstanding after the completion of this
offering. Unless otherwise indicated, the address for each listed stockholder
is: c/o Scient Corporation, One Front Street, 28th Floor, San Francisco,
California, 94111. To our knowledge, except as indicated in the footnotes to
this table or pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with respect to the
shares of common stock indicated.
<TABLE>
<CAPTION>
Shares Percent
Beneficially Beneficially
Owned Owned
------------ -----------------
5% Stockholders, Named Officers, Directors, Before After
and Directors and Executive Officers as a Group Number Offering Offering
- ----------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Eric Greenberg................................. 6,703,332 20.7%
Entities associated with Benchmark Capital(1).. 5,846,370 18.1%
David M. Beirne(2)........................... 5,934,245 18.3%
Entities associated with Sequoia Capital(3).... 5,418,310 16.7%
Douglas Leone(3)............................. 5,418,310 16.7%
Robert M. Howe(4).............................. 3,800,000 11.7%
Stephen A. Mucchetti(5)........................ 562,500 1.7%
William H. Kurtz(6)............................ 501,562 1.5%
Frederick W. Gluck(7).......................... 538,672 1.7%
All directors and executive officers as a group
(7 persons)(8)................................ 23,458,621 72.1%
</TABLE>
- --------
(1) Benchmark Capital Partners II, L.P. holds 5,846,370 shares as nominee for
Benchmark Capital Partners II, L.P., Benchmark Founders Fund II, L.P.,
Benchmark Founders Fund II-A, L.P., and Benchmark Members' Fund, L.P. The
address for Benchmark Capital is 2480 Sand Hill Road, Suite 200, Menlo
Park, CA 94025.
(2) Includes 5,846,370 shares held by Benchmark Capital Partners II, L.P., as
nominee for Benchmark Capital Partners II, L.P., Benchmark Founders Fund
II, L.P., Benchmark Founders Fund II-A, L.P. and Benchmark Members' Fund,
L.P. Mr. Beirne disclaims beneficial ownership of the shares held by
Benchmark Capital Partners II, L.P. except to the extent of his pecuniary
interest therein. The amount shown for Mr. Beirne also includes 80,000
shares held by Ramsey/Beirne Associates and 7,875 shares subject to
warrants held by Ramsey/Beirne. Mr. Beirne is a stockholder in
Ramsey/Beirne. Mr. Beirne disclaims beneficial ownership of the shares and
the warrant to purchase shares held by Ramsey/Beirne except to the extent
of his pecuniary interest therein.
55
<PAGE>
(3) Includes 4,536,094 shares held by Sequoia Capital VII, 198,299 shares held
by Sequoia Technology Partners VII, 92,011 shares held by SQP 1997, 51,756
shares held by Sequoia 1997, 79,320 shares held by Sequoia International
Partners and 460,830 shares held by Sequoia Capital Franchise Fund. Mr.
Leone, a director of Scient, is a Managing Member of SC VII-A Management,
L.L.C. which is the general partner of Sequoia Capital VII, Sequoia
Technology Partners VII, SQP 1997, Sequoia 1997, Sequoia International
Partners and Sequoia Capital Franchise Fund. Mr. Leone disclaims
beneficial ownership of the shares held by Sequoia Capital Franchise Fund,
Sequoia Capital VII, Sequoia Technology Partners VII, SQP 1997, Sequoia
1997 and Sequoia International Partners except to the extent of his
pecuniary interest therein. The address for Sequoia Capital is 3000 Sand
Hill Road, Building 4, Suite 280, Menlo Park, CA 94025.
(4) Includes 2,400,000 shares held Robert M. Howe and Althea M. Howe as Joint
Tenants with Right of Survivorship. Includes 150,000 shares which are
subject to a stock repurchase agreement that allows Scient to repurchase
up to all of such shares in the event that Stephen A. Mucchetti, currently
Scient's Chief Operating Officer, vests in a December 22, 1998 150,000
share option grant by Scient. Mr. Mucchetti will vest in such options if
he remains employed by the Company through December 22, 2002.
(5) Includes 500,000 shares held by Stephen A. Mucchetti and Rebecca S.
Mucchetti as Joint Tenants with Right of Survivorship and options
immediately exercisable for 62,500 shares.
(6) Includes 425,000 shares held by William H. Kurtz and Kathy H. Kurtz as
Joint Tenants with Right of Survivorship and options immediately
exercisable for 76,562 shares.
(7) Includes 146,666 shares held by the Gluck 1997 Irrevocable Trust.
(8) Includes options immediately exercisable for 139,062 shares and warrants
immediately exercisable for 7,875 shares.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will
consist of 125,000,000 shares of common stock, $.0001 par value, and
10,000,000 shares of preferred stock, $.0001 par value.
COMMON STOCK
As of February 28, 1999, there were 16,522,866 shares of common stock
outstanding that were held of record by approximately 176 stockholders. As of
February 28, 1999 there were 2,706,216 shares of common stock subject to
outstanding options, 2,177,309 of which were then currently exercisable. There
will be shares of common stock outstanding (assuming no exercise of
the underwriters' over-allotment option and assuming no exercise of
outstanding options or warrants after February 28, 1999) after giving effect
to the sale of the shares of common stock to the public offered hereby, the
conversion of our Series A Preferred Stock into common stock on a two-for-one
basis, and the conversion of our Series B Preferred Stock and Series C
Preferred Stock into common stock on a one-for-one basis. The holders of
common stock are entitled to one vote per share on all matters to be voted on
by the stockholders. Subject to preferences that may be applicable to any
outstanding preferred stock, the holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the board of directors out of legally available funds. In the event of the
liquidation, dissolution, or winding up of Scient, the holders of common stock
are entitled to share ratably in all assets remaining after payment of our
liabilities, subject to prior distribution rights of preferred stock, if any,
then outstanding. Our common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to our common stock. All outstanding shares of common stock are
fully paid and nonassessable, and the shares of common stock to be issued on
completion of this offering will be fully paid and nonassessable. See
"Dividend Policy."
PREFERRED STOCK
Upon the closing of this offering, 10,000,000 shares of preferred stock
will be authorized and no shares of preferred stock will be outstanding. The
board of directors has the authority to issue the preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions on
any series of preferred stock, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or
the designation of such series, without further vote or action by the
stockholders. The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Scient without further action
by our stockholders and may adversely affect the voting and other rights of
the holders of common stock. Any issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of
common stock, including the loss of voting control to others. We currently do
not plan to issue any of the preferred stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
Certificate of Incorporation and Bylaws. Our certificate of incorporation,
to be effective upon the closing of this offering, provides that the board of
directors will be divided into three classes of directors, with each class
serving a staggered three-year term. The classification of directors may tend
to discourage a party from making a tender offer or otherwise attempting to
obtain control of Scient and may maintain the incumbency of the board of
directors. The classification of boards of directors has the effect of
delaying the time when a party can replace a majority of the incumbent
directors thus it generally increases the difficulty of replacing a majority
of the directors. Our certificate of incorporation also provides that,
effective on the closing of this offering, all stockholder actions must be
effected at a duly called meeting and not by a consent in writing. Further,
provisions of our bylaws and certificate of incorporation provide that the
stockholders may amend the bylaws or certain provisions of our certificate of
incorporation only with the affirmative vote of 75% of our outstanding capital
stock. These provisions of our certificate of incorporation and bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of Scient. We intended these provisions to enhance the likelihood
of continuity and stability in the composition of the board of directors and
in the policies formulated
57
<PAGE>
by the board of directors. The provisions are also meant to discourage certain
types of transactions that may involve a change of control of Scient. These
provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares
and, as a consequence, they also may inhibit fluctuations in the market price
of our shares that could result from actual or rumored takeover attempts. Such
provisions also may have the effect of preventing changes in our management.
See "Risk Factors--We Have Various Mechanisms in Place to Discourage Takeover
Attempts."
Delaware Takeover Statute. We are subject to Section 203 of the Delaware
General Corporation Law which regulates corporate acquisitions. Section 203
prevents certain Delaware corporations, including those whose securities are
listed on the Nasdaq National Market, from engaging in a "business
combination" with any "interested stockholder" for three years following the
date that such stockholder became an "interested stockholder." For purposes of
Section 203, a "business combination" includes, among other things, a merger
or consolidation involving Scient and the interested stockholder and the sale
of 10% or more of Scient's assets. In general, Section 203 defines an
"interested stockholder" as any entity or person beneficially owning 15% or
more of the outstanding voting stock of Scient and any entity or person
affiliated with or controlling or controlled by such entity or person. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from amendments approved by
the holders of at least a majority of the corporation's outstanding voting
shares. We have not "opted out" of the provisions of Section 203.
Registration Rights
After this offering, the holders of approximately 22,561,126 shares of
common stock and rights to acquire common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities
Act. Under the terms of the agreement between us and the holders of such
registrable securities, if we proposes to register any of our securities under
the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include shares of such common
stock therein. Additionally, such holders are entitled to require us on up to
two occasions to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to
use all reasonable efforts to cause such registration to become effective.
Further, holders may require us to file an unlimited number of additional
registration statements on Form S-3 at our expense. All of these registration
rights terminate four (4) years following the consummation of our initial
public offering and are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of
shares included in such registration and our right not to effect a requested
registration within 180 days following an offering of our securities,
including the this offering.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is
, and its telephone number is
.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have shares of common
stock outstanding. Of the shares which are offered
hereby, shares will be available for immediate sale in the
public market as of the date of this prospectus, and shares will
be subject to a 180-day lockup period. Approximately 31,284,011 additional
shares will be available for sale in the public market following the
expiration of 180-day lockup agreements with representatives of the
underwriters, subject in some cases to compliance with the volume and other
limitations of Rule 144. Thereafter, shares will remain subject to one-
year holding periods under Rule 144, which will lapse over a period ending on
March 16, 2000. The foregoing is represented in the following table:
<TABLE>
<CAPTION>
Days after Date of Approximate Shares
this Prospectus Eligible for Future Sale Comment
------------------ ------------------------ -------
<S> <C> <C>
On Effectiveness........ Freely tradeable shares sold in offering
180 Days................ 31,284,011 Lock-up expires; shares salable under Rule 144 or 701
More than 180 Days...... 1,150,649 Restricted securities held for one year or less
</TABLE>
In general, under Rule 144 a person, or persons whose shares are
aggregated, who has beneficially owned shares for at least one year is
entitled to sell within any three-month period commencing 90 days after the
date of this prospectus a number of shares that does not exceed the greater of
(a) 1% of the then outstanding shares of common stock, or approximately
shares as of the date of this offering, or (b) the average weekly
trading volume during the four calendar weeks preceding such sale, in each
case subject to manner of sale requirements, and depending on the amount sold,
the filing of a Form 144 with respect to such sale. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of Scient
(such as an officer, director or 10%-or-greater stockholder) at any time
during the 90 days immediately preceding the sale who has beneficially owned
his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to this
offering, there has been no public market for the common stock, and there can
be no assurance that a significant public market for the common stock will
develop or be sustained after the offering. Any future sale of substantial
amounts of the common stock in the open market may adversely affect the market
price of the common stock offered hereby.
Scient, its directors and executive officers and certain other
stockholders, including the stockholders purchasing shares in this offering
through the exercise of their preemptive rights, have agreed not sell any
common stock without the prior consent of Morgan Stanley & Co. Incorporated
for a period of 180 days from the date of this prospectus, except that Scient
may, without such consent, grant options and sell shares pursuant to its stock
plans.
Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after
the date of this prospectus. As of the date of this prospectus, the holders of
options exercisable into approximately shares of common stock will
be eligible to sell their shares on the expiration of the 180-day lockup
period, or subject in certain cases to vesting of such options.
59
<PAGE>
We intend to file a registration statement on Form S-8 under the Securities
Act to register approximately shares of common stock issued or reserved
for issuance under our stock plans within 180 days after the date of this
prospectus, thus permitting the resale of such shares by nonaffiliates in the
public market without restriction under the Securities Act. We intend to
register these shares on Form S-8, along with options that have not been
issued under our stock plans as of the date of this prospectus.
In addition, after this offering, the holders of approximately 22,561,126
shares of common stock will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares, except for shares
purchased by affiliates of Scient, becoming freely tradable without
restriction under the Securities Act immediately on the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights."
60
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Hambrecht & Quist LLC and Thomas Weisel Partners
LLC are acting as representatives, have severally agreed to purchase, and we
have agreed to sell to them an aggregate of shares of common stock.
The number of shares of common stock that each underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Hambrecht & Quist LLC..............................................
Thomas Weisel Partners LLC.........................................
---------
Total..............................................................
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and the selling stockholders and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The underwriters are obligated to
take and pay for all of the shares of common stock offered hereby, other than
those covered by the over-allotment option described below, if any such shares
are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriters may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain other dealers.
After the initial offering of the shares of common stock, the offering price
and other selling terms may from time to time be varied by the representatives
of the underwriters.
Pursuant to the underwriting agreement, we have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to
purchase up to an aggregate of additional shares of common stock at
the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of common stock offered hereby. To
the extent such option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares of common stock as the number set forth next to such
underwriter's name in the preceding table bears to the total number of shares
of common stock set forth next to the names of all underwriters in the
preceding table.
At our request, the underwriters have reserved up to shares of
common stock to be sold in the offering and offered hereby for sale, at the
public offering price, to our directors, officers, employees, business
associates and related persons. The number of shares of common stock available
for sale to the general public will be reduced to the extent such individuals
purchase such reserved shares. Any reserved shares which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered hereby.
We, the directors, officers and certain other of our stockholders have each
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, during the period ending 180 days
after the date of this prospectus, we will not, directly or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable
61
<PAGE>
for common stock (whether such shares or any such securities are then
owned by such person or are thereafter acquired directly from us); or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
. the sale to the underwriters of the shares of common stock under the
underwriting agreement;
. the issuance by Scient of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus which is described in the prospectus;
. transactions by any person other than Scient relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares of common stock; or
. issuances of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans that are in existence
on the date of the prospectus and consistent with past practices.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have submitted an application to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "SCNT."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
In June 1998, we sold shares of our Series B Preferred Stock in a private
placement. In this private placement, Morgan Stanley Dean Witter Equity
Funding, Inc., or MSDW Equity Funding, purchased 393,700 shares of Series B
Preferred Stock, which are convertible into 393,700 shares of common stock
(subject to adjustment), for $2,449,995, or $6.35 per share. MSDW Equity
Funding purchased these shares on the same terms as the other investors in the
private placement. Morgan Stanley & Co. Incorporated, one of the underwriters
in this offering, and MSDW Equity Funding are both wholly-owned subsidiaries
of Morgan Stanley Dean Witter & Co.
Pricing of the Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the public offering price for the shares of common stock
will be determined by negotiations between Scient and the representatives of
the underwriters. Among the factors considered in determining the public
offering price were
62
<PAGE>
our record of operations, our current financial position and future prospects,
the experience of our management, sales, earnings and certain of our other
financial and operating information in recent periods, the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to ours.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, Menlo Park, California. Members of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, participating in the consideration of
legal matters relating to the common stock offered hereby are the beneficial
owners of 13,825 shares of our Series C Preferred Stock. Legal matters in
connection with this offering will be passed upon for the underwriters by Gray
Cary Ware & Freidenrich LLP, Palo Alto, California.
EXPERTS
The financial statements as of March 31, 1998 and December 31, 1998, and
for the period from November 7, 1997 through March 31, 1998 and the nine
months ended December 31, 1998 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.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to us and such common stock offered hereby, reference is made to
the registration statement and the exhibits and schedules filed as a part of
the registration statement. Statements contained in this prospectus concerning
the contents of any contract or any other document referred to are not
necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the registration statement. Each
such statement is qualified in all respects by such reference to such exhibit.
The registration statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission.
63
<PAGE>
SCIENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Stockholders' Equity.......................................... F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
The reincorporation described in Note 1 to the financial statements has not
been consummated at March 9, 1999. When the reincorporation has been
consummated, we will be in a position to furnish the following report:
Report of Independent Accountants
"To the Board of Directors and Stockholders
of Scient Corporation
In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of
Scient Corporation at March 31, 1998 and December 31, 1998, and the
results of its operations and its cash flows for the period from
November 7, 1997 (Inception) through March 31, 1998 and for the nine
months ended December 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above."
PricewaterhouseCoopers LLP
San Jose, California
March 9, 1999
F-2
<PAGE>
SCIENT CORPORATION
BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
March 31, December 31, December 31,
1998 1998 1998
--------- ------------ -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................ $ 3,301 $ 11,077
Short-term investments................... -- 4,504
Restricted cash.......................... 100 --
Accounts receivable, net................. 155 4,234
Prepaid expenses and other current
assets.................................. 137 408
------- --------
Total current assets.................... 3,693 20,223
Property and equipment, net............... 322 1,637
Other assets.............................. 210 54
------- --------
$ 4,225 $ 21,914
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank borrowings, current................. $ -- $ 225
Accounts payable......................... 351 481
Accrued expenses......................... 32 1,524
Deferred revenue......................... -- 708
Capital lease obligations, current....... 11 138
------- --------
Total current liabilities............... 394 3,076
Bank borrowings, long-term................ -- 998
Capital lease obligations, long-term...... 26 189
------- --------
420 4,263
------- --------
Commitments (Note 5)
Stockholders' equity
Convertible Preferred Stock; issuable in
series, $.0001 par value; 11,500 shares
authorized; 5,333 and 8,524 actual
shares issued and outstanding,
respectively; 11,500 shares authorized;
no shares issued and outstanding, pro
forma................................... 1 1 $ --
Common Stock: $.0001 par value; 33,500
shares authorized; 10,934 and 13,975
shares issued and outstanding,
respectively; 40,000 shares authorized;
28,782 issued and outstanding,
pro forma............................... 1 1 3
Additional paid-in capital............... 6,497 42,156 42,155
Stock subscription receivable............ -- (873) (873)
Unearned compensation.................... (1,535) (16,923) (16,923)
Accumulated deficit...................... (1,159) (6,711) (6,711)
------- -------- --------
Total stockholders' equity.............. 3,805 17,651 17,651
------- -------- ========
$ 4,225 $ 21,914
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SCIENT CORPORATION
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
November 7,
1997
(Inception) Nine Months
through Ended
March 31, December 31,
1998 1998
----------- ------------
<S> <C> <C>
Revenues............................................... $ 179 $11,288
Operating expenses:
Professional services................................. 102 5,738
Selling, general and administrative................... 1,228 7,707
Stock compensation.................................... 64 3,856
------- -------
Total operating expenses............................... 1,394 17,301
------- -------
Loss from operations................................... (1,215) (6,013)
Interest income, net................................... 56 461
------- -------
Net loss............................................... $(1,159) $(5,552)
======= =======
Net loss per share:
Basic and diluted..................................... $ (.19) $ (.88)
======= =======
Weighted average shares............................... 5,947 6,315
======= =======
Pro forma net loss per share:
Basic and diluted (unaudited)......................... $ (.27)
=======
Weighted average shares (unaudited)................... 20,275
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SCIENT CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Convertible
Preferred
Stock Common Stock
------------- -------------
Additional Stock Total
Paid-in Subscription Unearned Accumulated Stockholders'
Shares Amount Shares Amount Capital Receivable Compensation Deficit Equity
------ ------ ------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock
to founder............. -- $ -- 8,534 $ -- $ -- $ -- $ -- $ -- $ --
Issuance of Series A
Convertible Preferred
Stock, net of issuance
cost of $20............ 5,333 1 -- -- 4,779 -- -- -- 4,780
Unearned compensation... -- -- -- -- 1,599 -- (1,599) -- --
Amortization of unearned
compensation........... -- -- -- -- -- -- 64 -- 64
Exercise of Common Stock
options................ -- -- 2,400 1 119 -- -- -- 120
Net loss................ -- -- -- -- -- -- -- (1,159) (1,159)
----- ----- ------ ----- ------- ----- -------- ------- -------
Balance at March 31,
1998................... 5,333 1 10,934 1 6,497 -- (1,535) (1,159) 3,805
Issuance of Series A
Convertible Preferred
Stock.................. 950 -- -- -- 1,425 -- -- -- 1,425
Issuance of Series B
Convertible Preferred
Stock, net of issuance
cost of $38............ 2,241 -- -- -- 14,189 (873) -- -- 13,316
Unearned compensation... -- -- -- -- 19,244 -- (19,244) -- --
Amortization of unearned
compensation........... -- -- -- -- -- -- 3,856 -- 3,856
Exercise of Common Stock
options and warrants... -- -- 3,041 -- 801 -- -- -- 801
Net loss................ -- -- -- -- -- -- -- (5,552) (5,552)
----- ----- ------ ----- ------- ----- -------- ------- -------
Balance at December 31,
1998................... 8,524 $ 1 13,975 $ 1 $42,156 $(873) $(16,923) $(6,711) $17,651
===== ===== ====== ===== ======= ===== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SCIENT CORPORATION
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
November 7,
1997
(Inception) Nine Months
through Ended
March 31, December 31,
1998 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(1,159) $(5,552)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 12 342
Provision for doubtful accounts..................... -- 200
Amortization of unearned compensation............... 64 3,856
Changes in current assets and liabilities:
Accounts receivable............................... (155) (4,279)
Prepaid expenses and other current assets......... (137) (271)
Other assets...................................... (210) 156
Accounts payable.................................. 351 130
Accrued expenses.................................. 32 1,492
Deferred revenue.................................. -- 708
------- -------
Net cash used in operating activities............ (1,202) (3,218)
------- -------
Cash flows from investing activities:
Purchase of property and equipment, net.............. (297) (1,357)
Purchase of short-term investments................... -- (4,504)
------- -------
Net cash used in investing activities............ (297) (5,861)
------- -------
Cash flows from financing activities:
Proceeds from bank borrowing......................... -- 1,223
Proceeds from Convertible Preferred Stock, net....... 4,780 14,741
Proceeds from exercise of Common Stock options and
warrants............................................ 120 801
Principal payments on capital lease obligations...... -- (10)
Restricted cash...................................... (100) 100
------- -------
Net cash provided by financing activities........ 4,800 16,855
------- -------
Increase in cash and cash equivalents................. 3,301 7,776
Cash and cash equivalents at beginning of period...... -- 3,301
------- -------
Cash and cash equivalents at end of period............ $ 3,301 $11,077
======= =======
Supplemental cash flow information:
Cash paid for interest............................... $ 1 $ 41
======= =======
Supplemental non-cash financing activity:
Property and equipment acquired under capital
leases.............................................. $ 37 $ 290
======= =======
Issuance of Convertible Preferred Stock for stock
subscription receivable............................. $ -- $ 873
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The Company and Summary of Significant Accounting Policies
The Company
Scient Corporation (the "Company") was incorporated in California on
November 7, 1997. The Company is a leading provider of a new category of
professional services called eBusiness systems innovation. As an eBusiness
systems innovator, the Company provides integrated eBusiness strategy and
technology implementation services to clients who are creating eBusinesses or
are rethinking or expanding their existing businesses to integrate eBusiness
capabilities. These services include strategy consulting, customer experience
design, systems architecture, and application and technology infrastructure
development.
Reincorporation
In March 1999, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. Following the
reincorporation, the Company will continue to be authorized to issue
40,000,000 shares of $.0001 par value Common Stock and 11,500,000 shares of
$.0001 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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
The Company derives its revenues from service agreements. Revenues pursuant
to time and materials contracts are generally recognized as services are
performed. Revenues pursuant to fixed-fee contracts are generally recognized
as services are rendered on the percentage-of-completion method of accounting
(based on the ratio of costs incurred to total estimated costs). Revenues
exclude reimbursable expenses charged to and collected from clients.
Provisions for estimated losses on uncompleted contracts are made on a
contract by contract basis and are recognized in the period in which such
losses become probable and can be reasonably estimated. To date, such losses
have been insignificant. Unbilled fees and services on contracts are comprised
of costs plus fees on certain contracts in excess of contractual billings on
such contracts. Advanced billings and billings in excess of costs plus fees
are classified as deferred revenue.
Operating Expenses
Professional Services. Professional services expenses consist primarily of
compensation and benefits of the Company's employees engaged in the delivery
of professional services.
Stock Compensation. The Company amortizes unearned compensation recorded in
connection with certain stock option grants over the vesting periods of the
related options.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At March 31,
1998 and December 31, 1998, the Company held cash equivalents
F-7
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Cash, Cash Equivalents and Restricted Cash (continued)
of $3,146,000 and $8,398,000, respectively, primarily comprised of commercial
paper, the fair value of which approximates costs.
During 1998, in accordance with the terms of a credit arrangement, the
Company purchased a certificate of deposit for $100,000. The use of this cash
was restricted at March 31, 1998 and such restriction has lapsed. The fair
value of the certificate of deposit approximated cost at March 31, 1998.
Short-Term Investments
At December 31, 1998, short-term investments include U.S. government
treasury bills and commercial paper maturing in less than one year and
classified as available-for-sale. At December 31, 1998, amortized cost
approximated fair value and unrealized gains and losses were insignificant.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, short-term
investments and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. The Company's accounts
receivable are derived from revenue earned from clients located in the U.S.
The Company performs ongoing credit evaluations of its clients' financial
condition and generally requires no collateral from its clients. To date, the
Company has not experienced any material losses.
The following table summarizes the revenue from clients in excess of 10% of
total revenues:
<TABLE>
<CAPTION>
November 7,
1997
(Inception) Nine Months
through Ended
March 31, December 31,
1998 1998
----------- ------------
<S> <C> <C>
Company A......................................... 60% 12%
Company B......................................... 35 --
Company C......................................... -- 20
Company D......................................... -- 13
</TABLE>
At March 31, 1998, Company A and B accounted for 54% and 40% of accounts
receivable, respectively. At December 31, 1998, Company D accounted for 18% of
accounts receivable. Four additional clients represented 17%, 12%, 11% and 10%
of accounts receivable at December 31, 1998.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, debt and
capital lease obligations, are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is generally computed using the straight-line method ranging from
eighteen months to five years for computer equipment and software and
furniture and fixtures, which is deemed to be the estimated useful lives of
the assets. Leasehold improvements and assets held under capital leases are
amortized over the term of the lease or estimated useful lives, whichever is
shorter.
F-8
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Stock Compensation
The Company accounts for employee stock compensation arrangements in
accordance with 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
grant between the fair value of the Company's stock and the exercise price.
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.
Pro Forma Stockholders' Equity (Unaudited)
Effective upon the closing of this offering, the outstanding shares of
Series A and Series B Convertible Preferred Stock will automatically convert
into 12,566,000 and 2,241,000 shares, respectively, of Common Stock. The pro
forma effects of these transactions are unaudited and have been reflected in
the accompanying pro forma Stockholders' Equity at December 31, 1998.
Net Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 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 common shares if the effect is antidilutive.
Potential common shares are composed of Common Stock subject to repurchase
rights and incremental shares of Common Stock issuable upon the exercise of
stock options and warrants and upon conversion of Series A and Series B
Convertible Preferred Stock.
The following table sets forth the computation of basic and dilutive net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
November 7,
1997
(Inception) Nine Months
through Ended
March 31, December 31,
1998 1998
----------- ------------
<S> <C> <C>
Numerator
Net loss......................................... $(1,159) $(5,552)
======= =======
Denominator
Weighted average shares.......................... 8,533 12,974
Weighted average unvested common shares subject
to repurchase................................... (2,586) (6,659)
------- -------
Denominator for basic and diluted calculation.... 5,947 6,315
======= =======
Net loss per share:
Basic and diluted ............................... $ (.19) $ (.88)
======= =======
</TABLE>
F-9
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Net Loss Per Share (continued)
The following table sets forth common stock equivalents that are not
included in the diluted net income per share calculation above because to do
so would be antidilutive for the periods indicated:
<TABLE>
<CAPTION>
November 7,
1997
(Inception) Nine Months
through Ended
March 31, December 31,
1998 1998
----------- ------------
<S> <C> <C>
Weighted average effect of common stock equivalents:
Series A Preferred Stock............................. 8,680 12,290
Series B Preferred Stock............................. -- 1,670
Common Stock warrants................................ 15 74
Unvested common shares subject to repurchase......... 2,586 6,659
Employee Stock Options............................... 972 5,234
------ ------
12,253 25,927
====== ======
</TABLE>
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the nine months ended December 31, 1998 is
computed using the weighted average number of common shares outstanding,
including the conversion of the Company's Series A and Series B 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 change in
conversion rate and conversion occurred on April 1, 1998 or at the date of
original issuance, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute basic and diluted net
loss per share of 13,960,000 for the nine months ended December 31, 1998. The
calculation of diluted net loss per share excludes potential common shares as
the effect would be antidilutive. Pro forma potential common shares are
composed of Common Stock subject to repurchase rights and incremental common
shares issuable upon the exercise of stock options and warrants.
Comprehensive Income
Effective March 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." 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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Recent Accounting Pronouncements
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. SFAS No. 131 is effective
F-10
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements (continued)
for fiscal years beginning after December 15, 1997. The Company will adopt the
provisions of SFAS No. 131 in connection with the preparation of its financial
statements for the fiscal year ending March 31, 1999.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15,
1998. SOP 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 such costs. The Company will adopt the
provisions of SOP 98-1 in its fiscal year ending March 31, 1999, and does not
expect such adoption to have a material effect on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards of derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The adoption of SFAS
No. 133 is not expected to have an impact on the Company's results of
operations, financial position or cash flows.
2. Balance Sheet Components
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
--------- ------------
(in thousands)
<S> <C> <C>
Accounts receivable:
Accounts receivable................................. $ 83 $3,993
Unbilled fees and services.......................... 72 441
------ ------
155 4,434
Less allowance for doubtful accounts................ ( -- ) (200)
------ ------
$ 155 $4,234
====== ======
Property and equipment, net:
Computer equipment and software..................... $ 278 $1,395
Equipment under capital leases...................... 37 327
Furniture and fixtures.............................. 19 159
Leasehold improvements.............................. -- 98
------ ------
334 1,979
Less accumulated depreciation and amortization...... (12) (342)
------ ------
$ 322 $1,637
====== ======
Depreciation expense from inception through March 31, 1998 and for the nine
months ended December 31, 1998 was $12,000 and $342,000, respectively.
Accumulated depreciation of assets under capital leases totaled $10,000 at
December 31, 1998. The equipment under capital leases collaterizes the related
lease obligations.
Accrued expenses:
Accrued compensation and benefits................... $ 32 $1,378
Other............................................... -- 146
------ ------
$ 32 $1,524
====== ======
</TABLE>
F-11
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Income Taxes
At March 31, 1998 and December 31, 1998, the Company had approximately
$1,069,000 and $2,359,000, respectively, of federal and state net operating
loss carryforwards available to offset future taxable income which expire in
varying amounts beginning in 2018 and 2006, 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.
The Company has incurred losses from inception through March 31, 1998 and
for the nine months ended December 31, 1998. Management believes that, based
on the history of such losses and other factors, the weight of available
evidence indicates that it is more likely than not that the Company will not
be able to realize its deferred tax assets and thus a full valuation reserve
has been recorded at March 31, 1998 and December 31, 1998.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
--------- ------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 439 $ 1,009
Accruals and reserves................................ 7 67
----- -------
446 1,076
Less valuation allowance............................. (446) (1,076)
----- -------
$ -- $ --
===== =======
</TABLE>
4. Borrowings
In May 1998, the Company entered into a $1,400,000 equipment lease line and
a $1,000,000 line of credit under a Loan and Security Agreement. The equipment
line draw down expires in May 1999. Interest will accrue from the date of each
draw down at a rate of one percent plus prime per annum (9.5% and 8.8% at
March 31, 1998 and December 31, 1998, respectively) and is payable monthly
through May 15, 1999. Equipment draw downs that are outstanding on May 15,
1999 are payable in 36 equal monthly principal installments, plus all accrued
interest, beginning on June 15, 1999. The line of credit expires in November
1999 and charges interest at a rate of one-half percent plus prime per annum
(9% and 8.3% at March 31, 1998 and December 31, 1998, respectively). The
assets of the Company are pledged as collateral for the Company's credit
facilities.
In August 1998, the Company amended the Loan and Security Agreement to add
a second $1,400,000 equipment lease line and increased the line of credit to
$2,000,000. The second equipment lease line draw down expires in September
1999. Interest accrual and payment terms are similar to the terms of the first
equipment lease line.
At December 31, 1998, the Company had $1,223,000 outstanding under the
equipment lease line. Under the lines of credit, the Company is required to
maintain certain financial covenants. At December 31, 1998, the Company was in
compliance with all such covenants.
F-12
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Commitments
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2010. Rent expense
from inception through March 31, 1998 and for the nine months ended December
31, 1998 was $72,000 and $654,000, respectively. There was no sublease income
for the period from inception through March 31, 1998 and sublease income for
the nine months ended December 31, 1998 was $72,000. The terms of the facility
leases provide for rental payments on a graduated scale. The Company
recognizes rent expense on a straight-line basis over the lease period, and
has recognized prepaid expense for rent expenditures not incurred but paid.
Future minimum lease payments, (excluding future minimum sublease income of
$506,000), under noncancelable operating and capital leases at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Year Ended Capital Operating
March 31, Leases Leases
---------- ------- ---------
(in thousands)
<S> <C> <C>
1999....................................................... $ 39 $ 495
2000....................................................... 159 2,216
2001....................................................... 114 2,042
2002....................................................... 26 862
2003....................................................... 18 761
Thereafter................................................. 7 5,671
----- -------
Total minimum lease payments............................... 363 $12,047
=======
Less amount representing interest.......................... (36)
-----
Present value of capital lease obligations................. 327
Less current portion....................................... (138)
-----
Capital lease obligations, long-term..................... $ 189
=====
</TABLE>
Letter of Credit
At December 31, 1998, the Company maintained a $400,000 letter of credit to
secure the lease deposit on one of its office facilities. The letter of credit
expires October 7, 1999 at which time a new letter of credit will
automatically be issued at $300,000 which expires May 10, 2001. The Company
also maintained a $250,000 letter of credit to secure the lease deposit on
another one of its office facilities. The letter of credit expires October 12,
2003. The letters of credit are secured by the line of credit.
Contingencies
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect in the financial position or results of
operations of the Company.
F-13
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Convertible Preferred Stock
Convertible Preferred Stock at December 31, 1998 consists of the following,
except shares authorized, which reflects the Articles of Incorporation as
amended as of February 1999 (in thousands):
<TABLE>
<CAPTION>
Proceeds
Shares Liquidation Net of
---------------------- Liquidation Amount Per Issuance
Series Authorized Outstanding Amount Share Costs
------ ---------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
A................... 6,283 6,283 $ 5,655 $ .90 $ 6,205
B................... 2,241 2,241 14,230 6.35 14,189
C................... 1,382 -- -- --
Undesignated........ 1,594 -- -- --
------ ----- ------- -------
Total............... 11,500 8,524 $19,885 $20,394
====== ===== ======= =======
</TABLE>
In February 1999, the Company issued 1,051,000 shares of $0.0001 par
Convertible Preferred Stock Series C and received proceeds net of issuance
costs totaling $11,400,000.
The holders of Series A, B and C Convertible Preferred Stock ("Convertible
Preferred") have various rights and preferences as follows:
Voting
Each share of Convertible Preferred 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. Series A, voting together
as a separate class, is entitled to elect two Directors to the Board as long
as 750,000 shares originally issued are outstanding at each annual election.
The holders of outstanding Common Stock, voting together as a separate class,
are entitled to elect two Directors. Convertible Preferred (on an as
converted-basis) and Common Stock are entitled to elect any remaining
Directors together as a single class.
Dividends
Holders of Series A, B and C Convertible Preferred Stock are entitled to
receive noncumulative dividends at the per annum rate of $.072, $.508 and
$.868 per share, respectively, or if greater, an amount equal to that paid on
any other shares when and if declared by the Board of Directors. No dividends
on Convertible Preferred or Common Stock have been declared by the Board from
inception through December 31, 1998.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Convertible Preferred own less than 50% of
the resulting voting power of the surviving entity, the holders of Series C
Convertible Preferred Stock are entitled to receive an amount of $10.85 per
share, plus any declared but unpaid dividends prior to and in preference to
any distribution to the holders of Series A and B Convertible Preferred Stock.
The holders of Series B Convertible Preferred Stock are entitled to receive an
amount of $6.35, per share, plus any declared but unpaid dividends prior to
and in preference to any distribution to the holders of Series A Convertible
Preferred Stock. The holders of Series A Convertible Preferred Stock are
entitled to receive an amount of $.90 per share, plus any declared but unpaid
dividends prior to and in preference to any distribution to the holders of
Common Stock. The remaining assets, if any, shall be distributed to the
holders of Common Stock.
F-14
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Convertible Preferred Stock (continued)
Conversion
Each share of Convertible Preferred Stock is convertible, at the option of
the holder, according to a conversion ratio, subject to adjustment for
dilution. The initial Conversion Price per share for Series A Convertible
Preferred Stock shall be two shares of common for one share of Convertible
Preferred Stock, and Series B and C Convertible Preferred Stock shall be one
share of common for one share of Convertible Preferred Stock. Each share of
Series A and B Convertible Preferred Stock automatically converts into the
number of shares of Common Stock into which such shares are convertible at the
then effective conversion ratio upon the closing of a public offering of
Common Stock at a per share price of at least $12.70 per share with gross
proceeds of at least $15,000,000. Each share of Series C Convertible Preferred
Stock automatically converts into the number of shares of Common Stock into
which such shares are convertible at the then effective conversion ratio, the
closing of a public offering of Common Stock at a per share price of at least
$10.85 per share with gross proceeds of at least $15,000,000. In addition,
each share of Convertible Preferred Stock shall automatically convert into
shares of Common Stock upon either (1) a firm commitment underwritten public
offering of the Company's Common Stock approved by all Convertible Preferred
Stock voting together as a single class or (2) upon the vote of the Series C
Convertible Preferred Stock as a single class and the vote of Series C
Convertible Preferred Stock voting as a separate class.
Stock Subscription Receivable
At December 31, 1998, the Company had a full-recourse note receivable from
a former Director of the Company totaling $873,000 bearing interest at 5.5%
per annum. The principal and accrued interest is payable annually over the
next three years on the anniversary of the note. The note is secured by
Convertible Preferred Stock.
7. Common Stock
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 40,000,000 shares of $.0001 par value Common Stock. A portion of the
shares sold are subject to the right of repurchase by the Company subject to
vesting, which is generally over a four year period from the employee hire
date until vesting is complete. At March 31, 1998 and December 31, 1998, there
were 2,400,000 and 5,066,000 shares subject to repurchase, respectively.
Founder Stock Agreement
Certain Common Stock was issued to the founder of the Company and is
subject to repurchase in the event of voluntary termination or involuntary
termination with cause. 75% of the shares vested over a one-year period. The
remaining 25% generally vest over an additional three-year period. In the
event of termination without cause, a substantial sale of the Company's
assets, or a merger, all remaining shares would immediately vest. At March 31,
1998 and December 31, 1998, approximately 2,587,000 and 1,797,000 shares,
respectively, of outstanding Common Stock were subject to repurchase by the
Company at the original purchase price of $.00005.
Warrants for Common Stock
In March 1998, the Company issued a warrant to purchase 80,000 shares of
Common Stock for $.10 per share to a company affiliated with a member of the
Board of Directors of the Company in exchange for services rendered. The
Company, using the Black-Scholes option pricing model, determined that the
fair value of the warrant at the date of issuance was nominal. In September
1998, the warrant was exercised.
F-15
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Common Stock (continued)
Warrants for Common Stock (continued)
In May 1998, the Company issued a warrant to purchase 25,000 shares of
Common Stock for $.25 per share to a non-employee of the Company in exchange
for services rendered. The Company, using the Black-Scholes option pricing
model, determined that the fair value of the warrant at the date of issuance
was nominal. Such warrant is outstanding at December 31, 1998 and expires in
2003.
At December 31, 1998, the Company had reserved shares of Common Stock for
future issuance as follows, which reflects the Articles of Incorporation as
amended as of February 1999 (in thousands):
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Conversion of Series A.......................................... 12,567
Conversion of Series B.......................................... 3,937
Conversion of Series C.......................................... 1,382
Exercise of options under the 1997 Stock Option Plan............ 13,430
Exercise of outstanding warrants................................ 33
Undesignated.................................................... 8,651
------
40,000
======
</TABLE>
Stock Split
In April 1998, the Company approved a 2-for-1 stock split of Common Stock.
Share information for the period ended March 31, 1998 has been retroactively
adjusted to reflect the stock split.
8. Employee Benefit Plans
401(k) Savings Plan
The Company has a savings plan (the "Savings Plan") that qualifies as a
defined contribution arrangement under Section 401(a), 401(k) and 501(a) of
the Internal Revenue Code. Under the Savings Plan, participating employees may
defer a percentage (not to exceed 25%) of their eligible pretax earnings up to
the Internal Revenue Service's annual contribution limit. All employees on the
United States payroll of the Company are eligible to participate in the Plan.
The Company will determine its contributions, if any, based on its current
profits and/or retained earnings; however, no contributions have been made
since the inception of the Savings Plan.
1997 Stock Option Plan
In December 1997, the Company adopted the Scient Corporation 1997 Stock
Option Plan (the "Plan"). The Plan provides for the granting of stock options
to employees, outside directors, and consultants of the Company. Options
granted under the Plan may be either incentive stock options or nonqualified
stock options. Incentive stock options ("ISO") may be granted only to Company
employees (including officers and directors who are also employees).
Nonqualified stock options ("NSO") may be granted to Company employees and
consultants. The Company has reserved 9,180,000 shares of Common Stock for
issuance under the Plan.
The Plan provides that the options shall be exercisable over a period not
to exceed ten years from the date of the grant; however, in the case of an ISO
granted to a person owning more than 10% of the combined voting power of all
classes of the stock of the Company, the term of the option will be five years
from the date of the grant.
F-16
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
1997 STOCK OPTION PLAN (CONTINUED)
In accordance with the Plan, the stated exercise price shall not be less
than 85% of the estimated fair value of the shares on the date of grant as
determined by the Board of Directors, provided, however, that (i) the exercise
price of an ISO and NSO shall not be less than 100% and 85% of the estimated
fair value of the shares on the date of grant, respectively, and (ii) the
exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively.
Options are exercisable immediately and are subject to repurchase by the
Company, the repurchase restriction lapses at such times and under such
conditions as determined by the Board of Directors. Options granted to date
generally vest with respect to 25% of the options after one year from date of
grant, with the remaining options vesting in equal monthly installments over
the following 36 months.
The following summarizes stock option activity under the Plan (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE OUTSTANDING EXERCISE
FOR GRANT SHARES PRICE
--------- ----------- --------
<S> <C> <C> <C>
Shares authorized............................ 4,800 -- $ --
Options granted.............................. (3,582) 3,582 .05
Options exercised............................ -- (2,400) .05
Options canceled............................. -- -- --
------ ------
BALANCE AT MARCH 31, 1998..................... 1,218 1,182 .05
------ ------
Shares authorized............................ 4,380 -- --
Options granted.............................. (5,550) 5,550 .64
Options exercised............................ -- (2,961) .27
Options canceled............................. 444 (444) .09
------ ------
BALANCE AT DECEMBER 31, 1998.................. 492 3,327 $ .84
====== ======
</TABLE>
The minimum value of options granted from inception through March 31, 1998
and nine months ended December 31, 1998 was $.012 and $.461, respectively.
The following table summarizes the information about stock options
outstanding and exercisable at December 31, 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
OPTIONS VESTED AND
OPTIONS OUTSTANDING EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
REMAINING AVERAGE VESTED AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE AND EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .05 713 9.21 years $ .05 -- $ --
$ .25 58 9.42 years $ .25 -- $ --
$ .65 1,315 9.57 years $ .65 -- $ --
$1.10-1.60 1,241 9.80 years $1.51 100 $1.60
----- ---
3,327 9.58 years $ .84 100 $1.60
===== ===
</TABLE>
F-17
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Employee Benefit Plans (continued)
Fair Value Disclosures
The Company applies the measurement principles of APB No. 25 in accounting
for its stock option plan. Had compensation expense for options granted for
the period ended March 31, 1998 and the nine months ended December 31, 1998
been determined based on the fair value at the grant dates as prescribed by
SFAS No. 123, the Company's net loss would have been increased to the pro
forma amounts indicated below.
<TABLE>
<CAPTION>
November 7,
1997
(Inception) Nine Months
through Ended
March 31, December 31,
1998 1998
----------- ------------
<S> <C> <C>
Net loss:
As reported........................................ $(1,159) $(5,552)
======= =======
Pro forma.......................................... $(1,159) $(5,657)
======= =======
Net loss per share:
As reported........................................ $ (.19) $ (.88)
======= =======
Pro forma.......................................... $ (.19) $ (.90)
======= =======
</TABLE>
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 using the following assumptions:
<TABLE>
<CAPTION>
November 7,
1997
(Inception) Nine Months
through Ended
March 31, December 31,
1998 1998
----------- ------------
<S> <C> <C>
Risk-free interest rates............................ 5.52% 4.87%
Expected lives (in years)........................... 5 5
Dividend yield...................................... 0% 0%
Expected volatility................................. 0% 0%
</TABLE>
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected
volatility factor in addition to the factors described in the preceding
paragraph, the above results may not be representative of future periods.
Unearned Compensation
In connection with certain stock option grants from inception through March
31, 1998 and the nine months ended December 31, 1998, the Company recognized
unearned compensation totaling $1,599,000 and $19,244,000, respectively, which
is being amortized over the vesting periods, generally four years, of the
related options. Amortization expense recognized from inception through March
31, 1998 and the nine months ended December 31, 1998 totaled approximately
$64,000 and $3,856,000, respectively. During the period from January 1, 1999
through February 28, 1999, the Company granted options to purchase an
aggregate of 1,933,000 shares of Common Stock at exercise prices ranging from
$1.60 to $6.50 per share. The Company will record additional unearned
compensation of $13,800,000 associated with such grants.
F-18
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Subsequent Events
Employee Loan
In January 1999, the Company entered a full-recourse note receivable with
an employee of the Company for $160,000 bearing interest at 4.64% per annum.
Interest is payable annually over the next two years on the anniversary date
of the note. The principal is due on January 28, 2001. The note is secured by
the Company's Common Stock.
Warrants for Common Stock
In January 1999, the Company issued a warrant to purchase 7,875 shares of
Common Stock for $.75 per share to a company affiliated with a member of the
Board of Directors of the Company in exchange for services rendered.
Stock Option Authorization
In January 1999, the Board of Directors approved an increase in the number
of shares authorized for issuance under the Company's 1997 Stock Option Plan
to 13,430,000 shares.
1999 Equity Incentive Plan
In March 1999, the Board of Directors adopted, subject to shareholder
approval, the 1999 Equity Incentive Plan (the "Plan") and reserved shares
of Common Stock for issuance thereunder. The Plan authorized the award of
options, restricted stock awards and stock bonuses (each and "Award"). No
person will be eligible to receive more than shares in any calendar year
pursuant to Awards under the Plan other than a new employee of the Company who
will be eligible to receive no more than shares in the calendar year in
which such employee commences employment. Options granted under the Plan may
be either incentive stock options ("ISO") or nonqualified stock options
("NSO"). ISOs may be granted only to Company employees (including officers and
directors who are also employees). NSOs may be granted to Company employees,
officers, directors, consultants, independent contractors and advisors of the
Company.
1996 Equity Incentive Plan (continued)
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an
ISO granted to a 10% shareholder may not be less than 110% of the estimated
fair value of the shares on the date of grant. The maximum term of options
granted under the 1999 Plan is ten years.
Capital Lease Obligations
In March 1999, the Company entered into a capital lease agreement to
purchase computer equipment totaling $988,000. Principal and interest under
the capital lease are payable in 24 equal monthly installments when the
Company receives the equipment. In conjunction with the capital lease
agreement, the Company issued a $300,000 letter of credit. The letter of
credit expires March 31, 2000 and is secured by the line of credit.
F-19
<PAGE>
[Inside Back Cover Art Work to follow]
Scient, the company.
Our company is at the intersection of eBusiness market opportunities and
the innovative strategies and technologies that provide our clients the
opportunity to create competitive advantage.
Scient Culture
We operate Scient on a one-firm concept. This means we operate all business
units, offices and innovation centers on the basis of what is best for our
clients, our people and our company.
Our culture encourages professional development, teamwork and cooperation
throughout the company. We believe this is essential to Scient's objective of
becoming an employer of choice for systems innovation experts-- including:
management, strategic, technical, design, sales, marketing and support
professionals.
Overall, at Scient we focus on maintaining a culture that fosters
innovation and emphasizes professional development. This culture reinforces
our values of spirit, growth, innovation, urgency, community, and excellence.
The Scient Approach
The market for eBusiness systems innovation is moving rapidly. We believe
that the leaders in this market will be those who have capabilities and
methodologies that foster innovation and consistent quality across
engagements.
The Scient Approach is a well-defined methodology that allows us to
effectively and successfully deliver our services. It helps facilitate the
distribution of knowledge within an engagement and throughout our company.
We believe that the Scient Approach allows us to deliver cost-effective
systems innovation rapidly. To capture, upgrade, and refine our intellectual
capital--including our integrated methodology--we invest in knowledge
management processes and systems.
We believe that these processes and systems will allow us to use our
intellectual capital in order to accelerate the delivery of our services,
reduce our costs and leverage our industry expertise to deliver value to
clients.
[Schematic of the Scient Approach]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee............................................. $14,094
NASD fee......................................................... 5,570
Nasdaq National Market initial listing fee....................... 1,000
Printing and engraving...........................................
Legal fees and expenses of the Company...........................
Accounting fees and expenses.....................................
Directors and Officers Liability Insurance.......................
Blue sky fees and expenses.......................................
Transfer agent fees..............................................
Miscellaneous....................................................
-------
Total.......................................................... $
=======
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933
(the "Act"). Article VII of the Registrant's Bylaws provides for mandatory
indemnification of its directors and officers and permissible indemnification
of employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Amended and Restated Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable for monetary damages for breach of the directors' fiduciary duty as
directors to the Registrant and its stockholders. This provision in the
Amended and Restated Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into Indemnification Agreements with its officers and directors, a
form of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers
and directors with further indemnification to the maximum extent permitted by
the Delaware General Corporation Law. The Registrant maintains liability
insurance for its directors and officers. Reference is also made to
Section of the underwriting agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities, and Section 1.10 of the Amended and Restated Investor Rights
Agreement contained in Exhibit 4.1 hereto, indemnifying certain of the
Company's stockholders, including controlling stockholders, against certain
liabilities.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
(a) Since November 7, 1997 (inception), we have issued and sold the
following securities:
1. In December 1997, we issued and sold an aggregate of 8,533,332 shares
of our common stock (which number reflects the two-for-one stock
split effected May 8, 1998) to Eric Greenberg, our founder, for
aggregate consideration of $427 pursuant to a Restricted Stock
Purchase Agreement.
2. We granted stock options to purchase 11,909,800 shares of our common
stock at exercise prices ranging from $.05 to $10.00 per share to
employees, consultants, directors and other service providers
pursuant to our 1997 Stock Plan.
3. On December 11, 1997 and May 11, 1998, we issued and sold an
aggregate of 12,566,668 shares of our Series A Preferred Stock (which
number reflects the two-for-one stock split effected May 8, 1998) for
an aggregate purchase price of approximately $6,225,000.
4. On March 5, 1998, we issued a warrant to purchase 80,000 shares of
our common stock (which number reflects the two-for-one stock split
effected May 8, 1998) with an exercise price of $.10 per share. The
warrant was subsequently exercised and we issued 80,000 shares
thereunder.
5. On May 8, 1998, we issued a warrant to purchase 25,000 shares of our
common stock with an exercise price of $.25 per share.
6. On June 8, 1998, we issued and sold an aggregate of 2,240,477 shares
of our Series B Preferred Stock for an aggregate purchase price of
approximately $14,227,029.
7. On January 28, 1999, we issued a warrant to purchase 7,875 shares of
our common stock with an exercise price of $.75 per share.
8. On February 16, 1999, we issued and sold an aggregate of 1,050,649
shares of our Series C Preferred Stock for an aggregate purchase
price of approximately $11,399,542.
The issuances described in Items 15(a)(2) were deemed exempt from
registration under the Act in reliance upon Rule 701 promulgated under the Act.
The issuances of the securities described in Items 15(a)(1) and 15(a)(3)
through 15(a)(8) were deemed to be exempt from registration under the Act in
reliance on Section 4(2) of such Act as transactions by an issuer not involving
any public offering. In addition, the recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with the Registrant, to
information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1* Form of underwriting agreement.
2.1* Agreement and Plan of Merger, dated April , 1999, for the
reincorporation of Scient Corporation, a California corporation, into
Scient Corporation, a Delaware corporation.
3.1* Amended and Restated Certificate of Incorporation of Scient, as
amended to date.
3.2* Form of Second Amended and Restated Certificate of Incorporation of
Scient to be filed after the closing of the offering made pursuant to
this Registration Statement.
3.3* Amended and Restated Bylaws of Scient.
4.1 Amended and Restated Investor Rights Agreement, dated February 16,
1999, among Scient and the investors and founders named therein, as
amended.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.2* Specimen Certificate of Scient's common stock.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel to Scient.
10.1* Form of Indemnification Agreement entered into between Scient and its
directors and executive officers.
10.2 1997 Stock Plan.
10.3* 1999 Equity Incentive Plan.
10.4* 1999 Employee Stock Purchase Plan.
10.5 Employment Agreement between Scient and Eric Greenberg, dated December
10, 1997.
10.6 Employment Agreement between Scient, Eric Greenberg and Robert M. Howe,
dated February 9, 1998.
10.7 Employment Agreement between Scient and William H. Kurtz, dated June 12,
1998.
10.8 Employment Agreement between Scient and Stephen A. Mucchetti, dated
September 14, 1998.
10.9 Stock Repurchase Agreement between Scient and Robert M. Howe, dated
December 22, 1998.
10.10 Recruiting Letter Agreement between Scient and Ramsey/Beirne Associates,
Inc., dated August 20, 1998.
10.11 Recruiting Letter Agreement between Scient and Ramsey/Beirne Associates,
Inc., dated February 25, 1998.
10.12 Recruiting Letter Agreement between Scient and Ramsey/Beirne Associates,
Inc., dated February 25, 1998.
10.13 Sub-Sub-Sub-Sub-Sublease between Scient and Charles Schwab & Co., Inc.,
dated October 7, 1998.
10.14 Standard Form of Loft Lease between Scient and Lautob Realty Company,
dated October 28, 1998.
10.15 Agreement to Sub-Sublease between Scient and Northpoint Communications,
Inc., dated October 16, 1998.
10.16 Full-Recourse Promissory Note between Scient and Aron Dutta, dated
January 28, 1999.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants (see page
II-6).
23.2* Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel to Scient. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1* Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
(b) Financial Statement Schedule
Schedule II--Valuations and Qualifying accounts.
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
The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Amended and
II-3
<PAGE>
Restated Certificate of Incorporation or the Bylaws of the Registrant,
Indemnification Agreements entered into between the Registrant and its
officers and directors, the underwriting agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN
FRANCISCO, STATE OF CALIFORNIA, ON THIS 19TH DAY OF MARCH, 1999.
SCIENT CORPORATION
By: /s/ Robert M. Howe
-----------------------------------
ROBERT M. HOWE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Robert M. Howe and William H. Kurtz,
and each of them, his or her true and lawful attorneys-in-fact and agents with
full power of substitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective on filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or his or her or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert M. Howe President, Chief Executive Officer and March 19, 1999
____________________________________ Director (Principal Executive Officer)
ROBERT M. HOWE
/s/ Eric Greenberg Chairman March 19, 1999
____________________________________
ERIC GREENBERG
/s/ William H. Kurtz Chief Financial Officer, Executive March 19, 1999
____________________________________ Vice President, Treasurer and
WILLIAM H. KURTZ Secretary (Principal Financial and
Accounting Officer)
/s/ David M. Beirne Director March 19, 1999
____________________________________
DAVID M. BEIRNE
/s/ Frederick W. Gluck Director March 19, 1999
____________________________________
FREDERICK W. GLUCK
/s/ Douglas Leone Director March 19, 1999
____________________________________
DOUGLAS LEONE
</TABLE>
II-5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 9, 1999 relating
to the financial statements of Scient Corporation, which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PricewaterhouseCoopers LLP
San Jose, California
March 17, 1999
II-6
<PAGE>
EXHIBIT 4.1
SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
FEBRUARY 16, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights......................................... 1
1.1 Definitions.......................................... 1
1.2 Request for Registration............................. 2
1.3 Company Registration................................. 4
1.4 Form S-3 Registration................................ 5
1.5 Obligations of the Company........................... 6
1.6 Information from Holder.............................. 7
1.7 Expenses of Registration............................. 7
1.8 Delay of Registration................................ 8
1.9 Indemnification...................................... 8
1.10 Reports Under Securities Exchange Act of 1934........ 10
1.11 Assignment of Registration Rights.................... 11
1.12 Limitations on Subsequent Registration Rights........ 11
1.13 "Market Stand-Off" Agreement......................... 11
1.14 Termination of Registration Rights................... 12
2. Covenants of the Company.................................... 12
2.1 Delivery of Financial Statements..................... 12
2.2 Inspection........................................... 13
2.3 Termination of Information and Inspection Covenants.. 13
2.4 Right of First Offer................................. 13
2.5 Right to Participate in Initial Public Offering...... 14
2.6 Board of Directors................................... 16
2.7 Termination of Certain Covenants..................... 16
3. Miscellaneous............................................... 16
3.1 Successors and Assigns............................... 16
3.2 Governing Law........................................ 17
3.3 Counterparts......................................... 17
3.4 Titles and Subtitles................................. 17
3.5 Notices.............................................. 17
3.6 Expenses............................................. 17
3.7 Entire Agreement: Amendments and Waivers............. 17
3.8 Severability......................................... 18
3.9 Aggregation of Stock................................. 18
3.10 Prior Agreement...................................... 18
</TABLE>
Schedule A Schedule of Investors
Schedule B Schedule of Common Holders
<PAGE>
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of
the 16/th/ day of February, 1999, by and among Scient Corporation, a California
corporation (the "Company"), the investors listed on Schedule A hereto, each of
----------
which is herein referred to as an "Investor" and certain holders of Common Stock
listed on Schedule B hereto, each of which is herein referred to as a "Common
----------
Holder."
RECITALS
--------
WHEREAS, the Company, certain of the Investors (the "Prior Investors")
and the Common Holder possess registration rights pursuant to that certain
Amended and Restated Investors' Rights Agreement dated June 8, 1998, as amended
on January 28, 1999, among the persons listed on the Schedule of Investors and
the Schedule of Common Holders attached thereto (the "Prior Agreement");
WHEREAS, in order to induce the Company, the Prior Investors and the
Common Holder to approve the issuance of shares of the Company's Series C
Preferred Stock and to induce certain of the Investors to purchase such shares
of Series C Preferred Stock pursuant to that certain Series C Preferred Stock
Purchase Agreement of even date herewith (the "Series C Financing"), the Prior
Investors and the Common Holder hereby agree to waive their rights under the
Prior Agreement, including, without limitation, their rights to participate in
the Series C Financing and their rights to prior written notice thereof, and the
Investors, the Common Holder and the Company hereby agree that this Agreement
shall govern the rights of the Investors and the Common Holder to cause the
Company to register shares of Common Stock issued or issuable to them and
certain other matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
-------------------
follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
(b) The term "Form S-3" means such form under the Securities
Act as in effect on the date hereof or any registration form under the
Securities Act subsequently adopted by the SEC that permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.11 hereof.
(d) The term "Founder" means Eric Greenberg or any
transferee thereof, so long as such person holds a minimum of 1,500,000 shares
of Common
<PAGE>
Stock of the Company (as adjusted for stock splits, stock dividends,
combinations and other recapitalizations).
(e) The term "Initial Offering" means the Company's first firm
commitment underwritten public offering of its Common Stock under the Securities
Act.
(f) The term "Major Investor" means (i) the Founder or (ii) any
Investor or transferee thereof, as long as such Founder, Investor or transferee
thereof holds at least 1,500,000 shares of Registrable Securities (as defined
below)(as adjusted for stock splits, stock dividends, combinations and other
recapitalizations). For purposes of this definition, Investor includes any
general partners and affiliates of such Investor.
(g) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(h) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, (ii) the 6,803,332 shares of Common
Stock issued to the Common Holder, so long as such Common Holder holds a minimum
of 1,500,000 shares of Common Stock of the Company (as adjusted for stock
splits, stock dividends, combinations and other recapitalizations) and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security that is issued as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of,
the shares referenced in (i) and (ii) above, excluding in all cases, however,
any Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(i) The number of shares of Registrable Securities outstanding
shall be determined by the number of shares of Common Stock outstanding that
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities that are, Registrable Securities.
(j) The term "SEC" shall mean the Securities and Exchange
Commission.
(k) The term "Securities Act" means the Securities Act of 1933,
as amended.
1.2 Request for Registration.
------------------------
(a) Subject to the conditions of this Section 1.2, if the Company
shall receive at any time on the earlier of (i) three (3) years after the date
of this Agreement or (ii) three (3) months after the effective date of the
Initial Offering a written request from the holders of thirty percent (30%) or
more of the Registrable Securities (other than Registrable Securities held by
Common Holders) (the "Initiating Holders"), that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities with an anticipated aggregate offering price, net of underwriting
discounts and
2
<PAGE>
commissions, of at least $7,500,000, then the Company shall, within twenty (20)
days of the receipt thereof, give written notice of such request to all Holders,
and subject to the limitations of this Section 1.2, use all reasonable efforts
to effect, as soon as practicable, the registration under the Securities Act of
all Registrable Securities that the Holders request to be registered in a
written request received by the Company within twenty (20) days of the mailing
of the Company's notice pursuant to this Section 1.2(a).
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in Section 1.2(a). In such event the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company (which underwriter or underwriters shall be
reasonably acceptable to a majority in interest of the Initiating Holders).
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Company that marketing factors require a limitation of the number of
securities underwritten (including Registrable Securities), then the Company
shall so advise all Holders of Registrable Securities that would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and may be required under the Securities Act; or
(ii) after the Company has effected two (2) registrations
pursuant to this Section 1.2, and such registrations have been declared or
ordered effective; or
(iii) during the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of the filing of,
and ending on a date one hundred eighty (180) days following the effective date
of, a Company-initiated registration subject to Section 1.3 below, provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or
(iv) if the Initiating Holders propose to dispose of
Registrable Securities that may be registered on Form S-3 pursuant to Section
1.4 hereof; or
3
<PAGE>
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 1.2, a certificate signed by the
Company's Chief Executive Officer or Chairman of the Board stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be effected at such time, in which event the Company shall have the
right to defer such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders, provided that
such right to delay a request shall be exercised by the Company not more than
once in any twelve (12)-month period.
1.3 Company Registration.
--------------------
(a) If (but without any obligation to do so) the Company proposes
to register (including for this purpose a registration effected by the Company
for shareholders other than the Holders) any of its stock or other securities
under the Securities Act in connection with the public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Securities Act, a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities, or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities that are also being registered), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.5(a), the Company shall,
subject to the provisions of Section 1.3(c), use all reasonable efforts to cause
to be registered under the Securities Act all of the Registrable Securities that
each such Holder has requested to be registered.
(b) Right to Terminate Registration. The Company shall have the
-------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 1.7 hereof.
(c) Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not
4
<PAGE>
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling Holders according to the total amount of
securities entitled to be included therein owned by each selling Holder or in
such other proportions as shall mutually be agreed to by such selling Holders),
but in no event shall (i) the amount of securities of the selling Holders
included in the offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities, in which case the selling
Holders may be excluded if the underwriters make the determination described
above, provided, however, that the amount of securities held by selling
Investors to be included in such offering shall not be reduced below thirty
percent (30%) of the total amount of securities included in such offering unless
no other shareholder's securities are included, or (ii) notwithstanding (i)
above, any shares being sold by a shareholder exercising a demand registration
right similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling Holder," and any pro rata reduction with respect
to such "selling Holder" shall be based upon the aggregate amount of Registrable
Securities owned by all such related entities and individuals.
If any Holder or holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 180 days after the effective date
of the registration statement relating thereto, or such other shorter period of
time as the underwriters may require.
1.4 Form S-3 Registration. In case the Company shall receive
---------------------
from the holders of thirty percent (30%) or more of the Registrable Securities
(other than Registrable Securities held by Common Holders) or from the Founder a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holders, the Company shall:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) use all reasonable efforts to effect, as soon as
practicable, such registration and all such qualifications and compliances as
may be so requested and as would permit or facilitate the sale and distribution
of all or such portion of such Holders' Registrable Securities as are specified
in such request, together with all or such portion of the Registrable Securities
of any other Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such written notice from
the Company, provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
section 1.4:
(i) if Form S-3 is not available for such offering by the
Holders;
5
<PAGE>
(ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $1,000,000;
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer or Chairman of the Board of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
once in any twelve month period;
(iv) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected one registration on
Form S-3 for the Holders pursuant to this Section 1.4; or
(v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Sections 1.2.
1.5 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to ninety (90) days or,
if earlier, until the distribution contemplated in the Registration Statement
has been completed;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
6
<PAGE>
(d) use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.6 Information from Holder. It shall be a condition precedent to the
-----------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.7 Expenses of Registration. All expenses other than underwriting
------------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company shall be
borne by the Company. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 or Section 1.4 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered for reasons other than a material adverse change in
the business or financial condition of the Company occurring prior to the
effectiveness of such registration statement (in which case all participating
Holders shall bear such expenses pro rata based upon the number of Registrable
Securities that were to be requested in the withdrawn registration), unless, in
the case of a registration requested under Section 1.2, the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.
7
<PAGE>
1.8 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners or officers, directors and
shareholders of each Holder, legal counsel and accountants for each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or any state securities laws, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities laws or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities laws; and the Company will reimburse
each such Holder or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection l.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by an instrument duly executed by any such Holder or
controlling person; provided further, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Holder or any person controlling such Holder, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by such Holder or person controlling such Holder
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each selling Holder will,
severally and not jointly, indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, legal counsel and accountants for the
8
<PAGE>
Company, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages or liabilities to which any of
the foregoing persons may become subject, under the Securities Act, the Exchange
Act or any state securities laws, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any person intended to be indemnified
pursuant to this subsection l.9(b), for any legal or other expenses reasonably
incurred by such person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection l.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), provided that in no event shall any indemnity
under this subsection l.9(b) exceed the net proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent,
9
<PAGE>
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.9 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the Initial Offering;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC that permits the selling of any such securities without registration or
pursuant to such form.
1.11 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that: (i) is a subsidiary, parent, partner, limited
partner, retired partner or shareholder of a Holder; (ii) is a Holder's family
member or trust for the benefit of an individual Holder; (iii) is a shareholder
of any Holder that is a corporation; (iv) is a member of any Holder that is a
limited liability company; (v) is an employee of any Holder; (vi) after such
assignment or transfer, holds at least 46,082 shares of Series C Preferred Stock
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations); or (vii) after such assignment or
transfer, holds at least 200,000 shares of Registrable Securities (subject to
appropriate adjustment
10
<PAGE>
for stock splits, stock dividends, combinations and other recapitalizations); or
(vii) after such assignment or transfer, holds at least 200,000 shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations); provided: (a) the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of this Agreement, including without limitation the provisions of
Section 1.13 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act.
1.12 Limitations on Subsequent Registration Rights. From and
---------------------------------------------
after the date of this Agreement, the Company shall not, without the prior
written consent of the holders of a majority of the Registrable Securities held
by the Investors, enter into any agreement with any holder or prospective holder
of any securities of the Company that would allow such holder or prospective
holder to obtain rights similar to those contained in this Article 1 which would
be superior to those of Investors.
1.13 "Market Stand-Off" Agreement. Each Holder hereby agrees
---------------------------
that it will not, without the prior written consent of the managing underwriter,
during the period commencing on the date of the final prospectus relating to the
Company's Initial Offering and ending on the date specified by the Company and
the managing underwriter (such period not to exceed one hundred eighty (l80)
days) (a) lend, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are then owned by the Holder or are thereafter acquired), or (b)
enter into any swap or other arrangement that transfers to another, in whole or
in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (a) or (b) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing provisions of this Section 1.13 shall only be
applicable to the Holders if all officers, directors and greater than one
percent (1%) shareholders of the Company enter into similar agreements. With
respect to the Amerindo Holders (as defined below), this Section 1.13 shall not
apply to any shares of the Company's Common Stock acquired by such a holder in
the Initial Offering or any shares of the Company's Common Stock acquired by
such a holder after the Initial Offering provided that such shares are not
otherwise subject to a lock-up agreement with the Company or the managing
underwriter; provided, however, that each Amerindo Holder hereby agrees to be
bound by any resale restriction on shares of the Company's Common Stock acquired
by such holder in the Initial Offering that is required by the NASD. The
underwriters in connection with the Company's initial public offering are
intended third party beneficiaries of this Section 1.13 and shall have the
right, power and authority to enforce the provisions hereof as though they were
a party hereto.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
11
<PAGE>
1.14 Termination of Registration Rights. No Holder shall be
----------------------------------
entitled to exercise any right provided for in this Section 1 after four (4)
years following the consummation of the Initial Offering or, as to any Holder,
such earlier time at which all Registrable Securities held by such Holder (and
any affiliate of the Holder with whom such Holder must aggregate its sales under
Rule 144 of the Securities Act ("Rule 144")) can be sold in any three (3)-month
period without registration in compliance with Rule 144 of the Securities Act.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver
--------------------------------
to each Major Investor:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by independent public accountants of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-
five (45) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, an unaudited income statement, statement of cash
flows for such fiscal quarter and an unaudited balance sheet as of the end of
such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for and
as of the end of such month, in reasonable detail; and
(d) as soon as practicable, but in any event at least thirty
(30) days prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance sheets,
income statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company.
2.2 Inspection. The Company shall permit each Major Investor,
----------
at such Major Investor's expense, to visit and inspect the Company's properties,
to examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable times
as may be requested by the Major Investor; provided, however, that the Company
shall not be obligated pursuant to this Section 2.2 to provide access to any
information that it reasonably considers to be a trade secret or similar
confidential information.
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in Sections 2.1 and 2.2 shall terminate and be of no further
force or effect upon the closing of the Initial Offering or when the Company
first becomes subject to the periodic reporting requirements of Sections 12(g)
or 15(d) of the Exchange Act, whichever event shall first occur.
12
<PAGE>
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 2.4, the Company hereby grants to each Investor and
the Founder, subject to a minimum holding requirement of 2,000,000 shares of
Common Stock of the Company on an as-converted basis (as adjusted for stock
splits, stock dividends, combinations and other recapitalizations) or 92,165
shares of Series C Preferred Stock of the Company on an as-converted basis (as
adjusted for stock splits, stock dividends, combinations and other
recapitalizations) (any Investor or Founder meeting either such minimum holding
requirement shall hereinafter be referred to as an "Eligible Investor"), a right
of first offer with respect to future sales by the Company of its Shares (as
hereinafter defined). An Eligible Investor shall be entitled to apportion the
right of first offer hereby granted it among itself and its partners and
affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exchangeable or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Eligible Investor in accordance with the following provisions.
(a) The Company shall deliver a notice in accordance with Section
3.5(a) ("Notice") to the Eligible Investors stating (i) its bona fide intention
to offer such Shares, (ii) the number of such Shares to be offered, and (iii)
the price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after receipt of the Notice, each Eligible Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Registrable Securities then held, by such Eligible Investor
bears to the total number of shares of Common Stock of the Company then
outstanding (assuming full conversion of all convertible securities).
(c) If all Shares that Eligible Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within ninety (90) days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Eligible Investors in accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be
applicable to (i) the issuance or sale of up to 17,000,000 shares of Common
Stock (or options therefor) to employees, directors and consultants for the
primary purpose of soliciting or retaining their services; (ii) the issuance of
securities pursuant to a bona fide, firmly underwritten public offering of
shares of Common Stock, registered under the Securities Act, provided that the
Company had a good faith expectation at the time of the initial filing of the
registration statement for such offering that the offering price would be at
least $12.70 per share (appropriately
13
<PAGE>
adjusted for any stock split, dividend, combination or other recapitalization)
and the offering would result in proceeds to the Company of at least $15,000,000
in the aggregate; (iii) the issuance of securities pursuant to the conversion or
exercise of convertible or exercisable securities; (iv) the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise; or (v) the issuance of stock, warrants or other securities
or rights to persons or entities with which the Company has business
relationships provided such issuances (A) are for other than primarily equity
financing purposes and (B) are approved by two-thirds of the members of the
Company's Board of Directors.
2.5 Right to Participate in Initial Public Offering. Subject to
-----------------------------------------------
the terms and conditions specified in this Section 2.5, the Company hereby
grants to each Investor that holds at least 50,000 shares (as adjusted for stock
splits, stock dividends, combinations and other recapitalizations) of the
Company's Series C Preferred Stock (a "Series C Investor") a right to purchase a
portion of the shares of Common Stock to be issued in the Initial Offering (such
Investor's "IPO Pro-Rata Portion").
In connection with the Initial Offering, the Company shall use all
reasonable efforts to require that the managing underwriter of the Initial
Offering make an offering of the shares of its Common Stock to be sold in such
offering, (excluding any shares sold in any over-allotment option) (the "IPO
Shares") to each Series C Investor in accordance with the following provisions:
(a) The Company shall deliver a notice in accordance with Section
3.5(a) ("IPO Notice") to the Series C Investors stating (i) its bona fide
intention to consummate the Initial Offering, (ii) the number of IPO Shares
proposed to be offered and (iii) the proposed price range upon which the IPO
Shares will be offered. In the event of a change in the price range, the
Company shall promptly deliver notice in accordance with Section 3.5(b) to each
Series C Investor of such change (the "Price Change Notice").
(b) By written notification received by the Company, within ten
(10) days after receipt of the IPO Notice and subject to the limitations of the
following sentence, each Series C Investor may elect to purchase, at the gross
price per share negotiated by the Company with the underwriters as reflected on
the final prospectus (the "Gross IPO Price Per Share"), its IPO Pro-Rata Portion
of the IPO Shares, which shall equal that portion of the IPO Shares that equals
the proportion that the number of shares of Series C Preferred Stock then held
by such Investor (on an as converted to Common Stock basis) bears to the total
number of shares of Common Stock of the Company then outstanding (assuming full
conversion and exercise of all convertible or exercisable securities).
Notwithstanding the foregoing sentence, the IPO Pro-Rata Portions of the IPO
Shares to be purchased by Series C Investors may be partially or completely cut
back to the extent deemed necessary to the success of the Initial Offering by
the managing underwriter thereof in its opinion, as confirmed in writing to the
Series C Investors not less than two (2) business days prior to the effective
date of the registration statement covering the IPO Shares. The failure by a
Series C Investor to notify the Company within ten (10) days of receipt of the
IPO Notice of its election to purchase IPO Shares shall terminate such Series C
Investors rights pursuant to this Section 2.5, unless the Initial Offering is
not completed within one hundred eighty (180) days of the IPO Notice.
14
<PAGE>
(c) The Company shall promptly, in writing, inform each Series C
Investor that is identified as an Amerindo Investor on Exhibit A hereto (each an
"Amerindo Investor" and collectively, the "Amerindo Investors") and that has
elected to purchase its IPO Pro-Rata Portion of the IPO Shares (a "Fully-
Exercising IPO Investor") of any other Amerindo Investors' failure to do
likewise. During the five (5) day period commencing after such information is
given, each Fully-Exercising IPO Investor may elect to purchase that portion of
the IPO Shares for which Amerindo Investors were entitled to subscribe but which
were not subscribed for by the Amerindo Investors (the "Unsubscribed IPO
Shares") that is equal to the proportion that the number of shares of Common
Stock of the Company issued and held, or issuable upon conversion of Series C
Preferred Stock then held, by such Fully-Exercising IPO Investor bears to the
total number of shares of Common Stock of the Company issued and held, or
issuable upon conversion of the Series C Preferred Stock then held, by all
Fully-Exercising IPO Investors who wish to purchase any of the Unsubscribed IPO
Shares.
(d) The rights set forth in this Section 2.5 shall only be
applicable to the Initial Offering. The right of each Series C Investor to
purchase its IPO Pro-Rata Portion of the IPO Shares pursuant to subsections
2.5(b) or (c) may only be waived with respect to a given Series C Investor by
such Series C Investor.
(e) By written notification received by the Company within
twenty-four hours after delivery of the Price Change Notice to Series C
Investors (or such shorter period of time as may be requested by the Company or
the Company's underwriters, such period of time to be no shorter than four
hours), a Series C Investor may elect to decrease the number of IPO Shares for
which such Series C Investor had elected to purchase or, if the Price Change
Notice relates to an increase in the number of IPO Shares, a Fully-Exercising
IPO Investor may increase the number of IPO Shares for which such Fully-
Exercising IPO Investor had elected to purchase; provided however, the total
number of IPO Shares available for purchase by the Series C Investors shall at
all times be subject to the provisions contained in subsection (b) regarding
underwriter cut-back and the percentage of IPO Shares available to the Series C
Investors. Any IPO Shares that become available for purchase by Series C
Investors pursuant to this Section 2.5(e) shall be allocated among the Series C
Investors in accordance with the provisions of subsections (b) and (c) of this
Section 2.5; provided, however, that the required time periods for Series C
Investors to respond to Price Change Notices shall be determined with regard to
this subsection (e) and provided, further, however, the provisions of subsection
2.5(c) shall not be applied with respect to any increase in IPO Shares effected
within five (5) business days of the Company's good faith estimate of the
effective date of its registration statement for the Initial Offering.
(f) Series C Investors purchasing IPO Shares pursuant to this
Section 2.5 shall comply with all requirements and procedures required by the
managing underwriter of the Initial Offering of purchasers participating in a
directed share program, if any, or of purchasers in the Initial Offering
generally.
2.6 Board of Directors.
------------------
(a) With respect to those two (2) members of the Company's Board
of Directors that the Company's Amended and Restated Articles (the "Restated
Articles")
15
<PAGE>
provide are to be elected by the holders of Series A Preferred Stock (the
"Series A Board Members"), the Investors hereby agree to vote all of their
shares of Common Stock issuable or issued upon conversion of the Series A
Preferred Stock and Series B Preferred Stock now owned or hereafter acquired in
favor of the election of one designee of each of Benchmark Capital ("Benchmark")
----
and Sequoia Capital ("Sequoia," and collectively with Benchmark, the "Venture
Investors").
(b) With respect to those two (2) members of the Company's Board
of Directors that the Restated Articles provide are to be elected by the holders
of Common Stock (the "Common Board Members"), the Common Holders and the
Investors hereby agree to vote all of their shares of Common Stock now owned or
hereafter acquired in favor of the election of (i) Eric Greenberg and (ii) the
then current Chief Executive Officer (the "CEO") of the Company (other than Eric
Greenberg), provided, this director position shall remain vacant if such CEO
position becomes vacant hereafter.
(c) With respect to any additional members of the Company's Board
of Directors that the Restated Articles provide are to be elected by the holders
of all of the outstanding capital stock of the Company (the "Additional
Members"), the Common Holders and the Investors agree to vote all of their
shares of Common Stock, Series A Preferred Stock and Series B Preferred Stock
now owned or hereafter acquired in favor of the election of a designee mutually
agreed upon by the Investors and the Common Holders.
2.7 Termination of Certain Covenants. The covenants set forth
--------------------------------
in Sections 2.4, 2.5 and 2.7 shall terminate and be of no further force or
effect upon the closing of the Initial Offering.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided
----------------------
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
16
<PAGE>
3.5 Notices.
-------
(a) Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
(b) A Price Change Notice shall be given in writing and
shall be deemed effectively given upon personal delivery to the party to be
notified or upon confirmation of facsimile transmission or upon delivery by a
nationally recognized overnight courier service when addressed to the party to
be notified at the facsimile number or address indicated for such party on the
signature page hereof, or at such facsimile number or other address as such
party may designate by ten (10) days' advance written notice to the other
parties.
3.6 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Entire Agreement: Amendments and Waivers. This Agreement
----------------------------------------
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Except as otherwise set forth in Section 2.5, any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities; provided, however, that in the event
that such amendment or waiver adversely affects the obligations and/or rights of
the Common Holders in a different manner than the other Holders, such amendment
or waiver shall also require the written consent of the holders of a majority in
interest of the Common Holders; provided further, in the event that such
amendment or waiver adversely affects the obligations and/or rights of a given
Holder in a different manner than the other Holders (it being understood that,
without limiting the foregoing, different Holders shall not be affected
differently because of proportional differences that arise out of differences in
the original issue price for the Registrable Securities held by such Holder or
the number of shares of Registrable Securities held by such Holder), such
amendment or waiver shall also require the written consent of such adversely
affected Holder. Any amendment or waiver effected in accordance with this
Section shall be binding upon each holder of any Registrable Securities each
future holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
17
<PAGE>
3.9 Aggregation of Stock. All shares of Registrable Securities
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
3.10 Prior Agreement. The Prior Agreement is hereby superseded
---------------
in its entirety and shall be of no further force or effect.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
SCIENT CORPORATION
By:________________________________
William H. Kurtz
Chief Financial Officer
Address: One Front Street, 28/th/ Floor
San Francisco, California 94111
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
19
<PAGE>
INVESTORS:
BENCHMARK CAPITAL PARTNERS II, L.P.
as nominee for
Benchmark Capital Partners, II, L.P.
Benchmark Founders Fund II, L.P.
Benchmark Founders Fund II-A, L.P.
Benchmark Members' Fund, L.P.
By: Benchmark Capital Management Co. II, L.L.C.,
its general partner
By:______________________________________________
Managing Member
Address: 2480 Sand Hill Road, Suite 200
Menlo Park, California 94025
Telephone:_________________________________________________
Facsimile:_________________________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
20
<PAGE>
INVESTORS (CONTINUED):
SEQUOIA CAPITAL VII
a California Limited Partnership
SEQUOIA TECHNOLOGY PARTNERS VII
a California Limited Partnership
SQP 1997
SEQUOIA 1997
SEQUOIA INTERNATIONAL PARTNERS
By: SC VII-A Management, LLC
a California Limited Liability Company,
its General Partner
By:______________________________________
Print Name:______________________________
Title:___________________________________
Address: 3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, California 94025
Telephone: _________________________________________
Facsimile: _________________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
SC VIII MANAGEMENT, LLC,
a Delaware limited liability company
By:___________________________________
Managing Member
Address: 3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
STANFORD UNIVERSITY
By:____________________________________
Print Name:____________________________
Title:_________________________________
Address: ______________________________________
______________________________________
______________________________________
Telephone: ______________________________________
Facsimile: ______________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
________________________________________
Fred Gluck
Address: ________________________________________
________________________________________
________________________________________
Telephone: ________________________________________
Facsimile: ________________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
________________________________________
Morton Meyerson
Address:
________________________________________
________________________________________
________________________________________
Telephone: ________________________________________
Facsimile: ________________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
SMALLCAP WORLD FUND INC.
By:_________________________________
Title:______________________________
Address: Smallcap World Fund Inc.
c/o Capital Research and Management Company
333 South Hope Street, 55/th/ Floor
Los Angeles, CA
Telephone: _____________________________________
Facsimile: _____________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
MORGAN STANLEY DEAN WITTER
EQUITY FUNDING, INC.
By:___________________________________
Title:________________________________
Address: 1585 Broadway, 36/th/ Floor
New York, NY 10036
Attn: David Powers
Telephone: ______________________________________
Facsimile: ______________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
____________________________________
David Lamond
Address: c/o Scient Corporation
One Front Street, 28/th/ Floor
San Francisco, CA 94111
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
_________________________________
William Kim
Address: c/o Scient Corporation
One Front Street, 28/th/ Floor
San Francisco, CA 94111
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
___________________________________
Joseph G. Galuszka
Address: c/o Scient Corporation
One Front Street, 28/th/ Floor
San Francisco, CA 94111
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHT AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
___________________________________
Manuel J. Murillo
Address: c/o Scient Corporation
One Front Street, 28/th/ Floor
San Francisco, CA 94111
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
___________________________________
Charles Robert Watkins
Address: c/o Scient Corporation
One Front Street, 28/th/ Floor
San Francisco, CA 94111
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
_____________________________________
Christopher H. Young
Address: c/o Scient Corporation
One Front Street, 28/th/ Floor
San Francisco, CA 94111
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
__________________________________
William Slattery
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
____________________________________
Marc Weiss
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
_____________________________________
Matthew T. Elders
Address: c/o Scient Corporation
One Front Street, 28/th/ Floor
San Francisco, CA 94111
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
___________________________________
Alex Esteverena
Address: c/o Scient Corporation
One Front Street, 28/th/ Floor
San Francisco, CA 94111
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
____________________________________
Arvind P. Relan
Address: 2472 Whitney Drive
Mountain View, CA 94043
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
___________________________________
Sunil Bhargava
Address: ___________________________________
___________________________________
___________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
PALANTIR PARTNERS L.P.
By: Palantir Associates L.P.
Its General Partner
By: Palantir Capital Partners Inc.
Its General Partner
By: ___________________________________
Glenn Doshay
President
Address: P.O. Box 675910
Rancho Santa Fe, CA 92067
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
PIVOTAL PARTNERS, L.P.
By:___________________________________
Name:_________________________________
Title:________________________________
Address: ______________________________________
______________________________________
______________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
RALPH H. CECHETTINI 1995 TRUST
By:_________________________________
Name:_______________________________
Title:______________________________
Address: ____________________________________
____________________________________
____________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
____________________________________
Christopher Lord
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
____________________________________
James Stableford
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
____________________________________
Anthony Ciulla
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
____________________________________
Dana Smith
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS (CONTINUED):
____________________________________
By:_________________________________
Title:______________________________
Address: ____________________________________
____________________________________
____________________________________
Telephone: ____________________________________
Facsimile: ____________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
COMMON HOLDER:
____________________________________
Eric Greenberg
Address: ____________________________________
____________________________________
____________________________________
Telephone: ____________________________________
Facsimile: ____________________________________
SIGNATURE PAGE TO SCIENT CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
SCHEDULE A
----------
SCHEDULE OF INVESTORS
BENCHMARK CAPITAL PARTNERS II, L.P. Christopher H. Young
as nominee for
Benchmark Capital Partners, II, L.P. Arvind P. Relan
Benchmark Founders Fund II, L.P.
Benchmark Founders Fund II-A, L.P. Sunil Bhargava
Benchmark Members' Fund, L.P.
Alex Esteverena
Sequoia Capital VII
Sequoia Technology Partners VII Palantir Capital
SQP 1997
Sequoia 1997 ATGF II*
Sequoia International Partners
SC VIII Management, LLC Pivotal Partners, L.P.*
Stanford University Ralph H. Cechettini 1995 Trust*
Fred Gluck Christopher Lord*
Morton Meyerson Delaware Charter Guarantee and Trust
Custodian Christopher H. Lord IRA
Rollover*
Smallcap World Fund Inc.
Anthony Ciulla*
Morgan Stanley Dean Witter Equity
Funding, Inc.
James Stableford*
David Lamond
Dana Smith*
Matthew T. Elders
Marc Weiss*
Joseph G. Galuszka
William Slattery*
William Kim
Gunderson Investments 1999
Manuel J. Murillo
Charles Robert Watkins
____________________
* Entities and individuals marked with an asterisk (*) are "Amerindo
Investors".
<PAGE>
SCHEDULE B
----------
SCHEDULE OF COMMON HOLDERS
Eric Greenberg
<PAGE>
EXHIBIT 10.2
SCIENT CORPORATION
1997 STOCK PLAN
ADOPTED ON DECEMBER 5, 1997
AMENDED AND RESTATED ON JANUARY 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE......................................................................... 1
SECTION 2. ADMINISTRATION.................................................................................... 1
(a) Committees of the Board of Directors.................................................................. 1
(b) Authority of the Board of Directors................................................................... 1
SECTION 3. ELIGIBILITY....................................................................................... 1
(a) General Rule.......................................................................................... 1
(b) Ten-Percent Shareholders.............................................................................. 1
SECTION 4. STOCK SUBJECT TO PLAN............................................................................. 2
(a) Basic Limitation...................................................................................... 2
(b) Additional Shares..................................................................................... 2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES........................................................... 2
(a) Stock Purchase Agreement.............................................................................. 2
(b) Duration of Offers and Nontransferability of Rights................................................... 2
(c) Purchase Price........................................................................................ 3
(d) Withholding Taxes..................................................................................... 3
(e) Restrictions on Transfer of Shares and Minimum Vesting................................................ 3
(f) Accelerated Vesting................................................................................... 3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS................................................................... 3
(a) Stock Option Agreement................................................................................ 3
(b) Number of Shares...................................................................................... 3
(c) Exercise Price........................................................................................ 4
(d) Withholding Taxes..................................................................................... 4
(e) Exercisability........................................................................................ 4
(f) Accelerated Exercisability............................................................................ 4
(g) Basic Term............................................................................................ 4
(h) Nontransferability.................................................................................... 4
(i) Termination of Service (Except by Death).............................................................. 4
(j) Leaves of Absence..................................................................................... 5
(k) Death of Optionee..................................................................................... 5
(l) No Rights as a Shareholder............................................................................ 6
(m) Modification, Extension and Assumption of Options..................................................... 6
(n) Restrictions on Transfer of Shares and Minimum Vesting................................................ 6
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(o) Accelerated Vesting................................................................................... 6
SECTION 7. PAYMENT FOR SHARES................................................................................ 6
(a) General Rule.......................................................................................... 6
(b) Surrender of Stock.................................................................................... 6
(c) Services Rendered..................................................................................... 7
(d) Promissory Note....................................................................................... 7
(e) Exercise/Sale......................................................................................... 7
(f) Exercise/Pledge....................................................................................... 7
SECTION 8. ADJUSTMENT OF SHARES.............................................................................. 7
(a) General............................................................................................... 7
(b) Mergers and Consolidations............................................................................ 7
(c) Reservation of Rights................................................................................. 8
SECTION 9. SECURITIES LAWS REQUIREMENTS...................................................................... 8
(a) General............................................................................................... 8
(b) Financial Reports..................................................................................... 8
SECTION 10. NO RETENTION RIGHTS.............................................................................. 8
SECTION 11. DURATION AND AMENDMENTS.......................................................................... 9
(a) Term of the Plan...................................................................................... 9
(b) Right to Amend or Terminate the Plan.................................................................. 9
(c) Effect of Amendment or Termination.................................................................... 9
SECTION 12. DEFINITIONS...................................................................................... 9
SECTION 13. EXECUTION....................................................................................... 11
</TABLE>
<PAGE>
SCIENT CORPORATION 1997 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory
Options as well as ISOs intended to qualify under Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered by
one or more Committees. Each Committee shall consist of two or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it. If no Committee has been appointed, the
entire Board of Directors shall administer the Plan. Any reference to the Board
of Directors in the Plan shall be construed as a reference to the Committee (if
any) to whom the Board of Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion to take
any actions it deems necessary or advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Board of Directors shall
be final and binding on all Purchasers, all Optionees and all persons deriving
their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Options or the direct award or sale of Shares.
Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT SHAREHOLDERS. An individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for designation as
an Optionee or Purchaser unless (i) the Exercise Price is at least 110% of the
Fair Market Value of a Share on the date of grant, (ii) the Purchase Price (if
any) is at least 100% of the Fair Market Value of a Share and (iii) in the case
of an ISO, such ISO by its terms is not exercisable after the expiration of five
years from the date of grant. For purposes of this Subsection (b), in
determining stock ownership, the attribution rules of Section 424(d) of the Code
shall be applied.
1
<PAGE>
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. The aggregate number of Shares that may be issued
under the Plan (upon exercise of Options or other rights to acquire Shares)
shall not exceed 13,430,000 Shares, subject to adjustment pursuant to Section
8./1/ The number of Shares that are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan, except that the aggregate number of
Shares which may be issued upon the exercise of ISOs shall in no event exceed
13,430,000 Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Purchaser and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Board of Directors deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within 30 days after the grant of such right
was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under the
Plan shall not be less than 85% of the Fair Market Value of such Shares, and a
higher percentage may be required by Section 3(b). Subject to the preceding
sentence, the Purchase Price shall be determined by the Board of Directors at
its sole discretion. The Purchase Price shall be payable in a form described in
Section 7.
____________________________
/1/ Reflects (a) an increase from 2,400,000 to 3,640,000 shares and (b) a
subsequent two-for-one stock split. Both actions were approved by the Board of
Directors on April 24, 1998, subject to the approval of the Company's
shareholders. Also reflects an increase from 7,280,000 to 9,180,000 shares
approved by the Board of Directors and the Company's shareholders on August 12,
1998, and an increase from 9,180,000 to 13,430,000 shares approved by the Board
of Directors and the Company's shareholders on January 28, 1999.
2
<PAGE>
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall
be set forth in the applicable Stock Purchase Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally. In
the case of a Purchaser who is not an officer of the Company, an Outside
Director or a Consultant, any right to repurchase the Purchaser's Shares at the
original Purchase Price (if any) upon termination of the Purchaser's Service
shall lapse at least as rapidly as 20% per year over the five-year period
commencing on the date of the award or sale of the Shares. Any such right may
be exercised only within 90 days after the termination of the Purchaser's
Service for cash or for cancellation of indebtedness incurred in purchasing the
Shares.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase Agreement
provides otherwise, any right to repurchase a Purchaser's Shares at the original
Purchase Price (if any) upon termination of the Purchaser's Service shall lapse
and all of such Shares shall become vested if (i) the Company is subject to a
Change in Control before the Purchaser's Service terminates and (ii) the
repurchase right is not assigned to the entity that employs the Purchaser
immediately after the Change in Control or to its parent or subsidiary.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Board of Directors deems appropriate for inclusion
in a Stock Option Agreement. The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than 100% of the Fair
Market Value of a Share on the date of grant, and a higher percentage may be
required by Section 3(b). The Exercise Price of a Nonstatutory Option shall not
be less than 85% of the Fair Market Value of a Share on the date of grant, and a
higher percentage may be required by Section 3(b). Subject to the preceding two
sentences, the Exercise Price under any Option shall be determined by the Board
of Directors at its sole discretion. The Exercise Price shall be payable in a
form described in Section 7.
3
<PAGE>
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. In the case
of an Optionee who is not an officer of the Company, an Outside Director or a
Consultant, an Option shall become exercisable at least as rapidly as 20% per
year over the five-year period commencing on the date of the grant. Subject to
the preceding sentence, the exercisability provisions of any Stock Option
Agreement shall be determined by the Board of Directors at its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control before
the Optionee's Service terminates, (ii) such Options do not remain outstanding,
(iii) such Options are not assumed by the surviving corporation or its parent
and (iv) the surviving corporation or its parent does not substitute options
with substantially the same terms for such Options.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and a
shorter term may be required by Section 3(b). Subject to the preceding
sentence, the Board of Directors at its sole discretion shall determine when an
Option is to expire.
(h) NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(i) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's Service
terminates for any reason other than the Optionee's death, then the Optionee's
Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (g)
above;
(ii) The date three months after the termination of the Optionee's
Service for any reason other than Disability, or such later date as the
Board of Directors may determine; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Disability, or such later date as the Board of
Directors may determine.
4
<PAGE>
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Options, all or part of such Options may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Options directly from the Optionee by
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated (or
became exercisable as a result of the termination) and the underlying Shares had
vested before the Optionee's Service terminated (or vested as a result of the
termination).
(j) LEAVES OF ABSENCE. For purposes of Subsection (i) above, Service shall
be deemed to continue while the Optionee is on a bona fide leave of absence, if
such leave was approved by the Company in writing and if continued crediting of
Service for this purpose is expressly required by the terms of such leave or by
applicable law (as determined by the Company).
(k) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (g)
above; or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death or became exercisable as a result of the death. The
balance of such Options shall lapse when the Optionee dies.
(l) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
5
<PAGE>
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
(n) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall
be set forth in the applicable Stock Option Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally. In
the case of an Optionee who is not an officer of the Company, an Outside
Director or a Consultant, any right to repurchase the Optionee's Shares at the
original Exercise Price upon termination of the Optionee's Service shall lapse
at least as rapidly as 20% per year over the five-year period commencing on the
date of the option grant. Any such repurchase right may be exercised only
within 90 days after the termination of the Optionee's Service for cash or for
cancellation of indebtedness incurred in purchasing the Shares.
(o) ACCELERATED VESTING. Unless the applicable Stock Option Agreement
provides otherwise, any right to repurchase an Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse and all of
such Shares shall become vested if (i) the Company is subject to a Change in
Control before the Optionee's Service terminates and (ii) the repurchase right
is not assigned to the entity that employs the Optionee immediately after the
Change in Control or to its parent or subsidiary.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so
provides, all or any part of the Exercise Price may be paid by surrendering, or
attesting to the ownership of, Shares that are already owned by the Optionee.
Such Shares shall be surrendered to the Company in good form for transfer and
shall be valued at their Fair Market Value on the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors, Shares
may be awarded under the Plan in consideration of services rendered to the
Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note. The Shares shall be pledged as security
for payment of the principal amount of the promissory
6
<PAGE>
note and interest thereon. The interest rate payable under the terms of the
promissory note shall not be less than the minimum rate (if any) required to
avoid the imputation of additional interest under the Code. Subject to the
foregoing, the Board of Directors (at its sole discretion) shall specify the
term, interest rate, amortization requirements (if any) and other provisions of
such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party
to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
(i) The continuation of such outstanding Options by the Company (if
the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by the
surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent of
options with substantially the same terms for such outstanding Options; or
(iv) The cancellation of such outstanding Options without payment of
any consideration.
7
<PAGE>
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) GENERAL. Shares shall not be issued under the Plan unless the issuance
and delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
(b) FINANCIAL REPORTS. The Company each year shall furnish to Optionees,
Purchasers and shareholders who have received Stock under the Plan its balance
sheet and income statement, unless such Optionees, Purchasers or shareholders
are key Employees whose duties with the Company assure them access to equivalent
information. Such balance sheet and income statement need not be audited.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan shall
confer upon the Purchaser or Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Company (or any Parent or Subsidiary employing or retaining
the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are
hereby expressly reserved by each, to terminate his or her Service at any time
and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective upon adoption by the Board of Directors and approval by the Company's
shareholders on January 28, 1999. The Plan shall terminate automatically on
January 27, 2009, and may be terminated on any earlier date pursuant to
Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 8), or
which materially changes the class of persons who are
8
<PAGE>
eligible for the grant of ISOs, shall be subject to the approval of the
Company's shareholders. Shareholder approval shall not be required for any other
amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or other
reorganization is owned by persons who were not shareholders of the Company
immediately prior to such merger, consolidation or other reorganization; or
(ii) The sale, transfer or other disposition of all or substantially
all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean Scient Corporation, a California corporation.
(f) "CONSULTANT" shall mean a person who performs bona fide services for
the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(g) "DISABILITY" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
9
<PAGE>
(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(k) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(l) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(m) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(n) "OPTIONEE" shall mean an individual who holds an Option.
(o) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who is
not an Employee.
(p) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.
(q) "PLAN" shall mean this Scient Corporation 1997 Stock Plan.
(r) "PURCHASE PRICE" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Board of Directors.
(s) "PURCHASER" shall mean an individual to whom the Board of Directors has
offered the right to acquire Shares under the Plan (other than upon exercise of
an Option).
(t) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(u) "SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
(v) "STOCK" shall mean the Common Stock of the Company.
10
<PAGE>
(w) "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
(x) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the Company
and a Purchaser who acquires Shares under the Plan which contains the terms,
conditions and restrictions pertaining to the acquisition of such Shares.
(y) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the amendment and restatement of the Plan by the Board of
Directors, the Company has caused its authorized officer to execute the same.
Scient Corporation
By:______________________________
Title:___________________________
11
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of December 10, 1997, by and between
ERIC GREENBERG (the "Employee") and SCIENT CORPORATION, a California corporation
(the "Company").
1. Term of Employment.
(a) Basic Rule. The Company agrees to continue the Employee's
employment, and the Employee agrees to remain in employment with the Company,
from the date of this Agreement until the date when the Employee's employment
terminates pursuant to Subsection (b), (c) or (d) below. Either the Employee or
the Company shall be entitled to terminate the Employee's employment at any time
and for any reason, with or without Cause. Any contrary representations which
may have been made to the Employee shall be superseded by this Agreement. This
Agreement shall constitute the full and complete agreement between the Employee
and the Company on the nature of the Employee's employment, which may only be
changed in an express written agreement signed by the Employee and a duly
authorized officer of the Company.
(b) Without Cause. Subject to Section 6, the Company may terminate
the Employee's employment, with or without Cause, by giving the Employee thirty
(30) days' advance notice in writing. The Employee may terminate his employment
by giving the Company thirty (30) days' advance notice in writing. The
Employee's employment shall terminate automatically in the event of his death.
Any waiver of notice shall be valid only if it is made in writing and expressly
refers to the applicable notice requirement of this Section 1.
(c) Cause. Employee may be terminated for Cause if, in the reasonable
determination of the Company's Board of Directors, Employee is convicted of a
felony involving the Company or its property, or participates in any fraud
against the Company, or willfully breaches his duties to the Company, or
intentionally damages any property of the Company, or wrongfully discloses any
trade secrets or other confidential information of the Company, or materially
breaches any material provision of the Proprietary Information and Inventions
Agreement, dated as of the date hereof, between Employee and the Company (the
"Proprietary Information and Inventions Agreement").
(d) Permanent Disability. The Company may terminate the Employee's
active employment due to Permanent Disability by giving the Employee thirty (30)
days' advance notice in writing. For all purposes under this Agreement,
"Permanent Disability" shall mean that the Employee, at the time notice is
given, has failed to perform substantially all of his duties under this
Agreement for not less than 270 days in the most recent fiscal year of the
Company as the result of his incapacity due to physical or mental illness. The
determination regarding whether the Employee is physically unable to regularly
perform his duties under this paragraph shall be made by the Board of Directors.
Employee's inability to be physically present
<PAGE>
on the Company's premises shall not constitute a presumption that he is unable
to perform such duties.
(e) Rights Upon Termination. Except as expressly provided in Section
6, upon the termination of the Employee's employment pursuant to this Section 1,
the Employee shall only be entitled to the compensation, benefits and
reimbursements described in Sections 3, 4 and 5 for the period preceding the
effective date of the termination. The payments under this Agreement shall fully
discharge all responsibilities of the Company to the Employee.
(f) Termination of Agreement. This Agreement shall terminate when all
obligations of the parties hereunder have been satisfied. The termination of
this Agreement shall not limit or otherwise affect any of the Employee's
obligations under Section 7.
(g) Notice. Any notice required to be given pursuant to this Section
1 shall be given in accordance with the provisions of Section 10 (a) hereof. The
exercise of either party's right to terminate this Agreement pursuant to
Subsections (b) or (c) above shall not abrogate the rights and remedies of the
terminating party regarding the breach, if any, giving the rise to such
termination.
2. Duties and Scope of Employment.
(a) Position. The Company will employ Employee in an executive
capacity as President and Chief Executive Officer, or such other executive
position as shall be mutually agreed upon, and perform the duties customarily
associated with such capacity from time to time and at such place or places as
the Company shall reasonably designate or as shall be reasonably appropriate and
necessary in connection with such employment.
(b) Obligations. Employee will, to the best of his ability, devote
his full time and best efforts to the performance of his duties hereunder and
the business and affairs of the Company. Employee agrees to serve as Chairman of
the Board of Directors of the Company if elected by the shareholders and the
Board, as the case may be, and to perform such executive duties as may be
assigned to him by the Company's Board of Directors from time to time. The
Company agrees to elect Employee to the Company's Board of Directors, as
Chairman of such Board, for so long as Employee remains an employee, director or
consultant of the Company. Employee will duly, punctually, and faithfully
perform and observe any and all rules and regulations which the Company may now
or shall hereafter establish governing the conduct of its business.
3. Cash and Incentive Compensation.
(a) Salary. The Company agrees to pay the Employee as compensation
for his services a base salary at an annual rate of $200,000. Such salary shall
be payable in accordance with the Company's standard payroll procedures. (The
annual compensation specified in this Subsection (a), together with any
increases in such compensation that the Company may grant from time to time, is
referred to in this Agreement as "Base Compensation.")
2
<PAGE>
(b) Bonus Opportunity. The Employee shall have the opportunity to
earn an annual bonus. The amount and manner of payment of such bonus shall be
determined by the Board.
4. Employee Benefits. During the term of his Employment, the Employee
shall be eligible to participate in the employee benefit plans maintained by the
Company (the "Company Plans"), subject in each case to the generally applicable
terms and conditions of the plan in question and to the determinations of any
person or committee administering such plan.
5. Business Expenses. During the term of his Employment, the Employee
shall be authorized to incur necessary and reasonable travel, entertainment and
other business expenses in connection with his duties hereunder. The Company
shall reimburse the Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in accordance with the
Company's generally applicable policies.
6. Stock Purchases. Employee has entered into a Restricted Stock Purchase
Agreement that provides, among other things, (i) that the Common Stock of the
Company held by Employee shall be subject to repurchase by the Company (the
"Repurchase Right") at the price paid for such stock under certain circumstances
and (ii) that the Repurchase Right shall lapse in its entirety upon a charge in
control of the Company, or (B) upon involuntary termination of the Employee's
employment without Cause.
7. Severance Benefits.
(a) Severance Payment. If, at any time during the term of this
Agreement, the Company terminates the Employee's Employment without his consent
for any reason other than Cause or Permanent Disability, then the Company shall
pay the Employee a lump sum equal to 100% of the greater of (i) his annual Base
Compensation (at the rate then in effect) or (ii) his actual Base Compensation
plus bonus for the most recent completed fiscal year of the Company.
(b) Employee Benefits. If the Employee becomes entitled to a
severance payment under Subsection (a) above, then the Employee shall also be
entitled to continue participating in each Company Plan which permits continuing
participation by former employees. The Employee's participation in such Company
Plan shall continue until the date 12 months following the termination of his
Employment.
(c) Computer Equipment. If the Employee becomes entitled to a
severance payment under Subsection (a) above, then the Company shall provide
Employee with a computer and peripherals substantially equivalent to his primary
working computer and peripherals as of the date of such termination.
(d) Communications. If the Employee becomes entitled to a severance
payment under Subsection (a) above, then the Employee shall also be entitled to
continuing access to the Company's telephone and e-mail systems until the date
six (6) months following the termination of his Employment.
3
<PAGE>
8. Proprietary Information and Inventions. The Employee has entered into
the Proprietary Information and Inventions Agreement with the Company.
9. Indemnification. The Company and Employee shall enter into an
Indemnification Agreement, which, among other things, will indemnify Employee
for claims and liabilities arising out of Employee's actions while an employee,
director or consultant of the Company regardless of when such claims or
liabilities may arise.
10. Successors.
(a) Company's Successors. This Agreement shall be binding upon any
successor (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
11. Miscellaneous Provisions.
(a) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered mail, return receipt
requested and postage prepaid. In the case of the Employee, mailed notices shall
be addressed to him at the home address which he most recently communicated to
the Company in writing. In the case of the Company, mailed notices shall be
addressed to its corporate headquarters, and all notices shall be directed to
the attention of its Secretary.
(b) Waiver. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Whole Agreement; Modifications. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the
Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof. A
modification of this Agreement shall be valid only if it is made in writing and
executed by both parties hereto.
4
<PAGE>
(d) Withholding Taxes. All payments made under this Agreement shall
be subject to reduction to reflect taxes or other charges required to be
withheld by law.
(e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California (except their provisions governing the choice of law).
(f) Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(g) Arbitration. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled in San Francisco,
California, by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. The decision of the arbitrator shall be
final and binding on the parties, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The parties
hereby agree that the arbitrator shall be empowered to enter an equitable decree
mandating specific enforcement of the terms of this Agreement. The Company and
the Employee shall share equally all fees and expenses of the arbitrator;
provided, however, that the Company or the Employee, as the case may be, shall
bear all fees and expenses of the arbitrator and all of the legal fees and out-
of-pocket expenses of the other party if the arbitrator determines that the
claim or position of the Company or the Employee, as the case may be, was
without reasonable foundation. The Employee hereby consents to personal
jurisdiction of the state and federal courts located in the State of California
for any action or proceeding arising from or relating to this Agreement or
relating to any arbitration in which the parties are participants.
(h) No Assignment. This Agreement and all rights and obligations of
the Employee hereunder are personal to the Employee and may not be transferred
or assigned by the Employee at any time. The Company may assign its rights under
this Agreement to any entity that assumes the Company's obligations hereunder in
connection with any sale or transfer of all or a substantial portion of the
Company's assets to such entity.
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. Remedies. Employee's duties under the Proprietary Information and
Inventions Agreement shall survive termination of his employment with the
Company. Employee acknowledges that a remedy at law for any breach or
threatened breach by Employee of the provisions of the Proprietary Information
and Inventions Agreement would be inadequate and therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
5
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
SCIENT CORPORATION
By
-------------------------------------------
Title:
---------------------------------------
EMPLOYEE
---------------------------------------------
Eric Greenberg
[SIGNATURE PAGE TO ERIC GREENBERG EMPLOYMENT AGREEMENT]
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of February 9, 1998, by and among
ROBERT HOWE (the "Employee"), SCIENT CORPORATION, a California corporation (the
"Company") and ERIC GREENBERG.
1. Term of Employment.
(a) Basic Rule. The Company agrees to employ the Employee, and the
Employee agrees to be employed by the Company, from the date of this Agreement
until the date when the Employee's employment terminates pursuant to Subsection
(b), (c) or (d) below. Either the Employee or the Company shall be entitled to
terminate the Employee's employment at any time and for any reason, with or
without Cause without liability or obligation to the other party except as
expressly set forth herein. Any contrary representations which may have been
made by one party to another shall be superseded by this Agreement. This
Agreement shall constitute the full and complete agreement between the Employee
and the Company on the nature of the Employee's employment, which may only be
changed in an express written agreement signed by the Employee and a duly
authorized officer of the Company.
(b) Without Cause. Subject to Section 6, the Company may terminate
the Employee's employment, with or without Cause, by giving the Employee thirty
(30) days' advance notice in writing. The Employee may terminate his employment
by giving the Company thirty (30) days' advance notice in writing. The
Employee's employment shall terminate automatically in the event of his death.
Any waiver of notice shall be valid only if it is made in writing and expressly
refers to the applicable notice requirement of this Section 1.
(c) Cause. Employee may be terminated for Cause if, an only if, in
the reasonable determination of the Company's Board of Directors, Employee is
convicted of a felony involving the Company or its property, or participates in
any fraud against the Company, or willfully breaches his duties to the Company,
or intentionally damages any property of the Company, or wrongfully discloses
any trade secrets or other confidential information of the Company, or
materially breaches any material provision of the Proprietary Information and
Inventions Agreement, dated as of the date hereof, between Employee and the
Company (the "Proprietary Information and Inventions Agreement"). If Employee
resigns his employment within fifteen (15) days of a material reduction in
Employee's job duties which are inconsistent with the position initially
assigned to Employee by the Company, such resignation will be the equivalent of
a termination of Employee's employment by the Company without Cause. The
exercise of the Company's right to terminate this Agreement pursuant to this
Subsection (c) shall not abrogate the rights and remedies of the Company
regarding the breach, if any, giving the rise to such termination.
(d) Permanent Disability. The Company may terminate the Employee's
active employment due to Permanent Disability by giving the Employee thirty (30)
days' advance notice in writing. For all purposes under this Agreement,
"Permanent Disability"
<PAGE>
shall mean that the Employee, at the time notice is given, has failed to perform
substantially all of his duties under this Agreement for not less than 270 days
in the most recent fiscal year of the Company as the result of his incapacity
due to physical or mental illness. The determination regarding whether the
Employee is physically unable to regularly perform his duties under this
paragraph shall be made by the Board of Directors. Employee's inability to be
physically present on the Company's premises shall not constitute a presumption
that he is unable to perform such duties.
(e) Rights Upon Termination. Except as expressly provided in
Section 7, upon the termination of the Employee's employment pursuant to this
Section 1, the Employee shall only be entitled to the compensation, benefits and
reimbursements described in Sections 3, 4 and 5 for the period preceding the
effective date of the termination. The payments under this Agreement shall fully
discharge all responsibilities of the Company to the Employee. Upon a
termination of the Employee's employment by the Employee, the Employee shall
have no liability or obligation to the Company except as expressly provided
herein; specifically, the exercise of the Company's right to terminate this
Agreement pursuant to Subsection (c) above shall not abrogate the rights and
remedies of the Company regarding the breach, if any, giving the rise to such
termination.
(f) Termination of Agreement. This Agreement shall terminate when
all obligations of the parties hereunder have been satisfied. The termination of
this Agreement shall not limit or otherwise affect any of the Employee's
obligations under Section 8.
(g) Notice. Any notice required to be given pursuant to this
Section 1 shall be given in accordance with the provisions of Section 14 (a)
hereof.
2. Duties and Scope of Employment.
(a) Position. The Company will employ Employee in an executive
capacity as President and Chief Executive Officer, or such other executive
position as shall be mutually agreed upon, and perform the duties customarily
associated with such capacity from time to time and at such place or places as
the Company shall reasonably designate or as shall be reasonably appropriate and
necessary in connection with such employment. Employee will report directly to
the Company's Board of Directors, and all employees of the Company, other than
Eric Greenberg, will report to Employee. Employee will be the final decision
maker with regard to all hiring and employment issues. Any additional members to
be added to the Board of Directors will be subject to Employee's consent, which
consent shall not be unreasonably withheld, and which consent shall terminate
upon the Company's initial public offering of its securities.
(b) Obligations. Employee will, to the best of his ability, devote
his full time and best efforts to the performance of his duties hereunder and
the business and affairs of the Company. The Company shall cause Employee to be
elected to and to be a member of the Company's Board of Directors for so long as
Employee remains an employee, director or consultant of the Company. Employee
will duly, punctually, and faithfully perform and observe
2
<PAGE>
any and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business.
3. Cash and Incentive Compensation.
(a) Salary. The Company agrees to pay the Employee as compensation
for his services a base salary on a semi-monthly basis at a monthly rate of
$20,833.33. Such salary shall be payable in accordance with the Company's
standard payroll procedures. (The annual compensation specified in this
Subsection (a), together with any increases in such compensation that the
Company may grant from time to time, is referred to in this Agreement as "Base
Compensation.")
(b) Bonus Opportunity. The Employee shall have the opportunity to
earn an annual bonus. The amount and manner of payment of such bonus shall be
determined by the Board of Directors.
4. Employee Benefits. During the term of his Employment, the Employee
shall be eligible to participate in the employee benefit plans maintained by the
Company (the "Company Plans"), subject in each case to the generally applicable
terms and conditions of the plan in question and to the determinations of any
person or committee administering such plan.
5. Business Expenses. During the term of his Employment, the Employee
shall be authorized to incur necessary and reasonable travel, entertainment and
other business expenses in connection with his duties hereunder. The Company
shall reimburse the Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in accordance with the
Company's generally applicable policies.
6. Stock Purchases. Upon commencement of his employment, the Employee
will purchase from Eric Greenberg and Eric Greenberg shall sell to Employee
840,000 shares of the Company's Common Stock at a price of $.10 per share. Such
shares will be sold from Eric Greenberg's unvested portion of his Common Stock
free and clear of all claims, liens, restrictions and encumbrances and shall be
fully vested in the Employee's hands upon such purchase by Employee. In
addition, upon commencement of Employee's employment with the Company, the Board
of Directors will grant Employee a stock option for 1,200,000 shares (the
"Option Shares") of the Company's Common Stock under the Company's 1997 Stock
Plan (the "Plan"). The exercise price shall be the fair market value of the
Company's Common Stock on the date of grant, as determined by the Board of
Directors. The Company hereby notifies Employee that the fair market of value of
the Company's Common Stock on the date hereof is $.10 per share. Such options
will be immediately exercisable, but the Option Shares will be subject to
repurchase by the Company (the "Repurchase Right") at the price paid for such
stock as provided in the Plan. Such Repurchase Right shall lapse with respect to
25% of the Option Shares upon the twelve (12)-month anniversary of Employee's
employment with the Company, and the remaining Repurchase Right shall lapse with
respect to 1/36th of the remaining Option Shares for each additional month of
employment by the Employee thereafter. Further, the Repurchase Right shall lapse
(i) with respect to 25% of the Option Shares upon the termination by the Company
of the Employee's employment with the Company without Cause, and (ii) in its
3
<PAGE>
entirety upon a Change In Control (as defined below) of the Company if Employee
is not maintained in his current position after such Change In Control or if
Employee is terminated without Cause at any time after such Change In Control. A
"Change In Control" shall mean (A) the acquisition of the Company by another
entity by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger or consolidation, but excluding
any merger effected exclusively for the purpose of changing the domicile of the
Company) that results in the transfer of fifty percent (50%) or more of the
outstanding voting power of this corporation; or (B) a sale of all or
substantially all of the assets of this corporation; unless the Company's
shareholders of record as constituted immediately prior to such acquisition or
sale will, immediately after such acquisition or sale (by virtue of securities
issued as consideration for the Company's acquisition or sale or otherwise) hold
at least 50% of the voting power of the surviving or acquiring entity.
7. Severance Benefits.
(a) Severance Payment. If, at any time during the term of this
Agreement, the Company terminates the Employee's Employment without his consent
for any reason other than Cause or Permanent Disability, then the Company shall
pay the Employee a lump sum equal to 100% of the greater of (i) his annual Base
Compensation (at the rate then in effect) or (ii) his actual Base Compensation
plus bonus for the most recent completed fiscal year of the Company.
(b) Employee Benefits. If the Employee becomes entitled to a
severance payment under Subsection (a) above, then the Employee shall also be
entitled to continue participating in each Company Plan which permits continuing
participation by former employees. The Employee's participation in such Company
Plan shall continue until the date 12 months following the termination of his
Employment.
(c) Computer Equipment. If the Employee becomes entitled to a
severance payment under Subsection (a) above, then the Company shall provide
Employee with a computer and peripherals substantially equivalent to his primary
working computer and peripherals as of the date of such termination.
(d) Communications. If the Employee becomes entitled to a severance
payment under Subsection (a) above, then the Employee shall also be entitled to
continuing access to the Company's telephone and e-mail systems until the date
six (6) months following the termination of his Employment.
8. Proprietary Information and Inventions; Employee Handbook. The
Employee will enter into the Proprietary Information and Inventions Agreement
with the Company in the form previously provided to Employee. Employee will
execute an acknowledgment that he has read and understood the company's rule of
conduct which will be included in a handbook to be distributed to the Employee.
9. Indemnification. The Company and Employee shall enter into an
Indemnification Agreement, which, among other things, will indemnify Employee
for claims and
4
<PAGE>
liabilities arising out of Employee's actions while an employee, director or
consultant of the Company regardless of when such claims or liabilities may
arise. Further, the Company hereby agrees to pay reasonable legal fees incurred
by Employee in defending any suit brought by Employee's immediate prior employer
("Prior Employer") arising out of Employee's employment with the Company or the
hiring by the Company of other employees of the Prior Employer. The Company
shall pay reasonable legal and accounting fees incurred by Employee in entering
into employment with the Company, not to exceed $10,000, so long as such legal
and accounting fees are substantiated with reasonably detailed billing records
for such services.
10. Lost Bonus. The Company agrees to pay Employee a bonus of
$330,000.00 due in February, 1998 if such bonus is not paid by Employee's Prior
Employer because Employee is entering into employment with the Company or if
such bonus has been paid to Employee and is required to be returned to
Employee's Prior Employer because Employee is entering into employment with the
Company.
11. Relocation; Tax Equalization. The Company will reimburse Employee
for all reasonable relocation expenses, including a tax gross-up. The Company
will pay any personal tax liabilities that the Employee shall incur which would
have been covered, or which have been paid to Employee and are required to be
returned to Employee's Prior Employer, by a Tax Equalization Agreement currently
in effect with Employee's Prior Employer but which the Prior Employer fails to
cover, or requires to be returned to Employee's Prior Employer, because Employee
is entering into employment with the Company.
12. Ability to Work in United States. Employee shall submit a Form I-9
and satisfactory documentation with regard to Employee's identification and
legal right to work in the United States to the Company no later than three (3)
days after the commencement of Employee's employment.
13. Successors.
(a) Company's Successors. This Agreement shall be binding upon any
successor (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.
(b) Employee's Successors. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
14. Miscellaneous Provisions.
(a) Notice. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered mail, return receipt
requested and postage prepaid.
5
<PAGE>
In the case of the Employee, mailed notices shall be addressed to him at the
home address which he most recently communicated to the Company in writing. In
the case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement; Modifications. No agreements, representations
or understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the
Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof. A
modification of this Agreement shall be valid only if it is made in writing and
executed by both parties hereto.
(d) Withholding Taxes. All payments made under this Agreement shall
be subject to reduction to reflect taxes or other charges required to be
withheld by law.
(e) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California (except their provisions governing the choice of law).
(f) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(g) Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled in San
Francisco, California, by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The decision of the
arbitrator shall be final and binding on the parties, and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The parties hereby agree that the arbitrator shall be empowered to
enter an equitable decree mandating specific enforcement of the terms of this
Agreement. The Company and the Employee shall share equally all fees and
expenses of the arbitrator; provided, however, that the Company or the Employee,
as the case may be, shall bear all fees and expenses of the arbitrator and all
of the legal fees and out-of-pocket expenses of the other party if the
arbitrator determines that the claim or position of the Company or the Employee,
as the case may be, was without reasonable foundation. The Employee hereby
consents to personal jurisdiction of the state and federal courts located in the
State of California for any action or proceeding arising from or relating to
this Agreement or relating to any arbitration in which the parties are
participants.
6
<PAGE>
(h) No Assignment. This Agreement and all rights and obligations of
the Employee hereunder are personal to the Employee and may not be transferred
or assigned by the Employee at any time. The Company may assign its rights under
this Agreement to any entity that assumes the Company's obligations hereunder in
connection with any sale or transfer of all or a substantial portion of the
Company's assets to such entity.
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. Remedies. Employee's duties under the Proprietary Information and
Inventions Agreement shall survive termination of his employment with the
Company. Employee acknowledges that a remedy at law for any breach or
threatened breach by Employee of the provisions of the Proprietary Information
and Inventions Agreement would be inadequate and therefore agrees that the
Company shall be entitled to injunctive relief in case of any such breach or
threatened breach.
16. Company Representations and Warranties.
(a) The Company agrees to maintain indemnification provisions in
its Articles of Incorporation and its Bylaws to fullest extent permissible under
California law. The Amended and Restated Articles of Incorporation and the
Bylaws of the Company currently in effect are in the form previously provided to
special counsel for the Employee.
(b) The capitalization of the Company as shown on the table
attached hereto as Exhibit A is true and complete as of the date hereof and
---------
the percentages thereon indicate the allocation of the Company's securities on a
fully-diluted basis.
(c) All corporate action on the part of the Company necessary for
the authorization, execution and delivery of this Agreement and the performance
of all obligations of the Company hereunder have been taken, and this Agreement
and the performance of all obligations of the company to be performed hereunder
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
(d) The 1997 Stock Plan in the form previously provided to special
counsel for the Employee has been approved by the Company's Board of Directors.
17. Employee Representations and Warranties. Without any obligation to
conduct an independent investigation, Employee has, to the best of his
knowledge, delivered to the Company copies of all material agreements between
Employee and Employee's Prior Employer. Without any obligation to conduct an
independent investigation, Employee, to the
7
<PAGE>
best of his knowledge, is not in any material violation of any such agreements
with Employee's Prior Employer.
8
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
SCIENT CORPORATION
By
--------------------------------------
Title:
----------------------------------
EMPLOYEE
-----------------------------------------
Robert Howe
ERIC GREENBERG
-----------------------------------------
Eric Greenberg
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Common Stockholders Shares %
- --------------------------------- ---------------- -----------
<S> <C> <C>
Eric Greenberg 4,266,666 35.56%
- ---------------------------------------------------------------
Total Common Outstanding 4,266,666 35.56%
Series A Stockholders Shares %
- --------------------------------- ---------------- ----------
Benchmark Capital Partners II, 2,844,445 23.70%
L.P.
Sequoia Capital VII 2,196,000 18.30%
Sequoia Technology Partners VII 96,000 0.80%
SQP 1997 44,544 0.37%
Sequoia 1997 25,056 0.21%
Sequoia International Partners 38,400 0.32%
Stanford University 88,889 0.74%
- ---------------------------------------------------------------
Total Series A Outstanding 5,333,334 44.44%
Stock Option Plan Shares %
- --------------------------------- ---------------- ----------
Shares Reserved 2,400,000 20.00%
Shares Granted 0 0.00%
- ---------------------------------------------------------------
Shares Available 2,400,000 20.00%
</TABLE>
<PAGE>
SCIENT CORPORATION
Mr. Robert Howe
Dear Bob:
Scient Corporation is pleased to offer employment to you on terms set
forth in the form Employment Agreement accompanying this letter. This offer
will remain open until January 20, 1998, at which time it will terminate unless
you and we have signed and delivered this Employment Agreement.
We understand that before signing this Employment Agreement you need
to resign your employment with your present employer. Once you have given that
resignation, it is our understanding that the terms of this Employment Agreement
are acceptable to you.
Please acknowledge that the foregoing reflects your understanding of
these matters by signing and returning to Scient a copy of this letter.
SCIENT CORPORATION
---------------------------------
Eric Greenberg, President
- ------------------------------
Robert Howe
<PAGE>
EXHIBIT 10.7
Scient Corporation
720 California Street
San Francisco, California
June 12, 1998
Mr. William Kurtz
Dear Bill:
Scient Corporation is pleased to offer you the position of Vice President and
Chief Financial Officer. This letter embodies the terms of employment to you.
As Chief Financial Officer, you will be responsible for administration,
corporate finance and financial management for the company. Additionally, you
will participate in the executive management team to drive the strategic
direction of the company. Additionally, you will participate in the executive
management team to drive the strategic direction of the company and will report
to Bob Howe, President and CEO> You will also be able to participate in the
appropriate parts of the Board meetings, including those related to strategic
decisions. You will be located in San Francisco, the company's headquarters.
Your starting salary will be $20,833.33 per month, paid on a semi-monthly basis.
Potential bonuses will be granted by the Compensation Committee of the Board of
Directors. In addition, you will be eligible for the following employee
benefits: medical insurance, vacation, sick leave, holidays, and 401K. The
details of these employee benefits will be explained as soon as they are
established.
In addition, upon the commencement of your employment, the Board of Directors
will grant you a stock option grant for 500,000 shares of common stock under the
1998 stock option plan. The vesting price is to be determined by the Board of
Directors at the time of the grant. Provided that if you begin your employment
on or before August 12/th/, the exercise price shall be $.65 per share. Such
options will be subject to the company's standard vesting schedule (25% vested
after one year, monthly vesting thereafter, all vested in four years).
Scient will also reimburse you for reasonable relocation expenses including the
tax gross-up for all taxing authorities. Further, Scient will also provide you
or help you obtain a $250,000 loan repayable upon a liquidity event if the
company has not had an IPO eighteen months after your start date.
Scient will also pay any legal expenses associated with any legal action brought
about by your prior employer, and Scient will retain legal counsel to advise you
personally on how you should conduct yourself in association with your
separation.
As an employee, you may terminate employment at any time and for any reason
whatsoever with notice to Scient. We request that, in the event of resignation,
you give the company at least two weeks notice. Similarly, Scient may terminate
your employment at any time and for any reason whatsoever, with or without cause
or advance notice. Furthermore, this mutual termination of employment agreement
supersedes all our prior written and oral communication with you and can only be
modified by written agreement signed by you and Scient.
1
<PAGE>
If there is a change in control in the ownership of the company, you will be
vested an additional 12 months options at the effective date, provided that you
are terminated, constructively terminated, or you are not offered the CFO
position in the surviving company.
If you are terminated by Scient, Scient will provide you with six months
severance pay, including benefits, a computer, and peripherals.
As a Scient employee, you will be expected to abide by the company's rules and
regulations. You will be specifically required to sign an acknowledgement that
you have read and understand the company rules of conduct which will be included
in a handbook which the company will soon complete and distribute. You will be
expected to sign and comply with a proprietary information and non-disclosure
agreement which requires, among other provisions, the assignment of patent
rights to any inventions made during your employment at Scient and non-
disclosure of proprietary information.
This offer is subject to your submission of an I-9 form and satisfactory
documentation respecting your identification and right to work in the United
States no later than three (3) days after your employment begins.
If you wish to accept employment at Scient under the terms set out above, please
sign and date this letter and return it to me by June 19, 1998 by fax at 415-
733-8223. If you accept our offer, your first day of employment will be
determined by us mutually.
We look forward to your favorable reply and to a productive and exciting work
relationship.
Sincerely,
/s/ Bob Howe
Bob Howe
President and CEO
/s/ William Kurtz June 17, 1998
- ----------------------------- -------------
Approved and Accepted Date
2
<PAGE>
EXHIBIT 10.8
SCIENT
September 14, 1998
Mr. Stephen Mucchetti
48 East Ridge Road
Ridgefield, CT 06877
Dear Steve:
Scient Corporation is pleased to offer you the position of Executive Vice
President and Chief Operating Officer. This letter embodies the terms of
employment to you.
As Chief Operating Officer, you will be accountable for managing day to day
operations of the company, including global professional services, client
delivery, human resources, recruiting, and sales. Additionally, you will
participate in the executive management team to drive the strategic direction of
the company and will report to Bob Howe, President and CEO. You will also be
able to participate in the appropriate parts of the Board meetings, including
those related to strategic decisions. You will be located in New York for the
first year, and thereafter, we will mutually determine the location that best
suits all concerned.
Your starting salary will be $20,833.33 per month, paid on a semi-monthly basis.
An additional bonus of $50,000 will be paid in each of your first two years of
employment. In addition, you will be eligible for the following employee
benefits: medical insurance, vacation, sick leave, holidays, and 401K.
In addition, upon the commencement of your employment, the Board of Directors
will grant you a stock option grant for 500,000 shares of common stock under the
1998 stock option plan. The vesting price is to be determined by the Board of
Directors at the time of the grant. Such options will be subject to the
company's standard vesting schedule (25% vested after one year, monthly vesting
thereafter, all vested in four years).
Upon commencement of employment, you will immediately vest in 20% of the total
option grant.
Scient will also pay any legal expenses associated with any legal action brought
about by your prior employer, and Scient will retain legal counsel to advise you
personally on how you should conduct yourself in association with your
separation.
As an employee, you may terminate employment at any time and for any reason
whatsoever with notice to Scient. We request that, in the event of resignation,
you give the company at least two weeks notice. Similarly, Scient may terminate
your employment at any time and for any reason whatsoever, with or without cause
or advance notice. Furthermore, this mutual termination of employment agreement
supersedes all our prior written and oral communication with you and can only be
modified by written agreement signed by you and Scient.
If there is a change in control in the ownership of the company, you will be
vested an additional 12 months options at the effective date, provided that you
are terminated, constructively terminated, or you are not offered the COO
position in the surviving company.
1
<PAGE>
SCIENT
Additionally, if you are terminated or constructively terminated, you will be
vested an additional 12 months options, unless you materially breach the
employment agreement or commit a felony in the commission of your job
responsibilities.
If you are terminated or constructively by Scient, Scient will provide you with
one year severance pay, including benefits, a computer, and peripherals.
As a Scient employee, you will be expected to abide by the company's rules and
regulations. You will be specifically required to sign an acknowledgement that
you have read and understand the company rules of conduct which will be included
in a handbook which the company will soon complete and distribute. You will be
expected to sign and comply with a proprietary information and non-disclosure
agreement which requires, among other provisions, the assignment of patent
rights to any inventions made during your employment at Scient and non-
disclosure of proprietary information.
This offer is subject to your submission of an I-9 form and satisfactory
documentation respecting your identification and right to work in the United
States no later than three (3) days after your employment begins.
If you wish to accept employment at Scient under the terms set out above, please
sign and date this letter and return it to me by October 1, 1998 by fax at 415-
733-8223. If you accept our offer, your first day of employment will be
determined by us mutually.
We look forward to your favorable reply and to a productive and exciting work
relationship.
Sincerely,
/s/ Eric Greenberg
Eric Greenberg
Chairman of the Board
/s/ Stephen Mucchetti October 1, 1998
- --------------------------- ---------------
Approved and Accepted Date
2
<PAGE>
EXHIBIT 10.9
Stock Repurchase Agreement
This Stock Repurchase Agreement is entered into as of December 22, 1998,
by Scient Corporation, a California corporation (the "Company"), and Robert Howe
("Howe").
Whereas, Howe holds more than 150,000 vested shares of the Company's
Common Stock (the "Common Shares").
Whereas, the Company on December 22, 1998, granted to Stephen Mucchetti
("Mucchetti") an option to purchase 150,000 Common Shares from the Company for
$1.60 per Common Share (the "Option").
Whereas, the Option will become exercisable in installments on January 1
of the years 2000, 2001 and 2002.
Whereas, Mucchetti will vest in all of the Common Shares subject to the
Option (the "Option Shares") on December 22, 2002, if his continuous service
with the Company does not terminate prior to such date.
Whereas, the parties have agreed that the Company will have the right to
purchase up to 150,000 Common Shares held by Howe for $1.60 per Common Share to
the extent that Mucchetti has both exercised his Option and vested in the
underlying Option Shares.
Whereas, this Agreement is being entered into to evidence the Company's
right to purchase such Common Shares from Howe (the "Right of Repurchase").
SECTION 1. RIGHT OF REPURCHASE.
(a) Scope of Repurchase Right. 150,000 of the Common Shares held by
Howe shall be subject to a right (but not an obligation) of repurchase by the
Company (the "Restricted Shares"). Howe may designate from time to time which
of his Common Shares shall be considered Restricted Shares, provided that the
number of Restricted Shares shall be 150,000 unless changed in accordance with
this Agreement.
(b) Condition Precedent to Exercise. The Right of Repurchase shall be
exercisable only during the 60-day period next following the later of (i) the
date when Mucchetti exercises all or any part of the Option and acquires
Option Shares or (ii) the date when Mucchetti vests in such Option Shares (the
"Notice Period"). If Mucchetti exercises a part of the Option, then the Right
of Repurchase shall be exercisable during the Notice Period with respect to a
number of Restricted Shares that is equal to the number of Option Shares
acquired by Mucchetti. The Right of Repurchase shall survive with respect to
the remaining Restricted Shares.
<PAGE>
(c) Lapse of Repurchase Right. The Right of Repurchase shall lapse to
the extent that the Option expires for any reason without having been
exercised. The Right of Repurchase shall also lapse to the extent that the
Company exercises its right to repurchase Option Shares from Mucchetti for a
price of $1.60 per Common Share (as adjusted from time to time in accordance
with the terms of such right).
(d) Repurchase Cost. If the Company exercises the Right of Repurchase,
it shall pay Howe $1.60 per Common Share (as adjusted under Subsection (f)
below) for each of the Restricted Shares being repurchased.
(e) Exercise of Repurchase Right. The Right of Repurchase shall be
exercisable only by written notice delivered to Howe prior to the expiration
of the Notice Period (unless the Right of Repurchase is deemed to have been
exercised as provided below). The notice shall set forth the date on which the
repurchase is to be effected. Such date shall not be more than 30 days after
the date of the notice. If the Company (i) has not exercised the Right of
Repurchase by delivering written notice to Howe on or before the last day of
the Notice Period and (ii) has not advised Howe in writing on or before the
last day of the Notice Period that it does not wish to exercise the Right of
Repurchase, then the Company shall automatically be deemed to have exercised
the Right of Repurchase on the last day of the Notice Period and the
repurchase shall be effected on the 30th day following the last day of the
Notice Period (or on the next following business day). The certificate(s)
representing the Restricted Shares to be repurchased shall, prior to the close
of business on the date specified for the repurchase, be delivered to the
Company properly endorsed for transfer. The Company shall, concurrently with
the receipt of such certificate(s), pay to Howe the purchase price determined
according to Subsection (d) above. Payment shall be made in cash or cash
equivalents.
(f) Additional Common Shares or Substituted Securities. In the event of
the declaration of a stock dividend, the declaration of an extraordinary
dividend payable in a form other than stock, a spin-off, a stock split, an
adjustment in conversion ratio, a recapitalization or a similar transaction
affecting the Company's outstanding securities without receipt of
consideration, any new, substituted or additional securities or other property
(including money paid other than as an ordinary cash dividend) which are by
reason of such transaction distributed with respect to any Restricted Shares
or into which such Restricted Shares thereby become convertible shall
immediately be subject to the Right of Repurchase. Appropriate adjustments to
reflect the distribution of such securities or property shall be made to the
number and/or class of the Restricted Shares. Appropriate adjustments shall
also, after each such transaction, be made to the price per share to be paid
upon the exercise of the Right of Repurchase in order to reflect any change in
the Company's outstanding securities effected without receipt of consideration
therefor; provided, however, that the aggregate purchase price payable for the
Restricted Shares shall remain the same.
(g) Termination of Rights as Stockholder. If the Company makes
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Restricted Shares to be repurchased in
accordance with this Section 1, then after such time the person from whom such
Restricted Shares are to be repurchased shall no longer have any
2
<PAGE>
rights as a holder of such Restricted Shares (other than the right to receive
payment of such consideration in accordance with this Agreement). Such
Restricted Shares shall be deemed to have been repurchased in accordance with
the applicable provisions hereof, whether or not the certificate(s) therefor
have been delivered as required by this Agreement.
(h) Escrow. The certificate(s) for the Restricted Shares shall be
deposited in escrow with the Company to be held in accordance with the
provisions of this Agreement. Any new, substituted or additional securities or
other property described in Subsection (f) above shall immediately be
delivered to the Company to be held in escrow. All regular cash dividends on
Restricted Shares (or other securities at the time held in escrow) shall be
paid directly to Howe and shall not be held in escrow. Restricted Shares,
together with any other assets or securities held in escrow hereunder, shall
be (i) surrendered to the Company for repurchase and cancellation upon the
Company's exercise of its Right of Repurchase or (ii) released to Howe to the
extent that the Common Shares are no longer Restricted Shares.
SECTION 2. RESTRICTIONS ON TRANSFER.
Howe shall not transfer, assign, encumber or otherwise dispose of any
Restricted Shares, except as provided in the following sentence. Howe may
transfer Restricted Shares (i) by beneficiary designation, will or intestate
succession or (ii) to Howe's spouse, children or grandchildren or to a trust
established by Howe for the benefit of Howe or Howe's spouse, children or
grandchildren, provided in either case that the transferee agrees in writing on
a form prescribed by the Company to be bound by all provisions of this
Agreement. If Howe transfers any Restricted Shares, then this Agreement shall
apply to the transferee to the same extent as to Howe. The Company shall not be
required to (i) transfer on its books any Restricted Shares that have been sold
or transferred in contravention of this Agreement or (ii) treat as the owner of
Restricted Shares, or otherwise to accord voting, dividend or liquidation rights
to, any transferee to whom Restricted Shares have been transferred in
contravention of this Agreement.
SECTION 3. SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided to the contrary, the provisions
of this Agreement shall inure to the benefit of, and be binding upon, the
Company and its successors and assigns and be binding upon Howe and Howe's legal
representatives, heirs, legatees, distributees, assigns and transferees by
operation of law, whether or not any such person has become a party to this
Agreement or has agreed in writing to join herein and to be bound by the terms,
conditions and restrictions hereof.
SECTION 4. TAX ELECTION.
The imposition of the Right of Repurchase may result in adverse tax
consequences that may be avoided or mitigated by filing an election under
Section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code").
Such election may be filed only within 30 days after the imposition of the Right
of Repurchase. The form for making the Code
3
<PAGE>
Section 83(b) election is attached to this Agreement as an Exhibit. Howe
should consult with his tax advisor to determine the tax consequences of the
imposition of the Right of Repurchase and the advantages and disadvantages of
filing the Code Section 83(b) election. Howe acknowledges that it is his sole
responsibility, and not the Company's, to file a timely election under Code
Section 83(b), even if Howe requests the Company or its representatives to
make this filing on his behalf.
SECTION 5. LEGENDS.
All certificates evidencing Restricted Shares shall bear the following
legend, in addition to any legend(s) required for reasons not related to this
Agreement:
"The shares represented hereby may not be sold, assigned, transferred,
encumbered or in any manner disposed of, except in compliance with the
terms of a written Stock Repurchase Agreement between the Company and the
registered holder of the shares (or the predecessor in interest to the
shares). Such Agreement grants to the Company certain repurchase rights
upon the occurrence of certain events. The Secretary of the Company will
upon written request furnish a copy of such Agreement to the holder hereof
without charge."
SECTION 6. NOTICE.
Any notice required by the terms of this Agreement shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit
with the United States Postal Service, by registered or certified mail, with
postage and fees prepaid. Notice shall be addressed to the Company at its
principal executive office and to Howe at the address that he most recently
provided to the Company.
SECTION 7. ENTIRE AGREEMENT.
This Agreement constitutes the entire contract between the parties
hereto with regard to the Right of Repurchase. It supersedes any other
agreements, representations or understandings (whether oral or written and
whether express or implied) that relate to the subject matter hereof.
4
<PAGE>
SECTION 8. CHOICE OF LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California, as such laws are applied to contracts
entered into and performed in such State.
In Witness Whereof, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
Robert Howe: Scient Corporation
By:
- -------------------------------- -----------------------------------
Title:
--------------------------------
5
<PAGE>
EXHIBIT I
Section 83(b) Election
This statement is made under Section 83(b) of the Internal Revenue Code of 1986,
as amended, pursuant to Treasury Regulations Section 1.83-2.
(1) The taxpayer who performed the services is:
Name: Robert Howe
Address:
-------------------------------------------------
Social Security No.:
-------------------------------------------------
(2) The property with respect to which the election is made is 150,000 shares
of the Common Stock of Scient Corporation.
(3) The property was transferred on December 22, 1998.
(4) The taxable year for which the election is made is the calendar year 1998.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property from taxpayer for $1.60 per share if
a third party exercises an option to purchase shares of the issuer's Common
Stock from the issuer and vests in such shares. The issuer's repurchase
right lapses not later than December 21, 2008.
(6) The fair market value of such property at the time of transfer (determined
without regard to any restriction other than a restriction which by its
terms will never lapse) is $1.60 per share.
(7) The amount paid for such property is $1.60 per share.
(8) A copy of this statement was furnished to Scient Corporation, for whom
taxpayer rendered the services underlying the transfer of such property.
(9) This statement is executed on December __, 1998.
- --------------------------------- --------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his Federal income tax returns and must be filed within 30 days
after the date of purchase. This filing should be made by registered or
certified mail, return receipt requested. Taxpayer must retain two copies of
the completed form for filing with his Federal and state tax returns for the
current tax year and an additional copy for his records.
6
<PAGE>
EXHIBIT 10.10
August 20, 1998
Mr. Eric Greenberg
Chairman
Scient Corporation
720 California Street, 6th Floor
San Francisco, CA 90418
Dear Eric:
This letter will confirm my conversation regarding the following:
Ramsey/Beirne Associates, Inc. will refer candidates to you to fill the
position of Vice President of Sales for Scient Corporation. Your company will
pay our fee for service in accordance with the fee arrangement stated below.
EXPENSES
Expenses include direct out-of-pocket costs and certain expenses incurred on
your behalf. Out-of-pocket expenses incurred by Ramsey/Beirne Associates, Inc.
will be invoiced monthly. Out-of-pocket expenses incurred by candidates during
the interview process will be paid by you to them upon presentation by them or
us.
TERMS
In consideration for our service, Ramsey/Beirne Associates, Inc. will be paid
$50,000.00 in cash and granted warrants for 7,875 shares of Common Stock of
- ----------
Scient Corporation. Our retainer is due and payable as follows:
A. One third of cash portion ($16,666.67) to be paid upon the execution
of this agreement.
B. One third of cash portion ($16,666.67) to be paid on the 30th calendar
date of this agreement.
<PAGE>
Mr. Eric Greenberg Page 2
Scient Corporation August 20, 1998
C. One third of cash portion ($16,666.66) to be paid on the 60th calendar
date of this agreement.
D. In addition, upon the start date of the candidate Ramsey/Beirne
Associates, Inc. will be granted warrants for 7,875 shares of Common
Stock of Scient Corporation with an exercise price of $.75 per share.
Should no hire take place, or should an internal candidate fill said position,
both parties to this agreement shall consider any obligation,
one-to-the-other, satisfied upon receipt by Ramsey/Beirne Associates, Inc. of
payments A, B, C, and D. Should a candidate be hired for a position other than
the one mentioned above, or should more than one candidate be hired, the
parties agree that each hiring shall be subject to the terms of this agreement.
It is our pleasure to be of service to you and to work toward the successful
fulfillment of your search requirements.
Sincerely yours, Accepted and Agreed to:
/s/ Juliet L. Flint /s/ Mr. Eric Greenberg
- ------------------- ----------------------
Juliet L. Flint Mr. Eric Greenberg
Managing Director Chairman
Ramsey/Beirne Associates, Inc. Scient Corporation
JLF/jhc Date: _______________________
<PAGE>
EXHIBIT 10.11
[RAMSEY/BEIRNE ASSOCIATES, INC. LETTERHEAD]
February 25, 1998
Mr. Eric Greenberg
Chairman
Scient, Inc.
580 California Street, Suite 500
San Francisco, CA 94104
Dear Eric:
This letter will confirm my conversation with Bob Howe regarding the following:
Ramsey/Beirne Associates, Inc. will refer candidates to you to fill the
position of Chief Technology Officer for Scient Inc. Your company will
pay our fee for service in accordance with the fee arrangement stated below.
EXPENSES
Expenses include direct out-of-pocket costs and certain allocated expenses
incurred on your behalf. Out-of-pocket expenses incurred by Ramsey/Beirne
Associates, Inc. will be invoiced monthly. Out-of-pocket expenses incurred by
candidates during the interview process will be paid by you to them upon
presentation by them or us.
TERMS
In consideration for our service, Ramsey/Beirne Associates, Inc. will be paid
$50,000.00 in cash and granted right to purchase 20,000 shares of Common Stock
- ----------
of Scient, Inc. Our retainer is due and payable as follows:
A. One third of cash portion ($16,666.67) to be paid upon the execution
of this agreement.
B. One third of cash portion ($16,666.67) to be paid on the 30th calendar
date of this agreement.
<PAGE>
Mr. Eric Greenberg Page 2
Scient Inc. February 25, 1998
C. One third of cash portion ($16,666.66) to be paid on the 60th calendar
date of this agreement.
D. In addition, upon execution of this agreement, Ramsey/Beirne Associates,
Inc. will be able to purchase 20,000 shares Common Stock of Scient, Inc.
at a purchase price of $.20 per share.
Should no hire take place, or should an internal candidate fill said position,
both parties to this agreement shall consider any obligation,
one-to-the-other, satisfied upon receipt by Ramsey/Beirne Associates, Inc. of
payments A, B, C, and D. Should a candidate be hired for a position other than
the one mentioned above, or should more than one candidate be hired, the
parties agree that each hiring shall be subject to the terms of this agreement.
It is our pleasure to be of service to you and to work toward the successful
fulfillment of your search requirements.
Sincerely yours, Accepted and Agreed to:
/s/ Alan B. Seiter /s/ Mr. Eric Greenberg
- ------------------- ----------------------
Alan B. Seiter Mr. Eric Greenberg
Managing Director Chairman
Ramsey/Beirne Associates, Inc. Scient, Inc.
ABS/jhc Date: 3/2/98
----------------
<PAGE>
EXHIBIT 10.12
[RAMSEY/BEIRNE ASSOCIATES, INC. LETTERHEAD]
February 25, 1998
Mr. Eric Greenberg
Chairman
Scient, Inc.
580 California Street, Suite 500
San Francisco, CA 94104
Dear Eric:
This letter will confirm my conversation with Bob Howe regarding the following:
Ramsey/Beirne Associates, Inc. will refer candidates to you to fill the
position of Chief Financial Officer for Scient, Inc. Your company will pay our
fee for service in accordance with the fee arrangement stated below.
EXPENSES
Expenses include direct out-of-pocket costs and certain allocated expenses
incurred on your behalf. Out-of-pocket expenses incurred by Ramsey/Beirne
Associates, Inc. will be invoiced monthly. Out-of-pocket expenses incurred by
candidates during the interview process will be paid by you to them upon
presentation by them or us.
TERMS
In consideration for our service, Ramsey/Beirne Associates, Inc. will be paid
$50,000.00 in cash and granted right to purchase 20,000 shares of Common Stock
- ----------
of Scient, Inc. Our retainer is due and payable as follows:
A. One third of cash portion ($16,666.67) to be paid upon the execution
of this agreement.
B. One third of cash portion ($16,666.67) to be paid on the 30th calendar
date of this agreement.
<PAGE>
Mr. Eric Greenberg Page 2
Scient, Inc. February 25, 1998
C. One third of cash portion ($16,666.66) to be paid on the 60th calendar
date of this agreement.
D. In addition, upon execution of this agreement, Ramsey/Beirne Associates,
Inc. will be able to purchase 20,000 shares Common Stock of Scient, Inc.
at a purchase price of $.20 per share.
Should no hire take place, or should an internal candidate fill said position,
both parties to this agreement shall consider any obligation,
one-to-the-other, satisfied upon receipt by Ramsey/Beirne Associates, Inc. of
payments A, B, C, and D. Should a candidate be hired for a position other than
the one mentioned above, or should more than one candidate be hired, the
parties agree that each hiring shall be subject to the terms of this agreement.
It is our pleasure to be of service to you and to work toward the successful
fulfillment of your search requirements.
Sincerely yours, Accepted and Agreed to:
/s/ Alan B. Seiter /s/ Mr. Eric Greenberg
- ------------------- ----------------------
Alan B. Seiter Mr. Eric Greenberg
Managing Director Chairman
Ramsey/Beirne Associates, Inc. Scient, Inc.
ABS/jhc Date: 3/2/98
----------------
<PAGE>
EXHIBIT 10.13
444 MARKET STREET
SAN FRANCISCO, CALIFORNIA
SUB-SUB-SUB-SUB-SUBLEASE
BASIC LEASE INFORMATION
Date: October 7, 1998
Sub-sub-sub-sub-sublessor: CHARLES SCHWAB & CO., INC. a
California Corporation
Sub-sub-sub-sub-sublessee: SCIENT CORPORATION, a California
Corporation
Premises: Entire 28th floor, comprising
approximately 18,058 rentable
square feet
Paragraph 1(a): Commencement Date: October 1, 1998
Paragraph 1(a): Termination Date: April 30, 2001
Paragraph 2(a): Base Rent: $650,088.00 per annum
Paragraph 2(b): Additional Rent: Any increases in Operating
and Expenses over the 1998 calendar
year and in Taxes over the
1997/98 fiscal year.
Paragraph 2(b): Percentage Share: 2.98%
Paragraph 17: Sub-sub-sub-sublessee's SCIENT CORPORATION
Address for notices: * 444 Market Street
San Francisco, CA 94105
Attn: William Kurtz
Paragraph 17: Sub-sub-sub-sublessor's CHARLES SCHWAB & CO., INC.
Address for notices: 101 Montgomery Street
San Francisco, CA 94104
Attn: Senior Vice President
Administrative Services
Paragraph 23: Letter of Credit/Security $400,000.00
Deposit'
Paragraph 24: Brokers:
Sub-sub-sub-sublessor's Colliers International
Broker: Two Embarcadero Center, Suite
1000
San Francisco, CA 94111
1
<PAGE>
Attn: Mr. Steven Corbitt
Mr. Clint Holland
Sub-sub-sub-sublessee's The CAC Group
Broker: 255 California Street
San Francisco, CA 94104
The following exhibits are attached to this Sub-sub-sub-sub-sublease and by
this reference made a part hereof:
Exhibit A- Sub-sub-sub-sublease
Exhibit B - Plan of Premises
*Address for notice prior to Commencement Date is:
SCIENT CORPORATION
720 California Street
6/th/ Floor
San Francisco, CA 94109
Attn: William Kurtz
2
<PAGE>
THE PROVISIONS OF THE SUB-SUB-SUB-SUB-LEASE identified above in the
margin are for the purpose of providing a convenient reference to the provisions
in the Sub-sub-sub-sublease where the particular Basic Lease Information
appears. The foregoing Basic Lease Information is hereby incorporated into and
made a part of the Sub-sub-sub-sub-sublease. Each reference in the Sub-sub-sub-
sub-sublease to any of the terms described above shall have the meaning, and
incorporate the information, hereinabove set forth. In the event of any conflict
between any Basic Lease Information and the Sub-sub-sub-sub-sublease, the Sub-
sub-sub-sub-sublease shall control.
SUB-SUB-SUB-SUB-SUBLESSOR: SUB-SUB-SUB-SUB-SUBLESSEE:
CHARLES SCHWAB & CO., INC., SCIENT CORPORATION,
a California Corporation a California corporation
By: /s/ Parkash P. Ahuja By: /s/ William H. Kurtz
------------------------ -----------------------
Name: Parkash P. Ahuja Name: William H. Kurtz
----------------------- ----------------------
Its: Senior Vice President, Its: CFO
----------------------- ----------------------
Administrative Services
-----------------------
By: _______________________________
Name: _____________________________
Its: ______________________________
3
<PAGE>
SUB-SUB-SUB-SUB-SUBLEASE
------------------------
THIS SUB-SUB-SUB-SUB-SUBLEASE dated October 7, 1998 is entered into by and
between CHARLES SCHWAB & CO., INC. (hereinafter referred to as "Schwab"), and
SCIENT CORPORATION (hereinafter referred to as "Scient") with respect to certain
premises in the building located at 444 Market Street, San Francisco, California
(the "Building").
RECITALS:
---------
A. Schwab is the Sub-sub-sub-sublessee under that certain Sub-sub-sub-
sublease dated December 1, 1996 entered into by and between PACIFIC BELL NETWORK
INTEGRATION, a California Corporation (hereinafter referred to as "PBNI"),
successor in interest to PACIFIC BELL DEVELOPMENT COMPANY, as Sub-sub-sub-
sublessor and Schwab as Sub-sub-sub-sublessee, (the "Sub-sub-sub-sublease") a
copy of which is attached hereto as Exhibit A, with respect to the premises
described therein (the "Sub-sub-sub-subleased Premises").
B. PACIFIC BELL DEVELOPMENT COMPANY is the Sub-sub-sublessee under that
certain Sub-sub-sublease (the "Sub-sublease") dated June ___, 1996, entered into
by and between ADP/FLUOR DANIEL, INC., an Arizona Corporation, formerly known as
ANDERSON DEBARTOLO PAN ("ADP") as Sub-sub-lessor and PACIFIC BELL NETWORK
INTEGRATION as Sub-sub-sub-lessee, a copy of which is attached as Exhibit A to
the Sub-sub-sub-sublease (Exhibit A hereto), with respect to the premises
described therein (the "Sub-sub-subleased Premises").
C. ADP is the Sub-sublessee under that certain Sub-sublease (the "Sub-
sublease") dated March 18, 1994, entered into by and between TIG INSURANCE
COMPANY, a California corporation, ("TIG") as Sub-sublessor and ADP as Sub-
sublessee, an edited copy of which is attached to the Sub-sub-sublease as
Exhibit A, with respect to the premises described therein (the "Sub-subleased
Premises").
C. TIG is the Sublessee under that certain Sublease dated October 7,
1987, entered into by and between SHAKLEE CORPORATION, a Delaware corporation
("Shaklee"), as Sublessor, and TIG INSURANCE COMPANY, a California corporation,
as Sublessee, as amended by that certain Amendment No. 1 to Sublease dated April
7, 1994, that certain Second Amendment to Sublease dated April 30, 1996, and
that certain Third Amendment to Sublease dated July 3, 1996 (the "Sublease"), a
copy of which is attached to the Sub-sub-sublease as Exhibit A thereto, except
for the Amendments, which are attached to the Sub-sub-sub-sublease as Exhibit B
---------
with respect to the premises described therein (the "Subleased Premises").
D. Shaklee is the Lessee under that certain Amended and Restated Office
Lease (the "Master Lease") dated June 25, 1985, by and between 444 MLHIRP
Partnership, a New York general partnership, as Lessor, and Shaklee, as Lessee,
an edited copy of which is attached to the Sublease as Exhibit A thereto. Market
----------
Front Associates, L.P. ("Master Lessor") is the successor-in-interest to 444
MLHIRP Partnership.
E. Scient desires to Sub-sub-sub-sub-sublease from Schwab, and Schwab is
prepared to Sub-sub-sub-sub-sublease to Scient, the Sub-sub-sub-sub-subleased
Premises as cross-hatched on Exhibit B attached hereto and by this reference
made a part hereof (hereinafter referred to as the "Premises").
4
<PAGE>
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, Schwab hereby Sub-sub-sub-sub-subleases to Scient, and Scient
hereby hires from Schwab, the Premises for the term and subject to the terms,
covenants, and conditions hereinafter set forth, to each and all of which Schwab
and Scient hereby mutually agree.
1. Term; Delivery of Possession.
-----------------------------
(a) The term of this Sub-sub-sub-sub-sublease shall commence as of
the last to occur of (i) Schwab's delivery of the Premises to Scient, broom
clean, vacant of Schwab's employees, and free of Schwab's personal property
(other than personal property which Scient has, in advance, in writing agreed to
accept pursuant to the provisions of Section 1.(d) below); (ii) Schwab and
Scient have mutually executed and delivered this Sub-sub-sub-sub-sublease and
that certain Sub-sub-sub-sublease of even date herewith, pursuant to which
Scient shall Sub-sub-sub-sublease the entire twenty-ninth (29th) floor of the
Building from Schwab (the "Concurrent Sub-sub-sub-sublease") and (iii) this Sub-
sub-sub-sub-sublease has been approved to the extent required, by PBNI, ADP,
TIG, Shaklee and Master Lessor and the Concurrent Sub-sub-sub-sublease has been
approved to the extent required by PBNI, TIG, Shaklee and Master Lessor, to the
extent required under the Concurrent Sub-sub-sub-sub-sublease (such date being
referred to herein as the "Commencement Date") (the estimated Commencement Date
being set forth in the Basic Lease Information) and unless sooner terminated as
hereinafter provided, shall end on the Termination Date specified in the Basic
Lease Information. If for any reason whatsoever the Commencement Date has not
occurred as of the estimated Commencement Date set forth in the Basic Lease
Information, this Sub-sub-sub-sub-sublease shall not be void or voidable, nor
shall Schwab be liable to Scient for any loss or damage resulting therefrom. No
delay in the Commencement Date shall operate to extend the term hereof.
(b) The Premises shall be delivered broom-clean and free of all
personal property; however, the Premises are otherwise leased by Schwab to
Scient without any representation or warranty, express or implied, of any kind
by Schwab, the Brokers named herein, or any of Schwab's other employees or
agents (including without limitation any warranty of habitability or fitness for
a particular use), in their "as-is, where-is" condition.
(c) Scient hereby acknowledges that it has had a full and fair
opportunity to review and inspect the condition of the Building and the Premises
and will not hold any of the above parties responsible therefor.
(d) Any personal property or cabling remaining in the Premises on the
Commencement Date shall be deemed abandoned by Schwab and may be demolished,
removed and/or reused by Scient without any liability to Schwab. Scient accepts
responsibility for and shall remove all existing cabling from the Premises upon
the expiration or earlier termination of this Sub-sub-sub-sub-sublease or
earlier, if required by Master Lessor.
2. Rental.
-------
(a) Base Rent. From and after the Commencement Date, Scient shall pay
---------
to Schwab throughout the term of this Sub-sub-sub-sub-sublease as rental for the
Premises the amount per annum specified in the Basic Lease Information as the
Base Rent, payable monthly in advance in 12 equal
5
<PAGE>
installments. The first month's rent shall be payable on execution of this Sub-
sub-sub-sub-sublease by Scient; and thereafter, the rental shall be payable on
or before the first day of each and every successive calendar month of the term
of this Sub-sub-sub-sub-sublease.
(b) Additional Rent. Scient shall pay Schwab in equal monthly
-----------------
installments as Additional Rent Scient's percentage share, as specified in the
Basic Lease Information, of the amount by which Operating Expenses for such year
exceed Operating Expenses for the 1998 calendar year, as "Operating Expenses"
are defined in paragraph 5.1 of the Master Lease (incorporated by reference in
paragraph 4 of this Sub-sub-sub-sub-sublease); and Scient shall pay Schwab in
equal monthly installments as Additional Rent Scient's percentage share of the
amount by which Taxes for such year exceed Taxes for the 1997/98 fiscal year
(the "Tax Base Year"), as "Taxes" are defined in paragraph 5.1 of the Master
Lease (incorporated by reference in paragraph 4 of this Sub-sub-sub-sub-
sublease). Scient shall pay monthly one-twelfth (1/12th) of the Additional Rent
to be paid for such year hereunder, based on the Master Lessor's estimate of
Operating Expenses and Taxes; and after the end of a calendar year, in the case
of Operating Expenses, or a fiscal year, in the case of Taxes, promptly after
receipt by Scient of a statement of actual Operating Expenses or Taxes, Scient
shall pay any additional amount owing on account of Operating Expenses or Taxes,
or Schwab shall refund any amount owed to Scient on account of Operating
Expenses or Taxes, as the case may be, in accordance with the terms of the
Master Lease. Scient acknowledges that TIG may not receive from Shaklee, and
hence ADP may not receive from TIG, and hence PBNI may not receive from ADP, and
hence Schwab may not receive from PBNI, and hence Scient may not receive from
Schwab, notice of the estimated increase in Additional Rent for any calendar
year until some months after the first of such calendar year, and Scient agrees
that, upon receipt of such notice from Schwab, Scient shall pay Schwab in a lump
sum all payments designated in such notice as payments owing for estimated
increases in Additional Rent not previously paid and attributable to the period
prior to the date of payment, such lump sum payment being payable with the
monthly installment of Base Rent that is next due. Schwab agrees to forward to
Scient a copy of any such notice applicable to the term of this Sub-sub-sub-sub-
sublease or the base year that Schwab receives within ten (10) business days;
provided, however, that failure to do so shall not be a default on the part of
Schwab. Schwab and Scient acknowledge that Scient's percentage share has been
determined by dividing the net rentable area of the Premises, as specified in
the Basic Lease Information, by 605,459 square feet, which is the net rentable
area of the Building. Scient shall also pay Schwab, as Additional Rent, (i) for
any special services Schwab, PBNI, TIG, Shaklee or Master Lessor may agree to
provide in connection with this Sub-sub-sub-sub-sublease and (ii) those mounts
and charges set forth in paragraphs 7 and 7A below.
(c) Notwithstanding the definition of Taxes in paragraph 5.1 of the
Master Lease, for purposes of this Sub-sub-sub-sub-sublease, the amount of Taxes
during the Tax Base Year shall be deemed to be the amount of Taxes incurred
during the Tax Base Year, reduced by any reduction obtained under California
Revenue and Taxation Code, Section 51 ("Proposition 8"), attributable to the
value of the real property on which the Building is located, the Building, the
parking facilities located on the real property on which the Building is
located, and all tenant improvements. If, in any comparison year subsequent to
the Tax Base Year (the "Adjustment Year"), the amount of Taxes decreases as a
result of a Proposition 8 reduction, then for purposes of that Adjustment Year
and all subsequent comparison years, the Taxes for the Tax Base Year shall be
deemed to be decreased by an amount equal to the decrease in Taxes in the
Adjustment Year. Conversely, if the Taxes thereafter are increased during any
comparison year subsequent to the Adjustment Year (the "Readjustment Year"), as
a result of the failure to obtain a Proposition 8 reduction that is at least as
large as the Proposition 8 reduction obtained during the Adjustment Year, then
for purposes of the Readjustment Year and all subsequent comparison years, the
Taxes for the Tax Base Year shall be increased by an amount equal to the
increase in Taxes during such Readjustment Year that resulted from the failure
to obtain a Proposition 8 reduction at least as large as the
6
<PAGE>
Proposition 8 reduction obtained during the Adjustment Year. Schwab and Scient
acknowledge that this Paragraph 2(c) is not intended in any way to affect (i)
the statutory two percent (2%) annual increase in Taxes (as such statutory
increase may be modified by subsequent legislation), or (ii) the inclusion or
exclusion of Taxes pursuant to the terms of Article XIII A of the California
Constitution, commonly referred to as Proposition 13.
(d) Notwithstanding anything elsewhere in this Sub-sub-sub-sub-
sublease to the contrary, Scient shall not be required to pay any increased
Taxes to the extent that such increase has resulted from a "change in ownership"
of the Building, as defined in Division 1, Chapter 2 of the California Revenue &
Taxation Code, or "new construction", as defined in Division 1, Chapter 3 of the
California Revenue & Taxation Code.
(e) In the event the Commencement Date is a day other than the first
day of a calendar month or the term of this Sub-sub-sub-sub-sublease ends on a
day other than the last day of a calendar month, then the monthly rental for the
first and last fractional months of the term hereof shall be appropriately
prorated.
(f) Rental shall be paid to Schwab, without deduction or offset, in
lawful money of the United States of America at Schwab's address for notices
hereunder or to such other person or at such other place as Schwab may from time
to time designate in writing. All amounts of money payable by Scient to Schwab
hereunder, if not paid when due and after 5 days' written notice from Schwab,
shall bear interest from 5 days after such notice is given until paid at the
rate of 10% per annum or, if a higher rate is legally permissible, at the
highest rate legally permitted.
3. Use. The Premises shall be used for general office purposes and no
---
other purpose. Scient shall not do or permit to be done in or about the
Premises, nor bring or keep or permit to be brought or kept therein, anything
that is prohibited by paragraph 7 of the Master Lease.
4. Other Sub-sub-sub-sub-sublease Terms.
-------------------------------------
(a) The following terms and provisions of the Master Lease are hereby
incorporated in this Sub-sub-sub-sub-sublease by this reference paragraphs 2
(but not the third and fourth sentences thereof), 5.1(a), 5.1(b) (first
paragraph, only), 5.3, 5.4, 5.5, 5.7, 6, 7 (other than the first sentence),
8(a)- (f) (except that paragraph 8(e) is modified pursuant to that certain
letter agreement dated September 23, 1987, between Master Lessor and Shaklee
("Letter Agreement") attached to the Sub-sub-sub-sublease as Exhibit D, and
Scient hereby understands and accepts that Master Lessor, pursuant to TIG's
original HVAC design, will maintain indoor conditions with respect to the
Premises no higher than 75 degrees Fahrenheit dry bulb during the cooling
season) and (h)-(j) (but not the last sentence of 8(h) or the portion of 8(i)
deleted from Exhibit A to the Sublease), 10, 11 (but not 11.1 or the sentences
stricken on Exhibit A to the Sublease), 12, 15, 17 (but not the last sentence
thereof), 18, 19, 20, 21, 22, 23, 24, 25, 27, 30.2(2), 30.2(4) (but not the
second paragraph thereof), 33, 36, 37, 39, 40, 43, 44, 45, 50 (as to Exhibits C-
H thereto, only). The Sublease (except Paragraphs 5, 11 and 13 and Exhibit C
thereto), including paragraphs 1 and 2 of the Second Amendment to Sublease, but
excluding all of Amendment No. 1 to Sublease, is incorporated except as may be
inconsistent with this Sub-sub-sub-sub-sublease. The Sub-sublease (except
paragraph 13, Exhibit C and Exhibit D thereto) is incorporated except as may be
inconsistent with this Sub-sub-sub-sub-sublease. The Sub-sub-sublease (including
Exhibit D, that certain Letter Agreement attached thereto) is incorporated
except as may be inconsistent with this Sub-sub-sub-sub-sublease. The Sub-sub-
sub-sublease is incorporated except as may be inconsistent with this Sub-sub-
sub-sub-sublease. Except as is specified in this Sub-sub-sub-sub-sublease, this
subletting is upon and
7
<PAGE>
subject to all of the terms of the Master Lease, the Sublease, the Sub-sublease,
the Sub-sub-sublease and the Sub-sub-sub-sublease so incorporated in this Sub-
sub-sub-sub-sublease. Such incorporated terms shall constitute the terms of this
Sub-sub-sub-sub-sublease as between Schwab and Scient as "Landlord" and
"Tenant," respectively, except that paragraph 5.1 of the Master Lease shall be
incorporated reading "Landlord" to refer to the Master Lessor insofar as the
calculation of Operating Expenses and Taxes is concerned, and paragraphs 2, 18,
and 26 of the Master Lease shall be incorporated reading "Landlord" to refer to
Shaklee, Master Lessor, TIG, ADP, PBNI and Schwab. Scient shall perform and
observe for the benefit of Shaklee, Master Lessor, TIG, ADP, PBNI and Schwab
each and all of the conditions, covenants, and obligations to be performed by
Shaklee as Tenant under the Master Lease, by TIG under the Sublease, by ADP
under the Sub-sub-sublease, by PBNI under the Sub-sub-sublease and by Schwab
under the Sub-sub-sub-sublease, to the extent said conditions, covenants, and
obligations are incorporated in this Sub-sub-sub-sub-sublease and are applicable
to the Premises. Master Lessor, Shaklee, TIG, ADP and PBNI shall have the same
rights and privileges under this Sub-sub-sub-sub-sublease that they have under
the Master Lease, Sublease, Sub-sublease, Sub-sub-sublease and the Sub-sub-sub-
sublease, to the extent such rights and privileges are incorporated in this Sub-
sub-sub-sub-sublease and are applicable to the Premises, and shall have the
right, but not the obligation, to enforce such conditions, covenants, and
obligations directly against Scient. Scient and Schwab covenant not to take any
action or do or perform any act or fail to perform any act on the Premises that
would result in the failure or breach of any of the terms, conditions,
covenants, agreements, provisions or obligations of Shaklee under the Master
Lease, of TIG under the Sublease, of ADP under the Sub-sublease, of PBNI under
the Sub-sub-sublease, or of Schwab under the Sub-sub-sub-sublease.
Notwithstanding the incorporation herein of the foregoing provisions of the
Master Lease, Scient acknowledges that Schwab shall have no responsibility or
obligation with respect to (i) furnishing any services under paragraph 8 of the
Master Lease, including, but not limited to, utilities, or (ii) making any
alterations, repairs, or replacements under paragraphs 11, 12, or 15 of the
Master Lease, and the sole responsibility of Schwab thereunder shall be as
described in paragraph 28(g) below, to use reasonable efforts, without out-of-
pocket cost to Schwab, to cause Master Lessor, Shaklee, TIG, ADP or PBNI to
furnish such services or make such alterations, repairs, or replacements as are
required under the Master Lease, Sublease, Sub-sublease, Sub-sub-sublease or
Sub-sub-sub-sublease. Any notices given to Master Lessor in connection with
paragraphs 8, 11, 12, or 15 of the Master Lease, or any other provisions of this
Sub-sub-sub-sub-sublease, shall also simultaneously be given to Schwab, PBNI,
TIG, ADP and Shaklee, whether or not Schwab, PBNI, TIG, ADP or Shaklee has any
responsibility to take action in response to such notices. Scient shall
indemnify and save Schwab, PBNI, ADP, TIG and Shaklee harmless against any loss,
damage, or injury that Schwab, PBNI, ADP, TIG or Shaklee may suffer or incur
under the Master Lease, Sublease, Sub-sublease, Sub-sub-sublease or Sub-sub-
sublease as the result of any breach by Scient of its obligations under this
Sub-sub-sub-sub-sublease.
(b) Schwab and Scient acknowledge that certain of the provisions of
the Master Lease enumerated above that are not incorporated in this Sub-sub-sub-
sub-sublease have been deleted from the copy of the Master Lease attached to the
Sublease as Exhibit A, in order to protect the confidential aspects of the
contractual relationship between Shaklee and Master Lessor, and subject to all
of the terms and conditions stated therein. Schwab hereby represents and
warrants that, to the knowledge of Schwab, the provisions so deleted are not
inconsistent with the incorporated terms of the Master Lease and shall not
affect Scient's rights and obligations under this Sub-sub-sub-sub-sublease.
Except for such deletions and the portions of Exhibit A to the Sublease that
have been stricken as described in subparagraph (a), above, Schwab represents
and warrants that, to Schwab's knowledge, Exhibit A to the Sublease is a true
and correct copy of the Master Lease. Scient agrees not to disclose the contents
of the Master Lease or any portion thereof to any third parties, other than its
counsel and the persons listed as brokers in the Basic Lease Information,
without the prior written consent of Schwab, PBNI, ADP, TIG
8
<PAGE>
and Shaklee.
(c) Any default by Scient under the terms of this Sub-sub-sub-sub-
sublease shall also constitute a default by Scient under the terms of the
Concurrent Sub-sub-sub-sublease and vice-versa and shall entitle Schwab to
exercise its remedies under either or both of the Sub-sub-sub-sub-sublease or
the Concurrent Sub-sub-sub-sublease.
5. [INTENTIONALLY OMITTED]
6. Alterations. Scient shall not make any alterations, additions, or
-----------
improvements to the Premises, or attach any fixtures or equipment thereto,
without the prior written consent of Schwab, PBNI, Master Lessor, Shaklee, and
TIG. Scient shall not make any alterations, additions, or improvements to the
Premises, or attach any fixtures or equipment thereto that would violate any
provisions of the Master Lease, Sublease, Sub-sublease, Sub-sub-sublease or Sub-
sub-sub-sublease. Any such alterations, additions or improvements, or fixtures
or equipment, shall be subject to, without limitation, Paragraph 2 of the Second
Amendment to the Sublease. Schwab acknowledges that Scient intends to construct
certain improvements within the Premises ("Scient Improvements") following the
Commencement Date and will not unreasonably withhold its consent to construct
the Scient Improvements.
7. Excess Electrical Usage. Scient agrees to pay Schwab, in lieu of any
-----------------------
payment to Schwab, PBNI, ADP, TIG, Shaklee or the Master Lessor of any direct
charges for electrical usage in excess of the electrical usage included within
the definition of "Operating Expenses" under the Master Lease ("Excess
Electrical Usage"), a flat fee of $135.00 per month, regardless of the amount,
if any, of Scient's actual Excess Electrical Usage, and without any adjustment.
Without limiting the generality of the foregoing, such flat fee shall not be
adjusted to reflect any changes in utility rates or the actual amount of Excess
Electrical Usage in the Premises.
7A. Other Charges. Notwithstanding anything in this Sub-sub-sub-sub-
-------------
sublease to the contrary, Scient shall pay Schwab for those charges incurred
during the term of this Sub-sub-sub-sub-sublease pursuant to paragraphs 2.d(1),
(2) and 5 of that certain Agreement Regarding Improvements dated as of
February ___, between Master Lessor, Shaklee and Schwab. Scient acknowledges
receipt of a copy of said agreement.
8. Fitness Center and Cafeteria. Scient acknowledges that Schwab is not
----------------------------
entitled to any memberships in the fitness center located on the third floor of
the Building (the "Fitness Center"). Scient acknowledges that Shaklee has
reserved the right to close or otherwise limit access to the Fitness Center or
the cafeteria located on the second floor of the Building (the "Cafeteria"), or
to transfer ownership or operation of either facility, at any time and in its
sole discretion. In the event the Cafeteria or Fitness Center should close or be
made unavailable, or in the event of a transfer of ownership or operation of
either facility, all Scient's rights, if any, to use of such facility shall
terminate.
9. Signage. Schwab agrees to use reasonable efforts to obtain the
-------
necessary approvals for Scient to place identification signs in the Building.
Placement of such signs shall in any event be limited to the elevator lobbies of
the floor occupied by Scient and the directory located in the ground floor lobby
of the Building.
10. Parking. Scient acknowledges that Schwab makes no representations
-------
regarding the availability of parking stalls in the Building garage for use by
Scient. Notwithstanding the foregoing, Schwab agrees that it will make available
to Scient its rights, if any, to parking stalls in the Building and
9
<PAGE>
will make reasonable efforts without out-of-pocket costs to Schwab to assist
Scient in obtaining additional stalls up to a total of seven (7) stalls. Scient
shall pay for any parking stalls it obtains at the then-prevailing market rate
for parking in the Building garage and such use shall be subject to the
prevailing terms and conditions imposed by garage management. Scient shall pay
Master Lessor, Shaklee or garage management (as appropriate) directly for such
parking, if any, monthly upon invoicing.
11. [INTENTIONALLY OMITTED]
12. Waiver and Indemnification.
--------------------------
(a) Neither Shaklee, Master Lessor, TIG, ADP, PBNI nor Schwab shall be
liable or responsible in any way for, and Scient hereby waives all claims
against Shaklee, Master Lessor, TIG, ADP, PBNI and Schwab with respect to or
arising out of, any death or injury of any nature whatsoever that may be
suffered or sustained by Scient or any employee, licensee, invitee, guest,
agent, or customer of Scient or any other person, from any causes whatsoever, or
any loss or damage or injury to any property outside or within the Premises
belonging to Scient or its employees, agents, customers, licensees, invitees,
guests, or any other person, except, as to Schwab, to the extent such injury or
damage is caused by the negligence or willful act or omission of Schwab or its
employees, agents, customers, licensees, invitees, or guests; and, except as to
ADP, to the extent such injury or damage is caused by the negligence or willful
act or omission of ADP or its employees, agents, customers, licensees, invitees,
or guests; and except, as to PBNI, to the extent such injury or damage is caused
by the negligence or willful act or omission of PBNI or its employees, agents,
customers, licensees, invitees, or guests; and except, as to TIG, to the extent
such injury or damage is caused by the negligence or willful act or omission of
TIG or its employees, agents, customers, licensees, invitees, or guests; and
except, as to Shaklee, to the extent such injury or damage is caused by the
negligence or willful act or omission of Shaklee or its employees, agents,
customers, licensees, invitees, or guests; and except, as to Master Lessor, to
the extent such injury or damage is caused by the negligence or willful act or
omission of Master Lessor or its employees, agents, customers, licensees,
invitees, or guests.
(b) Scient shall hold Shaklee, Master Lessor, TIG, ADP, PBNI and
Schwab harmless from and defend and indemnify Shaklee, Master Lessor, TIG, ADP,
PBNI and Schwab against any and all losses, damages, claims, or liability for
any damage to any property or injury, illness, or death of any person (i)
occurring in or on the Premises, or any part thereof, arising at any time and
from any cause whatsoever except, as to Schwab, to the extent caused by the
negligence or willful act or omission of Schwab or its employees or agents;
except, as to PBNI, to the extent caused by the negligence or willful act or
omission of PBNI or its employees or agents; except, as to ADP, to the extent
caused by the negligence or willful act or omission of ADP or its employees or
agents; except, as to TIG, to the extent caused by the negligence or willful act
or omission of TIG or its employees or agents; except, as to Shaklee, to the
extent caused by the negligence or willful act or omission of Shaklee or its
employees or agents; and except, as to Master Lessor, to the extent caused by
the negligence or willful act or omission of Master Lessor or its employees or
agents; and (ii) occurring in, on, or about any part of the Building other than
the Premises, when such damage, injury, illness, or death shall be caused in
whole or in part by the negligence or willful act or omission of Scient or its
employees, agents, customers, licensees, invitees, or guests.
(c) The provisions of this paragraph 12: (i) are subject and
subordinate to the provisions of paragraph 14 below; and (ii) shall survive the
termination of this Sub-sub-sub-sub-sublease with respect to any damage, injury,
illness, or death occurring prior to such termination.
10
<PAGE>
13. Insurance.
---------
(a) Scient shall, at its sole cost and expense, obtain and keep in
force during the term of this Sub-sub-sub-sub-sublease fire and extended
coverage insurance on all improvements, fixtures, furnishings, and equipment in
and upon the Premises in an amount not less than one hundred percent (100 %) of
the full replacement cost (without deduction for depreciation) thereof. All
amounts that shall be received under the insurance specified in this paragraph
shall first be applied to the payment of the cost of repair or replacement of
any fixtures, furnishings, equipment, and improvements that are damaged or
destroyed, or, if this Sub-sub-sub-sub-sublease terminates prior to such repair
or replacement being made, paid over to Schwab, to the extent that the
improvements or fixtures damaged or destroyed would have become Schwab's
property pursuant to paragraph 25 hereof, provided, however, that Scient shall
be entitled to that portion of said insurance proceeds equal to the unamortized
value of said improvements and fixtures.
(b) Scient shall, at its sole cost and expense, obtain and keep in
force during the term of this Sub-sub-sub-sub-sublease commercial general
liability insurance with limits of not less than Five Million Dollars
($5,000,000) per occurrence for injury to or illness or death of persons
occurring in, upon, or about the Premises (or the premises subleased by Scient
from Schwab under the Concurrent Sub-sub-sub-sublease) or the Building or damage
to property occurring in, upon, or about the Premises or the Building. All such
insurance shall insure the performance by Scient of the indemnity agreement as
to liability for injury to or illness or death of persons and damage to property
set forth in paragraph 12 hereof.
(c) All insurance required under this paragraph and all renewals
thereof shall be issued by an insurance company licensed to do business in
California and maintaining no less than an A-XI Best's rating and approved by
Master Lessor, Shaklee, TIG, ADP, ADP, PBNI and Schwab, which approvals shall
not be withheld unreasonably if the insurance and company meet all requirements
of the Sub-sub-sub-sub-sublease, Sub-sub-sub-sublease, Sub-sub-sublease, Sub-
sublease, Sublease and Master Lease. Each policy shall expressly provide that
the insurer shall give not less than 45 days' prior written notice to Master
Lessor, Shaklee, TIG, ADP, PBNI and Schwab prior to cancelling or altering the
policy in a way that would affect the coverage, limits or substantive coverage
terms affecting the Premises (an "Alteration"). Scient shall give Master Lessor,
Shaklee, TIG, ADP, PBNI and Schwab 45 days' prior written notice of any
cancellation or Alteration. All insurance under this paragraph shall name Master
Lessor, Shaklee, TIG, ADP, PBNI and Schwab as additional insureds, shall be
primary and noncontributing with any insurance that may be carried by Master
Lessor, Shaklee, TIG, ADP, PBNI or Schwab, and shall expressly provide that
Master Lessor, Shaklee, TIG, ADP, PBNI and Schwab shall be named as additional
insureds by endorsement to the policy or policies, and, as such, shall be
entitled to recover under the policy for any loss, injury, or damage to Master
Lessor, Shaklee, TIG, ADP, PBNI, Schwab or the employees or contractors of any
of them arising out of this Sub-sub-sub-sub-sublease. Upon the Commencement Date
and upon annual renewal of the policy or policies throughout the term of this
Sub-sub-sub-sub-sublease, each such policy or a duplicate or certificate of
insurance, and endorsement to the policy or policies, evidencing such coverage
shall be delivered to Master Lessor, Shaklee, TIG, ADP, PBNI, and Schwab for
retention by each of them. In the event that Scient shall fail to insure or
shall fail to furnish to Master Lessor, Shaklee, TIG, ADP, PBNI and Schwab any
such policy, duplicate policy, or certificate and endorsement to the policy or
policies as herein required, Master Lessor, Shaklee, TIG, ADP, PBNI or Schwab
may from time to time effect such insurance for the benefit of Scient, Master
Lessor, Shaklee, TIG, ADP, PBNI, Schwab or any or all of them for a period not
exceeding one year, and any premium paid by Master Lessor, Shaklee, TIG, ADP,
PBNI or Schwab shall be recoverable from
11
<PAGE>
Scient as additional rent on demand.
14. Waiver of Subrogation. Schwab hereby waives all claims against Scient
---------------------
for loss or damage to the extent that such loss or damage is insured against
under any insurance policy insuring Schwab, or would have been insured against
under any insurance policy required to be maintained by Schwab under the Sub-
sub-sub-sublease had such policy been obtained, except to the extent that such
waiver would impair coverage under any such insurance policy, and except that
Schwab does not waive any claims it may have with respect to any deductible
amount under any such policy. Scient waives all claims against Shaklee, Master
Lessor, TIG, ADP, PBNI and Schwab for loss or damage to the extent such loss or
damage is insured against under any insurance policy insuring Scient, or would
have been insured against under any insurance policy required to be maintained
by Scient under this Sub-sub-sub-sub-sublease had such policy been obtained, or
would have been insured against but for any deductible amount under any such
policy, except to the extent that such waiver would impair coverage under any
such insurance policy, and except that Scient does not waive any claims against
Schwab it may have with respect to any deductible amount under any such policy.
Schwab and Scient shall each, prior to or immediately after the execution of
this Sub-sub-sub-sub-sublease, use best efforts to obtain from each insurer
under all insurance policies now or hereafter existing during the term of this
Sub-sub-sub-sub-sublease and purchased by either of them insuring or covering
any portion of the Building or the Premises, the contents thereof, or any
operations therein, a waiver of all rights of subrogation that the insurer might
otherwise, if at all, have against the other party to this Sub-sub-sub-sub-
sublease.
15. Assignment and Subletting.
-------------------------
(a) Except as set forth in this paragraph, Scient shall not: (i)
assign, encumber, or otherwise transfer this Sub-sub-sub-sub-sublease, the term
or estate hereby granted, or any interest hereunder; (ii) permit the Premises or
any part thereof to be used by anyone other than Scient (whether as licensee,
permittee, or otherwise); or (iii) sublet or offer or advertise for subletting
the Premises or any part thereof. Any attempted assignment, encumbrance,
transfer, or sublease not done in accordance with the provisions of this
paragraph shall be voidable and, at Schwab's election, shall constitute a
default hereunder.
(b) If at any time during the term hereof Scient desires to sublet all
or any part of the Premises, then Scient shall submit to Schwab, PBNI, ADP, TIG,
and Shaklee, in writing, a notice of intent to assign or sublease, setting
forth: (i) the proposed effective date of the assignment or sublease; (ii) the
name of the proposed subtenant or assignee (collectively hereinafter,
"subtenant/assignee"); and (iii) the nature of the proposed subtenant/assignee's
business to be carried on in the Premises. Such notice shall be accompanied by
(x) such reasonable financial information as Schwab, PBNI, TIG or Shaklee may
request concerning the proposed subtenant/assignee, including recent financial
statements and bank references; and (y) a conformed or photostatic copy of the
proposed sublease or assignment agreement (or, if not yet available, a
description of the contemplated form of agreement).
(c) In the event that Scient complies with the provisions of
subparagraph (b), Schwab's consent to a proposed sublease or assignment, subject
to approval by PBNI, ADP, TIG and Shaklee, shall not be unreasonably withheld.
Schwab shall respond to Scient's notice to sublet within eighteen (18) business
days of receipt by Schwab of all information required herein concerning the
proposed subtenant or assignee. Scient shall promptly reimburse Schwab for
Schwab's, PBNI's, ADP's, TIG's and Shaklee's reasonable out-of-pocket costs
actually incurred in reviewing the proposed sublease or assignment, including
reasonable attorneys' fees following the demand therefor accompanied by
reasonable backup documentation. In determining whether to grant or withhold
such consent, Schwab,
12
<PAGE>
PBNI, ADP, TIG and Shaklee may consider any reasonable factor. Without limiting
what may be construed as a reasonable factor, it is hereby agreed that any one
of the following factors will be reasonable grounds for disapproval of a
proposed assignment or sublease:
(i) The proposed subtenant/assignee does not, in the reasonable
judgment of Schwab, PBNI, ADP, TIG or Shaklee, have sufficient financial
worth in view of the responsibility involved;
(ii) The proposed subtenant/assignee does not, in the reasonable
judgment of Schwab, PBNI, ADP, TIG or Shaklee, have a good reputation as a
tenant of property;
(iii) Schwab, PBNI, ADP, TIG or Shaklee has received from any prior
lessor of the proposed subtenant/assignee a significant negative report
concerning such prior lessor's experience with the proposed
subtenant/assignee as a tenant;
(iv) Schwab, PBNI, ADP, TIG or Shaklee has been involved in a
previous landlord/tenant dispute with the proposed subtenant/assignee;
(v) The proposed subtenant/assignee is not, in the reasonable
judgment of Schwab, PBNI, ADP, TIG or Shaklee, of the type, character, and
quality consistent with the high quality and prestigious image of the
Building;
(vi) In the reasonable judgment of Schwab, PBNI, ADP, TIG or Shaklee,
the proposed assignment or sublease would violate paragraph 7 or 16 of the
Master Lease;
(vii) The use of the Premises by the proposed subtenant/assignee would
violate some applicable law, ordinance, or regulation;
(viii) The proposed assignment or sublease would create a vacancy
elsewhere in the Building;
(ix) The proposed subtenant/assignee is a person with whom Schwab,
PBNI, ADP, TIG or Shaklee is negotiating to lease space in the Building
comparable in both length of term and net rentable square footage to the
space Scient is seeking to assign or sublet;
(x) The proposed subtenant/assignee is in the business of
manufacturing or in the general business of selling nutritional
supplements, household or personal care products, gourmet foods, or
flowers, or deals in any other product lines that Shaklee manufactures or
sells, or plans to manufacture or sell as of the date of the proposed
sublease or assignment, or is in the business of marketing any such
merchandise through direct sale or direct mail, at the time of the proposed
assignment or sublease;
(xi) In the case of a proposed sublease, the proposed sublease would
cause there to be more than one subtenant of the Subleased Premises, the
Sub-subleased Premises, the Sub-sub-subleased Premises, the Sub-sub-sub-
subleased Premises or the Premises;
(xii) The proposed assignment or sublease fails to include all of the
terms and provisions required to be included therein pursuant to this
paragraph 15;
13
<PAGE>
(xiii) Scient is in default of any of its obligations under this
Sub-sub-sub-sub-sublease, or has defaulted under this Sub-sub-sub-sub-
sublease on three or more occasions during the twelve months preceding the
date Scient requests Schwab's consent to the proposed assignment or
sublease; or
(xiv) Shaklee, TIG, ADP or PBNI shall not consent to the proposed
assignment or sublease.
(d) The instrument by which assignment or subletting is accomplished
shall (i) expressly provide that the subtenant/assignee shall perform and
observe all the agreements, covenants, and conditions to be performed and
observed by Scient under this Sub-sub-sub-sub-sublease (except as to rent and
term or as otherwise agreed to by Schwab); (ii) be expressly subject and
subordinate to each and every provision of this Sub-sub-sub-sub-sublease; (iii)
have a term that expires on or before the expiration of the term of this Sub-
sub-sub-sub-sublease; (iv) provide that if Shaklee, Master Lessor, TIG, ADP,
PBNI or Schwab succeeds to Scient's position as landlord vis-a-vis the
subtenant/assignee, neither Shaklee, Master Lessor, TIG, ADP, PBNI nor Schwab
shall be liable to such subtenant/assignee for advance rental payments, rental
deposits, or other payments that have not actually been delivered to Shaklee,
TIG, ADP, PBNI or Schwab by Scient; and (v) provide that Scient or the
subtenant/assignee shall reimburse Schwab for any additional costs or expenses
incurred by Schwab for repairs or maintenance or otherwise as a result of the
change in occupancy.
(e) No assignment or sublease shall be valid, and no
subtenant/assignee shall take possession of the Premises or any part thereof,
until an executed counterpart of the assignment or sublease has been delivered
to Schwab, PBNI, ADP, TIG and Shaklee.
(f) Notwithstanding Schwab's consent, no subletting or assignment
shall release or otherwise alter Scient's obligations to pay the rent and to
perform all other obligations to be performed by Scient hereunder. The
acceptance of rent by Schwab from any other person shall not be deemed to be a
waiver by Schwab of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. If any assignee of Scient or any successor of Scient defaults in the
performance of any of the terms hereof, Schwab may proceed directly against
Scient without the necessity of exhausting remedies against such assignee or
successor.
(g) In the event that Schwab assigns, transfers, or conveys its
interest in the Sub-sub-sublease, and provided that the instrument of
assignment, transfer, or conveyance shall expressly require the assignee or
transferee to assume all such liabilities and obligations, all liabilities and
obligations on the part of Schwab under this Sub-sub-sub-sub-sublease shall
terminate. Scient agrees to attorn to such assignee or transferee.
16. Holdover. If Scient remains in possession of the Premises after
--------
expiration, but not earlier termination, of this Sub-sub-sub-sub-sublease, all
of the terms, covenants, and agreements hereof shall continue to bind Scient to
the extent applicable, except that, if Scient remains in possession without
Schwab's written consent, then: (a) the monthly rent shall be two (2) times the
monthly rent payable for the last month of the Sub-sub-sub-sub-sublease term,
prorated on a daily basis for each day Scient remains in possession, and (b)
Scient shall indemnify Schwab against any and all claims, losses, and
liabilities for damages, consequential or otherwise, resulting from Scient's
failure to surrender possession, including without limitation any claims by
PBNI, ADP, TIG, Shaklee, Master Lessor or any succeeding sublessee.
17. Notices. All notices and demands that may or are required to be given
-------
by either party to
14
<PAGE>
the other hereunder shall be in writing and shall be deemed to have been fully
given when delivered by reputable overnight courier, or when deposited in the
United States mail, certified or registered, postage prepaid, and addressed as
follows: to Scient at the address specified in the Basic Lease Information, or
to such other place as Scient may from time to time designate in a notice to
Schwab; to Schwab at the address specified in the Basic Lease Information, or to
such other place as Schwab may from time to time designate in a notice to
Scient; or, in the case of Scient, delivered to Scient at the Premises. Scient
acknowledges that it may receive notices at the Premises from PBNI, ADP, TIG,
Shaklee, or Master Lessor. Scient hereby appoints as its agent to receive the
service of all dispossessory or distraint proceedings and notices thereunder the
person in charge or occupying the Premises at the time, and, if no person shall
be in charge of or occupying the same, then such service may be made by
attaching the same on the main entrance of the Premises.
18. Subordinate to Master Lease, Sublease, Sub-sublease, Sub-sub-sublease
---------------------------------------------------------------------
and Sub-sub-sub-sublease.
- ------------------------
(a) This Sub-sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of, and all rights of Master
Lessor under, the Master Lease. Without limiting the generality of the
foregoing, any termination of the Master Lease prior to the end of the term of
this Sub-sub-sublease shall terminate this Sub-sub-sublease.
(b) This Sub-sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of, and all rights of Shaklee
under, the Sublease. Without limiting the generality of the foregoing, any
termination of the Sublease prior to the end of the term of this Sub-sub-sub-
sub-sublease shall terminate this Sub-sub-sub-sub-sublease.
(c) This Sub-sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of, and all rights of TIG
under, the Sub-sublease. Without limiting the generality of the foregoing, any
termination of the Sub-sublease prior to the end of the term of this Sub-sub-
sub-sub-sublease shall terminate this Sub-sub-sub-sub-sublease.
(d) This Sub-sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of, and all rights of ADP
under, the Sub-sub-sublease. Without limiting the generality of the foregoing,
any termination of the Sub-sub-sublease prior to the end of the term of the Sub-
sub-sub-sub-sublease shall terminate this Sub-sub-sub-sublease.
(e) This Sub-sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of, and all rights of PBNI
under, the Sub-sub-sub-sublease. Without limiting the generality of the
foregoing, any termination of the Sub-sub-sub-sublease prior to the end of the
term of this Sub-sub-sub-sub-sublease shall terminate this Sub-sub-sub-sub-
sublease. Schwab covenants to do all acts reasonably necessary and perform all
obligations required to be performed by it under the Sub-sub-sub-sublease, Sub-
sub-sublease, Sub-sublease, Sublease and the Master Lease (insofar as
incorporated into the Sub-sub-sub-sub-sublease), except insofar as such acts or
obligations are required to be performed by Scient hereunder; and Schwab
covenants not to cancel or terminate, or suffer, consent or agree to the
cancellation or termination of, the Sublease, Sub-sublease, Sub-sub-sublease or
Sub-sub-sub-sublease during the term of this Sub-sub-sub-sub-sublease, so long
as Scient is not in default of this Sub-sub-sub-sub-sublease beyond any
applicable cure period.
(f) If PBNI, ADP, TIG, Shaklee or Master Lessor succeeds to Schwab's
position as landlord vis-a-vis Scient, neither PBNI, ADP, TIG, Shaklee nor
Master Lessor shall be liable to Scient for
15
<PAGE>
advance rental payments, rental deposits, or other payments that have not
actually been delivered to PBNI, ADP, TIG, Shaklee or Master Lessor.
(g) If Schwab receives any notice or demand from Master Lessor under
the Master Lease, from Shaklee under the Sublease, from TIG under the Sub-
sublease, from ADP under the Sub-sub-sublease from PBNI under the Sub-sub-sub-
sublease with respect to the Premises, Schwab shall, pursuant to Paragraph 22,
deliver a true and correct copy of same to Scient.
19. No Privity. Nothing contained in this Sub-sub-sub-sub-sublease shall
----------
be construed to create privity of estate or of contract between Scient and
Master Lessor, Shaklee, TIG, ADP or PBNI. Schwab and Scient each agrees not to
do or permit to be done any act or thing that will constitute a breach or
violation of any of the terms, covenants, conditions, or provisions of the
Master Lease, Sublease, Sub-sublease, Sub-sub-sublease or Sub-sub-sub-sublease.
20. No Representations. In making and executing this Sub-sub-sub-sub-
------------------
sublease, Scient has not relied upon or been induced by any statements or
representations of any persons, including, without limitation, Schwab, the
Brokers named herein, and Schwab's other employees and agents (other than those
representations, if any, set forth expressly in this Sub-sub-sub-sub-sublease)
with respect to the physical condition of the Building or the Premises or with
respect to any other matter affecting the Premises or this transaction that
might be pertinent in considering the leasing of the Premises or the execution
of this Sub-sub-sub-sub-sublease, including, without limitation, the following:
(i) the legality of the present or any possible future use of the Building or
Premises under federal, state or local law; (ii) the physical condition of the
Building and/or Premises, including but not limited to soil condition and the
structural integrity of the Building and/or Premises; (iii) the accuracy or
completeness of square footage figures, and of the texts of agreements affecting
the Building and/or Premises; or (iv) the possibility that leases, options or
other documents or agreements exist that affect or encumber the Building and/or
Premises and which have not been provided or disclosed by the Master Lessor,
Shaklee, TIG, ADP, PBNI, Schwab, or, with respect to the Brokers named herein
and Schwab's other agents, contractors, employees, officers and directors, by
Schwab. Scient has, on the contrary, relied solely on such representations, if
any, as are expressly made herein and on such investigations, examinations, and
inspections as Scient has chosen to make or have made. Scient acknowledges that
Schwab has afforded Scient the opportunity for full and complete investigations,
examinations, and inspections.
21. Schwab's Approval. Whenever Scient shall request Schwab's consent or
-----------------
approval, such consent or approval shall not be unreasonably withheld, provided
that Schwab's refusal to consent to or approve any matter, whenever Schwab's
consent or approval is required or requested under this Sub-sub-sub-sub-
sublease, shall be deemed reasonable, if, among other things, Schwab has used
its best efforts to obtain such consent or approval but PBNI, ADP, TIG, Shaklee
or Master Lessor has refused to give such consent or approval. Nothing in this
Sub-sub-sub-sub-sublease shall diminish or in any way affect Master Lessor's
right to approve or consent under the Master Lease, Shaklee's right to approve
or consent under the Sublease, or TIG's right to approve or consent under the
Sub-sublease, or ADP's right to approve or consent under the Sub-sub-sublease,
or PBNI's right to approve or consent under the Sub-sub-sublease nor imply a
constraint of reasonableness with respect to the exercise of such rights.
22. Time Limits. Schwab shall, no later than 5 business days after receipt
-----------
thereof, give to Scient a copy of each notice and demand received from Master
Lessor, Shaklee, TIG, ADP or PBNI concerning the Premises, Sub-sub-sub-sub-
sublease, Sub-sub-sub-sublease, Sub-sub-sublease, Sub-sublease, Sublease or
Master Lease.
16
<PAGE>
23. Letter of Credit.
----------------
(a) During the entire term of this Sub-sub-sub-sub-sublease, Scient
shall have obtained letter(s)of credit from a financial institution satisfactory
to Schwab naming Schwab as beneficiary to secure Scient's obligations hereunder,
at the times, in the amounts and for the purposes set forth below or in
paragraph 23 of the Concurrent Sub-sub-sub-sublease. Each letter of credit shall
be for a term of not less than one year and irrevocable during that period. Each
letter of credit shall provide that it will be honored upon a signed statement
by Schwab that Schwab is entitled to draw upon the letter of credit under this
Sub-sub-sub-sub-sublease and shall require no signature or statement from any
party other than Schwab. No notice to Scient shall be required to enable Schwab
to draw upon the letter of credit. Each letter of credit shall also provide that
following the honor of any drafts in an amount less than the aggregate amount of
a letter of credit, the financial institution shall return the original letter
of credit to Schwab and Schwab's rights as to the remaining amount of the letter
of credit will not be extinguished. If the financial institution from which
Scient has obtained a letter of credit shall admit in writing its inability to
pay its debts generally as they become due, file a petition in bankruptcy or a
petition to take advantage of any insolvency act, make an assignment for the
benefit of its creditors, consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property, or file a petition or
answer seeking reorganization or arrangement under the Federal Bankruptcy Code
or any other applicable law or statute of the United States of America or any
state thereof, then Scient shall obtain a replacement letter of credit within
ten (10) days of such act from another financial institution satisfactory to
Schwab.
(b) Times for Obtaining Letter of Credit. A letter of credit in the
------------------------------------
amount of $400,000 shall be obtained and delivered to Schwab at least five (5)
business days prior occupancy by Scient. It shall cover the twelve (12) month
period beginning on the Commencement Date. If Scient does not commit any breach
or default hereunder or under the Concurrent Sub-sub-sub-sublease during the
first year of the term of this Sub-sub-sub-sub-sublease and the Concurrent Sub-
sub-sub-sublease, the letter(s) of credit which shall cover subsequent years of
the term of this Sub-sub-sub-sub-sublease shall be in the amount of $300,000 for
each year and be obtained and delivered to Schwab prior to September 15 each
year of the term of this Sub-sub-sub-sub-sublease; each letter of credit shall
cover the one (1) year period beginning on the anniversary of the Commencement
Date immediately following thereafter.
(c) If Scient fails to pay rent or other charges when due under this
Sub-sub-sub-sub-sublease, or fails to perform any of its other obligations
hereunder, Schwab may, but shall not be required to, draw upon the letter of
credit for the payment of any rent or other amount then due hereunder and
unpaid, for the payment of any other sum for which Schwab may become obligated
by reason of Scient's default or breach, or for any loss or damage sustained by
Schwab as a result of Scient's default or breach. If Schwab so draws on any
portion of the letter of credit, Scient shall, within ten (10) days after
written demand by Schwab, restore the letter of credit to the full amount
required, and Scient's failure to do so shall constitute a default under this
Sublease.
(d) In the event Scient fails to obtain satisfactory letter(s) of
credit as required under this paragraph 23 when due, Schwab shall have the right
to draw the full amount of the then existing letters of credit; provided,
however, that in the event of a draw pursuant to this paragraph 23(d), Schwab
shall hold the mounts drawn as a security deposit (the "Security Deposit"). If
Scient fails to pay rent or other charges when due under this Sub-sub-sub-sub-
sublease, or fails to perform any of its other obligations hereunder, Schwab
may, but shall not be required to, use or apply all or any portion of the
Security Deposit for the payment of any rent or other amount then due hereunder
and unpaid, for the payment of any other sum for which Schwab may become
obligated by reason of Scient's default or
17
<PAGE>
breach, or for any loss or damage sustained by Schwab as a result of Scient's
default or breach. If Schwab so uses any portion of the Security Deposit, Scient
shall, within ten (10) days after written demand by Schwab, restore the Security
Deposit to the full amount originally deposited, and Scient's failure to do so
shall constitute a default under this Sublease. Schwab shall not be required to
keep the Security Deposit separate from its general accounts, and shall have no
obligation or liability for payment of interest on the Security Deposit. In the
event Schwab assigns its interest in this Sublease, Schwab shall deliver to its
assignee so much of the Security Deposit as is then held by Schwab. Within
thirty (30) days after the Terminiation Date, and provided Scient is not then in
default of any of its obligations hereunder, the Security Deposit, or so much
thereof as had not theretofore been applied by Schwab, shall be returned to
Scient or to the last assignee, if any, of Scient's interest hereunder. Scient
hereby waives the provisions of Section 1950.7 of the California Civil Code, and
all other provisions of law, now or hereafter in force, which provide that
Schwab may claim from a security deposit only those sums reasonably necessary to
remedy defaults in the payment of rent, to repair damage caused by Scient or to
clean the Premises, it being agreed that Schwab may, in addition, claim those
sums reasonably necessary to compensate Schwab for any other loss or damage,
foreseeable or unforeseeable, caused by the act or omission of Scient or any
employee, agent, customer, licensee, invitee or guest of Scient.
24. Broker. Each party hereto warrants and represents to the other that it
------
dealt with no leasing agent or broker in connection with this Sub-sub-sub-sub-
sublease other than the person or persons identified as Brokers in the Basic
Lease Information, and that no conversations or prior negotiations were had by
the warranting and representing party with any agent or broker other than the
Brokers concerning the Premises that could give rise to liability for payment of
a commission in connection with this Sub-sub-sub-sub-sublease. Schwab shall
compensate Colliers International pursuant to separate agreement, and Colliers
International will compensate The CAC Group, pursuant to separate agreement.
25. Surrender of Premises. Except for those trade fixtures of Scient of
---------------------
which Scient notifies Master Lessor, Shaklee, TIG, ADP, PBNI and Schwab in
writing within 6 months of their installation, all alterations, additions, and
improvements by Scient to the Premises (the "Tenant Improvements") shall
immediately become Schwab's property and, at the end of the term hereof, shall
remain on the Premises without compensation to Scient. So long as the Tenant
Improvements in the Premises at the end of the term are of the same general
character, quantity, and configuration as Schwab's Initial Tenant Improvements
under the Sub-sub-sub-sublease, except for normal wear and tear, Scient shall
have no obligation to make any changes in the then existing Tenant Improvements;
otherwise, at Schwab's request, Scient shall take such action at Scient's
expense as shall be necessary to restore the Tenant Improvements to their
condition as initially constructed or installed under the Sub-sub-sub-sublease,
except for normal wear and tear. Notwithstanding the foregoing, nothing in this
paragraph shall be construed to waive the requirements of paragraph 6 hereof or
of paragraph 2 of the Second Amendment to Sublease.
26. PBNI's, ADP's, TIG's and Shaklee's Approval. This Sub-sub-sub-sub-
-------------------------------------------
sublease shall be of no force or effect until fully executed by Scient and
Schwab and approved by PBNI, ADP, TIG and Shaklee.
27. Hazardous Materials. Schwab covenants that, within five (5) days after
-------------------
execution of this Sub-sub-sub-sub-sublease by Schwab and Scient, it will provide
Scient with copies of all seismic reports or notices, asbestos reports or
notices, and any correspondence, reports or notices regarding Hazardous
Materials (as defined below) with respect to the Building or the Premises that
Schwab has in its possession in the Building, and that Schwab will continue to
provide such correspondence, reports and notices to Scient throughout the term
hereof if any are received by Schwab. Scient shall have no obligation or
liability to Schwab with respect to any substances or materials regulated under
any statute, law or
18
<PAGE>
ordinance relating to hazardous or toxic materials or the environment
("Hazardous Materials") found on, in or under the Building or Premises or
released therefrom, except for those brought into the Premises or the Building
by Scient or its agents, employees, contractors or invitees; and Schwab shall
indemnify, defend, protect and hold harmless Scient from any and all loss,
costs, damage, expense and liability (including, without limitation, reasonable
attorneys' fees) incurred by Scient in connection with or arising from such
Hazardous Materials not brought into the Premises or the Building by Scient or
its agents, employees, contractors or invitees. Scient shall indemnify, defend,
protect and hold harmless Schwab from any and all loss, costs, damage, expense
and liability (including, without limitation, reasonable attorneys' fees)
incurred by Schwab in connection with or arising from the introduction by
Scient, or its agents, employees, contractors or invitees, of Hazardous
Materials in, on or about the Premises, the Building or the real property on
which the Building is located.
28. Miscellaneous.
-------------
(a) The paragraph titles in this Sub-sub-sub-sub-sublease are used for
convenience in finding the subject matter. Such titles are not to be taken as
part of this instrument or to be used in determining the intent of the parties
or otherwise in interpreting this instrument.
(b) This Sub-sub-sub-sub-sublease shall apply to and bind the
respective heirs, distributees, executors, administrators, successors, and
assigns of the parties hereto. This subparagraph shall not be construed,
however, as a consent to any assignment or subletting by Scient.
(c) The failure of either party to insist on strict performance of any
covenant or condition hereof, or to exercise any option herein contained, shall
not be construed as a waiver of such covenant, condition, or option in any other
instance.
(d) This Sub-sub-sub-sub-sublease cannot be changed or terminated
orally. All understandings and agreements heretofore made between the parties
are merged in this Sub-sub-sub-sub-sublease, including any exhibits hereto,
which alone fully and completely expresses the agreement between Schwab and
Scient.
(e) Schwab represents that the Master Lease, Sublease, Sub-sublease
and Sub-sub-sublease and Sub-sub-sub-sublease are in full force and effect as of
the date hereof and will be in full force and effect as of the commencement of
the term hereof and that no notice or notices of default have been served
thereunder by Master Lessor, Shaklee, TIG, ADP or PBNI that have not been cured.
There are no agreements between Schwab and Master Lessor that require the Master
Lessor's consent to this transaction; and except as disclosed in the Sub-sub-
sub-sublease attached hereto as Exhibit A, there are no agreements between
Schwab and PBNI that require PBNI's consent to this transaction.
(f) Submission of this Sub-sub-sub-sub-sublease for examination by
Scient does not constitute a reservation of or option for the Premises and does
not become effective unless and until this Sub-sub-sub-sub-sublease has been
executed and delivered by both parties.
(g) In the event Scient makes a request it is entitled to make under
this Sub-sub-sub-sub-sublease for services or other matters requiring the Master
Lessor's consent or approval, Schwab shall use all reasonable efforts to obtain
such approval or consent, without out-of-pocket cost to Schwab.
(h) In the event of a breach or default by Scient hereunder, Schwab
shall have the remedy described in California Civil Code Section 1951.4 (lessor
may continue lease in effect after
19
<PAGE>
lessee's breach and abandonment and recover rent as it becomes due, if lessee
has the right to sublet or assign, subject only to reasonable limitations).
Accordingly, if Schwab does not elect to terminate this Sub-sub-sub-sub-sublease
on account of any default by Scient, Schwab may, from time to time, without
terminating this Sub-sub-sub-sub-sublease, enforce all of its rights and
remedies under this Sub-sub-sub-sub-sublease, including the right to recover all
rent as it becomes due.
(i) This Sub-sub-sub-sub-sublease may be executed in any number of
counterparts, which together shall constitute one instrument. Facsimile
signatures will be accepted.
(j) This Sub-sub-sub-sub-sublease shall not be effective unless and
until the Concurrent Sub-sub-sub-sublease shall be fully executed by the parties
thereto.
29. Exhibits. The following exhibits are attached to this Sub-sub-sub-sub-
--------
sublease and by this reference made a part hereof:
Exhibit A - Sub-sub-sub-sublease
Exhibit B - Plan of Premises
IN WITNESS WHEREOF, the parties have executed this Sub-sub-sub-sub-sublease as
of the day and year first hereinabove set forth.
SCHWAB: SCIENT:
CHARLES SCHWAB & CO., INC., SCIENT CORPORATION,
a California corporation a California corporation
By: /s/ Parkash P. Ahuja By: /s/ William H. Kurtz
---------------------------- --------------------------
Name: Parkash P. Ahuja Name: William H. Kurtz
-------------------------- ------------------------
Its: Senior Vice President Its: CFO
-------------------------- ------------------------
Administrative Services
--------------------------
Date: 10-8-98 Date: October 8, 1998
------------------------ ------------------------
By: _______________________________
Name: _____________________________
Its: ______________________________
Date: _____________________________
20
<PAGE>
APPROVAL-28/th/ Floor
By executing this Approval, Shaklee hereby consents to the making of
the attached Sub-sub-sub-sub-sublease by and between Schwab and Scient, on, and
only, on the terms set forth herein, without releasing TIG from any obligations
of the sublessee under the Sublease, without releasing ADP from any obligations
of the sub-sublessee under the Sub-sublease, without releasing PBNI from any
obligations of the sub-sub-sublessee under the Sub-sub-sublease, without
releasing Schwab from any obligations of the sub-sub-sub-sublessee under the
Sub-sub-sub-sublease and without waiving any restriction on further assignment
of the Sublease, the Sub-sublease, the Sub-sub-sublease, or the Sub-sub-sub-
sublease. This Consent shall not constitute consent to any other or further sub-
sublease, modify in any way the terms of the Sublease, or create any privity of
estate or contract between the undersigned and any other person or entity.
SHAKLEE:
SHAKLEE CORPORATION,
a Delaware corporation
By: /s/ Kay Childs
------------------------------------
Name: Kay Childs
----------------------------------
Its: Vice President, Human Resources
-----------------------------------
Date: September 29, 1998
---------------------------------
<PAGE>
APPROVAL
By executing this Approval, TIG hereby consents to the making of the
attached Sub-sub-sub-sub-sublease by and between Schwab and Scient, on the terms
set forth herein, without releasing ADP from any obligations of the sub-
sublessee under the Sub-sublease, without releasing PBNI from any of the Sub-
sub-sublessee under the Sub-Sub-sublease, and without releasing Schwab from any
obligations of the sub-sub-sub-sublessee under the Sub-sub-sub-sublease and
without waiving any restriction on further assignment of the Sub-sublease, Sub-
sub-sublease or Sub-sub-sublease. There are no alterations which TIG has
required be removed at Sub-sublease termination pursuant to paragraph 2 of the
Second Amendment to Sublease except: THOSE IMPROVEMENTS WHICH TIG IS REQUIRED TO
-------------------------------------------
REMOVE BY SHAKLEE.
- ---------
TIG:
TIG INSURANCE COMPANY
a California corporation
By: /s/ Lon P. McClimon
---------------------------
Name: Lon P. McClimon
-------------------------
Its: Senior Vice President
---------------------------
Date: 9-24-98
--------------------------
By: /s/ Thomas J. Miller
---------------------------
Name: Thomas J. Miller
-------------------------
Its: Vice President
--------------------------
Date 9-24-98
--------------------------
21
<PAGE>
APPROVAL
By executing this Approval, ADP hereby consents to the making of the
attached Sub-sub-sub-sub-sublease by and between Schwab and Scient, on the terms
set forth herein, without releasing PBNI from any of the Sub-sub-sublessee under
the Sub-sub-sublease, and without releasing Schwab from any obligations of the
Sub-sub-sub-sublessee under the Sub-sub-sub-sublease and without waiving any
restriction on further assignment of the Sub-sub-sublease-or Sub-sub-sublease.
There are no alterations which ADP has required be removed at Sub-sub-sublease
termination pursuant to paragraph 2 of the Second Amendment to Sublease except:
___________________________________
ADP:
ADP/FLUOR DANIEL, INC.
An Arizona corporation
By: /s/ S.F. Hull
--------------------
Name: S.F. Hull
------------------
Its: Asst. Treasurer
-------------------
Date: Sept. 16, 1998
-------------------
22
<PAGE>
CONSENT TO SUB-SUB-SUB-SUB-SUBLEASE
-----------------------------------
The undersigned, as sub-sub-sub-sublessor under that certain Sub-sub-
sub-sublease dated December 1, 1996 between Pacific Bell Network
Integration, a California corporation ("PBNI") and Charles Schwab &
Co., Inc. ("Schwab") as amended and modified to date (as amended, the
"Sub-sub-sub-sublease") for the Premises known as the 28/th/Floor, at
444 Market Street, San Francisco, California 94105 as further defined
in the Sub-sub-sub-sublease ("Premises"), hereby consents to the
attached Sub-Sub-Sub-Sub-Sublease between Schwab and Scient
Corporation, a Delaware corporation; provided, however, that (i) PBNI
shall not be bound by any of the terms of the Sub-Sub-Sub-Sub-
Sublease, (ii) the Sub-Sub-Sub-Sub-Sublease is subject and subordinate
to the Master Lease(as defined therein) and all subleases thereof,
(iii) the Sub-Sub-Sub-Sub-Sublease shall not constitute a release of
Schwab from any liability under the Master Lease or any subleases
thereof, and (iv) neither the Sub-Sub-Sub-Sub-Sublease nor this
Consent shall be construed as a waiver of any of PBNI's rights under
the Sub-sub-sub-sublease, including the right to consent to any future
proposed transfers, nor shall it relieve Schwab or anyone claiming
under or through Schwab of the obligation to obtain PBNI's consent to
any future assignments and subleases as may be required under the
terms of the Sub-sub-sub-sublease.
PBNI:
PACIFIC BELL NETWORK INTEGRATION,
a California corporation
By: /s/ SIGNATURE ILLEGIBLE^^
----------------------------
Its: DIRECTOR-PTSS CRE
---------------------------
[STAMP APPEARS HERE]
10/1/98
-1-
<PAGE>
444 MARKET STREET
SAN FRANCISCO, CALIFORNIA
SUB-SUB-SUB-SUBLEASE
BASIC LEASE INFORMATION
Date: December 1, 1996
Sub-sub-sub-sublessor: PACIFIC BELL NETWORK
INTEGRATION, a California
corporation, successor in
interest to Pacific Bell
Development Company
Sub-sub-sub-sublessee: CHARLES SCHWAB & CO. INC.,
a California Corporation
Premises: Entire 28th floor, comprising
approximately 18,058 rentable
square feet
Paragraph 1 (a): Commencement Date: December 1, 1996
Paragraph 1 (a): Termination Date April 30, 2001
Paragraph 2 (a): Rent Start Date: February 1, 1997
Paragraph 2 (a): Base Rent: $451,450.00 per annum
Paragraph 2 (b): Additional Rent: Any increases in Operating
Expenses over a base year of
1997 for Operating Expenses
and Taxes over the 1996/97
fiscal year for Taxes.
Paragraph 2 (b): Percentage Share: 2.98%
Paragraph 17: Sub-sub-sub-sub lessee's CHARLES SCHWAB & CO., INC.
Address for notices 101 Montgomery Street
San Francisco, CA 94104
Attn: Ms. Meredith Fondahl
Exhibit A
1
<PAGE>
Paragraph 17: Sub-sub-sub-sublessor's Pacific Bell Network Integration
Address for notices: c/o Pacific Bell Internet Services
303 2nd St., Ste. 650, North Tower
San Francisco, CA 94107
Attn: Bryce Calvin Mason
Paragraph 23: Security Deposit: NONE
Paragraph 24: Brokers:
Sub-sub-sub-sublessor's Cushman Realty Corporation
Broker: 400 Montgomery Street, Suite 610
San Francisco, CA 94104
Attn: Mr. Charles Wiser
Mr. Mark McGranahan
Sub-sub-sub-sublessee's: Colliers Damner Pike
Broker: Two Embarcadero Center,
Suite 1000
San Francisco, CA 9411l
Attn: Mr. R. Steven Corbitt
Mr. Clint Holland
Mr. Herbert L. Damner, Jr.
The following exhibits are attached to this Sub-sub-sub-sublease and by
this reference made a part hereof:
Exhibit A - Sub-sub-sublease
Exhibit B - First, Second and Third Amendments to Sublease
Exhibit C - Plan of Premises
Exhibit D - Letter Agreement dated September 23, 1987, between Master
Lessor and Shaklee.
2
<PAGE>
THE PROVISIONS OF THE SUB-SUB-SUB-SUBLEASE identified above in the
margin are for the purpose of providing a convenient reference to the provisions
in the Sub-sub-sub-sublease where the particular Basic Lease Information
appears. The foregoing Basic Lease Information is hereby incorporated into and
made a part of the Sub-sub-sub-sublease. Each reference in the Sub-sub-sub-
sublease to any of the terms described above shall have the meaning, and
incorporate the information, hereinabove set forth. In the event of any conflict
between any Basic Lease Information and the Sub-sub-sub-sublease, the Sub-sub-
sub-sublease shall control.
SUB-SUB-SUB-SUBLESSOR: SUB-SUB-SUB-SUBLESSEE:
PACIFIC BELL NETWORK INTEGRATION, CHARLES SCHWAB & CO. INC.,
a California corporation a California corporation
By: [SIGNATURE ILLEGIBLE]^^ By: /s/ Parkash P. Ahuja
----------------------- ----------------------------
Name: [SIGNATURE ILLEGIBLE]^^ Name: Parkash P. Ahuja
--------------------- ---------------------------
Its: President Its: Senior Vice President,
---------------------- ---------------------------
Administrative Services
By: ______________________ By: ___________________________
Name: ____________________ Name: _________________________
Its: _____________________ Its: __________________________
3
<PAGE>
SUB-SUB-SUB-SUBLEASE
--------------------
________________________________________________________________________________
THIS SUB-SUB-SUB-SUBLEASE dated November___, 1996, is entered into by and
between PACIFIC BELL NETWORK INTEGRATION, a California corporation (hereinafter
referred to as "PBNI") successor in interest to Pacific Bell Development Company
and CHARLES SCHWAB & CO., INC. (hereinafter referred to as "Schwab"), with
respect to certain premises in the building located at 444 Market Street, San
Francisco, California (the "Building").
RECITALS:
--------
A. Pacific Bell Development Company is the Sub-sub-sublessee under that
certain Sub-sub-sublease dated July 9, 1996, entered into by and between
ADP/FLUOR DANIEL, INC. an Arizona corporation ("ADP"), as Sub-sub-sublessor, a
copy of which is attached hereto as Exhibit A, with respect to the premises
described therein (the "Sub-sub-subleased Premises").
B. ADP is the Sub-sublessee under that certain Sub-sublease dated March
18 1994, entered into by and between TIG Insurance Company, a California
corporation ("TIG"), as Sub-sublessor, an edited copy of which is attached to
the Sub-sub-sublease as Exhibit A thereto with respect to the premises described
therein (the "Sub-subleased Premises").
C. TIG is the Sublessee under that certain Sublease dated October 7 1987,
entered into by and between Shaklee Corporation, a Delaware corporation
("Shaklee"), as Sublessor. and TIG, a California corporation as Sublessee, as
amended by that certain Amendment No. 1 to Sublease dated April 7, 1994, that
certain Second Amendment to Sublease dated April 30, 1996, and that certain
Third Amendment to Sublease dated July 3, 1996 (the "Sublease"), a copy of which
is attached to the Sub-sub-sublease as Exhibit A thereto, except for the
Amendments, which are attached hereto as Exhibit B, with respect to the premises
described therein (the "Subleased Premises").
D. Shaklee is the Lessee under that certain Amended and Restated Office
Lease (the "Master Lease") dated June 25, 1985, by and between 444 MLHIRP
Partnership, a New York general partnership ("Master Lessor"), as Lessor, and
Shaklee, as Lessee, an edited copy of which is attached to the Sub-sub-sublease
as Exhibit A thereto.
E. Schwab desires to sub-sub-sub-sublease from PBNI, and PBNI is prepared
to sub-sub-sub-sublease to Schwab, the sub-sub-sub-sub-subleased Premises as
cross-hatched on Exhibit C attached hereto and by this reference made a part
hereof (the "Premises").
4
<PAGE>
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein, PBNI hereby sub-sub-sub-subleases to Schwab, and
Schwab hereby hires from PBNI, the Premises for the term and subject to the
terms, covenants, and conditions hereinafter set forth, to each and all of which
PBNI and Schwab hereby mutually agree.
1. Term; Delivery of Possession.
-----------------------------
(a) The term of this Sub-sub-sub-sublease shall commence as of the
later to occur of (i) PBNI's delivery of the Premises to Schwab, broom clean,
vacant of PBNI's employees, and free of PBNI's personal property (other than
personal property which Schwab has, in advance, in writing agreed to accept
pursuant to the provisions of Paragraph 1.(b) below); (ii) PBNI and Schwab have
mutually executed and delivered this Sub-sub-sub-sublease and that certain Sub-
sub-sublease of even date herewith, pursuant to which Schwab shall sub-sub-
sublease the entire twenty-ninth (29th) floor of the Building from PBNI (the
"Concurrent Sub-sub-sublease") and (iii) this Sub-sub-sub-sublease has been
approved to the extent required, by ADP, TIG, Shaklee and Master Lessor and the
Concurrent Sub-sub-sublease has been approved by TIG, Shaklee and Master Lessor,
to the extent required under the Concurrent Sub-sub-sublease (such date being
referred to herein as the "Commencement Date") (the estimated Commencement Date
being set forth in the Basic Lease Information) and unless sooner terminated as
hereinafter provided, shall end on the termination date specified in the Basic
Lease Information. If for any reason whatsoever the Commencement Date has not
occurred as of the estimated Commencement Date set forth in the Basic Lease
Information, this Sub-sub-sublease shall not be void or voidable, nor shall PBNI
be liable to Schwab for any loss or damage resulting therefrom, but in that
event, the Rent Start Date, as defined below, shall be delayed one day for each
day's delay in the Commencement Date. No delay in the Commencement Date shall
operate to extend the term hereof.
(b) The Premises shall be delivered broom-clean and free of all
personal property; however, the Premises are otherwise leased by PBNI to Schwab
without any representation or warranty, express or implied, of any kind by PBNI,
the Brokers named herein, or any of PBNI's other employees or agents (including
without limitation any warranty of habitability or fitness for a particular
use), in their "as-is, where-is" condition.
(c) Schwab hereby acknowledges that it has had a full and fair
opportunity to review and inspect the condition of the Building and the Premises
and will not hold any of the above parties responsible therefor.
(d) Any personal property or cabling remaining in the Premises on the
Commencement Date shall be deemed abandoned by PBNI and may be demolished,
removed
5
<PAGE>
and/or re-used by Schwab without any liability to PBNI. Schwab accepts
responsibility for and shall remove all existing cabling from the Premises upon
the expiration or earlier termination of this Sub-sub-sub-sublease or earlier,
if required by Master Lessor.
2. Rental.
------
(a) Base Rent. From and after the date that is thirty (30) days
---------
following the Commencement Date (the "Rent Start Date"), Schwab shall pay to
PBNI throughout the term of this Sub-sub-sub-sublease as rental for the Premises
the amount per annum specified in the Basic Lease Information as the Base Rent,
payable monthly, in advance, in 12 equal installments. The first month's rent
shall be payable upon execution of this Sub-sub-sub-sublease by Schwab, and
thereafter, the rental shall payable on or before the first day of each and
every successive calendar month of the term of this Sub-sub-sub-sublease.
(b) Additional Rent. Schwab shall pay PBNI in equal monthly
---------------
installments as Additional Rent Schwab's percentage share, as specified in the
Basic Lease Information, of the amount by which Operating Expenses for such year
exceed Operating Expenses for the 1997 calendar year, as "Operating Expenses"
are defined in paragraph 5.1 of the Master Lease (incorporated by reference in
paragraph 4 of this Sub-sub-sub-sublease); and Schwab shall pay PBNI in equal
monthly installments as Additional Rent Schwab's percentage share of the amount
by which Taxes for such year exceed Taxes for the 1996/97 fiscal year (the "Tax
Base Year"), as "Taxes" are defined in paragraph 5.1 of the Master Lease
(incorporated by reference in paragraph 4 of this Sub-sub-sub-sublease). Schwab
shall pay monthly one-twelfth (1/12th) of the Additional Rent to be paid for
such year hereunder, based on the Master Lessor's estimate of Operating Expenses
and Taxes; and after the end of a calendar year, in the case of Operating
Expenses, or a fiscal year, in the case of Taxes, promptly after receipt by
Schwab of a statement of actual Operating Expenses or Taxes, Schwab shall pay
any additional amount owing on account of Operating Expenses or Taxes, or PBNI
shall refund any amount owed to Schwab on account of Operating Expenses or
Taxes, as the case may be, in accordance with the terms of the Master Lease.
Schwab acknowledges that TIG may not receive from Shaklee, and hence PBNI may
not receive from ADP, and hence Schwab may not receive from PBNI, notice of the
estimated increase in Additional Rent for any calendar year until some months
after the first of such calendar year, and Schwab agrees that, upon receipt of
such notice from PBNI, Schwab shall pay PBNI in a lump sum all payments
designated in such notice as payments owing for estimated increases in
Additional Rent not previously paid and attributable to the period prior to the
date of payment, such lump sum payment being payable with the monthly
installment of Base Rent that is next due. PBNI agrees to forward to Schwab a
copy of any such notice applicable to the term of this Sub-sub-sub-sublease or
the base year that PBNI receives within ten (10) business days; provided,
however, that failure to do so shall not be a default on the part of PBNI. PBNI
and Schwab acknowledge that Schwab's percentage share has been determined by
dividing the net rentable area of the Premises, as specified in the Basic Lease
Information, by 605,459 square feet, which is the net rentable area of the
Building.
6
<PAGE>
Schwab shall also pay PBNI, as Additional Rent, for any special services PBNI,
ADP, TIG, Shaklee or Master Lessor may agree to provide in connection with this
Sub-sub-sub-sublease.
(c) Notwithstanding the definition of Taxes in paragraph 5.1 of the
Master Lease, for purposes of' this Sub-sub-sub-sublease, the amount of Taxes
during the Tax Base Year shall be deemed to be the amount of Taxes incurred
during the Tax Base Year, reduced by any reduction obtained under California
Revenue and Taxation Code, Section 51 ("Proposition 8"), attributable to the
value of the real property on which the Building is located, the Building, the
parking facilities located on the real property on which the Building is
located, and all tenant improvements. If, in any comparison year subsequent to
the Tax Base Year (the "Adjustment Year"), the amount of Taxes decreases as a
result of a Proposition 8 reduction, then for purposes of that Adjustment Year
and all subsequent comparison years, the Taxes for the Tax Base Year shall be
deemed to be decreased by an amount equal to the decrease in Taxes in the
Adjustment Year. Conversely, if the Taxes thereafter are increased during any
comparison year subsequent to the Adjustment Year (the "Readjustment Year"), as
a result of the failure to obtain a Proposition 8 reduction that is at least as
large as the Proposition 8 reduction obtained during the Adjustment Year, then
for purposes of the Readjustment Year and all subsequent comparison years, the
Taxes for the Tax Base Year shall be increased by an amount equal to the
increase in Taxes during such Readjustment Year that resulted from the failure
to obtain a Proposition 8 reduction at least as large as the Proposition 8
reduction obtained during the Adjustment Year. PBNI and Schwab acknowledge that
this Paragraph 2(c) is not intended in any way to affect (i) the statutory two
percent (2%) annual increase in Taxes (as such statutory increase may be
modified by subsequent legislation), or (ii) the inclusion or exclusion of Taxes
pursuant to the terms of Article XIII A of the California Constitution, commonly
referred to as Proposition 13.
(d) Notwithstanding anything elsewhere in this Sub-sub-sub-sublease
to the contrary, Schwab shall not be required to pay any increased Taxes to the
extent that such increase has resulted from a "change in ownership" of the
Building, as defined in Division 1, Chapter 2 of the California Revenue &
Taxation Code, or "new construction", as defined in Division 1, Chapter 3 of the
California Revenue & Taxation Code.
(e) In the event the Rent Start Date is a day other than the first
day of a calendar month or the term of this Sub-sub-sub-sublease ends on a day
other than the last day of a calendar month, then the monthly rental for the
first and last fractional months of the term hereof shall be appropriately
prorated.
(f) Rental shall be paid to PBNI, without deduction or offset,
(except as may be allowed under the Master Lease) in lawful money of the United
States of America at PBNI's address for notices hereunder or to such other
person or at such other place as PBNI may from time to time designate in
writing. All amounts of money payable by Schwab to PBNI hereunder, if not paid
when due and after 5 days' written notice from PBNI, shall bear
7
<PAGE>
interest from 5 days after such notice is given until paid at the rate of 10%
per annum or, if a higher rate is legally permissible, at the highest rate
legally permitted.
3. Use. The Premises shall be used for general office purposes and no
---
other purpose. Schwab shall not do or permit to be done in or about the
Premises, nor bring or keep or permit to be brought or kept therein, anything
that is prohibited by paragraph 7 of the Master Lease.
4. Other Sub-sub-sub-sublease Terms.
--------------------------------
(a) The following terms and provisions of the Master Lease are hereby
incorporated in this Sub-sub-sub-sublease by this reference: paragraphs 2 (but
not the third and fourth sentences thereof), 5.1(a), 5.1(b) (first paragraph,
only), 5.3, 5.4, 5.5, 5.7, 6, 7 (other than the first sentence), 8(a)-(f)
(except that paragraph 8(e) is modified pursuant to that certain letter
agreement dated September 23, 1987, between Master Lessor and Shaklee ("Letter
Agreement") attached thereto as Exhibit D, and Schwab hereby understands and
accepts that Master Lessor, pursuant to TIG's original HVAC design, will
maintain indoor conditions with respect to the Premises no higher than 75
degrees Fahrenheit dry bulb during the cooling season) and (h)-(j) (but not the
last sentence of 8(h) or the portion of 8(i) deleted from Exhibit A to the
Sublease), l 0, 11 (but not 11.1 or the sentences stricken on Exhibit A to the
Sublease), 12, 15, 17 (but not the last sentence thereof), 18, 19, 20, 21, 22,
23, 24, 25, 27, 30.2(2), 30.2(4) (but not the second paragraph thereof), 33, 36,
37, 39, 40, 43, 44, 45, 50 (as to Exhibits C-H thereto, only). The Sublease
(except Paragraph 13 and Exhibit C thereto), including paragraph 2 of the Second
Amendment to Sublease, but excluding all of Amendment No. 1 to Sublease, is
incorporated except as may be inconsistent with this Sub-sub-sub-sublease. The
Sub-sublease (except Paragraph 13, Exhibit C and Exhibit D thereto) is
incorporated except as may be inconsistent with this Sub-sub-sub-sublease. The
Sub-sub-sublease, (including Exhibit D, that certain Letter Agreement attached
hereto), is incorporated except as may be inconsistent with this Sub-sub-sub-
sublease. Except as is specified in this Sub-sub-sub-sublease, this subletting
is upon and subject to all of the terms of the Master Lease, Sublease, Sub-
sublease and sub-sub-sublease so incorporated in this Sub-sub-sub-sublease. Such
incorporated terms shall constitute the terms of this Sub-sub-sub-sublease as
between PBNI and Schwab as "Landlord" and "Tenant," respectively, except that
paragraph 5.1 of the Master Lease shall be incorporated reading "Landlord" to
refer to the Master Lessor insofar as the calculation of Operating Expenses and
Taxes is concerned, and paragraphs 2, 18, and 26 of the Master Lease shall be
incorporated reading "Landlord" to refer to Master Lessor, Shaklee, TIG and ADP.
Schwab shall perform and observe for the benefit of Master Lessor, Shaklee, TIG,
ADP and PBNI each and all of the conditions, covenants, and obligations to be
performed by Shaklee as Tenant under the Master Lease, by TIG under the
Sublease, by ADP under the Sub-sublease and by PBNI under the Sub-sub-sublease,
to the extent said conditions, covenants, and obligations are incorporated in
this Sub-sub-sub-sublease and are applicable to the Premises. Master Lessor,
Shaklee, TIG, and ADP shall have the same rights and privileges under this Sub-
sub-sub-sublease that they have under the Master Lease, the Sublease, the Sub-
sublease and the Sub-
8
<PAGE>
sub-sublease, to the extent such rights and privileges are incorporated in this
Sub-sub-sub-sublease and are applicable to the Premises, and shall have the
right, but not the obligation, to enforce such conditions, covenants, and
obligations directly against Schwab. Schwab and PBNI covenant not to take any
action or do or perform any act or fail to perform any act on the Premises that
would result in the failure or breach of any of the terms, conditions,
covenants, agreements, provisions or obligations of Shaklee under the Master
Lease, of TIG under the Sublease, of ADP under the Sub-sublease or of PBNI under
the Sub-sub-sublease. Notwithstanding the incorporation herein of the foregoing
provisions of the Master Lease, Schwab acknowledges that PBNI shall have no
responsibility or obligation with respect to (i) furnishing any services under
paragraph 8 of the Master Lease, including, but not limited to, utilities, or
(ii) making any alterations, repairs, or replacements under paragraphs 11, 12,
or 15 of the Master Lease, and the sole responsibility of PBNI thereunder shall
be as described in Paragraph 28(g) below, to use reasonable efforts, without
out-of-pocket cost to PBNI, to cause Master Lessor, Shaklee, TIG or ADP to
furnish such services or make such alterations, repairs, or replacements as are
required under the Master Lease, Sublease, Sub-sublease or Sub-sub-sublease. Any
notices given to Master Lessor in connection with paragraphs 8, 11, 12, or 15
of the Master Lease, or any other provisions of this Sub-sub-sub-sublease, shall
also simultaneously be given to PBNI, ADP, TIG and Shaklee, whether or not PBNI,
ADP, TIG or Shaklee has any responsibility to take action in response to such
notices. Schwab shall indemnify and save PBNI, ADP, TIG and Shaklee harmless
against any loss, damage, or injury that ADP, TIG or Shaklee may suffer or incur
under the Master Lease, Sublease, Sub-sublease, Sub-sub-sublease as the result
of any breach by Schwab of its obligations under this Sub-sub-sub-sublease.
(b) PBNI and Schwab acknowledge that certain of the provisions of the
Master Lease enumerated above that are not incorporated in this Sub-sub-sub-
sublease have been deleted from the copy of the Master Lease attached to the
Sub-sub-sublease as Exhibit A, in order to protect the confidential aspects of
the contractual relationship between Shaklee and Master Lessor, and subject to
all of the terms and conditions stated therein. PBNI hereby represents and
warrants that, to the knowledge of PBNI, the provisions so deleted are not
inconsistent with the incorporated terms of the Master Lease and shall not
affect Schwab's rights and obligations under this Sub-sub-sub-sublease. Except
for such deletions and the portions of Exhibit A to the Sub-sub-sublease that
have been stricken as described in subparagraph (a), above, PBNI represents and
warrants that, to PBNI's knowledge, Exhibit A to the Sub-sub-sublease is a true
and correct copy of the Master Lease. Schwab agrees not to disclose the contents
of the Master Lease or any portion thereof to any third parties, other than its
counsel and the persons listed as brokers in the Basic Lease Information,
without the prior written consent of PBNI, ADP, TIG and Shaklee.
5. [INTENTIONALLY OMITTED]
6. Alterations. Schwab shall not make any alterations, additions, or
-----------
improvements to the Premises, or attach any fixtures or equipment thereto,
without the prior written consent of
9
<PAGE>
PBNI, Master Lessor, Shaklee, TIG and ADP. Schwab shall not make any
alterations, additions, or improvements to the Premises, or attach any fixtures
or equipment thereto that would violate any provisions of the Master Lease,
Sublease, Sub-sublease or Sub-sub-sublease. Any such alterations, additions or
improvements, or fixtures or equipment, shall be subject to, without limitation,
Paragraph 2 of the Second Amendment to Sublease. PBNI acknowledges that Schwab
intends to construct certain improvements within the Premises ("Schwab
Improvements') following the Commencement Date and will not unreasonably
withhold its consent to construct the Schwab Improvements.
7. Excess Electrical Usage. Schwab agrees to pay PBNI, in lieu of any
-----------------------
payment to PBNI, ADP, TIG, Shaklee or the Master Lessor of any direct charges
for electrical usage in excess of the electrical usage included within the
definition of "Operating Expenses" under the Master Lease ("Excess Electrical
Usage"), a flat fee of $135.00 per month, regardless of the amount, if any, of
Schwab's actual Excess Electrical Usage, and without any adjustment. Without
limiting the generality of the foregoing, such flat fee shall not be adjusted to
reflect any changes in utility rates or the actual amount of Excess Electrical
Usage in the Premises.
8. Fitness Center and Cafeteria. Schwab acknowledges that PBNI is not
----------------------------
entitled to any memberships in the fitness center located on the third floor of
the Building (the "Fitness Center"). Schwab acknowledges that Shaklee has
reserved the right to close or otherwise limit access to the Fitness Center or
the cafeteria located on the second floor of the Building (the "Cafeteria"), or
to transfer ownership or operation of either facility, at any time and in its
sole discretion. In the event the Cafeteria or Fitness Center should close or be
made unavailable, or in the event of a transfer of ownership or operation of
either facility, all Schwab's rights, if any, to use of such facility shall
terminate.
9. Signage. PBNI agrees to use reasonable efforts to obtain the
-------
necessary approvals for Schwab to place identification signs in the Building.
Placement of such signs shall in any event be limited to the elevator lobbies of
the floor occupied by Schwab and the directory located in the ground floor lobby
of the Building.
10. Parking. Subject to PBNI's continued right to obtain parking stalls
-------
pursuant to the Sub-sub-sublease, ADP's right to obtain stalls pursuant to the
Sub-sublease, and TIG's continued right to obtain parking stalls pursuant to the
Sublease, Schwab shall be entitled during the term of this Sub-sub-sub-sublease
to use up to nine (9) parking stalls in the Building garage, provided that:
(a) Schwab shall notify PBNI in writing within two (2) weeks of
execution of this Sub-sub-sub-sublease of the number of parking stalls Schwab
shall require initially under this Sub-sub-sub-sublease; and
10
<PAGE>
(b) PBNI shall not be obligated to provide any minimum number of
parking stalls at the commencement of the Sub-sub-sub-sublease term until seven
(7) months after it receives such notice.
Notwithstanding the foregoing, PBNI shall use reasonable efforts to make
available to Schwab the number of parking stalls so requested by Schwab, up to
(nine) 9 stalls, as of the date Schwab takes occupancy under the Sub-sub-sub-
sublease; but PBNI shall have no liability to Schwab if, notwithstanding
Schwab's use of its reasonable efforts, it is unable to make available (nine) 9
stalls as of the date Schwab takes occupancy. In order to increase (up to a
maximum of (nine) 9 stalls) the number of parking stalls it desires to use
hereunder, Schwab shall notify PBNI in writing at least seven (7) months prior
to the date of such desired increase. Schwab shall give PBNI at least forty-five
(45) days' written notice of any decrease in the number of parking stalls it
intends to use. Schwab shall pay for such use at the current market rates for
parking in the Building garage and such use shall be subject to the prevailing
terms and conditions imposed by garage management. Schwab shall pay Shaklee
directly for such parking monthly upon invoicing.
11. [INTENTIONALLY OMITTED]
12. Waiver and Indemnification.
--------------------------
(a) Neither Master Lessor, Shaklee, TIG, ADP nor PBNI shall be liable
or responsible in any way for, and Schwab hereby waives all claims against
Master Lessor, Shaklee, TIG, ADP and PBNI with respect to or arising out of, any
death or injury of any nature whatsoever that may be suffered or sustained by
Schwab or any employee, licensee, invitee, guest, agent, or customer of Schwab
or any other person, from any causes whatsoever, or any loss or damage or injury
to any property outside or within the Premises belonging to Schwab or its
employees, agents, customers, licensees, invitees, guests, or any other person,
except, as to PBNI, to the extent such injury or damage is caused by the
negligence or willful act or omission of PBNI or its employees, agents,
customers, licensees, invitees, or guests; except, as to ADP, to the extent such
injury or damage is caused by the negligence or willful act or omission of ADP
or its employees, agents, customers, licensees, invitees, or guests; except, as
to TIG, to the extent such injury or damage is caused by the negligence or
willful act or omission of TIG or its employees, agents, customers, licensees,
invitees, or guests; and except, as to Shaklee, to the extent such injury or
damage is caused by the negligence or willful act or omission of Shaklee or its
employees, agents, customers, licensees, invitees, or guests; and except, as to
Master Lessor, to the extent such injury or damage is caused by the negligence
or willful act or omission of Master Lessor or its employees, agents, customers,
licensees, invitees, or guests.
(b) Schwab shall hold Master Lessor, Shaklee, TIG, ADP and PBNI
harmless from and defend and indemnify Master Lessor, Shaklee, TIG, ADP and PBNI
against any and all losses, damages, claims, or liability for any damage to any
property or injury,
11
<PAGE>
illness, or death of any person (i) occurring in or on the Premises, or any part
thereof, arising at any time and from any cause whatsoever except, as to PBNI,
to the extent caused by the negligence or willful act or omission of PBNI or its
employees or agents; except, as to ADP, to the extent caused by the negligence
or Willful act or omission of ADP or its employees or agents; except, as to TIG,
to the extent caused by the negligence or willful act or omission of TIG or its
employees or agents; except, as to Shaklee, to the extent caused by the
negligence or willful act or omission of Shaklee or its employees or agents; and
except, as to Master Lessor, to the extent caused by the negligence or willful
act or omission of Master Lessor or its employees or agents; and (ii) occurring
in, on, or about any part of the Building other than the Premises, when such
damage, injury, illness, or death shall be caused in whole or in part by the
negligence or willful act or omission of Schwab or its employees, agents,
customers, licensees, invitees, or guests.
(c) The provisions of this paragraph 12 (i) are subject and
subordinate to the provisions of paragraph 14 below; and (ii) shall survive the
termination of this Sub-sub-sub-sublease with respect to any damage, injury,
illness, or death occurring prior to such termination.
13. Insurance.
----------
(a) Schwab shall, at its sole cost and expense, obtain and keep in
force during the term of this Sub-sub-sub-sublease fire and extended coverage
insurance on all improvements, fixtures, furnishings, and equipment in and upon
the Premises in an amount not less than one hundred percent (100%) of the full
replacement cost (without deduction for depreciation) thereof. All amounts that
shall be received under the insurance specified in this paragraph shall first be
applied to the payment of the cost of repair or replacement of any fixtures,
furnishings, equipment, and improvements that are damaged or destroyed, or, if
this Sub-sub-sub-sublease terminates prior to such repair or replacement being
made, paid over to PBNI, to the extent that the improvements or fixtures damaged
or destroyed would have become PBNI's property pursuant to paragraph 25 hereof,
provided, however, that Schwab shall be entitled to that portion of said
insurance proceeds equal to the unamortized value of said improvements and
fixtures.
(b) Schwab shall, at its sole cost and expense, obtain and keep in
force during the term of this Sub-sub-sub-sublease commercial general liability
insurance with limits of not less than Five Million Dollars ($5,000,000) per
occurrence for injury to or illness or death of persons occurring in, upon, or
about the Premises (or the Premises subleased by Schwab from PBNI under the
Concurrent Sub-sub-sublease) or the Building or damage to property occurring in,
upon, or about the Premises or the Building. All such insurance shall insure the
performance by Schwab of the indemnity agreement as to liability for injury to
or illness or death of persons and damage to property set forth in paragraph 12
hereof.
12
<PAGE>
(c) All insurance required under this paragraph and all renewals
thereof shall be issued by an insurance company licensed to do business in
California and maintaining no less than an A-XI Best's rating and approved by
Master Lessor, Shaklee, TIG, ADP and PBNI, which approvals shall not be withheld
unreasonably if the insurance and company meet all requirements of the Master
Lease, Sublease, Sub-sublease and Sub-sub-sublease. Each policy shall expressly
provide that the insurer shall give not less than 45 days' prior written notice
to Master Lessor, Shaklee, TIG, ADP and PBNI prior to canceling or altering the
policy in a way that would affect the coverage, limits or substantive coverage
terms affecting the Premises (an "Alteration"). Schwab shall give Master Lessor,
Shaklee, TIG, ADP and PBNI 45 days' prior written notice of any cancellation or
Alteration. All insurance under this paragraph shall name Master Lessor,
Shaklee, TIG, ADP and PBNI as additional insureds, shall be primary and
noncontributing with any insurance that may be carried by Master Lessor,
Shaklee, TIG, ADP and PBNI, and shall expressly provide that Master Lessor,
Shaklee, TIG, ADP, and PBNI shall be named as additional insureds by endorsement
to the policy or policies, and, as such, shall be entitled to recover under the
policy for any loss, injury, or damage to Master Lessor, Shaklee, TIG, ADP, PBNI
or the employees or contractors of any of them arising out of this Sub-sub-sub-
sublease. Upon the Commencement Date (or, if Schwab elects to access the
Premises prior to the Commencement Date, upon such early entry by Schwab) and
upon annual renewal of the policy or policies throughout the term of this Sub-
sub-sub-sublease, each such policy or a duplicate or certificate of insurance,
and endorsement to the policy or policies, evidencing such coverage shall be
delivered to Master Lessor, Shaklee, TIG, ADP and PBNI for retention by each of
them. In the event that Schwab shall fail to insure or shall fail to furnish to
Master Lessor, Shaklee, TIG, ADP and PBNI any such policy, duplicate policy, or
certificate and endorsement to the policy or policies as herein required, Master
Lessor, Shaklee, TIG, ADP or PBNI may from time to time effect such insurance
for the benefit of Schwab, Master Lessor, Shaklee, TIG, ADP, PBNI or any or all
of them for a period not exceeding one year, and any premium paid by Master
Lessor, Shaklee, TIG, ADP or PBNI shall be recoverable from Schwab as additional
rent on demand.
14. Waiver of Subrogation. PBNI hereby waives all claims against Schwab
---------------------
for loss or damage to the extent that such loss or damage is insured against
under any insurance policy insuring PBNI, or would have been insured against
under any insurance policy required to be maintained by PBNI under the Sub-sub-
sublease had such policy been obtained, except to the extent that such waiver
would impair coverage under any such insurance policy, and except that PBNI does
not waive any claims it may have with respect to any deductible amount under any
such policy. Schwab waives all claims against Master Lessor, Shaklee, TIG, ADP
and PBNI for loss or damage to the extent such loss or damage is insured against
under any insurance policy insuring Schwab, or would have been insured against
under any insurance policy required to be maintained by Schwab under this Sub-
sub-sub-sublease had such policy been obtained, or would have been insured
against but for any deductible amount under any such policy, except to the
extent that such waiver would impair coverage under any such insurance policy,
and except that Schwab does not waive any claims against PBNI it may have with
respect to any deductible amount under any such policy. PBNI and Schwab shall
each,
13
<PAGE>
prior to or immediately after the execution of this Sub-sub-sub-sublease, use
best efforts to obtain from each insurer under all insurance policies now or
hereafter existing during the term of this Sub-sub-sub-sublease and purchased by
either of them insuring or covering any portion of the Building or the Premises,
the contents thereof, or any operations therein, a waiver of all fights of
subrogation that the insurer might otherwise, if at all, have against the other
party to this Sub-sub-sub sublease.
15. Assignment and Subletting.
-------------------------
(a) Except as set forth in this paragraph, Schwab shall not: (i)
assign, encumber, or otherwise transfer this Sub-sub-sub-sublease, the term or
estate hereby granted, or any interest hereunder; (ii) permit the Premises or
any part thereof to be used by anyone other than Schwab (whether as licensee,
permittee, or otherwise); or (iii) sublet or offer or advertise for subletting
the Premises or any part thereof. Any attempted assignment, encumbrance,
transfer, or sublease not done in accordance with the provisions of this
paragraph shall be voidable and, at PBNI's election, shall constitute a default
hereunder.
(b) If at any time during the term hereof Schwab desires to sublet
all or any part of the Premises, then Schwab shall submit to PBNI, ADP, TIG and
Shaklee, in writing, a notice of intent to assign or sublease, setting forth:
(i) the proposed effective date of the assignment or sublease; (ii) the name of
the proposed subtenant or assignee (collectively hereinafter,
"subtenant/assignee"); and (iii) the nature of the proposed subtenant/assignee's
business to be carried on in the Premises. Such notice shall be accompanied by
(x) such reasonable financial information as PBNI, ADP, TIG or Shaklee may
request concerning the proposed subtenant/assignee, including recent financial
statements and bank references: and (y) a conformed or photostatic copy of the
proposed sublease or assignment agreement (or, if not yet available, a
description of the contemplated form of agreement).
(c) In the event that Schwab complies with the provisions of
subparagraph (b), PBNI's consent to a proposed sublease or assignment, subject
to approval by ADP, Shaklee and TIG, shall not be unreasonably withheld. PBNI
shall respond to Schwab's notice to sublet within fifteen (15) business days of
receipt by PBNI of all information required herein concerning the proposed
subtenant or assignee. Schwab shall promptly reimburse PBNI for PBNI's, ADP's
TIG's and Shaklee's reasonable out-of-pocket costs actually incurred in
reviewing the proposed sublease or assignment, including reasonable attorneys'
fees following demand therefor accompanied by reasonable backup documentation.
In determining whether to grant or withhold such consent, PBNI, ADP, TIG and
Shaklee may consider any reasonable factor. Without limiting what may be
construed as a reasonable factor, it is hereby agreed that any one of the
following factors will be reasonable grounds for disapproval of a proposed
assignment or sublease:
14
<PAGE>
(i) The proposed subtenant/assignee does not, in the
reasonable judgment of PBNI, ADP, TIG or Shaklee, have sufficient financial
worth in view of the responsibility involved;
(ii) The proposed subtenant/assignee does not, in the
reasonable judgment of PBNI, ADP, TIG or Shaklee, have a good reputation as
a tenant of property;
(iii) PBNI, ADP, TIG or Shaklee has received from any prior
lessor of the proposed subtenant/assignee a significant negative report
concerning such prior lessor's experience with the proposed
subtenant/assignee as a tenant;
(iv) PBNI, ADP, TIG or Shaklee has been involved in a previous
landlord/tenant dispute with the proposed subtenant/assignee;
(v) The proposed subtenant/assignee is not, in the reasonable
judgment of PBNI, ADP, TIG or Shaklee, of the type, character, and quality
consistent with the high quality and prestigious image of the Building;
(vi) In the reasonable judgment of PBNI, ADP, TIG or Shaklee,
the proposed assignment or sublease would violate paragraph 7 or 16 of the
Master Lease;
(vii) The use of the Premises by the proposed subtenant/assignee
would violate some applicable law, ordinance, or regulation;
(viii) The proposed assignment or sublease would create a
vacancy elsewhere in the Building;
(ix) The proposed subtenant/assignee is a person with whom
PBNI, ADP, TIG or Shaklee is negotiating to lease space in the Building
comparable in both length of term and net rentable square footage to the
space Schwab is seeking to assign or sublet;
(x) The proposed subtenant/assignee is in the business of
manufacturing or in the general business of selling nutritional
supplements, household or personal care products, gourmet foods, or
flowers, or deals in any other product lines that Shaklee manufactures or
sells, or plans to manufacture or sell as of the date of the proposed
sublease or assignment, or is in the business of marketing any such
merchandise through direct sale or direct mail, at the time of the proposed
assignment or sublease;
(xi) In the case of a proposed sublease, the proposed sublease
would cause there to be more than one subtenant of the Subleased Premises,
the Sub-subleased Premises, the Sub-sub-subleased Premises, or the
Premises;
(xii) The proposed assignment or sublease fails to include all
of the terms and provisions required to be included therein pursuant to
this paragraph 15;
(xiii) Schwab is in default of any of its obligations under this
Sub-sub-sub-sublease, or has defaulted under this Sub-sub-sub-sublease on
three or more occasions during the twelve months preceding the date Schwab
requests PBNI's consent to the proposed assignment or sublease; or
(xiv) ADP, TIG or Shaklee shall not consent to the proposed
assignment or sublease.
15
<PAGE>
(d) The instrument by which assignment or subletting is accomplished
shall (i) expressly provide that the subtenant/assignee shall perform and
observe all the agreements, covenants, and conditions to be performed and
observed by Schwab under this Sub-sub-sub-sublease (except as to rent and term
or as otherwise agreed to by PBNI); (ii) be expressly subject and subordinate to
each and every provision of this Sub-sub-sub-sublease; (iii) have a term that
expires on or before the expiration of the term of this Sub-sub-sub-sublease;
(iv) provide that if Master Lessor, Shaklee, TIG, ADP and PBNI succeeds to
Schwab's position as landlord vis-a-vis the subtenant/assignee, neither Master
Lessor, Shaklee, TIG, ADP and PBNI shall be liable to such subtenant/assignee
for advance rental payments, rental deposits, or other payments that have not
actually been delivered to Shaklee, TIG, ADP, or PBNI by Schwab; and (v) provide
that Schwab or the subtenant/assignee shall reimburse PBNI for any additional
costs or expenses incurred by PBNI for repairs or maintenance or otherwise as a
result of the change in occupancy.
(e) No assignment or sublease shall be valid, and no
subtenant/assignee shall take possession of the Premises or any part thereof,
until an executed counterpart of the assignment or sublease has been delivered
to PBNI, ADP, TIG and Shaklee.
(f) Notwithstanding PBNI's consent, no subletting or assignment shall
release or otherwise alter Schwab's obligations to pay the rent and to perform
all other obligations to be performed by Schwab hereunder. The acceptance of
rent by PBNI from any other person shall not be deemed to be a waiver by PBNI of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. If any assignee of
Schwab or any successor of Schwab defaults in the performance of any of the
terms hereof, PBNI may proceed directly against Schwab without the necessity of
exhausting remedies against such assignee or successor.
(g) In the event that PBNI assigns, transfers, or conveys its
interest in the Sub-sub-sublease, and provided that the instrument of
assignment, transfer, or conveyance shall expressly require the assignee or
transferee to assume all such liabilities and obligations, all liabilities and
obligations on the part of PBNI under this Sub-sub-sub-sublease shall terminate,
and the instrument of assignment, transfer, or conveyance shall expressly
require the assignee or transferee to assume all such liabilities and
obligations. Schwab agrees to attorn to such assignee or transferee.
16. Holdover. If Schwab remains in possession of the Premises after
--------
expiration, but not earlier termination, of this Sub-sub-sub-sublease, all of
the terms, covenants, and agreements hereof shall continue to bind Schwab to the
extent applicable, except that, if Schwab remains in possession without PBNI's
written consent, then: (a) the monthly Base Rent shall be two (2) times the
monthly Base Rent payable for the last month of the Sub-sub-sub-sublease term,
prorated on a daily basis for each day Schwab remains in possession, and (b)
Schwab shall indemnify PBNI against any and all claims, losses, and liabilities
for damages, consequential or otherwise, resulting from Schwab's failure to
surrender possession, including
16
<PAGE>
without limitation any claims by ADP, TIG, Shaklee, Master Lessor or any
succeeding sublessee.
17. Notices. All notices and demands that may or are required to be given
-------
by either party to the other hereunder shall be in writing and shall be deemed
to have been fully given when delivered by reputable overnight courier, or when
deposited in the United States mail, certified or registered, postage prepaid,
and addressed as follows: to Schwab at the address specified in the Basic Lease
Information, or to such other place as Schwab may from time to time designate in
a notice to PBNI; to PBNI at the address specified in the Basic Lease
Information, or to such other place as PBNI may from time to time designate in a
notice to Schwab. Schwab hereby appoints as its agent to receive the service of
all dispossessory or distraint proceedings and notices thereunder the person in
charge or occupying the Premises at the time, and, if no person shall be in
charge of or occupying the same, then such service may be made by attaching the
same on the main entrance of the Premises.
18. Subordinate to Master Lease, Sublease, Sub-sublease, and Sub-sub-sublease.
-------------------------------------------------------------------------
(a) This Sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of and all rights of Master
Lessor under the Master Lease. Without limiting the generality of the foregoing,
any termination of the Master Lease prior to the end of the term of this Sub-
sub-sub-sublease shall terminate this Sub-sub-sub-sublease.
(b) This Sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of and all rights of Shaklee
under the Sublease. Without limiting the generality of the foregoing, any
termination of the Sublease prior to the end of the term of this Sub-sub-sub-
sublease shall terminate this Sub-sub-sub-sublease. PBNI covenants to do all
acts reasonably necessary and perform all obligations required to be performed
by it under the Sub-sub-sublease, the Sub-sublease, the Sublease and the Master
Lease (insofar as incorporated into the Sub-sub-sublease), except insofar as
such acts or obligations are required to be performed by Schwab hereunder; and
PBNI covenants not to cancel or terminate, or suffer, consent or agree to the
cancellation or termination of the Sublease, the Sub-sublease, or the Sub-sub-
sublease, during the term of this Sub-sub-sub-sublease, so long as Schwab is not
in default of this Sub-sub-sub-sublease beyond any applicable cure period.
(c) This Sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of and all rights of TIG
under the Sub-sublease. Without limiting the generality of the foregoing, any
termination of the Sub-sublease prior to the end of the term of this Sub-sub-
sub-sublease shall terminate this Sub-sub-sub-sublease. PBNI covenants to do all
acts reasonably necessary and perform all obligations required to be performed
by it under the Sub-sub-sublease, the Sub-sublease, the Sublease and the Master
Lease (insofar as incorporated into the Sub-sub-sublease), except insofar as
such acts or
17
<PAGE>
obligations are required to be performed by Schwab hereunder; and PBNI covenants
not to cancel or terminate, or suffer, consent or agree to the cancellation or
termination of, the Sublease, the Sub-sublease, or the Sub-sub-sublease, during
the term of this Sub-sub-sub-sublease, so long as Schwab is not in default of
this Sub-sub-sub-sublease beyond any applicable cure period.
(d) This Sub-sub-sub-sublease is and shall be at all times subject
and subordinate to all of the terms and conditions of and all rights of ADP
under the Sub-sub-sublease. Without limiting the generality of the foregoing,
any termination of the Sub-sub-sublease prior to the end of the term of this
Sub-sub-sub-sublease shall terminate this Sub-sub-sub-sublease. PBNI covenants
to do all acts reasonably necessary and perform all obligations required to be
performed by it under the Sub-sub-sublease (including payment of base rent and
additional rent), the Sub-sublease, the Sublease and the Master Lease (insofar
as incorporated into the Sub-sub-sublease), except insofar as such acts or
obligations are required to be performed by Schwab hereunder; and PBNI covenants
not to cancel or terminate, or suffer, consent or agree to the cancellation or
termination of, the Sublease, the Sub-sublease, or the Sub-sub-sublease, during
the term of this Sub-sub-sub-sublease, so long as Schwab is not in default of
the Sub-sub-sub-sublease beyond any applicable cure period.
(e) If ADP, TIG, Shaklee or Master Lessor succeeds to PBNI's position
as landlord vis-a-vis Schwab, neither ADP, TIG, Shaklee nor Master Lessor shall
be liable to Schwab for advance rental payments, rental deposits, or other
payments that have not actually been delivered to ADP, TIG, Shaklee or Master
Lessor.
(f) If PBNI receives any notice or demand from Master Lessor under
the Master Lease, from Shaklee under the Sublease, from TIG under the Sub-
sublease, or from ADP under the Sub-sub-sublease with respect to the Premises,
PBNI shall, pursuant to Paragraph 22, deliver a true and correct copy of same to
Schwab.
19. No Privity. Nothing contained in this Sub-sub-sub-sublease shall be
----------
construed to create privity of estate or of contract between Schwab and Master
Lessor. PBNI and Schwab each agrees not to do or permit to be done any act or
thing that will constitute a breach or violation of any of the terms, covenants,
conditions, or provisions of the Master Lease, Sublease, Sub-sublease or Sub-
sub-sublease.
20. No Representations. In making and executing this Sub-sub-sub-
------------------
sublease, Schwab has not relied upon or been induced by any statements or
representations of any persons, including, without limitation, PBNI, the Brokers
named herein, and PBNI's other employees and agents (other than those
representations, if any, set forth expressly in this Sub-sub-sub-sublease) with
respect to the physical condition of the Building or the Premises or with
respect to any other matter affecting the Premises or this transaction that
might be pertinent in considering the leasing of the Premises or the execution
of this Sub-sub-sub-sublease, including, without limitation, the following: (i)
the legality of the present or any
18
<PAGE>
possible future use of the Building or the Premises under federal, state or
local law; (ii) the physical condition of the building and/or the Premises,
including but not limited to soil condition and the structural integrity of the
Building and/or the Premises; (iii) the accuracy or completeness of square
footage figures, and of the texts of agreements affecting the Building and/or
the Premises; or (iv) the possibility that leases, options or other documents or
agreements exist that affect or encumber the Building and/or the Premises and
which have not been provided or disclosed by the Master Lessor, Shaklee, TIG,
ADP or, with respect to the Brokers named herein and PBNI's other agents,
contractors, employees, officers and directors, by PBNI. Schwab has, on the
contrary, relied solely on such representations, if any, as are expressly made
herein and on such investigations, examinations, and inspections as Schwab has
chosen to make or have made. Schwab acknowledges that PBNI has afforded Schwab
the opportunity for full and complete investigations, examinations, and
inspections.
21. PBNI's Approval. Whenever Schwab shall request PBNI's consent or
---------------
approval, such consent or approval shall not be unreasonably withheld, provided
that PBNI's refusal to consent to or approve any matter, whenever PBNI's consent
or approval is required or requested under this Sub-sub-sub-sublease, shall be
deemed reasonable, if, among other things, PBNI has used its best efforts to
obtain such consent or approval but ADP, TIG, Shaklee or Master Lessor has
refused to give such consent or approval. Nothing in this Sub-sub-sub-sublease
shall diminish or in any way affect Master Lessor's right to approve or consent
under the Master Lease, Shaklee's right to approve or consent under the
Sublease, TIG's right to approve or consent under the Sub-sublease, ADP's right
to approve or consent under the Sub-sub-sublease, nor imply a constraint of
reasonableness with respect to the exercise of such rights.
22. Time Limits. PBNI shall, no later than 5 business days after receipt
-----------
thereof, give to Schwab a copy of each notice and demand received from Master
Lessor, Shaklee, TIG, or ADP concerning the Premises, Sub-sub-sub-sublease, Sub-
sub-sublease, Sub-sublease, Sublease or Master Lease.
23. Security Deposit. [INTENTIONALLY OMITTED]
----------------
24. Brokers. Each party hereto warrants and represents to the other that
-------
it dealt with no leasing agent or broker in connection with this Sub-sub-sub-
sublease other than the person or persons identified as Brokers in the Basic
Lease Information, and that no conversations or prior negotiations were had by
the warranting and representing party with any agent or broker other than the
Brokers concerning the Premises that could give rise to liability for payment of
a commission in connection with this Sub-sub-sub-sublease. PBNI shall compensate
Cushman Realty Corporation pursuant to separate agreement, and Cushman Realty
Corporation will compensate Colliers Damner Pike, pursuant to separate
agreement.
25. Surrender of the Premises. Except for those trade fixtures of Schwab
-------------------------
of which Schwab notifies Master Lessor, Shaklee, TIG, ADP and PBNI in writing
within 6 months of
19
<PAGE>
their installation, all alterations, additions, and improvements by Schwab to
the Premises (the "Tenant Improvements") shall immediately become PBNI's
property and, at the end of the term hereof, shall remain on the Premises
without compensation to Schwab. So long as the Tenant Improvements in the
Premises at the end of the term are of the same general character, quality, and
configuration as PBNI's Initial Tenant Improvements under the Sub-sub-sublease,
except for normal wear and tear, Schwab shall have no obligation to make any
changes in the then existing Tenant Improvements; otherwise, at PBNI's request,
Schwab shall take such action at Schwab's expense as shall be necessary to
restore the Tenant Improvements to their condition as initially constructed or
installed under the Sub-sub-sublease, except for normal wear and tear.
Notwithstanding the foregoing, nothing in this paragraph shall be construed to
waive the requirements of paragraph 6 hereof or of paragraph 2 of the Second
Amendment to Sublease.
26. Shaklee's, TIG's and ADP's Approval. This Sub-sub-sub-sublease shall
-----------------------------------
be of no force or effect until fully executed by Schwab and PBNI and approved by
Shaklee, TIG and ADP.
27. Hazardous Materials. PBNI covenants that, within five (5) days after
-------------------
execution of this Sub-sub-sub-sublease by PBNI and Schwab, it will provide
Schwab with copies of all seismic reports or notices, asbestos reports or
notices, and any correspondence, reports or notices regarding Hazardous
Materials (as defined below) with respect to the Building or the Premises that
PBNI has in its possession in the Building, and that PBNI will continue to
provide such correspondence, reports and notices to Schwab throughout the term
hereof if any are received by PBNI. Schwab shall have no obligation or liability
to PBNI with respect to any substances or materials regulated under any statute,
law or ordinance relating to hazardous or toxic materials or the environment
("Hazardous Materials") found on, in or under the Building or the Premises or
released therefrom, except for those brought into the Premises or the Building
by Schwab or its agents, employees, contractors or invitees; and PBNI shall
indemnify, defend, protect and hold harmless Schwab from any and all loss,
costs, damage, expense and liability (including, without limitation, reasonable
attorneys' fees) incurred by PBNI in connection with or arising from such
Hazardous Materials not brought into the Premises or the Building by Schwab or
its agents, employees, contractors or invitees. Schwab shall indemnify, defend,
protect and hold harmless PBNI from any and all loss, costs, damage, expense and
liability (including, without limitation, reasonable attorneys' fees) incurred
by PBNI in connection with or arising from the introduction by Schwab, or its
agents, employees, contractors or invitees, of Hazardous Materials in, on or
about the Premises, the Building or the real property on which the Building is
located.
28. Miscellaneous.
-------------
(a) The paragraph titles in this Sub-sub-sub-sublease are used for
convenience in finding the subject matter. Such titles are not to be taken as
part of this
20
<PAGE>
instrument or to be used in determining the intent of the parties or otherwise
in interpreting this instrument.
(b) This Sub-sub-sub-sublease shall apply to and bind the respective
heirs, distributees, executors, administrators, successors, and assigns of the
parties hereto. This subparagraph shall not be construed, however, as a consent
to any assignment or subletting by Schwab.
(c) The failure of either party to insist on strict performance of
any covenant or condition hereof, or to exercise any option herein contained,
shall not be construed as a waiver of such covenant, condition, or option in any
other instance.
(d) This Sub-sub-sub-sublease cannot be changed or terminated orally.
All understandings and agreements heretofore made between the parties are merged
in this Sub-sub-sub-sublease, including any exhibits hereto, which alone fully
and completely expresses the agreement between PBNI and Schwab.
(e) PBNI represents that the Master Lease, Sublease, Sub-sublease,
and Sub-sub-sublease are in full force and effect as of the date hereof and will
be in full force and effect as of the commencement of the term hereof and that
no notice or notices of default have been served thereunder by Master Lessor,
Shaklee, TIG, or ADP that have not been cured. There are no agreements between
PBNI and Master Lessor that require the Master Lessor's consent to this
transaction; and except as disclosed in the Sub-sub-sublease attached to this
Sub-sub-sub-sublease as Exhibit A, there are no agreements between PBNI, ADP,
TIG or Shaklee that require ADP's, TIG's or Shaklee's consent to this
transaction.
(f) Submission of this Sub-sub-sub-sublease for examination by Schwab
does not constitute a reservation of or option for the Premises and does not
become effective unless and until this Sub-sub-sub-sublease has been executed
and delivered by both parties.
(g) In the event Schwab makes a request it is entitled to make under
this Sub-sub-sub-sublease for services or other matters requiring the Master
Lessor's consent or approval, PBNI shall use all reasonable efforts to obtain
such approval or consent, without out-of-pocket cost to PBNI.
(h) In the event of a breach or default by Schwab hereunder, PBNI
shall have the remedy described in California Civil Code Section 1951.4 (lessor
may continue lease in effect after lessee's breach and abandonment and recover
rent as it becomes due, if lessee has the right to sublet or assign, subject
only to reasonable limitations). Accordingly, if PBNI does not elect to
terminate this Sub-sub-sub-sublease on account of any default by Schwab, PBNI
may, from time to time, without terminating this Sub-sub-sub-sublease, enforce
all of its rights and remedies under this Sub-sub-sub-sublease, including the
right to recover all rent as it becomes due.
21
<PAGE>
(i) This Sub-sub-sub-sublease may be executed in any number of
counterparts, which together shall constitute one instrument. Facsimile
signatures will be accepted.
(j) This sub-sub-sub-sublease shall not be effective unless and until
that certain Concurrent Sub-sub-sublease between Schwab, as Sub-sub-sublessee,
and PBNI, as Sub-sub-sublessor, for the 29th floor of the Building shall be
fully executed by the parties thereto.
29. Exhibits. The following exhibits are attached to this Sub-sub-sub-
--------
sublease and by this reference made a part hereof:
Exhibit A - Sub-sub-sublease
Exhibit B - First, Second and Third Amendments to Sublease
Exhibit C - Plan of the Premises
Exhibit D - Letter Agreement dated September 23, 1987, between Master
Lessor and Shaklee
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sub-sub-sub-sublease as
of the day and year first hereinabove set forth.
SCHWAB: PBNI
CHARLES SCHWAB & CO., INC. PACIFIC BELL NETWORK
a California corporation INTEGRATION
a California corporation
By: /s/ Parkash P. Ahuja By: /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------- ------------------------------
Name: Parkash P. Ahuja Name: /s/ [SIGNATURE ILLEGIBLE]^^
-------------------------- ----------------------------
Its: Senior Vice President, Its: President
--------------------------- ----------------------------
Administrative Services
---------------------------
Date: 2/3/97 Date: __________________________
--------------------------
By: ___________________________ By: ____________________________
Name: _________________________ Name: __________________________
Its: __________________________ Its: ___________________________
Date: _________________________ Date: __________________________
23
<PAGE>
APPROVAL
By executing this Approval, Shaklee hereby consents to the making of
the attached Sub-sub-sub-sublease by and between PBNI and Schwab, on the terms
set forth herein, without releasing PBNI, ADP or TIG from any obligations of the
sub-sub-sublessee under the Sub-sub-sublease, the sub-sublessee under the Sub-
sublease or the sublessee under the Sublease, and without waiving any
restriction on further assignment of the Sub-sub-sublease, Sub-sublease or the
Sublease.
SHAKLEE:
SHAKLEE CORPORATION,
a Delaware corporation
By: /s/ Edward W Buck
----------------------------
Name: Edward W. Buck
--------------------------
Its: Sr. Vice President
--------------------------
Date: 12/20/96
--------------------------
<PAGE>
APPROVAL
By executing this Approval, TIG hereby consents to the making of the
attached Sub-sub-sublease by and between PBNI and Schwab, on the terms set forth
herein, without releasing PBNI from any obligations of the sub-sublesssee under
the Sub-sublease and without waiving any restriction on further assignment of
the Sub-sublease.
TIG:
TIG INSURANCE COMPANY
a California Corporation
By: /s/ Steven A Cook
---------------------------
Name: Steven A. Cook
-------------------------
Its: Senior Vice President
--------------------------
Date: January 9, 1997
-------------------------
<PAGE>
APPROVAL
By executing this Approval, ADP hereby consents to the making of the
attached Sub-sub-sub-sublease by and between PBNI and Schwab, on the terms set
forth herein, without releasing PBNI from any obligations as sub-sub-sublessee
under the Sub-sub-sublease and without waiving any restriction on further
assignment of the Sub-sub-sublease.
ADP:
ADP/FLUOR DANIEL, INC.,
an Arizona corporation
By: /s/ Stephen Elliot
----------------------------
Name: Stephen Elliot
--------------------------
Its: Asst. Treasurer
---------------------------
Date: _________________________
<PAGE>
APPROVAL
By executing this Approval, ADP hereby consents to the making of the
attached Sub-sub-sub-sublease by and between PBNI and Schwab, on the terms set
forth herein, without releasing PBNI from any obligations as sub-sub-sublessee
under the Sub-sub-sublease and without waiving any restriction on further
assignment of the Sub-sub-sublease.
ADP:
ADP/FLUOR DANIEL, INC.,
an Arizona corporation
By: /s/ Stephen Elliot
----------------------------
Name: Stephen Elliot
--------------------------
Its: Asst. Treasurer
---------------------------
Date: _________________________
<PAGE>
EXHIBIT B
[FLOOR PLAN OF 444 MARKET STREET., 28TH FLOOR APPEARS HERE]
<PAGE>
EXHIBIT 10.14
STANDARD FORM OF LOFT LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
Agreement of Lease, made as of this 28th day of October 1998, between Lautob
Realty Company, a New York limited partnership having an office c/o Gordon &
Gordon, 135 Fifth Avenue, New York, New York 11010 party of the first part,
hereinafter referred to as OWNER, and Scient Corporation, a California
corporation having an office at 720 California Street, San Francisco, California
94108-2404
party of the second part, hereinafter referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
the entire rentable portion of the 3rd floor and the 4th floor
in the building known as 860 Broadway
in the Borough of Manhattan, City of New York, for the term, and at the rent set
forth in Article 42,
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment, coming due pursuant to the terms of this
lease after any rent abatement period on the execution hereof (unless this lease
be a renewal).
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT:
1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY:
2. Tenant shall use and occupy, demised premises for executive and general
offices in connection with Tenant's business
provided such use is in accordance with the certificate of occupancy for the
building, if any, and for no other purpose.
ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved in each instance by Owner, which
approval shall not be unreasonably withheld, conditioned or delayed.
Notwithstanding anything to the contrary contained in this lease, Tenant may
perform such non-structural Tenant's Work (as hereinafter defined) at the
demised premises costing up to $50,000.00 in each period of 12 consecutive
months during the term of this lease without submitting plans for, or obtaining,
Owner's consent; provided, that such Tenant's Work (a) does not adversely affect
the systems of the building, (b) does not legally require the filing of plans
with any governmental agency, (c) otherwise complies with the provisions of
Article 63 and (d) shall be subject to prior notice thereof to Owner and Tenant
shall submit such reasonable documents and information as shall be reasonably
requested by Owner. Tenant shall, at its expense, before making any Alterations,
additions, installations or improvements obtain all permits, approval and
certificates required by any governmental or quasi-governmental bodies and (upon
completion) certificates of final approval thereof and shall deliver promptly
duplicates of all such permits, approvals and certificates to Owner. Tenant
agrees to carry and will cause Tenant's contractors and sub-contractors to carry
such workman's compensation, general liability, personal and property damage
insurance as Owner may reasonably require. If any mechanic's lien is filed
against the demised premises, or the building of which the same forms a part for
work claimed to have been done for, or materials furnished to, Tenant, whether
or not done pursuant to this article, the same shall be discharged by Tenant
within thirty days after Tenant's receipt of written notice thereof, at Tenant's
expense, by payment or filing the bond required by law or otherwise. All
fixtures and all paneling, partitions, railings and like installations,
installed in the premises any time, either by Tenant or by Owner on Tenant's
behalf, shall, upon installation, become the property of Owner and shall remain
upon and be surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the termination of
this lease, elects to relinquish Owner's right thereto and to have them removed
by Tenant, in which event the same shall be removed from the demised premises by
Tenant prior to the expiration of the lease, at Tenant's expense. Nothing in
this Article shall be construed to give Owner title to or prevent Tenant's
removal of trade fixtures, moveable office furniture and equipment (including,
without limitation, any computer installation and servers, phone systems and
associated equipment), but upon removal or any such from the premises or upon
removal of other installations as may be required by Owner, Tenant shall
immediately and at its expense repair any damage to the demised premises or the
building due to such removal. All property permitted or required to be removed
by Tenant at the end of the term remaining in the premises after Tenant's
removal shall be deemed abandoned and may, at the election of Owner, either be
retained as Owner's property or removed from the premises by Owner, at Tenant's
expense. Notwithstanding anything to the contrary contained in this lease, upon
the expiration or earlier termination of the term of this lease, Tenant shall
not be required to restore the demised premises to its condition prior to the
performance of Tenant's Work, except if, and to the extent, such restoration is
requested by Owner at the time of the performance of such Tenant's Work.
REPAIRS:
4. Owner shall maintain and repair the exterior of and the public portions
of the building, and the structural portions of the building (including, without
limitation, the structural portions within the demises premises) and the
building's plumbing, electrical, heating and elevator systems serving the
demised premises (excluding any located within the demised premises which solely
service the demised premises (such as the air-conditioning system), the
foregoing to be maintained and repaired by Tenant). Tenant shall, throughout the
term of this lease, take good care of the demised premises including the
bathrooms and lavatory facilities (if the demised premises encompass the entire
floor of the building) and the windows and window frames and the fixtures and
appurtenances therein and at Tenant's sole cost and expense promptly make all
repairs thereto and to the building, whether structural or non-structural in
nature, to the extent caused by or resulting from the carelessness, omission,
neglect or improper conduct of Tenant, Tenant's servants, employees, invitees,
or licensees, and whether or not arising from such Tenant conduct or omission,
when required by other provisions or this lease, including Article 6. Tenant
shall also repair all damage to the building and the demised premises caused by
the moving of Tenant's fixtures, furniture or equipment. All the aforesaid
repairs shall be of quality or class equal to the original work or construction.
If Tenant fails, after twenty days notice, to proceed with due diligence to make
repairs required to be made by Tenant, the same may be made by the Owner at the
expense of Tenant and the expenses thereof Incurred by Owner shall be
collectible, as additional rent, after rendition of a bill or statement
therefor. Once Tenant has commenced such repair within such period, Tenant shall
diligently prosecute the same to completion. If the demised premises be or
become infested with vermin, Tenant shall, at its expense, cause the same to be
exterminated. Tenant shall give Owner prompt notice of any defective condition
in any plumbing, heating system or electrical lines located in the demised
premises and following such notice (and to the extent the same is Owner's
responsibility under this lease), Owner shall remedy the condition with due
diligence, but at the expense of Tenant if repairs are necessitated by damage or
injury attributable to Tenant, Tenant's servants, agents, employees, invitees or
licensees as aforesaid. Except as specifically provided in Article 9 or
elsewhere in this lease, there shall be no allowance to the Tenant for a
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions or
Improvements in or to any portion or the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall not be entitled to any set off or reduction of rent by
reason of any failure or Owner to comply with the covenants of this or any other
article or this lease. Tenant agrees that Tenant's sole remedy at law in such
instance will be by way or any action for damages for breach or contract. The
provisions or this Article 4 with respect to the making of repairs shall not
apply In the case or fire or other casualty with regard to which Article 9
hereof shall apply. Notwithstanding anything to the contrary contained in this
lease, Tenant shall not be responsible for any damage or injury to the demised
premises or the building caused by or resulting from the negligence or willful
misconduct of Owner, its agents, employees or contractors.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any window in
the demised premises to be cleaned from the outside in violation of Section 202
of the New York State labor law or any other applicable law or of the Rules of
the Board of Standards and Appeals, or of any other Board or body having or
asserting Jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE:
6. Prior to the commencement or the lease term, if Tenant is then in
possession, and at all times thereafter Tenant shall, at Tenant's sole cost and
expense, promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire
Underwriters, or the Insurance Services Office, or any similar body which shall
impose any violation, order or duty upon Owner or Tenant with respect to the
demised premises, whether or not arising out or Tenant's use or manner of use
thereof, or, with respect to the building, if arising out of Tenant's use or
manner of use of the demised premises of the building (including the use
permitted under the lease). Except as provided in Article 30 hereof, nothing
herein shall require Tenant to make structural repairs or alterations, unless
Tenant has, by its manner of use of the demised premises or method of operation
therein, violated any such laws, ordinances, orders, rules, regulations or
requirements with respect thereto. Except for Tenant's obligations specified in
this Article, Owner shall promptly comply with all other governmental laws,
rules, orders, regulations, ordinances and building, fire or health codes or
other similar requirements affecting the building which require structural
repairs to or structural alteration of the building or the demised premises;
provided, and to the extent, that a violation and enforcement of the same would
prevent Tenant from using the demised premises for the purposes contemplated by
this lease. Tenant shall not do or
Page 1 of 6
<PAGE>
permit any act or thing to be done in or to the demised premises which is
contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner. Tenant shall not keep anything in the demised premises except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire Insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. If by reason of failure to comply with the foregoing the
fire Insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Owner, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by Tenant. In any action or proceeding wherein Owner and Tenant are
parties, a schedule or "make-up" or rate for the building or demised premises
issued by a body making fire insurance rates applicable to said premises shall
be conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to said premises. Tenant
shall not place a load upon any floor of the demised premises exceeding the
floor load per square foot area which it was designed to carry and which is
allowed by law. Owner reserves the right to prescribe the weight and position of
all safes, extra-heavy business machines and mechanical equipment. Such
installations shall be placed and maintained by Tenant, at Tenant's expense, in
settings sufficient, in Owner's reasonable judgement, to absorb and prevent
unreasonable vibration, noise and annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying,
leases and to all mortgages which may now or hereafter affect such leases or the
real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
TENANT'S LIABILITY INSURANCE PROPERTY LOSS, DAMAGE, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of or
damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence or willful misconduct of Owner, its
agents, servants or employees; Owner or its agents shall not be liable for any
damage caused by other tenants or persons in, upon or about said building or
caused by operations in connection of any private, public or quasi public work.
If at any time any windows of the demised premises are temporarily closed,
darkened or bricked up (or permanently closed, darkened or bricked up, if
required by law) for any reason whatsoever (other than by Owner's arbitrary or
unreasonable acts). Owner shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation therefor nor
abatement or diminution of rent nor shall the same release Tenant from its
obligations hereunder nor constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be reimbursed by
insurance, including reasonable attorney's fees, paid; suffered or incurred as a
result of any breach by Tenant, Tenant's agents, contractors, employees,
invitees, or licensees, of any covenant or condition of this lease, or the
carelessness, negligence or Improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under; this
lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any subtenant In case any action or
proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld or delayed.
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or inaccessible or rendered
partially unusable by fire or other casualty, the damages thereto shall be
repaired by and at the expense of Owner and the rent and other items of
additional rent, until such repair shall be substantially completed, shall be
apportioned from the day following the casualty according to the part of the
premises which is usable; provided, that if the portion of the demised premises
which is not damaged cannot reasonably and economically be operated by Tenant
for its business, and Tenant ceases to operate its business in the demised
premises, then the fixed rent and additional rent payable hereunder shall be'
fully abated until the substantial completion of the restoration of the demises
premises and if either (i) such damage occurs during the last year of the term
of this lease or (ii) the restoration of the building is not substantially
completed within ten months following the casualty, then Tenant shall have the
right to terminate this lease on thirty days' notice to Owner (which notice of
termination must, in any event, be given within ten days after the event
entitling Tenant to terminate this lease). This lease shall terminate at the end
of such thirty days as if that date was the expiration date specified in this
lease; provided, that (in the case of the failure to substantially complete the
restoration) if the restoration of the building is substantially completed
before such termination date, then this lease shall continue in full force and
effect. (c) If the demised premises are totally damaged or rendered wholly
unusable or inaccessible by fire or other casualty, then the rent and other
items of additional rent as hereinafter expressly provided shall be
proportionately paid up to the time of the casualty and thenceforth shall cease
until the date when the premises shall have been repaired and restored by Owner
(or sooner reoccupied in part by Tenant then rent shall be apportioned as
provided in subsection (b) above), subject to Owner's right to elect not to
restore the same as hereinafter provided. Within sixty days after the occurrence
of the fire or other casualty at the building, Owner shall deliver to Tenant a
good faith estimate of the period of time which will be needed to substantially
restore the building. If (1) the period of time set forth in such estimate shall
exceed ten months from the occurrence of the fire or other casualty or (2)
notwithstanding the time period set forth in the estimate, the restoration of
the building is not substantially completed within ten months following the
casualty, then Tenant shall have the right to terminate this lease on thirty
days notice to Owner (which notice of termination must, in any event, be given
without ten days after the event entitling Tenant to terminate to lease). This
lease shall terminate at the end of such thirty days as if that date was the
expiration date specified in this lease; provided, that (in the case of the
failure to substantially complete the restoration) if the restoration of the
building is substantially completed before such termination date, then this
lease shall continue in full force and effect. (d) If the demised premises are
rendered wholly unusable or (whether or not the demised premises pro damaged in
whole or in part) if the building shall be so damaged that Owner shall decide to
demolish it or to rebuild it, then, in any of such events, Owner may elect to
terminate this lease by written notice to Tenant, given within 90 days after
such fire or casualty specifying a date for the expiration of the lease, which
date shall not be: more than 60 days after the giving of such notice, and upon
the date specified in such notice the term of this lease shall expire as fully
and completely as if such date were the date set forth above for the termination
of this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Owner's rights and remedies against Tenant under
the lease provisions in effect prior to such termination, and any rent owing
shall be paid up to such date and any payments of rent made by Tenant which were
on account of any period subsequent to such date shall be returned to Tenant.
Unless Owner shall serve a termination notice as provided for herein, Owner
shall make the repairs end restorations under the conditions of (b) and (c)
hereof, with all reasonable expedition, subject to delays due to adjustment of
insurance claims, labor troubles and causes beyond Owner's control. After any
such casualty, Tenant shall cooperate with Owner's restoration by removing from
the premises as promptly as reasonably possible, all of Tenant's Salvageable
inventory and movable equipment, furniture, and other property. Tenant's
liability for rent shall resume five (5) days after written notice from Owner
that the premises are substantially ready for Tenant's occupancy. (c) Nothing
contained hereinabove shall relieve Tenant from liability that may exist as a
result of damage from fire or other casualty. Notwithstanding the foregoing,
including Owner's obligation to restore under subparagraph (b) above, each party
shall look first to any insurance in its favor before making any claim against
the other party for recovery for loss or damage resulting From fire or other
casualty, and to the extent that such insurance is in force and collectible and
to the extent permitted by law, Owner and Tenant each hereby releases and waives
all right of recovery with respect to subparagraphs (b), (d) and (e) above,
against the other or any one claiming through or under each of them by way of
subrogation or otherwise. The release and waiver herein referred to shall be
deemed to include any loss or damage to the demised premises and/or to any
personal property, equipment, trade fixtures, goods and merchandise located
therein. The foregoing release and waiver shall be in Force only if both
releasers' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance. If, and to the extent, that such
waiver can be obtained only by the payment of additional premiums, then the
party benefiting from the waiver shall pay such premium within ten days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provisions
hereof with respect to waiver of subrogation, Tenant acknowledges that Owner
will not cony insurance on Tenant's furniture and or furnishings or any fixtures
or equipment, improvements, or appurtenances removable by Tenant and agrees that
Owner will not be obligated to repair any damage thereto or replace the same.
(f) Tenant hereby waives the provisions of Section 227 of the Real Property Law
and agrees that the provisions of this article shall govern and control in lieu
thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value or any unexpired term of said lease. Tenant shall have the right to make
an independent claim to the condemning authority for the value of Tenant's
moving expenses and personal property, trade fixtures and equipment provided
Tenant is entitled pursuant to the terms of the lease to remove such property,
trade fixtures and equipment at the end of the term and provided farther such
claim does not reduce Owner's award.
ASSIGNMENT, MORTGAGE, ETC.:
11. Except as otherwise set forth in this lease, Tenant, for itself, its
heirs, distributees, executors, administrators, legal representatives,
successors and assigns; expressly covenants that it shall not assign by
operation of law or otherwise, mortgage or encumber this agreement, nor underlet
or suffer or permit the demised premises or any part thereof to be used by
others, without the prior written consent of Owner in each instance. Except as
otherwise set forth in this lease, transfer the majority of the stock of a
corporate Tenant or the majority partnership interest of a partnership Tenant
shall be deemed an assignment. If this lease be assigned, or if the demised
premises or any part thereof be underlet or occupied by anybody other than
Tenant, Owner may, after default by Tenant, collect rent from the assignee,
under-tenant or occupant, and apply the net amount collected to the rent herein
reserved, but no such assignment underletting, occupancy or collection shall be
deemed a waiver of this covenant, or the acceptance or the assignee, under-
tenant or occupant as tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part or Tenant' herein contained. The
consent by Owner to an assignment or underletting shall not in any way be
construed to relieve Tenant from obtaining the express consent in writing
(pursuant to this lease) of Owner to any further assignment or underletting.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion, as
the case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, In Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service provided by a public utility company or any
other third-party provider of electric service shall in no way make Owner liable
or responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and at
other reasonable times upon one business days' prior notice to Tenant, which any
be given orally, to examine the same and to make such repairs, replacements and
improvements as Owner may deem necessary and reasonably desirable to any portion
of the building or which Owner may elect to perform in the premises after
Tenant's failure to make repairs or perform any work which Tenant is obligated
to perform under this lease, or for the purpose of complying with laws,
regulations and other directions of governmental authorities. Tenant shall
permit Owner to use and maintain and replace pipes and conduits in and through
the demised premises and to erect new pipes and conduits therein provided,
wherever possible, they are within walls, floors or ceilings and concealed
thereby, and do not reduce the usable square footage area of the demised
premises (except by a minor amount). Owner may, during the progress of any work
in the demised premises, take all necessary materials and equipment into said
premises without the same constituting an eviction nor shall the Tenant be
entitled to any abatement of rent while such work is in progress nor to any
damages by reason of loss or interruption of business or otherwise.
Notwithstanding anything to the contrary contained in this lease, during the
exercise of any right of entry into the demised premises or making of any
repairs, replacements or improvements or performing any work in the demised
premises under any of the provisions of this lease (including, without
limitation, Article 4 of this lease), Owner shall use commercially reasonable
efforts, under the existing circumstances to minimize unreasonable interference
with the conduct of Tenant's business at the demised premises and use of the
demised premises by Tenant; provided, that Owner shall not be obligated to
employ overtime services or incur material expenses in connection therewith.
Throughout the term hereof Owner shall have the right to enter the demised
premises at reasonable hours upon one business days' prior notice to Tenant,
which may be given orally, for the purpose of showing the same to prospective
purchasers or mortgagees of the building, and during the last six months of the
term for the purpose of showing the same to prospective tenants and may, during
said six months period; place upon
Page 2 of 6
<PAGE>
the demised premises the usual notices "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. In an emergency or
upon one business days' prior notice, which may be given orally, if Tenant is
not present to open and permit an entry into the demised premises, Owner or
Owner's agents may enter the same whenever such entry may be necessary or
permissible by master key or forcibly and provided reasonable care is exercised
to safeguard Tenant's property, such entry shall not render Owner or its agents
liable therefor, nor in any event shall the obligations or Tenant hereunder be
affected. Notwithstanding the foregoing, Owner shall not forcibly enter the
demised premises except in the event of an actual or perceived emergency or if
required by law or after a default by Tenant under this lease following any
required notice and the expiration of any applicable cure period. If during the
last month or the term Tenant shall have removed all or substantially all of
Tenant's property therefrom. Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement or rent, or
incurring liability to Tenant For any compensation and such act shall have no
effect on this lease or Tenant's obligation hereunder.
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered,
not within the property line or the building is leased hereunder anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding. Owner makes
no reputation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any Federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement or rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant, if used by Tenant,
whether or not specifically leased hereunder.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation or the certificate or occupancy issued For the building or which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition or the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business, Tenant shall be responsible for
and shall procure and maintain such license or permit.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Owner by sending of a written notice to
Tenant within a reasonable time after the happening of any one or more or the
Following events: (1) the commencement of a case in bankruptcy or under the laws
of any state naming Tenant as the debtor which is not dismissed within 60 days
after the commencement of the same, or (2) the making by Tenant or an assignment
or any other arrangement For the benefit or creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by
reason of any statute or order of court, shall thereafter be entitled to
possession of the. premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions or this Article 16 shall be applicable only to the party then owning
Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event or the termination
of this lease pursuant to (a) hereof, Owner shall Forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover From
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder For the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises For the same
period. In the computation of such damages the difference between any
installment or rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period For
which such installment was payable shall be discounted to the date or
termination at the rate or Four percent (4%) per annum. If such premises or any
part thereof, be relet by the Owner rot the unexpired term of said lease, or any
part thereof, before presentation or proof or such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole or the premises so re-let during the term of the re-letting, Nothing
herein contained shall limit or prejudice the right or the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants. For the payment of rent or additional rent; or
if the demised premises becomes vacant or deserted "or if this lease be rejected
under (S)235 or Title or the U.S. Code (bankruptcy code);" or if any execution
or attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other than
Tenant: or if Tenant shall make default with respect to any other lease between
Owner and Tenant; or if Tenant shall have failed, after ten days written notice,
to redeposit with Owner any portion or the security deposited hereunder which
Owner has applied, in accordance with the terms of this lease, to the payment or
any rent and additional rent due and payable hereunder then in any one or more
of such events, upon Owner serving a written fifteen (15) days notice upon
Tenant specifying the nature of said default and upon the expiration of said
fifteen (15) days, if Tenant shall have failed to comply with or remedy such
default, or if the said default or omission complained or shall be of a nature
that the same cannot be completely cured or remedied within said fifteen (15)
day period, and if Tenant shall not have diligently commenced curing such
default within such fifteen (15) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Owner may serve a written ten days' notice of cancellation of this lease
upon Tenant, and upon the expiration or said ten days this lease and the term
thereunder shall end and expire as fully and completely as if the expiration of
such ten day period were the day herein definitely fixed for the end and
expiration of this lease and the term thereof and Tenant shall then quit and
surrender the demised premises to Owner but Tenant shall remain liable as
hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given;
and the term shall expire as aforesaid; or if Tenant shall make default in the
payment or the rent reserved herein or any item or additional rent herein
mentioned or any part of either or in making any other payment herein required
and such default shall continue for more than five days after the due date
thereof, then and in any or such events Owner may without notice, re-enter the
demised premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative or Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension or this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent, and, additional rent, shall
become due thereupon and be paid up to the time or such re-entry, dispossess
and/or expiration, (b) Owner may re-let the premises or any part or parts
thereof, either in the name of Owner or otherwise., for a term or terms, which
may at Owner's option be less than or exceed the period which would otherwise
have constituted the balance of the term or this lease and may grant concessions
or free rent or charge a higher rental than that in this lease, (c) Tenant or
the legal representatives or Tenant shall also pay Owner as liquidated damages
for the failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between the rent hereby reserved and or covenanted to
be paid and the net amount, if any, of the rents collected on account or the
subsequent lease or leases or the demised premises rot each month or the period
which would otherwise have constituted the balance or the term or this lease.
The failure or Owner to re-let the premises or any part or parts thereof shall
not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may incur in connection with re-letting. such as legal expenses,
reasonable attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice In any way the rights or Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for re-
rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary For the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such re-
letting, and in no event shall Tenant be entitled to receive any excess, if any,
or such net rents collected over the sums payable by Tenant to Owner hereunder.
In the event of a breach or threatened breach by Tenant or any or the covenants
or provisions hereof, Owner shall have the right or injunction and the right to
invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided For. Mention in this
lease or any particular remedy, shall not preclude Owner From any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or Future laws.
FEES AND EXPENSES:
19. If Tenant shall default in the observance or performance of any term
or covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, after notice if
required and upon expiration of any applicable grace period if any, (except in
an emergency), then, unless otherwise provided elsewhere in this lease, Owner
may immediately or at any time thereafter and without notice perform the
obligation of Tenant thereunder. If Owner, in connection with the Foregoing or
in connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to reasonable attorney's Fees, in instituting,
prosecuting or defending any action or proceedings, or in connection with any
other disputes with Tenant, and prevails in any such action or proceeding or
dispute, then Tenant will reimburse Owner For such/ sums so paid or reasonable
obligations incurred with interest and costs. The foregoing expenses incurred by
reason or Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within ten (10) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring or such obligations, such
sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting
an eviction and without incurring liability to Tenant therefor to change the
arrangement and or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant For diminution of rental value and no
liability on the part or Owner by reason or inconvenience, annoyance or injury
to business arising From Owner or other Tenant making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason or Owner's imposition of
any controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants. In connection with this Article, Owner shall use
commercially reasonable efforts, under the existing circumstances, to minimize
unreasonable interference with the conduct of Tenant's business at the demised
premises and use of the demised premises by Tenant; provided, that Owner shall
not be obligated to employ overtime services or incur material expenses in
connection therewith.
* or in connection with any other disputes with Tenants.
**or dispute
Page 3 of 6
<PAGE>
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
premises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the demised
premises or the building except as herein expressly set forth and no rights,
easements or licenses are acquired by Tenant by implication or otherwise except
as expressly set forth in the provisions of this lease. Tenant has inspected the
building and the demised premises and is thoroughly acquainted with their
condition and agrees to take the same "as is" on the date possession is
tendered, subject to the terms of this lease, and acknowledges that the taking
of possession ofthe demised premises by Tenant shall be conclusive evidence
that the said premises and the building of which the same form a part were in
good and satisfactory condition at the time such possession was so taken,
except as to latent defects. All understandings and agreements heretofore made
between the parties hereto are merged in this contract, which alone fully and
completely expresses the agreement between Owner and Tenant and any executory
agreement hereafter made shall be ineffective to change, modify, discharge or
effect an abandonment of it in whole or in part, unless such executory agreement
is in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
END OF TERM:
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and condition, ordinary wear and damages which Tenant is not required
to repair as provided elsewhere in this lease excepted, and Tenant shall remove
all its property from the demised premises. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this Lease or any renewal thereof, falls
on Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
QUIET ENJOYMENT:
23. Owner covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the terms, covenants
and conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject, nevertheless,
to the terms and conditions of this lease including, but not limited to, Article
34 hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION:
24. If Owner is unable to give possession of the demised premises on the
date of the commencement or the term hereof, because or the holding-over or
retention of possession of any tenant, under Tenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready For
occupancy or because of the fact that a certificate of occupancy has not been
procured or if Owner has not completed any work required to be performed by
Owner, or for any other reason, Owner shall not be subject to any liability for
failure to give possession on said date and the validity of the lease shall not
be impaired under such circumstances, nor shall the same be construed in any way
to extend the term or this lease, but the rent payable hereunder shall be abated
(provided Tenant is not responsible for Owner's inability to obtain possession
or complete any work required) until after Owner shall have given Tenant notice
that Owner is able to deliver possession in the condition required by this
lease, If permission is given to Tenant to enter into the possession of the
demised premises or to occupy premises other than the demised premises prior to
the date specified as the commencement of the term of this lease, Tenant
covenants and agrees that such possession and/or occupancy shall be deemed to be
under all the terms, covenants, conditions and provisions of this lease, except
the obligation to pay the fixed annual rent set forth in page one of this lease.
The provisions or this article are intended to constitute "an express provision
to the contrary" within the meaning of Section 223-n of the New York Real
Property Law.
NO WAIVER:
25. The failure of 0wner or Tenant to seek redress for violation or, or to
insist upon the strict performance of any covenant or condition of this lease or
of any of the Rules or Regulations, set forth or hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Owner or payment by Tenant to Owner of rent with knowledge of the
breach of any covenant or this lease shall not be deemed a waiver or such breach
and no provision of this lease shall be deemed to have been waived by either
Owner or Tenant unless such waiver be in writing signed by Owner or Tenant (as
the case may be). No payment by Tenant or receipt by Owner of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
of any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. All checks tendered to Owner as and for the
rent or the demised premises shall be deemed payments for the account of Tenant.
Acceptance by Owner of rent From anyone other than Tenant shall not be deemed to
operate as an attornment to Owner by the payor of such rent or as a consent by
Owner to an assignment or subletting by Tenant of the demised premises to such
payor, or as a modification or the provisions of this lease. No act or thing .
done by Owner or Owner's agents during the term hereby demised shall be deemed
an acceptance of a surrender or said premises and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No employee of Owner
or Owner's agent shall have any power to accept the keys of said premises prior
to the termination or the lease and the delivery of keys to any such agent or
employee shall not operate as a termination or the lease or a surrender of the
premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal Injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any proceeding or action for
possession including a summary proceeding for possession or the premises, Tenant
will not interpose any counterclaim of whatever nature or description in any
such proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
INABILITY TO PERFORM:
27. This lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no way be affected, Impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or Is
unable to make, or is delayed In making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures or other materials if Owner is prevented or delayed from doing so by
reason or strike or labor troubles or any cause whatsoever beyond Owner's
reasonable control including, but not limited to, governmental preemption or
restrictions or by reason or any rule, order or regulation or any department or
subdivision thereof of any government agency or by reason of the conditions
which have been or are affected, either directly or indirectly, by war or other
emergency.
BILLS AND NOTICES:
28. Except as otherwise in this lease provided, a bill statement, notice
or communication which Owner may desire or be required to give to Tenant, shall
be deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building or which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any or the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
WATER CHARGES:
29. Tenant requires, uses or consumes water for any purpose in addition to
ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the
sole Judge) Owner may install a water meter and thereby measure Tenant's water
consumption for all purposes. Tenant shall pay Owner for the cost of the meter
and the cost of the installation, thereof and throughout the duration or
Tenant's occupancy Tenant shall keep said meter and installation equipment in
good working order and repair at Tenant's own cost and expense in default of
which Owner may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant, as additional rent. Tenant agrees to pay
for water consumed, as shown on said meter as and when bills are rendered, and
on default in making such payment Owner may pay such charges and collect the
same from Tenant, as additional rent. Tenant covenants and agrees to pay, as
additional rent, the sewer rent, or any other tax, rent, levy or charge which
now or hereafter is assessed, imposed or a lien upon the demised premises or the
realty of which they are part pursuant to law, order or regulation made or
issued in connection with the use, consumption, maintenance or supply of water,
water system or sewage or sewage connection or system. Independently of and in
addition to any of the remedies reserved to Owner hereinabove or elsewhere in
this lease, Owner may sue for and collect any monies to be paid by Tenant or
paid by Owner for any of the reasons or purposes hereinabove set forth.
SPRINKLERS:
30. Anything elsewhere in this lease to the contrary notwithstanding, if
the New York Board of Fire Underwriters or the New York Fire Insurance Exchange
or any bureau, department or official of the federal, state or city government
recommend or require the installation of a sprinkler system or that any changes,
modifications, alterations, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason or Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason due to Tenant's use of the demised premises or
if any such sprinkler system installations, modifications, alterations,
additional sprinkler heads or other such equipment, become necessary in the
demised premises to prevent the imposition or a of a penalty or charge against
the full allowance for a sprinkler system in the fire insurance rate set by any
said Exchange or by any fire insurance company, Tenant shall, at Tenant's
expense, promptly make such sprinkler system installations, changes,
modifications, alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural or non-
structural in nature.
ELEVATORS, HEAT, CLEANING:
31. As long as Tenant is not in default under any the covenants or this
lease beyond the applicable grace period provided in this lease for the curing
of such defaults, Owner shall: (a) provide necessary passenger elevator
facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m.
to 1 p.m. and have one elevator subject to call at all other times (b) provide
freight elevator service only on regular business days Monday through Friday
inclusive, and on those days only between the hours of 9 a.m. and 12 noon and
between 1 p.m. and 5 p.m.; (c) furnish heat, cold water and other services
supplied by Owner to the demised premises, when and as required by law, on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.
Page 4 of 6
<PAGE>
(d) clean the public halls and public portions of the building which are used in
common by all tenants. Tenant shall, at Tenant's expense, keep the demised
premises, including the inside of the windows clean and in order, to the
reasonable satisfaction of Owner, and for that purpose shall employ the person
or persons, or corporation reasonably approved by Owner. Tenant shall at
Tenant's expense remove Tenant's refuse and rubbish from the building. Tenant
shall, independently contract for the removal of such rubbish and refuse. The
removal of such refuse and rubbish by others shall be subject to such rules and
regulations as, in the judgment of Owner, are necessary for the proper operation
of the building. Owner reserves the right to stop service of the heating,
elevator, plumbing and electric systems, when necessary, by reason of accident,
or emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repair,
alterations, replacements or improvements shall have been completed; provided,
that in connection with the exercise of Owner's rights specified in this
sentence, Owner shall use commercially reasonable efforts, under the existing
circumstances, to minimize unreasonable interference with the conduct of
Tenant's business at the demised premises and use of the demised premises by
Tenant; provided, further, that Owner shall not be obligated to employ overtime
services or incur my material expenses in connection therewith. If the building
of which the demised premises are a part supplies manually operated elevator
service, Owner may proceed diligently with alterations necessary to substitute
automatic control elevator service without in any way affecting the obligations
of Tenant hereunder. Subject to the provision of this lease, Tenant shall have
access to the building and the demised premises, 24 hours per day, seven days
per week.
SECURITY:
32. Tenant has deposited with Owner the sum of $250,000 and shall deposit
an additional $250,000 upon the substantial completion of Owner's Work (as
hereinafter defined) on the 4th floor of the building, as security for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Owner may use.,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the reletting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this lease, the security
shall be returned to Tenant after the date fixed as the end of the Lease and
after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall have the right to transfer the
security to the vendee or lessee and Owner shall thereupon be released by Tenant
from all liability for the return of such security; and Tenant agrees to look to
the new Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited, herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
CAPTIONS:
33. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
DEFINITIONS:
34. The term "Owner" as used in this lease means only the owner of the fee
or of the leasehold of the building, or the mortgagee in possession, for the
time being of the land and building (or the owner of a lease of the building or
of the land and building) or which the demised premises form a part, so that in
the event of any sale or sales of said land and building or of said lease, or in
the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of owner hereunder (except those that have accrued prior to the date
of conveyance), and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties and
the purchaser, at any such sale, or the said lessee of the building, or of the
land and building, that the purchaser or the lessee of the building has assumed
and agreed to carry out any and all covenants and obligations of Owner
hereunder. The words "re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning. The term "rent" includes the annual
rental rate whether so expressed or expressed in monthly installments, and
"additional rent." "Additional rent" means all sums which shall be due to Owner
from Tenant under this lease, in addition to the annual rental rate. The term
"business days" as used in this lease, shall exclude Saturdays, Sundays and all
days observed by the State or Federal Government as legal holidays and those
designated as holidays by the applicable building service union employees
service contract or by the applicable Operating Engineers contract with respect
to HVAC service. Wherever it is expressly provided in this lease that consent
shall not be unreasonably withheld, such consent shall not be unreasonably
delayed.
ADJACENT EXCAVATION-SHORING:
35. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made. Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
RULES AND REGULATIONS:
36. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faith fully, and comply strictly with, the Rules and
Regulations annexed hereto and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt upon notice
to Tenant. Notice of any additional rules or regulations shall be given in such
manner as Owner may elect. In case Tenant disputes the reasonableness of any
additional Rule or Regulation hereafter made or adopted by Owner or Owner's
agents, the parties hereto agree to submit the question of the reasonableness of
such Rule or Regulation for decision to the New York office of the American
Arbitration Association, whose determination shall be final and conclusive upon
the parties hereto. The right to dispute the reasonableness of any additional
Rule or Regulation upon Tenant's part shall be deemed waived unless the same
shall be asserted by service of a notice, in writing upon Owner within fifteen
(15) days after the giving of notice thereof. Nothing in this lease contained
shall be construed to impose upon Owner any duty or obligation to enforce the
Rules and Regulations or terms, covenants or conditions in any other lease, as
against any other tenant and Owner shall not be liable to Tenant for violation
of the same by any other tenant, its servants, employees, agents, visitors or
licensees. Notwithstanding the foregoing, all Rules and Regulations shall be
enforced in a nondiscriminatory fashion among all tenants in the building. The
lease provisions shall control and supersede any contradictory on inconsistent
provisions contained in the Rules and Regulations.
GLASS:
37. Owner shall replace, at the expense of the Tenant, any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Owner may insure, and keep insured, at Tenant's expense, all
plate and other glass in the demised premises for and in the name of Owner.
Bills for the premiums therefor shall be rendered by Owner to Tenant at such
times as Owner may elect, and shall be due from, and payable by, Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid, as
additional rent.
ESTOPPEL CERTIFICATE:
38. Tenant, at any time and from time, to time, upon at least 15 days
prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or
to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified in full force and effect (or, if there
have been modifications, that the same is in full force and effect as modified
and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
DIRECTORY BOARD LISTING:
39. If, at the request of and as accommodation to Tenant, Owner shall
place upon the directory board in the lobby of the building, one or more names
of persons other than Tenant, such directory board listing shall not be
construed as the consent by Owner to an assignment or subletting by Tenant to
such person or persons.
SUCCESSORS AND ASSIGNS:
40. The covenants, conditions and agreements contained in this lease shall
bind and Inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
The Rider attached to this lease is hereby made as part of this lease and
contains Article 41 through 75.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner: Lautob Realty Company [SEAL]
------------------------------------------
By: /s/ [SIGNATURE ILLEGIBLE]^^ [L.S]
- ---------------------------- ------------------------------------------
Witness for Tenant: Scient Corporation [SEAL]
------------------------------------------
By: /s/ William H. Kurtz, [L.S]
- ---------------------------- ------------------------------------------
William H. Kurtz, Executive Vice President
______________
*at Tenant's expense
*and shall deposit an additonal $250,000 upon the substantial completion of
Owner's Work (as hereinafter defined) on the 4th Floor of the building.
Page 5 of 6
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE TENANT
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of ,19 , before me personally came
to me known, who being by me duly sworn, did depose and say that he resides in
that he is the of the corporation described in and which executed
the foregoing instrument, as TENANT; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation, and that
he signed his name thereto by like order.
INDIVLDUAL TENANT
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of ,19 , before me personally came
to be known and known to me to be the individual described in and who, as
TENANT, executed the foregoing instrument and acknowledged to me that he
executed the same.
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE IN
ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage, resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors of halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an Interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
1ocks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building all persons who
do not present a pass to the building signed by Owner. Owner will furnish passes
to persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Notwithstanding the foregoing, Owner
shall not be required to allow Tenant or any person to enter or remain in the
building, except on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays
from 8:00 a.m. to 1:00 p.m. Tenant shall not have a claim against Owner by
reason of Owner excluding from the building any person who does not present such
pass.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive, or hazardous
fluid, material, chemical or substance, or cause or permit any odors of cooking
or other processes, or any unusual or other objectionable odors to permeate in
or emanate from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs or
interferes with other Tenants in the beneficial use of their premises.
Address 860 Broadway
New York, New York
Premises 3rd and 4th Floors
================================================================================
Lautob Realty Company
TO
Scient Corporation
================================================================================
STANDARD FORM OF
LOFT
[LOGO] LEASE [LOGO]
The Real Estate Board of New York, Inc.
(C) Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
================================================================================
Dated October 28, 1998
Rent Per Year See lease
Rent Per Month See lease
Term
From See lease
To
Drawn by.........................
Checked by.......................
Entered by........................
Approved by......................
================================================================================
Page 6 of 6
<PAGE>
Index To Rider To Agreement of
Lease Dated As of October 28, 1998,
Between Lautob Realty Company,
Owner, and Scient Corporation, Tenant
<TABLE>
<CAPTION>
Article And Title Page
- ----------------- ----
<S> <C>
41. Conflicts...................................................... 1
42. Term; Fixed Rent; As Is; Owner's Work; Construction Allowance.. 1
43. Real Estate Taxes.............................................. 3
44. Electric Energy................................................ 4
45. Additional Rent; Default Notices............................... 6
46. Survival....................................................... 6
47. Certain Restrictions........................................... 6
48. Insurance...................................................... 7
49. Sale of Stock, Partnership Interests or Other Interests........ 7
50. Security Deposit............................................... 7
51. Arrears........................................................ 8
52. Broker......................................................... 8
53. No Owner Liability............................................. 8
54. Interpretation................................................. 8
55. Owner's Consent; Arbitration................................... 8
56. Interest....................................................... 9
57. Execution of Lease............................................. 9
58. Managing Agent................................................. 9
59. Security Interests............................................. 9
60. Air-Conditioning............................................... 9
61. Rent Control................................................... 9
62. Holding Over................................................... 9
63. Tenant's Work.................................................. 9
64. Americans With Disabilities Act (the "ADA");
Local Law No. 5 of 1973, as amended (the "Law")............ 11
65. Confidentiality................................................ 11
66. Assignment and Subletting...................................... 11
67. Letter of Credit for Security Deposit.......................... 14
68. Nondisturbance Agreement....................................... 14
69. Access......................................................... 15
70. Signs.......................................................... 15
71. Zoning......................................................... 15
72. No Residential Use............................................. 15
73. Locks.......................................................... 15
74. Financing...................................................... 15
75. Right of First Offer........................................... 15
</TABLE>
<PAGE>
Rider To Agreement of Lease Dated as of October 28, 1998,
Between Lautob Realty Company, Owner,
and Scient Corporation. Tenant
---------------------------------------------------------
41. Conflicts. In the event of any conflict between any of the
---------
provisions of this Rider and any of: the provisions, printed or typewritten, of
the printed portion of this lease, the provisions of this Rider shall control.
42. Term: Fixed Rent; As Is: Owner's Work: Construction Allowance.
-------------------------------------------------------------
(a) The term of this lease (unless it shall sooner expire or terminate) shall
commence on the date of this lease and shall end on the last day of the month in
which occurs the 10th anniversary of the 4th Floor Rent Commencement Date (as
defined below).
(b) The annual fixed rent under this lease (subject to increase
as provided in this lease) shall be (i) $350,000 per annum for the 3rd floor of
the demised premises from the date of this lease through the last day of the
month in which occurs the 1st anniversary of the date of this lease and (ii)
$350,000 per annum for the 4th floor of the demised premises from the date of
this lease through the last day of the month in which occurs the 1st anniversary
of the date of substantial completion of Owner's Work (as defined below)
(subject to the provisions of clause (c) of this Article). Commencing the first
day of the month (the "First Escalation Date") immediately following the month
in which occurs the 1st anniversary of the date of this lease, and on each
anniversary of the First Escalation Date thereafter, the annual fixed rent for
the 3rd floor of the demised premises shall Increase by an amount equal to 3
percent of the annual fixed rent for such space in effect for the immediately
preceding 12-month period (which increase shall be added to the fixed rent for
the 3rd floor of the demised premises in effect for the immediately preceding
12-month period to form the fixed rent for such space for the next 12 months,
until the next increase). Commencing on the first date of the month (the "Second
Escalation Date") immediately following the month in which occurs the 1st
anniversary of the date of substantial completion of Owner's Work, and on each
anniversary of the Second Escalation Date thereafter, the annual fixed rant for
the 4th floor of the demised premises shall Increase by an amount equal to 3
percent of the annual fixed rent for such space in effect for the immediately
preceding 12-month period (which increase shall be added to the fixed rent for
the 4th floor of the demised premises in effect for the immediately preceding
12-month period to form the fixed rent for such space for the next 12 months,
until the next increase). In addition to all other payments of fixed rent and
additional rent, and all other increases expressly set forth under this lease,
the annual fixed rent shall be Increased by $25,000 on October 1, 2003. The
fixed rent under this lease shall be appropriately prorated if the period for
which the same is payable is not a full calendar month.
(c) Notwithstanding any provision of this lease to the contrary,
provided Tenant is not in default under this lease following any required notice
and the expiration of any applicable cure period, the annual fixed rent for the
3rd floor (in the amount of $350,000 per annum) shall commence 90 days following
the date of this lease and the fixed rent for the 4th floor (in the amount of
$350,000 per annum) shall abate and not commence until the date (the "4th Floor
Rent Commencement Date") which is the later of (i) August 1, 1999 or 90 days
following the date of the substantial completion of Owner's Work. The period of
free or reduced fixed rent set forth in this Article is provided to Tenant in
consideration of Tenant's compliance with the provisions of this lease. If,
therefore, Tenant shall at any time be in default under this lease following any
required notice and the expiration of any applicable grace period, Tenant shall
pay to Owner, within 10 days following Owner's demand (which demand shall
specify such default), the full amount of the fixed rent which would have been
paid by Tenant to Owner during the period of free or reduced fixed rent had
Tenant been required to commence the payment of the full fixed rent on the date
the term of this lease commenced,
(d) Notwithstanding any provision of this lease to the contrary,
Tenant shall accept possession of the demised premises "AS IS" on the date the
term of this lease shall commence (except that Owner shall deliver the 3rd floor
to Tenant in a broom swept condition) and Owner shall have no obligation to
furnish, render or supply any work, labor, services, equipment, materials,
decorations, furniture or fixtures to make the demised premises ready or
suitable for Tenant's use or occupancy, except that Owner shall, at its expense,
in a building standard manner, using building standard materials, as soon as
practicable following the date the current occupant of the 4th floor vacates the
entire 4th floor, perform the following work with respect to the 4th floor
("Owner's Work"): (i) furnish and Install new air conditioning unit(s)
substantially similar to the unit(s) on the 3rd floor (but the distribution
system within the 4th floor shall be furnished and installed by Tenant at
Tenant's expense, subject to and in accordance with this lease); (ii) construct
one men's and one women's bathroom complying with the ADA (as defined below)
substantially similar to the bathrooms on the 3rd floor; (iii) sand and refinish
the hardwood floors on the 4th floor; (iv) paint all walls and other painted
surfaces of the 4th floor remaining after demolition by Owner and (v) render the
4th floor In a broom swept condition. Upon the substantial completion of Owner's
Work, Owner Shall assign to Tenant all assignable warranties of Owner with
respect to the new air conditioning units installed on the 4th floor by Owner.
(e) If the substantial completion of Owner's Work shall be
delayed due to any act or omission of Tenant or any of its employees, agents or
contractors (i) Owner's Work shall be deemed substantially complete on the date
Owner's Work would have been substantially complete but for such act or
<PAGE>
omission and (ii) Tenant shall reimburse Owner for any and all expenses, losses,
costs, and damages suffered by Owner as the result of such delay. If the date of
the substantial completion of Owner's Work shall not occur, through no fault of
Tenant or any of Tenant's employees, agents or contractors, on or prior to
January 1, 2000, then Tenant may, by notice to Owner given on or prior to
February 1, 2000 (time being of the essence), elect to terminate this lease (1)
as to the entire demised premises or (2) as to the 4th floor of the demised
premises. This lease shall so terminate 30 days after such notice as if that
date was the expiration date specified in this lease with respect to the
affected space; provided, that if the date of the substantial completion of
Owner's Work occurs before such termination date, then this lease shall continue
in full force and effect. If Tenant shall have elected to exercise the option
specified in clause (2) above, after such termination, the demised premises
shall exclude the 4th floor of the demised premises and fixed rent and
additional rent under this lease shall be appropriately adjusted.
(f) Each portion of the demised premises shall be conclusively
presumed to be in satisfactory condition on the date Tenant takes possession of
such portion except for latent defects and except for other defects of which
Tenant gives Owner notice within 30 days after such possession specifying with
reasonable particularity the respects in which the demised premises were not in
satisfactory condition on such commencement date.
(g) Owner's Work shall be deemed substantially completed at such
time as the 4th floor can be used by Tenant for Tenant's business
notwithstanding the fact that (i) any work to be done by Tenant is not completed
(including, without limitation, the installation of telephones), (ii) decorating
and touching-up of painting are not completed and (iii) minor or insubstantial
details of construction or mechanical adjustment remain to be performed. Owner
shall diligently prosecute to completion any of the foregoing which constitutes
Owner's Work. Owner shall give Tenant not less than 5 business days' prior
notice of the date which Owner reasonably believes is the date of the
substantial completion of Owner's Work. Tenant may dispute the date of
substantial completion of Owner's Work in a notice to Owner given within 5
business days after the foregoing notice from Owner (time being of the essence).
Tenant's notice shall reasonably describe the mason that Tenant disputes such
date. For a period of 15 days following such Tenant's notice, Owner and Tenant
shall, in good faith, attempt to mutually resolve such dispute. If the same is
not so mutually resolved within such 15-day period (time being of the essence),
either Owner or Tenant may submit the dispute to arbitration under Article 55 of
this lease. Pending the resolution of the dispute under this Article, the date
which Owner specifies as the date of substantial completion of Owner's Work
shall control. When the dispute is resolved under this Article, equitable
adjustments shall be made under this lease and (1) overpayments, if any, made by
Tenant to Owner of fixed rent and additional rent shall be applied by Owner to
the next installments of fixed rent and additional rent due under this lease and
(2) underpayments, if any, of fixed rent and additional rent shall be paid by
Tenant to Owner within 5 days after notice from Owner.
(h) Upon the occurrence of the 4th Floor Rent Commencement Date,
Owner and Tenant shall confirm in a writing satisfactory to Owner the 4th Floor
Rent Commencement Date and the expiration date of the term (but any delay in
confirming, or failure to confirm, same shall not delay those dates).
(i) Provided Tenant is not then in default under this lease
following any required notice and the expiration of any applicable cure period,
Owner shall provide a construction allowance (the "Construction Allowance") of
up to $250,000 with respect to the 3rd floor and up to $250,000 with respect to
the 4th floor for all costs incurred by Tenant for any permanent leasehold
improvements to the floor of the demised premises In question (the "Reimbursable
Costs") (which shall exclude, without limitation, the cost of architects,
designers; engineers, attorneys, accountants, permits, moving, telephone and
computer equipment, Tenant's trade fixtures, and Tenant's furniture and other
personal property); provided, that such leasehold improvements are performed in
accordance with this lease with respect to Tenant's initial preparation of the
applicable floor for Tenant's initial occupancy thereof (such leasehold
improvements being called "Initial Improvements"). The Construction Allowance
shall be advanced to pay for the Reimbursable Costs upon the conditions
specified below, and as the construction progresses.
(i) Not fewer than 10 days before the date of such advance,
Owner shall have received a certificate of Tenant and its general
contractor stating (1) the amount of such advance being requested and
whether that advance is for the 3rd floor or the 4th floor of the demised
premises, (2) the Period (as hereinafter defined) covered by such
certificate, (3) the Reimbursable Costs for the Initial Improvements
Incurred during the applicable Period insofar as actually incorporated into
the demised premises, (4) that the amount of such advance either has been
paid by Tenant or is justly due to such general contractor for the labor
and materials described in such certificate supplied during the applicable
Period in connection with the Initial Improvements insofar as actually
incorporated therein, (5) that no portion of the Reimbursable Costs
described in any previous or then pending requisition by Tenant has been or
is being made the basis for such advance and (6) that the work theretofore
performed at the demised premises has been done in accordance with this
lease;
(ii) at the time of the delivery of the certificate referred
to in Article 42(i)(i), Tenant shall deliver to Owner (1) final and
unconditional full or partial lien releases (as appropriate) for the
Reimbursable Costs which were the basis for the Immediately preceding
advance
2
<PAGE>
of the Construction Allowance and (2) reasonable evidence of Tenant's
payment of the costs and expenses in connection with the Initial
Improvements accrued to the date of such certificate (except to the extent
such costs and expenses are advanced by Owner under this lease);
(iii) Owner shall not be obligated to advance any portion of
the Construction Allowance if (1) such advance is in connection with any
item not yet incorporated into the demised premises or (2) there exists any
default under this lease by Tenant following any required notice and the
expiration of any applicable cure period;
(iv) each such advance shall be made (1) on a business day
at the office of Owner specified above (or at any other office in New York,
New York specified by Owner), (2) by the issuance of a check by Owner
payable to the order of Tenant and (3) not more frequently than once in
each calendar month;
(v) Subject to Article 42(j), Owner shall not be obligated
to disburse an amount equal to 10% of each advance of the Construction
Allowance (the sum of all amounts not so disbursed by Owner being
collectively called, the "Retainage");
(vi) notwithstanding anything to the contrary contained in
this lease, Owner may (but shall not be obligated to), from time to time
(whether or not Owner shall be obligated to make an advance of the
Construction Allowance), pay directly out of the Construction Allowance any
costs and expenses in connection with the Initial Improvements, and the
amount so paid shall be deemed to be an advance of the Construction
Allowance; provided that Owner shall only pay such amount (1) to
contractors, materialmen and/or suppliers Involved with the Initial
Improvements and (2) to the extent Owner reasonably believes the same is
due to such contractors, materialmen and/or suppliers.
(vii) at the time of the final advance of the Construction
Allowance (excluding the Retainage), Tenant shall deliver to Owner evidence
reasonably acceptable to Owner that Tenant has obtained waivers of all
mechanics' and materialmen's liens in connection with the Initial
Improvements;
(viii) each such advance shall be used solely (1) to pay for
the costs and expenses of unaffiliated third parties in connection with the
Initial Improvements or (2) to reimburse Tenant for amounts paid by Tenant
on account of the same; and
(ix) Owner shall not be obligated to advance under this
lease more than (1) $250,000 with respect to the Initial Improvements for
the 3rd floor of the demised premises and (2) $250,000 with respect to the
Initial Improvements for the 4th floor of the demised premises.
For the purpose of this Article, the term "Period" shall mean,
with respect to any advance of the Construction Allowance, the period
covered by any certificate of Tenant received by Owner pursuant to Article
42(i)(i); provided, that not more than one Period shall be covered by any
such certificate.
(j) The Retainage shall be advanced to Tenant when Owner
determines (in the exercise of its reasonable judgment) that construction
of the Initial Improvements has been fully completed In accordance with
this lease and the relevant contracts and that the contractors and
materialmen are entitled to the same under their respective contracts. At
the time of the advance of the Retainage, Tenant shrill deliver to Owner
final and unconditional lien releases In connection with the Initial
Improvements.
43. Real Estate Taxes. (a) For the purpose of this Article:
------------------
(i) The term "Taxes" shall mean (1) the real estate taxes,
vault charges, assessments and special assessments imposed on the building
and/or the land on which the building is erected (excluding business improvement
district charges); provided, that if any real estate taxes, vault charges,
assessments or special assessments are challenged by Owner, an appropriate
adjustment shall be made to the amount of Taxes when the same is finally
determined and (2) any expenses Incurred by Owner in contesting the same. If at
any time during the term of this lease the methods of taxation prevailing on the
date hereof shall be altered so that in lieu of, or as an addition to, or as a
substitute for, the whole or any part of such real estate taxes, vault charges,
assessments and special assessments now Imposed on real estate, there shall be
levied, assessed and imposed (x) a tax, assessment, levy, imposition, license
fee or charge wholly or partially as a capital levy or otherwise on the rents
received therefrom, or (y) any other additional or substitute tax, assessment,
levy, imposition, fee or charge, then all such taxes, assessments, levies,
impositions, fees or charges shall be deemed to be included within the term
"Taxes" for the purposes hereof.
(ii) The term "Base Tax Year" shall mean the Tax Year
ending June 30, 1999 with respect to the 3rd floor and June 30, 2000 with
respect to the 4th floor.
(iii) The term "Base Tax" shall mean the Taxes for the Base
Tax Year.
3
<PAGE>
(iv) The term "BID Charges" shall mean business Improvement
district charges imposed on the building and/or the land on which the building
Is erected, and any expenses incurred by Owner in contesting the same.
(v) The term "Tax Year" shall mean each successive New
York City real estate fiscal year, commencing on July 1st and expiring on the
next occurring June 30th. If the present use of July 1st through June 30th as
the New York City real estate fiscal year shall change, then such changed fiscal
year shall be the Tax Year under this lease.
(vi) The term "Tenant's Share" shall mean 16.67 percent
with respect to the 3rd floor and 16.67 percent with respect to the 4th floor.
(b) (i) If the Taxes for any Tax Year shall exceed the Base
Tax, Tenant shall pay for such Tax Year an amount ("Tax Payment") equal to
Tenant's Share of such excess, and (ii) Tenant shall pay for each Tax Year an
amount ("BID Payment") equal to Tenant's Share of the BID Charges for that Tax
Year. If a Tax Year ends after the expiration or termination of the term of this
lease, the Tax Payment and BID Charges therefor shall be prorated to correspond
to that portion of such Tax Year occurring within the term of this lease. If the
real estate fiscal tax year of the City of New York shall be changed during the
term of this lease, any Taxes or BID Charges for a real estate fiscal tax Year,
a part of which is included within a particular Tax Year and a part of which is
not so included, shall be apportioned on the basis of the number of days in the
real estate fiscal tax year included in the particular Tax Year for the purpose
of making the computations under this Article.
(c) The Tax Payment and BID Payment shall be payable by Tenant
within 30 days after receipt of a demand from Owner (which demand shall not be
given more that 60 days prior to the date payment of the same is due by Owner),
which demand shall be accompanied by (i) Owner's computation of the Tax Payment
and BID Payment and (ii) a copy of the relevant tax bills and bills for the Bid
Charges. Notwithstanding the foregoing, at Owner's option, to be exercised at
any time during the term of this lease upon notice to Tenant, Tenant shall pay
on the first day of each month, on account of the Tax Payment or the BID Payment
for the next Tax Year, an amount equal to one-twelfth of the Tax Payment or the
BID Payment for the preceding Tax Year. If the aggregate payments on account of
the Tax Payment or the BID Payment in any Tax Year shall exceed the Tax Payment
or the BID Payment actually payable for that Tax Year, the excess shall, at
Owner's option, either be credited against subsequent payments payable by
Tenant, if any, under this Article or promptly refunded to Tenant; and if the
Tax Payment or the BID Payment for any Tax Year actually payable shall exceed
the aggregate payments on account of the Tax Payment or the BID Payment, the
excess shall be promptly paid by Tenant within 10 days after receipt of a demand
from Owner, which demand shall be accompanied by Owner's computation of the
amount due and set forth the Tax Payment and the BID Payment actually payable
for that Tax Year and the amounts paid by Tenant on account of the same for that
Tax Year.
(d) If the Base Tax is reduced as a result of an appropriate
proceeding or otherwise, Owner shall adjust the amount of each Tax Payment
previously made, and Tenant shall pay the amount of the adjustment on the next
rent installment date Immediately following receipt of a demand therefor from
Owner seeing forth the amount of the adjustment. If in any Tax Year the building
or the land is entitled to any abatement of or exemption from Taxes or BID
Charges (or any assessment or rate which comprises Taxes or BID Payment), such
abatement or exemption shall be taken into account In determining Tenant's Tax
Payment or BID Payment for that Tax Year.
(e) If Owner shall receive a refund of the Taxes or the BID
Charges for any Tax Year, Owner shall pay to Tenant Tenant's Share of the net
refund (after deducting from such total refund the costs and expenses of
obtaining same which have not previously been Included in Taxes or BID Charges
under this lease); but (i) such payment to Tenant shall not exceed Tenant's Tax
Payment or BID Payment actually paid for such Tax Year and (ii) if Tenant is
then in default in the payment of any fixed rent or additional rent, Owner shall
first apply that refund to the defaulted payments, if any.
44. Electric Energy. (a) Notwithstanding any provision of this lease
----------------
to the contrary, Owner shall have no obligation to supply to Tenant or the
demised premises any electric energy. Tenant shall, at Tenant's expense, make
all arrangements for electric energy to be furnished to the demised premises,
including, without limitation, the furnishing, Installing and maintaining of all
meters and other components of the electric energy system within or servicing
the demised premises. Owner shall not be liable to Tenant in damages or
otherwise for any failure of Tenant to make arrangements for or to obtain any
electric energy. Tenant shall not be released or excused from the performance of
any of its obligations under this lease for any such failure or for any
interruption or curtailment of any electric energy, and no such failure,
interruption or curtailment shall constitute a constructive or partial eviction.
Tenant shall not overload any electric energy facility. Notwithstanding anything
to the contrary contained in this lease, except as provided in Article 44(e),
without the prior consent of Owner, Tenant shall not make any Improvements,
alterations or additions to the electrical system of the building.
4
<PAGE>
(b) Tenant shall pay directly to the company, companies or
governmental units supplying electric energy to Tenant promptly as and when due,
all charges for electric energy used by Tenant or in connection with the demised
premises.
(c) Notwithstanding any provision of this lease to the contrary,
Tenant shall, at Tenant's expense, maintain and promptly make all repairs,
ordinary and extraordinary, to all components of the electric energy system
within or servicing the demised premises, including, without limitation, all
meters.
(d) Owner shall not be liable or responsible for any loss,
damage, or expense that Tenant may sustain or incur by reason of any change of
the company or companies supplying electric energy to the building (and to the
demised premises), including, without limitation, in connection with the
failure, interference or disruption in the supply of the electric energy
furnished to the demised premises, and no such change, failure, defect,
Interference or disruption shall constitute an actual or constructive eviction,
in whole or in part, or entitle Tenant to any abatement or diminution of rent or
additional rent, or relieve Tenant from any of its obligations Under this lease.
In the event that Tenant wishes to utilize the services of an alternative
electricity service provider (the "ASP") rather than the public utility that is
servicing the building, no such ASP shall be permitted to provide service to
Tenant or to Install its lines or other equipment within the building without
obtaining the prior consent of Owner, which shall not be unreasonably withheld
or delayed. Unless all of the following conditions are satisfied, it shall be
reasonable for Owner to refuse such consent:
(i) Owner shall incur no expense whatsoever with respect
to any aspect of the ASP's provision of its services, Including, without
limitation, the cost of Installation, service and materials;
(ii) Prior to commencement of any work in or about the
demised premises or the building by the ASP, the ASP shall supply Owner with
verification that, in Owner's reasonable judgment, the ASP is (1) properly
insured and (2) financially capable of paying any uninsured damage;
(iii) Prior to the commencement of any work in or about the
building by the ASP, the ASP shall agree in writing to abide by such rules and
regulations as reasonably determined by Owner;
(iv) Owner reasonably determines that there is sufficient
space in the building for the placement of all of the ASP's equipment and
materials, Including, without limitation, in the electricity risers;
(v) The ASP is licensed and reputable;
(vi) The ASP agrees, in a license agreement proposed by
Owner, to compensate Owner the reasonable amount determined by Owner for (1)
space used in the building for the storage and maintenance of the ASP's
equipment (the "ASP's Space") and (2) all costs that may be incurred by Owner in
arranging for access by the ASP's personnel, security for the ASP's equipment
and any other costs as Owner may incur in connection therewith;
(vii) The ASP agrees that Owner shall have the right to
inspect the ASP's performance of any work on or about the building, including,
without limitation, any installations or repairs; and
(viii) The ASP agrees that Owner shall have the right to
enter the ASP's Space at any time in the event of an emergency and, otherwise,
at all reasonable times and upon reasonable notice.
Owner's consent under this Article shall not be deemed any kind of warranty or
representation by Owner, including, without limitation, as to the suitability or
competence of the ASP. Tenant acknowledges that all electricity services desired
by Tenant shall be ordered and utilized at the sole expense of Tenant. Tenant
shall indemnify and hold harmless Owner for all losses, claims, demands,
expenses and judgments against Owner caused by or arising out of, either
directly or indirectly, any acts or omissions by the ASP. Notwithstanding
Tenant's rights to use an ASP, Owner shall have the right at any time and from
time to time to require Tenant to contract for electricity service with a
different ASP or ASPs; provided, that the use of the same shall lower Tenant's
electricity costs.
(e) Owner represents and warrants to Tenant that the existing
risers serving the demised premises are designed to supply (i) not less than 7
wafts demand load of electricity per rentable square foot (exclusive of HVAC)
and (ii) not less than 6 watts demand load of electricity per rentable square
foot for HVAC use. If, in Tenant's reasonable judgment, Tenant's reasonable
electrical requirements are in excess of the foregoing and necessitate
reasonable installations of additional electrical risers or other equipment,
Tenant shall notify Owner of this fact, and Owner shall, within a reasonable
period of time after such notice, make such reasonable installations. Tenant
shall pay Owner the costs for the same within 10
5
<PAGE>
days after rendition of a bill to Tenant therefor. Tenant shall, at the request
of Owner, provide to Owner such reasonable assurances as Owner shall request
with respect to Tenant's ability to pay such costs.
45. Additional Rent; Default Notices. Notwithstanding any provision
--------------------------------
of this lease to the contrary, (a) all sums of money, other than the fixed rent,
as shall become due from and payable by Tenant to Owner under this lease shall
be deemed to be additional rent, and (b) if Owner is prohibited by any law,
order, rule or regulation issued or promulgated by any governmental authority
having jurisdiction over same from sending to Tenant any notice of default
required to be sent pursuant to this lease, then (i) Tenant shall be deemed in
default under this lease on the date a default first occurs and (ii) as long as
the prohibition is in effect, Owner shall not be required to send any notice of
default under this lease for any reason, including, without limitation, to
enable Owner to draw on any security under this lease or to exercise any other
rights or remedies in connection with a default.
46. Survival. Any obligation of Owner or Tenant which by its nature
--------
or under the circumstances can only be, or by the provisions of this lease may
be, performed after the expiration or earlier termination of this lease, and any
liability for a payment which shall have accrued to or with respect to any
period ending at the time of such expiration or termination, unless expressly
otherwise provided in this lease, shall survive the expiration or earlier
termination of this lease. No delay by Owner in rendering any bill or statement
shall be deemed a waiver or release of Tenant's obligation to make the payment
reflected on that bill or statement.
47. Certain Restrictions. In addition to any other restrictions set
--------------------
forth in this lease, and notwithstanding anything to the contrary contained in
this lease, Tenant shall not (a) use any other area within or adjacent to the
building for the sale or display of any merchandise, for solicitations or
demonstrations or for any other business, occupation, undertaking or activity,
(b) store any trash or garbage in any area other than inside the demised
premises (and Tenant shall, at Tenant's sole cost and expense, attend to the
daily disposal of trash), (c) suffer, permit or commit any waste or any nuisance
or other act or thing in the demised premises which may unreasonably disturb any
other tenant or occupant in the building or permit any activity within or from
the demised premises which, in Owner's sole judgment, is obscene, pornographic
or lewd, (d) permit music or any other sounds in the demised premises to be
heard outside of the demised premises, (e) use or permit or suffer the use of
any machines or equipment in the demised premises which cause vibration or noise
that may be transmitted to or heard outside of the demised premises, (f) permit
odors or fumes beyond the demised premises, (g) to the extent possible, permit
its customers or delivery men to loiter immediately outside the demised premises
or the building, (h) except with Owner's prior consent or as otherwise expressly
permitted in this lease, place or install, or permit or suffer to be placed or
installed, or maintain, any sign upon or outside the demised premises or the
building, nor shall Tenant place or maintain on the glass of any window or door
of the demised premises, or inside the demised premises, any sign, decoration,
lettering, advertising matter, display (which can be seen from outside the
demised premises), shade or blind or other thing of any kind, (i) park trucks or
other delivery vehicles in other than authorized loading and unloading zones
(but then only for loading or unloading) so as to interfere with the use of any
driveways, walks or entrances, (j) place or install, or permit or suffer to be
placed, installed or maintained, any awning, canopy, banner, flag, pennant,
aerial, antenna or the like upon or outside the demised premises or the
building, (k) use any portion of the demised premises for the conduct of any
public auction, gathering, meeting or exhibition (except to the extent any
gathering, meeting or exhibition is typically conducted by companies involved in
computer related consulting), the rendering of any health or related services,
the conduct of a school, the conduct of any business or any use which results in
the presence of the general public in the demised premises, or in any other
manner which, in Owner's reasonable opinion, creates excessive traffic or use of
the building services, or (l) cause or permit, as the result of any intentional
or unintentional act or omission on the part of Tenant, its agents, employees,
tenants, subtenants or other occupants of the demised premises to release
Hazardous Substances (as defined in this Article) in or from any portion of the
demised premises in violation of any Environmental Laws. Tenant shall indemnify,
defend and hold harmless Owner, and its successors, assigns, and each of their
partners, employees, agents, officers and directors from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, losses, costs or
expenses of whatever kind or nature, known or unknown, contingent or otherwise,
including, without limitation, reasonable attorneys' and consultants' fees and
disbursements and investigation and laboratory fees arising out of, or in any
way related to: (i) the presence, disposal, release or threat of release of any
Hazardous Substance as a result of any act or omission of Tenant, its agents,
employees, tenants, subtenants, invitees or other occupants of the demised
premises, in or from or affecting the demised premises; (ii) any personal injury
(including wrongful death) or property damage (real or personal) arising out of
or related to any such Hazardous Substance; (iii) any lawsuit brought or
threatened, settlement reached or government order relating to such Hazardous
Substance; and (iv) any violations of laws, orders, regulations, requirements or
demands or governmental authorities by Tenant. "Hazardous Substance" shall mean
"solid waste" or "hazardous waste", "hazardous material", "hazardous substance",
and "petroleum product" as defined in the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Hazardous Material Transportation Act, the Federal Water Pollution Control
Act and the Superfund Amendments and Reauthorization Act of 1986, any laws
relating to underground storage tanks, and any similar or successor federal law,
state law or local statutes and ordinances and any rules, regulations and
policies promulgated thereunder, as any of such federal, state and local
statutes, ordinances and regulations may be amended from time to time
(collectively, "Environmental Laws").
6
<PAGE>
48. Insurance. (a) Tenant, at its expense, shall maintain at all
---------
times during the term of this lease and at all times when Tenant is in
possession (and cause its subtenants or any other person or entity occupying any
portion of the demised premises by, through or under Tenant) at all times during
the term of this Lease and at all times when Tenant (or such other person or
entity) is in possession of the demised premises (i) commercial general
liability insurance in respect of the demised premises and the conduct or
operation of Tenant's business therein, with Owner, Owner's managing agent for
the building and the mortgagee(s) of the building, if any, as additional named
insureds, with a combined single limit (annually and per occurrence) of not less
than $3,000,000 and (ii) insurance (without deductible, unless Owner reasonably
consents to the same) covering all of Tenant's property, including, without
limitation, Tenant's furniture; fixtures, machinery, equipment and other
personal property and any property of third parties located in the demised
premises ("Tenant's Property") against all risks and perils for physical loss
and damage, including, without limitation, coverage for business interruption,
in an amount equal to 100 percent of the full replacement value of Tenant's
Property (as increased from time to time), the policy for which shall, if
obtainable (and subject to the payment of any additional premium by Owner as
provided in Article 9), contain a clause providing that the release or waiver
referred to in Article 9 shall not invalidate the insurance.
(b) Tenant shall deliver to Owner such policies or certificates
of such policies (in form reasonably acceptable to Owner) prior to the
commencement of the term of this lease (and with respect to any insurance
required by Owner pursuant to Article 3, prior to the commencement of any
alteration). Tenant shall procure and pay for renewals of such insurance from
time to time before the expiration thereof, and Tenant shall deliver to Owner
and any additional named insureds such renewal policy or certificate at least 30
thirty (30) days before the expiration of any existing policy. All such policies
(and all insurance required by Owner pursuant to Article 3) shall name as
additional named insureds Owner, Owner's managing agent for the building, the
mortgagee(s) of the building and any other persons or entities designated by
Owner (provided, that the naming of such other persons or entities shall not
require material expenditure of Tenant), shall be issued by companies reasonably
satisfactory to Owner and all such policies shall contain a provision whereby
the same cannot be canceled or modified unless Owner and any additional named
insureds are given at least 30 thirty (30) days' prior written notice of such
cancellation or modification, including, without limitation, any cancellation
resulting from the non-payment of premiums. Owner shall have the right at any
time and from time to time, but not more frequently than once every two years,
to require Tenant to increase the amount of the insurance maintained by Tenant
under this Article, as reasonably determined by Owner, provided that such amount
shall not exceed the amount which is comparable to the amount then generally
required of tenants in similar space in similar buildings in the general
vicinity of the building.
(c) Owner, at its expense (except as otherwise provided in this
lease), shall maintain insurance covering the building against loss or damage by
fire and such other risks as Owner shall determine, in such amounts, with such
companies and with such deductibles as Owner shall determine. The policy shall,
if obtainable (and subject to the payment of any additional premium by Tenant as
provided in Article 9), contain a clause providing that the release or waiver
referred to in Article 9 shall not invalidate the insurance.
(d) Any reference in this lease to Tenant's contractors shall
include, without limitation, all contractors, subcontractors, materialmen and
others performing any work in the demised premises for Tenant (other than
Tenant's employees), whether retained directly by Tenant or by any contractor.
49. Sale of Stock, Partnership Interests or Other Interests. Subject
-------------------------------------------------------
to Article 66(i), if at any time the original Tenant named herein or the then
Tenant shall be a corporation (whose shares are not traded on a recognized
United States stock exchange), partnership or other entity, any transfer of
voting stock, partnership interest or other interest resulting in the person or
persons who shall have owned a majority of such corporation's shares of voting
stock, general partners' interest or other voting interest, as the case may be,
immediately before such transfer, ceasing to own a majority of same (unless such
person or persons have and continue to retain the ability to control Tenant and
to direct the management of the day-to-day affairs of Tenant), except as the
result of transfers by inheritance, shall be deemed to be an assignment of this
lease as to which Owner's consent shall be required. The issuance of capital
stock of Tenant to the public on a nationally recognized stock exchange or over-
the-counter market shall not violate this Article.
50. Security Deposit. If Owner shall use, apply or retain the whole
----------------
or any part of the security deposit described in Article 32 (as reduced pursuant
to Article 67(e)) in accordance with the terms of this lease, Tenant shall upon
demand immediately deposit with Owner (in immediately available funds or, if the
security deposit is then in the form of a letter of credit, by replacement of
the letter of credit with a letter of credit complying with this lease or an
amendment to the existing letter of credit) a sum equal to the amount so used,
applied or retained, as security as aforesaid. In addition to any other right or
remedy of Owner, if Tenant shall default under this lease twice in any 12-month
period Owner may, by notice to Tenant, increase the security deposit by 10%.
Tenant shall pay such additional security deposit to Owner (in immediately
available funds or, if the security deposit is then in the form of a letter of
credit, by replacement of the letter of credit with a letter of credit complying
with this lease or an amendment to the existing letter of credit) within 10 days
after demand therefor.
7
<PAGE>
51. Arrears. If Tenant is in arrears in the payment of rent or
-------
additional rent, Tenant waives Tenant's right, if any, to designate the items
against which any payments made by Tenant are to be credited, and Tenant agrees
that Owner may apply any payments made by Tenant to any items Owner sees fit,
irrespective of and notwithstanding any designation or request by Tenant as to
the items against which any such payments shall be credited; provided, that such
payments are then due by Tenant.
52. Broker. Tenant represents to Owner that, to the best of its
------
knowledge, no broker other than Insigna/Edward S. Gordon Co., Inc. (the
"Broker") was instrumental in consummating this lease and that Tenant had no
conversations or negotiations with any broker, other than the Broker, concerning
the leasing of the demised premises. Owner represents to Tenant that Owner had
no conversations or negotiations with any broker, other than the Broker,
concerning the leasing of the demised premises to Tenant. Tenant agrees to
indemnify, defend and hold harmless Owner against and from any claims for any
brokerage commissions or other compensation arising out of any conversations or
negotiations had by Tenant with any broker other than the Broker concerning this
lease, and all costs, expenses and liabilities in connection therewith or in
connection with a breach of the foregoing representation by Tenant, including,
without limitation, reasonable attorneys' fees and expenses. Owner agrees to
indemnify, defend and hold harmless Tenant against and from any claims for any
brokerage commissions or other compensation arising out of any conversation or
negotiation had by Owner with any broker concerning this lease, and all costs,
expenses and liabilities in connection therewith or in connection with a breach
of the foregoing representation by Owner, including, without limitation,
reasonable attorneys' fees and expenses. Owner shall pay any commission due the
Broker pursuant to a separate agreement between Owner and the Broker.
53. No Owner Liability. Owner, its partners and principals, disclosed
------------------
or undisclosed, shall have no personal liability under this lease. Tenant shall
look only to Owner's interest in the land and the building (or the proceeds
thereof) for the satisfaction of Tenant's remedies for the collection of a
judgment (or other judicial process) requiring the payment of money by Owner in
the event of any default by Owner hereunder, and no other property or assets of
Owner or its partners or principals, disclosed or undisclosed, shall be subject
to lien, levy, execution or other enforcement procedure for the satisfaction of
Tenant's remedies under or with respect to this lease, the relationship of Owner
and Tenant hereunder or Tenant's use or occupancy of the demised premises. If
Tenant shall acquire a lien on such other property or assets by judgment or
otherwise, Tenant shall promptly release such lien by executing and delivering
to Owner any instrument, prepared by Owner, required for such lien to be
released.
54. Interpretation. Irrespective of the place of execution or
--------------
performance, this lease shall be governed by and construed in accordance with
the law of the State of New York. If any provision of this lease or the
application thereof to any person or circumstance shall, for any reason and to
any extent, be invalid or unenforceable, the remainder of this lease and the
application of that provision to other persons or circumstances shall not be
affected but rather shall be enforced to the extent permitted by law. This lease
shall be construed without regard to any presumption or other rule requiring
construction against the party causing this lease to be drafted. Each covenant,
agreement, obligation or other provision of this lease on Tenant's part to be
performed, shall be deemed and construed as a separate and independent covenant
of Tenant, not dependent on any other provision of this lease. All terms and
words used in this lease, regardless of the number or gender in which they are
used, shall be deemed to include any other number and any other gender as the
context may require. If Tenant consists of two or more business entities, the
obligations and liabilities of Tenant shall be joint and several.
55. Owner's Consent; Arbitration. If Tenant shall request Owner's
----------------------------
approval or consent and Owner shall fail or refuse to give such consent or
approval, Tenant shall not be entitled to any damages for any withholding or
delay of such approval or consent by Owner, it being intended that Tenant's sole
remedy shall be an action for injunction or specific performance and that such
remedy shall be available only in those cases where Owner shall have expressly
agreed in writing not to unreasonably withhold its consent or approval or where
as a matter of law Owner may not unreasonably withhold its consent or approval.
If a dispute shall arise under Article 42(g) or (a) Tenant shall request Owner's
consent or approval in connection with an assignment of this lease or a sublet
of the demised premises, and Owner has expressly agreed not to unreasonably
withhold Owner's consent or approval, (b) Owner denies its consent or approval
and (c) within 10 days following Owner's denial of consent or approval Tenant
shall give notice to Owner that Owner's denial was unreasonable (which notice
shall set forth the respects in which such denial was unreasonable), then either
party may apply to the New York office of the American Arbitration Association
to appoint an individual to determine (as the case may be) the dispute under
article 42(g) or whether Owner unreasonably withheld its consent or approval.
The individual must be a person who has experience in commercial real estate in
New York, New York for at least the past 15 years (and, in case of the dispute
under Article 42(g), shall have at least 15 years of experience with commercial
construction). The application shall request that such decision be made within
30 days (in case of arbitration with respect to an assignment or subletting, 15
days). If the American Arbitration Association or the appointed individual fails
or refuses to act within the required time period, either party may apply to the
President of the Real Estate Board of New York, Inc. for such determination. To
the extent the same are relevant to the decision of such individual, the
provisions of this lease shall apply. If such individual determines that either
(i) Owner's determination of the date of substantial completion of Owner's Work
was incorrect or (ii) Owner unreasonably denied its consent or approval (in
which case Owner shall be deemed to have given its consent or approval), then
Owner shall not be liable or responsible for, and such individual shall not
award, any costs, expenses, damages or losses whatsoever in
8
<PAGE>
connection with or arising out of the foregoing. The determination of such
individual shall be binding and conclusive on Owner and Tenant. All fees, cost
and expenses of the foregoing shall be paid by the parties equally, but each
party shall be responsible for its own attorney's and witness fees.
56. Interest. In addition to any other remedies Owner may have under
--------
this lease, Tenant shall pay to Owner interest at the lower of (a) highest rate
permitted by law or (b) 4% per annum above the prime commercial lending rate
from time to time announced by The Chase Manhattan Bank in New York, New York on
any rent or additional rent paid more than ten days after the same is due, which
interest shall be paid for the period commencing on the date such rent or
additional rent was first due and ending on the date the same is paid.
57. Execution of Lease. Notwithstanding any provision of this lease,
------------------
or any law or rule, to the contrary, or the execution of this lease by Tenant,
this lease shall not bind Owner or Tenant, nor shall Owner or Tenant be
permitted the benefits of this lease, unless and until one or more counterparts
of this lease are executed by Owner and Tenant and delivered to Owner and
Tenant.
58. Managing Agent. Any bill, statement, notice or communication
--------------
given by Owner to Tenant in accordance with Article 28 may be signed and
delivered by the managing agent of the building with the same force and effect
as if signed and delivered by Owner. Until Owner shall give notice to Tenant of
a change, the managing agent of the building shall be Insignia/Edward S. Gordon
Co., Inc.
59. Security Interests. Tenant shall not grant or create, or permit
------------------
to be created, any security interest in or lien upon any fixtures, installed or
placed in the demised premises by Tenant or Owner.
60. Air Conditioning. Notwithstanding any provision of this lease to
----------------
the contrary, except as provided in Article 42, Owner shall have no obligation
to furnish to Tenant or the demised premises any air conditioning. Any air-
conditioning unit and equipment located in the demised premises on the date the
term of this lease shall commence or furnished and installed by Owner pursuant
to Article 42 may be utilized by Tenant; provided that Owner shall have no
obligation with respect thereto and that Tenant shall accept the same in its "AS
IS" condition. Tenant shall, at its sole cost and expense (a) maintain and
promptly make all repairs, structural or otherwise, ordinary and extraordinary,
to all components of the air-conditioning system within the demised premises,
(b) maintain, and prior to the commencement of the term deliver to Owner, a full
service contract covering the air conditioning system located at the demised
premises with a company reasonably acceptable to Owner and (c) pay all permit
fees and other costs associated with any air-conditioning units in the demised
premises. Tenant shall not be released or excused from the performance of any of
its obligations under this lease for any failure or for interruption or
curtailment of any air conditioning, for any reason whatsoever, and no such
failure, interruption or curtailment shall constitute a constructive or partial
eviction.
61. Rent Control. If the fixed rent or any additional rent shall be
------------
or become uncollectible by virtue of any law, governmental order or regulation,
or direction of any public officer or body pursuant to law, Tenant shall enter
into such agreement or agreements and take such other action as Owner may
request, as may be legally permissible, to permit Owner to collect the maximum
fixed rent and additional rent which may from time to time during the
continuance of such rent restriction be legally permissible, but not in excess
of the amounts of fixed rent and additional rent payable under this lease. Upon
the termination of such rent restriction prior to the expiration of the term of
this lease (a) the fixed rent and additional rent, after such termination, shall
become payable under this lease in the amount of the fixed rent and additional
rent set forth in this lease and (b) Tenant shall pay to Owner, if legally
permissible, an amount equal to (i) the fixed rent and additional rent which
would have been paid pursuant to this lease, but for such rent restriction, less
(ii) the fixed rent and additional rent paid by Tenant to Owner during the
period that such rent restriction was in effect.
62. Holding Over. If the demised premises are not surrendered and
------------
vacated as and at the time required by this lease (time being of the essence),
Tenant shall be liable to Owner for (a) all losses, costs, liabilities and
damages which Owner may incur by reason thereof, including, without limitation,
reasonable attorneys' fees, and Tenant shall indemnify, defend and hold harmless
Owner against all claims made by any succeeding tenants against Owner or
otherwise arising out of or resulting from the failure of Tenant timely to
surrender and vacate the demised premises in accordance with the provisions of
this lease, and (b) per diem use and occupancy in respect of the demised
premises equal to two times the fixed rent and additional rent payable under
this lease for the last year of the term of this lease (which amount Owner and
Tenant presently agree is the minimum to which Owner would be entitled, is
presently contemplated by them as being fair and reasonable under such
circumstances and is not a penalty). In no event, however, shall this Article be
construed as permitting Tenant to hold over in possession of the demised
premises after the expiration or termination of the term of this lease.
63. Tenant's Work. (a) Subject to the provisions of this Article,
-------------
Article 3, all other provisions of this lease, and the rules and regulations of
the building now or hereafter in effect, Owner's consent to the performance by
Tenant of work ("Tenant's Work") consisting of nonstructural alterations to the
demised premises in accordance with Tenant's Plans (as defined below) shall not
be unreasonably withheld or delayed, provided that (i) Tenant is not then in
default under this lease, (ii) Tenant's Work is not structural, (iii) the
outside appearance of the building shall not be affected, (iv) Tenant's Work
shall not affect any
9
<PAGE>
structural part of the building, (v) no part of the building outside of the
demised premises shall be affected, (vi) the mechanical, electrical, plumbing
and other service and utility systems of the building shall not be affected, and
(vii) Tenant's Work shall comply with the applicable provisions of this lease
and law. Any Tenant's Work which is required to be performed by Tenant pursuant
to any provision of this lease which is structural or which affects any
mechanical, electrical, plumbing or other service or utility system of the
building shall be performed in accordance with this Article and all other
applicable provisions of this lease, or may, at Owner's option, be performed by
Owner at Tenant's expense (in which event, Tenant shall pay Owner in
installments, in advances, as the work progresses).
(b) Prior to the commencement of any Tenant's Work requiring
Owner's' approval, Tenant shall submit to Owner for its approval two sets of
complete plans, drawings and specifications, suitable for filing ("Tenant's
Plans"), including, without limitation, all mechanical, electrical, air
conditioning and other utility systems and facilities, for such Tenant's Work,
prepared by an architect and/or engineer duly licensed in the State of New York.
Within 15 days following Owner's receipt of Tenant's Plans, Owner shall review
or cause the same to be reviewed and shall thereupon return to Tenant one set of
Tenant's Plans with Owner's approval (which shall not be unreasonably withheld
or delayed) or disapproval noted thereon, and if same shall be disapproved in
any respect Owner shall state the reasons for such disapproval. If Owner shall
not approve Tenant's Plans Tenant shall, within five days of receipt thereof,
cause its architect or engineer to make such changes to Tenant's Plans as Owner
shall require and shall thereupon resubmit the same to Owner for its approval.
To the extent required pursuant to any mortgage affecting the building, Tenant's
Plans shall also be subject to the prior approval of the holder of such
mortgage. Following the approval of Tenant's Plans, the same shall be final and
shall not be changed by Tenant without the prior approval of Owner, which shall
not unreasonably be withheld or delayed (and such mortgagee, if required),
except as may be required by law. Tenant shall give prior notice to Owner of any
changes required by law and shall furnish Owner (and such mortgagee, if
required) with copies of all such required changes in Tenant's Plans. Owner's
approval of Tenant's Plans or of any revisions shall not constitute an opinion
or agreement by Owner that the same are structurally sufficient or the Tenant's
Plans are in compliance with law, nor shall such approval impose any present or
future liability on Owner or waive any of Owners' rights under this lease.
Owner's approval of Tenant's Plans shall be conditioned upon Tenant employing
licensed persons and firms (where required by law) and labor for the performance
of Tenant's Work so as not to cause any jurisdictional or other labor disputes
in the building. In any event, all contractors Tenant proposes to employ shall
be bondable and shall be subject to Owner's prior approval, which will not be
unreasonably withheld or delayed. Such approval shall be requested by Tenant
prior to the commencement of any Tenant's Work. Notwithstanding the foregoing,
Tenant or the general contractor to be employed by Tenant to perform Tenant's
Work shall employ a subcontractor as shall be approved by Owner to perform the
electrical work (and all future electrical work), and the contract to be entered
into between Tenant and the approved general contractor shall so provide.
(c) Promptly following Owner's approval of Tenant's Plans (if
required), and, in any event, with respect to the performance of any Tenant's
Work, Tenant shall secure or cause to be secured, at Tenant's expense, all
necessary approvals of Tenant's Plans from all governmental authorities having
jurisdiction and all permits and licenses necessary to perform Tenant's Work.
Prior to the commencement of any Tenant's Work, Tenant shall furnish Owner with
copies of Tenant's Plans as approved by such governmental authorities and copies
of such permits and licenses; provided, however, that the filing of any
applications with any governmental authorities for such approval or for any
permits or licenses required to perform Tenant's Work shall be done (if the same
may be performed for a reasonable fee) by Rethy Associates, Inc. or another
person or entity reasonably designated by Owner. Prior to such filing, Tenant
shall submit copies of such applications to Owner for its approval, which shall
not unreasonably be withheld or delayed.
(d) Upon Tenant having secured the approvals from Owner (if the
same requires Owner's approval) and from governmental authorities as required
under this Article, Tenant shall promptly (i) enter into a construction contract
in form and substance approved by Owner, which approval shall not be
unreasonably withheld or delayed, and shall otherwise comply with the terms of
this lease, with a general contractor and/or construction manager approved by
Owner pursuant to this lease and (ii) furnish Owner with a copy of such executed
Contract.
(e) Following compliance by Tenant with its obligations under the
foregoing provisions of this Article, Tenant shall promptly commence or cause to
be commenced Tenant's Work and shall complete or cause the same to be completed
with reasonable diligence, in a first-class, workmanlike manner in accordance
with the approved Tenant's Plans (if applicable), all necessary licenses and
permits, this lease, all applicable laws, ordinances and regulations of all
governmental and insurance authorities and all applicable requirements of the
Board of Fire Underwriters. All of Tenant's Work shall be performed in a manner
so as to cause no inconvenience or disturbance to other tenants or contractors
in the building. Any heavy demolition work, core drilling or other slab
penetrations to be performed by Tenant as part of Tenant's Work shall be
performed on business days before 8:00 A.M. or after 6:00 P.M. Tenant shall
cause all construction work to be performed in a reasonable manner and shall
comply with the Rules and Regulations for the building (including, without
limitation, the payment of charges for services).
10
<PAGE>
(f) Tenant's Work shall not include any structural changes to the
demised premises or to the building or impair the structural soundness thereof,
and all of Tenant's Work shall be performed within the demised premises.
Tenant's Work shall in no event interfere with or impair the use of other
portions of the building or its services, including, without limitation, the
plumbing, heating, ventilating, air conditioning and electrical systems, by
Owner or other occupants of the building.
(g) Tenant shall pay its contractors, laborers, subcontractors,
materialmen and suppliers in accordance with their respective agreements with
Tenant, shall not cause or suffer any liens, mortgages, chattel liens, or other
title retention or security agreements to be placed on the demised premises, any
improvements therein or the building. Nothing contained in this Article or
elsewhere in this lease shall be construed in any way as constituting any
consent or authorization to Tenant to subject the land or the building or any
part of the land or the building or any improvements or other personal property
therein or the interest or estate of Owner or of the lessor under any underlying
lease to any lien or charge in respect of Tenant's Work. All contracts or
agreements made by Tenant with any third party for the furnishing of any labor
or materials in connection with Tenant's Work (or any other work or alterations
by Tenant) shall expressly provide that the contractor or materialman shall look
solely to Tenant for the payment of any labor or materials furnished to the
demised premises pursuant to such contract or agreement and that neither Owner
nor the lessor under any underlying lease shall have any responsibility or
liability for the payment thereof.
(h) Promptly following the completion of Tenant's Work, Tenant
shall obtain and submit to Owner copies of all final governmental and fire
underwriters' approvals or certificates evidencing the completion thereof in
compliance with all governmental and fire underwriters' requirements.
(i) Upon the completion of Tenant's Work and the approval thereof
by Tenant's architect and, if required by Owner for Tenant's Work requiring
Owner's consent, Owner's architect, Tenant shall deliver to Owner the general
contractor's affidavit to the effect that (i) all work and materials have been
completed and/or installed in accordance with Tenant's Plans (if applicable), or
any such changes thereto which Owner may have previously approved, and (ii) all
laborers, materialmen and subcontractors employed by the general contractor have
been paid in full except for any payments to be made from Owner's payment set
forth in Article 42, which affidavit shall be accompanied by lien releases from
all such parties and/or such other data establishing payment or satisfaction of
all other obligations in respect of Tenant's Work.
(j) Nothing contained in this Article shall limit the provisions
of Article 3 or any other provisions of this lease, except as specifically set
forth in this Article. The provisions of this Article are in addition to the
provisions contained in Article 3 and elsewhere in this lease.
64. Americans With Disabilities Act (the "ADA"); Local Law No. 5 of
---------------------------------------------------------------
1973, as amended (the "Law"). All of Owner's Work shall be performed, at Owner's
- ----------------------------
expense, in compliance with the ADA and the Law. Tenant shall, subject to all of
the provisions of this lease, comply with all aspects of the ADA and the Law, as
now or hereafter constituted, with respect to the demised premises, whether or
not such compliance is required as the result of Tenant's business, Tenant's
work, Tenant's use or manner of use of the demised premises or the building
(including the use permitted under this lease), or Tenant's method of operation
or whether or not such compliance requires structural changes to the demised
premises. If Tenant's business, Tenant's work, Tenant's use or manner of use or
Tenant's method of operation requires changes to any portion of the building
(exclusive of the demised premises) in order to comply with the ADA or the Law,
either (i) Tenant shall discontinue the same within 30 days after notice from
Owner, or (ii) after the expiration of such 30-day period, if Tenant shall not
have discontinued the same, Owner shall have the option of either terminating
this lease (in which event this lease shall end on the 30th day following
Owner's notice of termination and Tenant shall vacate the demised premises on
such date, without further liability or obligation of Owner or Tenant, beyond
that date) or performing those changes at Tenant's expense (in which event,
Tenant shall pay Owner for the expense of the changes, plus 15% of the expense,
in installments, in advance, as the work is performed).
65. Confidentiality. Tenant shall hold in confidence and shall not
---------------
disclose to third parties, and shall cause its officers, directors, employees,
representatives, brokers, attorneys and advisers to hold in confidence and not
disclose to third parties, this lease and its terms, as hereby or hereafter
amended, and any information relating to Owner or the building, if any, provided
by Owner to Tenant in connection with this lease, as hereby or hereafter amended
(collectively, the "Information"), except to the extent any information (a) must
be disclosed by order of any court or regulatory agency, or by law (b) is
publicly known or becomes publicly known other than through the acts of Tenant,
or any of its officers, directors, employees, representatives, brokers,
attorneys or advisers, or (c) must be disclosed by Tenant in connection with any
financing or sale, any subletting of the demised premises, or any assignment of
this lease, as hereby or hereafter amended, by Tenant.
66. Assignment and Subletting. (a) Notwithstanding the provisions of
-------------------------
Article 11, if Tenant shall at any time during the term of this lease desire to
assign this lease or sublet all of the demised premises or any portion thereof,
Tenant shall give notice thereof to Owner, which notice shall be accompanied by
(i) a conformed or photostatic copy of the proposed assignment or sublease, the
effective or commencement date of which shall be at least 30 days after the
giving of such notice, (ii) a statement setting forth in reasonable detail the
identity of the proposed assignee or subtenant, the nature of its business and
11
<PAGE>
its proposed use of the demised premises, and (iii) current financial
information with respect to the proposed assignee or subtenant, including,
without limitation, its most recent financial report. In case of an assignment
of this lease or a sublet of all of the demised premises or all of any one floor
of the same for all or substantially all of the balance of the term of this
lease, such notice shall be deemed an offer from Tenant to Owner whereby Owner
may, at its option, terminate this lease (or, in case of a subletting, terminate
this lease as to the portion of the demised premises which Tenant is proposing
to sublet). Said option may be exercised by Owner by notice to Tenant at any
time within 30 days after such notice has been given by Tenant to Owner, and
during such 30-day period Tenant shall not assign this lease or sublet such
Space to any person.
(b) If Owner exercises its option to terminate this lease, this
lease (as to the portion of the demised premises which Tenant proposes to assign
on sublet) shall end and expire on the date that such assignment or sublet was
to be effective or commence, as the case may be, Tenant shall vacate the
affected portion of the demised premises on or before such date, and the fixed
rent and additional rent shall be paid and apportioned to such date and
thereafter the fixed rent and additional rent shall be equitably apportioned
based upon the demised premises remaining.
(c) If Owner does not exercise its option pursuant to paragraph
(a) of this Article, provided Tenant is not then in default under this lease
following any required notice and the expiration of any applicable cure period,
Owner's consent to the proposed assignment or sublease shall not be unreasonably
withheld or delayed, provided and upon condition that:
(i) Tenant shall have complied with the provisions of
paragraph (a) of this Article;
(ii) In Owner's reasonable judgment the proposed assignee
or subtenant is reputable and engaged in a business and the demised premises
will be used in a manner which is in keeping with the then standards of the
building;
(iii) The proposed assignee or subtenant is not any of the
following: an employment or travel agency (or offices therefor); government or
quasi-government agency or department thereof or owned in whole or in part by a
government or quasi-government agency or department thereof (or offices
therefor); foreign airline; charity, not-for-profit organization or other
organization dependent in whole or in part on charitable contributions (or
offices therefor); or any person or entity who shall create, in Owner's
reasonable opinion, any traffic or use of the building services amounting to a
material increase above the then current traffic or use of building services;
(iv) The proposed assignee or subtenant is not then an
occupant of any part of the building;
(v) The proposed assignee or subtenant is not a person
with whom Owner is then negotiating (or with whom Owner has within the prior
six-month period negotiated) a lease for comparable space with a comparable term
in the building;
(vi) The form of the proposed sublease or assignment shall
be in form reasonably satisfactory to Owner and shall comply with the applicable
provisions of this Article;
(vii) The rental and other terms and conditions of the
sublease are the same as those contained in the proposed sublease furnished to
Owner pursuant to paragraph (a) of this Article;
(viii) Tenant shall reimburse Owner on demand for any
reasonable costs that may be incurred by Owner in connection with said
assignment or sublease, including, without limitation, legal costs incurred in
connection with the granting of any requested consent;
(ix) Tenant shall not have (1) advertised or publicized in
any way (excluding a listing with a broker) the availability of the demised
premises without prior notice to and reasonable approval by Owner, nor shall any
advertisement state the name (as distinguished from the address) of the building
or the proposed rental, or (2) listed the demised premises for subletting,
whether through a broker, agent, representative, or otherwise at a rental rate
less than the greater of (x) the fixed rent and additional rent then payable
hereunder for such space, or (y) the fixed rent and additional rent at which
Owner is then offering to lease other space in the building; and
(x) in case of a proposed subletting of a portion of any
one floor of the demised premises, Owner shall have approved (which approval
shall not be unreasonably withheld or delayed) of any work to be performed by
Tenant to physically separate the sublet premises from the balance of the
demised premises.
(d) Each subletting pursuant to this Article shall be subject to
all of the covenants, agreements, terms, provisions and conditions contained in
this lease. Notwithstanding any such subletting or assignment and/or acceptance
of rent or additional rent by Owner from any subtenant or
12
<PAGE>
assignee, Tenant shall and will remain fully liable for (and any assignee shall
assume the obligation for) the payment of the fixed rent and additional rent due
and to become due hereunder and for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this lease on the part
of Tenant to be performed and all acts and omissions of any licensee, subtenant,
assignee or anyone claiming under or through any subtenant or assignee which
shall be in violation of any of the obligations of this lease, and any such
violation shall be deemed to be a violation by Tenant. Tenant further agrees
that notwithstanding any such subletting Or assignment, no other and further
subletting of the demised premises or assignment by Tenant or any person
claiming through or under Tenant shall or will be made except upon compliance
with and subject to the provisions of this Article. If Owner shall decline to
give its consent to any proposed assignment or sublease, or if Owner shall
exercise its option under paragraph (a) of this Article, Tenant shall indemnify,
defend and hold harmless Owner against and from any and all loss, liability,
damages, costs and expenses (including reasonable counsel fees) resulting from
any claims that may be made against Owner by the proposed assignee or subtenant
or by any brokers or other persons claiming a commission or similar compensation
in connection with the proposed assignment or sublease.
(e) If (i) Owner fails to exercise its option under paragraph (a)
of this Article and consents to a proposed assignment or sublease, and (ii)
Tenant fails to execute and deliver the assignment or sublease to which Owner
consented within 45 days after the giving of such consent, then Tenant shall
again comply with all of the provisions and conditions of paragraph (a) of this
Article before assigning this lease or subletting all of the demised premises.
(f) With respect to each and every sublease or subletting, it is
further agreed:
(i) No subletting shall be for a term ending later than one
day prior to the expiration date of this lease.
(ii) No sublease shall be valid, and no subtenant shall take
possession of the demised premises or any part thereof, until an executed
counterpart of such sublease has been delivered to Owner.
(iii) Each sublease shall provide that it is subject and
subordinate to this lease and to the matters to which this lease is or shall be
subordinate, and that in the event of termination, re-entry or dispossess by
Owner under this lease Owner may, at its option, take over all of the right,
title and interest of Tenant, as sublessor, under such sublease, and such
subtenant shall, at Owner's option, attorn to Owner pursuant to the then
executory provisions of such sublease, except that Owner shall not (1) be liable
for any previous act or omission of Tenant under such sublease, (2) be subject
to any offset, not expressly provided in such sublease, which theretofore
accrued to such subtenant against Tenant, or (3) be bound by any previous
modification of such sublease or by any previous prepayment of more than one
month's rent.
(g) If Owner shall give its consent to any assignment of this
lease or to any sublease, Tenant shall in consideration therefor, pay to Owner,
as additional rent:
(i) in the case of an assignment, an amount equal to 50% of
all sums and other consideration paid to Tenant by the assignee for or by reason
of such assignment (less all reasonable and customary expenses of Tenant
incurred solely in connection with such assignment); and
(ii) in the case of a sublease, 50% of any rents, additional
charges or other consideration payable under the sublease to Tenant by the
subtenant which is in excess of the fixed rent and additional rent accruing
during the term of the sublease (less all reasonable and customary expenses of
Tenant incurred solely in connection with such sublease). The sums payable under
this paragraph shall be paid to Owner as and when paid by the subtenant to
Tenant.
(h) The use of the demised premises by third parties with whom
Tenant does business shall not be deemed a sublet of the demised premises and
shall not require Owner's consent; provided, that (i) such third-parties only
use immaterial portions of the demised premises and (ii) such use, in Owner's
reasonable opinion, does not create any traffic amounting to a material increase
above the then current traffic. Such third-party occupants shall be subject to
the terms and provisions of this lease.
(i) Notwithstanding anything contained in Articles 11, 49 or 66
or any other provision of this lease to the contrary (but subject to compliance
with the first sentence of Article 66(a), and provided that Tenant is not then
in default under this lease following any required notice and the expiration of
any applicable cure period), Tenant may, without Owner's consent and without any
right of Owner to recapture the demised promises or any portion thereof, assign
this lease or sublet all or any portion of the demised premises to any Affiliate
(as hereinafter defined) of Tenant or any successor to Tenant by merger,
consolidation or other business combination or a person to whom all or
substantially all of Tenant's assets and businesses are transferred (such a
successor or person being called a "Successor"); provided, that (i) in case of
an assignment to an Affiliate of Tenant or a Successor, the assignee has a net
worth equal to or greater than $20,000,000 (as reasonably demonstrated to Owner)
and (ii) the condition specified in Article 66(c)(ii) has been fulfilled. Owner
shall not be entitled to any portion of any profits received by Tenant for an
assignment or sublet to an Affiliate or a Successor. For purposes of this
Article, the term "Affiliate" of Tenant
13
<PAGE>
shall mean any corporation or other entity which, directly or indirectly,
controls or is controlled by or is under common control with Tenant.
(j) The consent of Owner specified in this Article shall be
subject to the applicable provisions of Article 55.
67. Letter of Credit for Security Deposit. (a) In lieu of a cash
-------------------------------------
security deposit required pursuant to Article 32, Tenant may deposit with Owner
a clean, unconditional and irrevocable letter of credit issued by a bank that is
a member of the federal reserve system having an office in the City of New York
at which drawings of the letter of credit will be honored and otherwise
acceptable to Owner, in the required amount, containing the terms and otherwise
in the form of Exhibit A attached to this lease, which letter of credit shall be
---------
held and drawn by Owner in accordance with Article 32, Article 50 and this
Article.
(b) If the bank issuing the letter of credit (or any confirmation
of the letter of credit) shall notify Owner that the term of the letter of
credit (or any confirmation of the letter of credit) shall not be renewed, or if
the letter of credit (or any confirmation of the letter of credit) shall, at any
time during the term of the lease, have a term of less than 30 days, then if at
least 30 days prior to the applicable expiration date of the letter of credit or
the confirmation of the letter of credit (as the case may be) (or any
replacement thereof, as the case may be), Tenant shall not (i) replace the
letter of credit with a new letter of credit issued in accordance with this
Article and Exhibit A attached to this lease (having an initial expiration date
---------
at least one year from the date of the new letter of credit or (ii) replace the
letter of credit with a security deposit of immediately available funds, or if
Tenant shall otherwise default under this lease, Owner shall have the right to
immediately draw the full amount of the letter of credit (to be held and used in
accordance with this lease). If Tenant fails to comply with this paragraph and
the letter of credit (or any confirmation of the letter of credit) shall expire
prior to Owner's drawing the full amount thereof, then, Tenant shall be deemed
in default under this lease and Owner shall have all of its rights and remedies,
including, without limitation, the right to terminate this lease in accordance
with the provisions of this lease.
(c) If, for any reason whatsoever other than Owner's failure to
comply with the requirements of the letter of credit, the bank issuing the
letter of credit (or any confirmation of the letter of credit) shall fail or
refuse to honor any draft, then unless Tenant shall within five days following
notice by Owner to Tenant of such failure or refusal either (i) pay to Owner a
sum equal to the letter of credit or (ii) replace the letter of credit with a
new letter of credit issued in accordance with this Article and Exhibit A
---------
attached to this lease (having an initial expiration date at least one year from
the date of the new letter of credit), Tenant shall be deemed in default under
this lease and Owner shall have all of its rights and remedies, including,
without limitation, the right to terminate this lease in accordance with the
provisions of this lease.
(d) If Owner or any subsequent owner shall convey its interest,
Tenant shall, at the request of the transferor or transferee, replace or amend
the letter of credit, within 10 days following such request, so that the
transferee is named as the beneficiary. If such replacement or amendment is not
received within said 10-day period, Tenant shall be deemed in default under this
lease and, in addition to any other rights or remedies of Owner, the transferor
or transferee may draw on the letter of credit and hold the proceeds as security
under this lease. Any transfer fee or charge imposed by the issuing bank shall
be reimbursed to Owner (or paid, at Owner's option) by Tenant within 10 days
following Owner's request.
(e) Provided Tenant has not been in default under this lease
following any required notice and the expiration of any applicable cure period
the security deposit shall be reduced (by replacement of the letter of credit
with a letter of credit complying with this Article or an amendment to the
existing letter of credit) (i) by $50,000 on the 2nd, 3rd and 4th anniversaries
of the 4th Floor Rent Commencement Date; provided, that in no event shall the
security deposit be less than the amount provided in the other clauses of this
Article 67(e), and the same shall be subject to any increase required pursuant
to Article 50, (ii) to an amount equal to $175,000 on the 5th anniversary of the
4th Floor Rent Commencement Date (subject to increases in the security deposit
as specified in Article 50) and (iii) to an amount equal to $175,000 on the date
Tenant issues capital stock to the public and such stock is publicly traded on a
nationally recognized stock exchange or over-the-counter market (subject to
increases in the security deposit as specified in Article 50). Notwithstanding
anything to the contrary contained in this lease, in no event shall the security
deposit under this lease be less than $175,000. Owner shall promptly sign any
authorization or confirmation reasonably required by the bank which issued the
letter of credit or, if applicable, any correspondent New York bank for such
issuing bank in order to reduce the balance of the letter of credit to reflect
the reduction of the security deposit as set forth above, subject to the terms
of this paragraph (e), and Owner shall reasonably cooperate with Tenant in
effecting such a reduction in the balance of the letter of credit.
68. Nondisturbance Agreement; Owner represents to Tenant that there
-------------------------
is no mortgage or ground lease affecting the building on the date of this lease.
Owner shall obtain and deliver to Tenant a nondisturbance agreement in favor of
Tenant from any future mortgagee or ground landlord. Owner's default under this
Article shall not affect Tenant's obligations under this lease; provided, that
Tenant shall be able to pursue a damage action against Owner on account of such
default. Owner represents and warrants to Tenant that Owner is a general
partnership and Edward S. Gordon is a general partner of Owner.
14
<PAGE>
69. Access. Subject to the provisions of this lease, Tenant shall
------
have access to the building and the demised premises, 24 hours per day, seven
days per week.
70. Signs. Subject to and in accordance with this lease, all the
-----
rules and regulations, any Landmarks Commission requirements, and Owner's
reasonable approval as to location, size, configuration, color and all other
aspects of same, Tenant shall have the right (if permitted by law and the
Landmarks Commission), to install one tasteful identification sign in the lobby
of the building and one tasteful identification sign on the exterior of the
building.
71. Zoning. Owner does not represent, warrant or guarantee that
------
Tenant's use or occupation of the demised premises or the nature of the business
to be conducted by Tenant at the demised premises is either lawful or
permissible under any applicable zoning ordinance for the district in which the
building is located.
72. No Residential Use. Tenant shall not install any residential
------------------
fixtures or appliances in the demised premises or arrange or appear to arrange
the demised premises for living. Tenant represents and warrants to Owner that
under no circumstances will it use or permit the use of the demised premises or
any portion thereof for residential purposes, or otherwise in violation of
Article 2 of this lease. No animal of any kind or nature whatsoever shall be
kept or harbored in the demised premises.
73. Locks. Tenant shall at all times supply Owner with a key to all
-----
locks providing entrance to the demised premises or any part thereof. If Tenant
changes any locks, Owner shall promptly be given a set of keys for the new lock.
Notwithstanding the foregoing, Tenant shall not be permitted to install any new
lock without the prior reasonable consent of Owner.
74. Financing. If, in connection with obtaining financing for the
---------
land and/or the building, a lender shall request reasonable modifications to
this lease as a condition to such financing, Tenant shall consent to such
modifications; provided, that such modifications do not materially increase the
obligations of Tenant under this lease or materially and adversely affect the
leasehold interest of Tenant created by this lease; provided, further, that
Tenant shall not be obligated to Incur material out-of-pocket expenses in
connection with such modifications (unless Owner agrees to pay the same).
75. Right of First Offer. Provided that Tenant shall not then be in
--------------------
default under this lease, if Owner shall desire to lease any portion of the
space (the "Affected Space") on the 2nd floor of the building for non-retail
uses during the first 8 years of the term of this lease, Owner shall notify
Tenant of the same. Such notice shall be accompanied by (a) a sketch of the
Affected Space and (b) the terms and conditions under which Owner would be
willing to lease the Affected Space (the financial aspects of such terms and
conditions shall be comparable to those of similarly situated premises in
similar situations). Tenant shall have the right, within 15 days after such
notice from Owner (time being of the essence) to lease such Affected Space upon
the terms and conditions offered in such notice from Owner. If (i) Tenant elects
not to so lease such Affected Space or does not respond within such 15-day
period (time being of the essence) or (ii) an amendment to this lease on
reasonable terms (incorporating the terms and conditions referred to above)
delivered to Tenant by Owner within 5 days of Owner's receipt of Tenant's
acceptance to effectuate such leasing is not executed and delivered by Tenant
within 20 days following the end of such 15-day period, Owner may (at any time
thereafter) negotiate and execute and deliver a lease covering the Affected
Space on any terms and conditions. Tenant shall be offered the Affected Space
only once pursuant to this Article. Notwithstanding anything to the contrary
contained in this lease, Owner may lease any portion of the 2nd floor free of
the provisions of this Article (even after an offer has been made to Tenant
under this Article) to a tenant for retail use.
15
<PAGE>
EXHIBIT A
---------
LETTER OF CREDIT
----------------
,19__
Letter of Credit No. ______
To: Lautob Realty Company
860 Broadway
New York, New York
By order of: Scient Corporation
860 Broadway
New York, New York
Gentlemen:
We hereby establish our irrevocable credit in your favor, for the
account indicated above, for a sum or sums not exceeding in all $___________;
available by your drafts at sight on us.
Each draft must be accompanied by a statement signed by a general
partner of Lautob Realty Company stating that: "The drawing is in accordance
with a lease dated as of October __, 1998, as the same may have been amended,
between Lautob Realty Company, as owner, and Scient Corporation, as tenant."
All drafts under this Letter of Credit must bear on their face
the clause "Drawn under [name of bank], New York, New York, Credit No ________."
More than one drawing may be made under this Letter of Credit
provided the aggregate amount of all such drawings does not exceed the aggregate
amount of this Letter of Credit.
This Letter of Credit may be transferred in its entirety by
Lautob Realty Company or any transferee. Upon any such transfer, the drafts and
the statement required by this Letter of Credit shall be signed by the
transferee.
This Letter of Credit shall be automatically extended for periods
of one (1) year from the then relevant expiry date through December 31,2011,
unless you are notified by us in writing at least thirty (30) days prior to each
annual expiry date that this Letter of Credit is not being extended.
We hereby agree with you that drafts drawn under and in
accordance with this Letter of Credit will be duly honored upon presentation of
documents as herein specified if presented at the office of [name and address of
bank], no later than December 31, 1999, unless this date is automatically
extended pursuant to this Letter of Credit, in which event such date shall be
the then relevant expiry date.
This Letter of Credit is subject to the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500.
Very truly yours,
__________________________
Authorized Signature
16
<PAGE>
EXHIBIT 10.15
AGREEMENT TO SUB-SUBLEASE
This Sub-Sublease is dated for reference purposes this 16th day of October,
1998 and is entered into by and between SCIENT CORPORATION, a California
corporation ("Sub-Sublessor"), and NORTHPOINT COMMUNICATIONS, INC., a Delaware
corporation ("Sub-Sublessee"). Sub-Sublessor agrees to sub-sublease to Sub-
Sublessee, and Sub-Sublessee agrees to sub-sublease from Sub-Sublessor, those
certain premises situated in the City and County of San Francisco, consisting of
approximately Twelve Thousand Forty Two (12,042) rentable square feet of space
located on the 6th floor of the building commonly known as 720 California Street
(the "Building"), more particularly set forth on Exhibit "A" hereto (the
"SubSubleased Premises").
ARTICLE I
MASTER LEASE AND OTHER AGREEMENTS
1.1 Master Lease and Other Agreements. Except as specifically set forth
---------------------------------
herein, this Sub-Sublease is subject and subordinate to all of the terms and
conditions of the Lease Agreement dated September 20, 1996, between PRIME
HOLDINGS INCORPORATED, a California corporation ("Master Lessor") and GOODBY,
SILVERSTEIN & PARTNERS, INC., a California corporation ("Lessee"), as amended by
that certain First Amendment to Lease Agreement dated February 28, 1997
(collectively, "Master Lease"), and is subject and subordinate to all of the
terms and conditions of the Sublease dated February 16, 1998, between GOODBY,
SILVERSTEIN & PARTNERS, INC., a California corporation) "Sublessor") and SCIENT
CORPORATION, a Delaware corporation ("Sublessee" and now "Sub-Sublessor" under
this Sub-Sublease). Sub-Sublessee hereby assumes and agrees to perform all of
the obligations of Lessee under the Master Lease, and of Sublessee under the
Sublease, as each may be applicable to the Sub-Subleased Premises. A copy of the
Master Lease is attached hereto as Exhibit "B", and a copy of the Sublease is
attached hereto as Exhibit "C", and each is incorporated herein by this
reference. Sub-Sublessee shall not Commit or permit to be committed any act or
omission which would violate any term or condition of the Master Lease or of the
Sublease. Sub-Sublessee shall neither do nor permit anything to be done which
would cause the Master Lease or the Sublease to be terminated or forfeited by
reason of any fight of termination or forfeiture reserved or vested in Master
Lessor under the Master Lease, or in Sublessor under the Sublease. Sub-Sublessee
shall indemnify and hold SubSublessor harmless from and against all liability,
judgment, costs, demands, claims, and damages of any kind whatsoever (including,
without limitation, attorneys' fees and court costs) by reason of any failure on
the part of Sublessee to perform any of the obligations of Lessee under the
Master Lease, or of Sublessee under the Sublease which Sub-Sublessee has become
obligated hereunder to perform. In the event of the termination of Sub-
Sublessor's interest as Sublessee under file Sublease for any reason, then this
Sub-Sublease shall terminate automatically upon such termination without any
liability of Sublessor or SubSublessor, (unless such termination is due to Sub-
Sublessor's breach of, or default under, the Sublease or Sub-Sublessor's
agreement to terminate the Sublease prior to the scheduled Expiration date
(defined below) of this Sub-Sublease) to Sub-Sublessee. Sub-
-1-
<PAGE>
Sublessee represents and warrants to Sub-Sublessor that it has read and is
familiar with the Master Lease and the Sublease, Sub-Sublessor represents to
Sub-Sublessee that the Sublease is in full force and effect and that no notices
of default have been sent or received by Sub-Sublessor with respect to the
Sublease, nor to the present reasonable knowledge of Sub-Sublessor has any event
or condition occurred which, with the passing of time or the giving of notice,
would result in an event of default by Sub-Sublessor under the Sublease. If the
Sub-Sublessor receives any notice or demand from Lessee under the Sublease With
respect to the Sub-Subleased Premises, Sub-Sublessor shall promptly deliver a
true and correct copy of same to Sub-Sublessee.
1.2 Applicable Provision. All of the terms and conditions contained in the
--------------------
Master Lease, except for those terms excluded in Paragraph 3(a) of the Sublease,
and in the Sublease, except for paragraphs 4(a)-(c) and (d) last sentence, 5(a),
5(c), 8, 9, and 12(a), and except for those terms directly contradicted by the
terms and conditions contained in this document, am incorporated herein and
shall be terms and conditions of this Sub-Sublease (with each reference therein
to "Landlord," "Tenant," "Lease", "Sublessor", "Sublessee" and "Sublease" to be
deemed to refer to Sub-Sublessor, Sub-Sublessee, and Sub-Sublease, respectively)
and along with all of the following terms and conditions set forth in this
document, shall constitute the complete terms and conditions oft his Sub-
Sublease.
1.3 Obligations of Sub-Sublessor. Notwithstanding anything herein
----------------------------
contained, the only services or rights to which Sub-Sublessee is entitled
hereunder are those to which SubSublessor is entitled under the Sublease, and
for all such services and rights Sub-Sublessee shall look solely to the
Sublessor under the Sublease or the Lessor under the Master Lease, and the
obligations of Sub-Sublessor hereunder shall be limited to using its reasonable
good faith efforts to obtain the performance by Sublessor and Lessor of their
respective obligations. Sub-Sublessor shall have no liability to Sub-Sublessee
or any other person for damage of any nature whatsoever as a result of the
failure of Sublessor to perform said obligations except for Sublessor's
termination of the Sub-Sublessor's interest as Sublessee under the Sublease in
the event of Sub-Sublessor's breach of the Sublease, and Sub-Sublessee shall
indemnify and hold Sub-Sublessor harmless from any and all claims and liability
whatsoever for any such damage including, without limitation, all costs and
attorneys' fees incurred in defending against same. Sub-Sublessor shall
indemnify and hold Sub-Sublessee harmless tom any and all claims and liability
for any damage arising from Sub-Sublessor's failure to pay Rent or Additional
Rent to Sublessor, if such Rent and/or Additional Rent has been paid by Sub-
Sublessee to Sub-Sublessor.
ARTICLE 2
TERM
2.1 Term. The term of this Sub-Sublease shall commence on October 18, 1998
----
("Commencement Date"), subject to the consent of Master Lessor and Sublessor
being executed. The term of this SubSublease shall end on February 26, 2000, or
upon the expiration or sooner term/nation of the Sublease, unless sooner
terminated pursuant to any provision thereof (the "Expiration Date"). Sub-
Sublessor shall have no obligation to Sub-Sublessee to exercise any options to
extend it may have under the Sublease.
-2-
<PAGE>
2.2 Option to Extend. SubSublease shall have no option to extend this
----------------
SubSublease.
ARTICLE 3
RENT
3.1 Rent. Sub-Sublessee shall pay to Sub-Sublessor each month during the
----
term of this Sub-Sublease monthly rent in the amount of Thirty Six Thousand One
Hundred Twenty Six Dollars ($36,126.00) ("Rent"), in advance on or before the
Commencement Date for the first month, and on or before the first of each month
thereafter. Rent for partial month, a the commencement or termination of this
Sub-Sublease shall be prorated. Rent shall be paid to the Sub-Sublessor at its
business address noted herein or at any other place Sub-Sublessor may from time
to time designate by written notice mailed or delivered to Sub-Sublessee. Upon
execution of this Sub-Sublease by Sub-Sublessee, Sub-Sublessee shall pay to Sub-
Sublessor the first month's Rent. Rent shall commence on the later of November
1, 1998 or the consent of Master Lessor and Sublessor to this Sub-Sublease
('Tent Commencement"), with the rent for the period of time from Commencement
Date to Rent Commencement being spread out over the term of the Agreement and is
covered in the Rent rate set forth above.
3.2 Late Charge. Sub-Sublessee acknowledges that the late payment of rent
-----------
or any other sum due from Sub-Sublessee will cause Sub-Sublessor to incur costs
not contemplated by this Sub-Sublease, the exact amount of such costs being
extremely difficult and impractical to fix. Therefore, if any rent or other
amount due from Sub-Sublessee is not received by Sub-Sublessor within five (5)
days after the due date thereof, Sub-Sublessee shall lay to Sub-Sublessor upon
demand the additional sum of five percent (5%) of the total sum due as a late
charge, The parties agree that this late charge represents a fair and reasonable
estimate of the costs that Sub-Sublessor will incur by reason of the late
payment by Sub-Sublessee. Acceptance by Sub-Sublessor of a late charge shall not
constitute a waiver by Sub-Sublessor of any default of Sub-Sublessee nor prevent
Sub-Sublessor from exercising any right or remedy hereunder. Such late charge
shall constitute and be due as additional rent.
3.3 Additional Rent. Sub-Sublessee shall pay to Sub-Sublessor, as
---------------
additional rent ("Additional Rent"), its pro rata share (defined in the
Sublease) of any Additional Sublease Rent payments payable by Sub-Sublessor
under the Sublease commencing June 1, 1999, Sub-Sublessee shall pay such
------
Additional Rent at the same time and in the same Base Rent, subject to the
provisions of the Master Lease. If Sub-Sublessee shall procure any additional
services from Master Lessor or from Sublessor, including but not limited to
"Utility Usage" as defined in the Sublease, Sub-Sublessee shall make such
payment to Sublessor or Master Lessor, as Sub-Sublessor shall direct as those
costs are incurred by Sub-Sublessee. Any rent or other sums payable by Sub-
Sublessee under this Section 3.3 shall constitute and be due as Additional Rent.
Sub-Sublessor and Sub-Sublessee agree that additional rent under Article 3.3
shall not exceed $5,000 for calendar year 1999.
ARTICLE 4
[Intentionally Omitted]
-3-
<PAGE>
ARTICLE 5
SECURITY DEPOSIT
5.1 Security Deposit. Upon execution hereof, Sub-Sublessee shall deposit
----------------
with Sub-Sublessor the sum of Seventy-Two Thousand Two Hundred Fifty-Two and
no/100 Dollars ($72,252.00) as and for a Security Deposit to secure Sub-
Sublessee's full and timely performance of all of its obligations hereunder. If
SubSublessee fails to pay rent or any other sums as and when due hereunder, or
otherwise defaults with respect to any provision of this Sub-Sublease, Sub-
Sublessor may (but shall not be obligated to) use, apply, or retain all or any
portion of said deposit for payment of any sum for which Sub-Sublessee is
obligated or which will compensate Sub-Sublessor for any loss or damage which
Sub-Sublessor may suffer thereby. Any such use, application, or retention shall
not constitute a waiver by Sub-Sublessor of its right to enforce its other
remedies hereunder, at law, or in equity. If any portion of said deposit is so
used, applied, or retained, Sub-Sublessee shall, within 10 days after delivery
of written demand from Sub-Sublessor, restore said deposit to its original
amount. Sub-Sublessee's failure to do so shall constitute a Default of this Sub-
Sublease. Sub-Sublessor shall not be a trustee of such deposit, and shall not be
required to keep this deposit separate from its accounts. Sub-Sublessor alone
shall be entitled to any interest or earnings thereon and SubSublessor shall
have the free use of same. So much of the deposit as remains shall be returned
to SubSublessee (without payment of interest or earnings thereon) within 30 days
after the later of (i) expiration or sooner termination of the term hereof, or
(ii) Sub-Sublessee's surrender of possession of the Sub-Subleased Premises to
Sub-Sublessor.
ARTICLE 6
CONDITION OF SUB-SUBLEASE PREMISES
6.1 Condition of the Sub-Subleased Premises. Sub-Sublessor represents that
---------------------------------------
to Sub-Sublessor's reasonable knowledge, as of the Commencement Date, the
Building systems serving the Sub-Subleased Premises are in good working order
and repair. Sub-Sublessee agrees and hereby stipulates with Sub-Sublessor that
the Sub-Sublease Premises are in good condition and ready for occupancy on the
date of this Sub-Sublease, and that, except as other specifically set forth
herein, Sub-Sublessee accepts the Sub-Subleased Premises "as-is", without
warranties or representations of any from Sub-Sublessor.
ARTICLE 7
INSURANCE
7.1 Insurance on the Sub-Subleased Premises. Sub-Sublessee shall secure
---------------------------------------
and maintain, at Sub-Sublessee's expense, commercial general liability insurance
which insures against claims for bodily injury, bodily injury, advertising
injury and property damage based upon, involving or arising out of the use,
occupancy or maintenance of the Sub-Subleased Premises and the Building, with a
Two Million Dollar ($2,000,000.00) aggregate limit, to apply on a per location
basis. Such insurance shall name Master Lessor, Sublessor and Sub-Sublessor,
-4-
<PAGE>
their trustees, officers, directors, agents end employees, mortgagees and
representatives, as additional insureds.
ARTICLE 8
UTILITIES
8.1 Interruption of Service. Sub-Sublessor, Sublessor, or Master Lessor
-----------------------
shall not be liable to Sub-Sublessee for any interruption or failure of any
utilities or services to the Sub-Subleased Promises nor shall such constitute a
constructive eviction or give rise to a right of rent offset or abatement or
affect the obligations of Sub-Sublessee under this SubSublease in any other way
whatsoever.
ARTICLE 9
INDEMNIFICATION
9.1 Of Sub-Sublessor. Sub-Sublessee acknowledges that for purposes of
----------------
indemnification of Sub-Sublessor by Sub-Sublessee, Section 6 of the Sublease is
hereby incorporated, where "Sublessor" shall mean Sub-Sublessor, and Sublessor
jointly and severally, and "Sublessee" shall mean Sub-Sublessee.
ARTICLE 10
ASSIGNMENT, SUBLETTING 8: ENCUMBRANCE
10.1 Consent Required. Sub-Sublessee shall not assign this Sub-Sublease
----------------
nor shall Sub-Sublessee sublet, license, encumber or permit the Sub-Subleased
Premises, or any part thereof; to be used or occupied by others, without the
prior written consent of Sub-Sublessor, Sublessor and Master Lessor, which shall
not be unreasonably withhold. The consent by Sub-Sublessor, Sublessor and Master
Lessor to any assignment or subletting shall not waive the need for Sub-
Sublessee (and Sub-Sublessee's assignee or subtenant) to obtain the consent of
Sub-Sublessor, Sublessor and Master Lessor to any different or further
assignment or subletting.
10.2 Failure to Comply. Any assignment, encumbrance or sublease which is
-----------------
attempted or created without Sub-Sublessor's, Sublessor's and Master Lessor's
prior written consent shall be voidable by SubSublessor and shall constitute a
default and material breach of this Sub-Sublease. No consent to any assignment
or sublease shall constitute a waiver of the provisions of this Section and no
further assignment or subletting shall be made without Sub-Sublessor's prior
written consent.
10.3 Sub-Sublessor's Costs. If Sub-Sublessee requests Sub-Sublessor to
---------------------
consent to a proposed assignment or subletting, Sub-Sublessee shall pay to Sub-
Sublessor within thirty (30) days following demand therefor accompanied by
reasonable backup documentation, whether or not consent is ultimately given,
Sub-Sublessor's reasonable attorney's fees, accountant's fees, and other
expenses incurred in connection with each such request, not to exceed the sum of
One Thousand Dollar ($1,000.00) and in addition, any sums due Lessor or
Sublessor for their
-5-
<PAGE>
review, for any one proposed assignee or subtenant (but this limitation shall
not apply in the event that Sub-Sublessee or such proposed assignee or subtenant
acts unreasonably in a way that causes Sub-Sublessor additional time or effort
in considering approval). The costs due under this paragraph shall be as
Additional Rent.
10.4 Deemed Reasonable. Sub-Sublessor's consent to such proposed
-----------------
assignment or sublet shall not be unreasonably withheld. The parties agree that
it shall be deemed reasonable for Sub-Sublessor to withhold consent if any
condition herein set forth (which conditions are not exclusive) has not been
satisfied. Sub-Sublessor and Sub-Sublessee agree that Sub-Sublessor's right to
approve assignment and/or subletting of Sub-Sublessee's interest under this
SubSublease does not in any way constitute an unreasonable restraint on
alienation, and that Sub-Sublessor's exercise of such approval right, if such
exercise is reasonable, shall not in any way constitute a breach of any duty of
good faith and fair dealing.
10.5 Basic Standards. The standards, obligations and terms of any such
---------------
requested assignment or sublet shall be in accordance with the terms of the
Master Lease and Sublease regarding assignment and Subletting including the
right of Master Lessor or Sublessor to recapture, if applicable.
10.6 No Release of Sub-Sublessee. Regardless of Sub-Sublessor's consent,
---------------------------
no subletting or assignment shall release Sub-Sublessee of Sub-Sublessee's
obligation or alter the primary liability of Sub-Sublessee to pay the rent and
to perform all other obligations to be performed by Sub-Sublessee hereunder. The
acceptance of rent by Sub-Sublessor from any other person shall not be deemed to
be a waiver by Sub-Sublessor of any provision hereof. Consent to one assignment
or subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by any assignee, subtenant or any other
successor of Sub-Sublessee, in the performance of any of the terms hereof,
SubSublessor may proceed directly against Sub-Sublessee without the necessity of
exhausting remedies against such assignee, subtenant or successor.
10.7 Claim of Unreasonableness. Should Sub-Sublessee believe that Sub-
-------------------------
Sublessor has been unreasonable in withholding or delaying consent or
unreasonable in its request for information under this Article 10 as to a
proposal to sublet or assign, then Sub-Sublessee shall promptly give Sub-
Sublessor notice that Sub-Sublessee believes such. withholding or delaying of
consent to be unreasonable. Either party may seek a declaratory judgment and/or
an injunction relating to the reasonableness of Sub-Sublessor's withholding or
delaying consent to an assignment or subletting, and the other party shall
cooperate in the disposition of such an action or proceeding. Sub-Sublessee
agrees that, in the event that Sub-Sublessor seeks such a declaratory judgment
and/or an injunction by application to the appropriate judicial authority within
15 days of Sub-Sublessee's notice of claim of unreasonableness, Sub-Sublessee's
remedies for Sub-Sublessor's unreasonably withholding or delaying consent or
being unreasonable in its request for information shall be restricted to a
declaratory judgment and an injunction for the relief sought without any money
damages. The parties agree that any application for an injunction pendente lite
may be treated as a motion for summary judgment and relief granted accordingly
on the papers in favor of either Sub-Sublessor or Sub-Sublessee as determined by
the
-6-
<PAGE>
Court, this agreement by Sub-Sublessor being a special inducement to Sub-
Sublessee for restricting SubSublessee's remedies to those provided in this
Section and for waiving all others.
ARTICLE 11
DEFAULT
11.1 Default Described. The occurrence of any of the following shall
-----------------
constitute a material breach of this Sub-Sublease and a default by Sub-Sublessee
("Default"): (i) failure to pay Rent, Additional Rent, or any other amount due
under this Sub-Sublease within three (3) days after the same is due; (ii)
abandonment of the Sub-Subleased Premises; (iii) assignment, encumbrance or
subletting in violation of the provisions hereof, or waste or nuisance or an
act, omission or condition prohibited hereunder at the Sub-Subleased Premises or
use of the Sub-Subleased Premises for an unlawful purpose or failure to perform
any provision of this Sub-Sublease which cannot, after such failure, be
performed; or (iv) Sub-Sublessee's failure to perform timely any other provision
of this Sub-Sublease, provided that if such default cannot reasonably be cured
within fifteen (15) days, Sub-Sublessee shall be excused from its default of
this Sub-Sublease if Sub-Sublessee commences to cure the default immediately
upon receipt of written notice from Sub-Sublessor to do so and continuously,
diligently, and in good faith accomplishes such cure within a reasonable time
thereafter.
11.2 Sub-Sublessor's Remedies. Sub-Sublessor shall have the remedies set
------------------------
forth in this Article 11 if a default occurs. These remedies are not exclusive;
they are cumulative and in addition to any remedies now or later allowed by law.
11.3 Sub-Sublessee's Right to Possession Not Terminated. Sub-Sublessor may
--------------------------------------------------
continue this Sub-Sublease in full force and effect, and Sub-Sublessor shall
have the right to collect rent and other sums when due. During the period Sub-
Sublessee is in default, SubSublessor may enter the Sub-Subleased Premises and
relet them, or any part of them, to third parties for Sub-Sublessee's account
and alter or install locks and other security devices at the Sub-Subleased
Premises. Sub-Sublessee shall be liable immediately to Sub-Sublessor for all
costs Sub-Sublessor reasonably incurs in reletting the Sub-Subleased Premises,
including, without limitation, reasonable attorneys' fees, brokers' commissions,
expenses of remodeling the Sub-Subleased Premises required by the reletting, and
like costs. Reletting may be for a period equal to, shorter or longer than the
remaining term of this Sub-Sublease and rent received by SubSublessor shall he
applied to: (i) first, any indebtedness from Sub-Sublessee to SubSublessor other
than rent due from Sub-Sublessee; (ii) second, all costs incurred by
SubSublessor in reletting, including, without limitation, brokers' fees or
commissions and attorneys fees, the cost of removing and storing the property of
Sub-Sublessee or any other occupant, and the costs of repairing, altering,
maintaining, remodeling or otherwise putting the Sub-Subleased Premises into
condition acceptable to a new Sublessee or Sublessees; (iii) third, rent due and
unpaid under this Sub-Sublease. After deducting the payment referred to in this
Section 11.3, any sum remaining from the rent Sub-Sublessor receives from
reletting shall be held by Sub-Sublessor and applied in payment of future rent
and other amounts as rent and such amounts become due under this Sub-Sublease,
In no event shall Sub-Sublessee be entitled to any excess rent received by Sub-
Sublessor.
-7-
<PAGE>
11.4 Termination of Sub-Sublessee's Right to Possession. Sub-Sublessor may
--------------------------------------------------
terminate Sub-Sublessee's right to possession of the Sub-Subleased Premises or
this SubSublease or both at any time after a default by Sub-Sublessee by given
notice to SubSublessee of Sub-Sublessor's election to do so and such termination
shall be effective on the date set forth in such notice. Acts of maintenance,
efforts to relet the Sub-Subleased Premises, or the appointment of a receiver on
Sub-Sublessor's initiative to protect SubSublessor's interest under this Sub-
Sublease shall not constitute a termination of SubSublessee's right to
possession. No act by Sub-Sublessor other than giving notice to SubSublessee
shall terminate this Sub-Sublease. On termination of this Sub-Sublease,
SubSublessor has the right to recover from Sub-Sublessee: (i) the worth, at the
time of the award, of the unpaid rant that had been earned at the time of
termination of this Sub-Sublease; (ii) the worth, at the time of the award, of
the amount by which the unpaid rent that would have been earned after the date
of termination of this Sub-Sublease until the time of award exceeds the amount
of the loss of rent that Sub-Sublessee proves could have been reasonably
avoided; (iii) the worth, at the time of the award, of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of the loss of rent that SubSublessee proves could have been reasonably
avoided; (iv) any other amount, and court costs, necessary to compensate Sub-
Sublessor for all detriment proximately caused by SubSublessee's default, or
which in the ordinary course of things would be likely to result therefore,
including, without limitation, the unamortized portion of brokers' fees or
commissions and attorneys' fees incurred by Sub-Sublessor in connection with the
negotiation and execution of the Sub-Sublease with Sub-Sublessee; and (v) "the
worth, at the time of the award," as used in (i) and (ii) above, is to be
computed by allowing interest at ten percent (10%) or such higher maximum rate
then permitted by law, "The worth, at the time of the award," as referred to in
(iii), is to be computed by discounting the amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(1%).
11.5 Sub-Sublessor's Right to Cure Sub-Sublessee's Default. If Sub-
-----------------------------------------------------
Sublessee fails to timely commence and diligently and continuously prosecute to
completion performance of any of its obligations hereunder after notice by Sub-
Sublessor or any governmental authority that it do so, then Sub-Sublessor, in
addition to all other remedies available hereunder or by law and equity, and
without waiving any alternative remedies, including the right to declare Sub-
Sublessee in breach and default of this Sub-Sublease, may perform the same, and
in that event, Sub-Sublessee shall reimburse Sub-Sublessor, upon demand, as
additional rent, for all costs Sub-Sublessor incurs in taking steps to perform
such obligations regardless of which party actually completes the same, together
with interest from the date Sub-Sublessor incurs the cost until paid at the
greater often percent (10%) per annum or the maximum rate permitted by law.
11.6 All Sums Due and Payable as Rent. Sub-Sublessee shall also pay
--------------------------------
without notice, or where notice is required under this Sub-Sublease, immediately
upon demand without any abatement, deduction, or setoff, as additional rent all
sums, impositions, costs, expenses, and other payments which Sub-Sublessee in
any of the provisions of this SubSublease assumes or agrees to pay, and, in case
of any nonpayment thereof, Sub-Sublessor shall have, in addition to all other
rights and remedies, all the rights and remedies provided for in this Sub-
Sublease or by law in the case of nonpayment of rent.
-8-
<PAGE>
11.7 Sub-Sublessor Default. For purposes of this Sub-Sublease, Sub-
---------------------
Sublessor shall not be deemed in default hereunder unless and until Sub-
Sublessee shall first deliver to Sub-Sublessor thirty (30) days' prior written
notice, and Sub-Sublessor shall fail to cure said default within said thirty
(30) day period, or in the event Sub-Sublessor shall reasonably require in
excess of thirty (30) days to cure said default, shall fail to commence said
cure with said thirty (30) day period, and thereafter diligently to prosecute
the same to completion.
ARTICLE 12
CONSENT OF MASTER LESSOR AND SUBLESSOR
12.1 Precondition. The Master Lease and the Sublease require that Sub-
------------
Sublessor obtain the consent of Master Lessor and of Sublessor to any subletting
by Sub-Sublessor. This Sub-Sublease shall not be effective unless, within 10
days of the date first set forth above, Master Lessor and Sublessor sign a
consent to this subletting satisfactory to SubSublessor and Sub-Sublessee.
ARTICLE I3
MISCELLANEOUS
13.1 Conflict with Master Lease or Sublease; Interpretation. In the event
------------------------------------------------------
of any conflict between the provisions of the Master Lease, the Sublease and
this Sub-Sublease, the Master Lease and the Sublease, as applicable, shall
govern and control except to the extent directly contradicted by the terms of
this Sub-Sublease. No presumption shall apply in the interpretation or
construction of this Sub-Sublease as a result of Sublessor having drafted the
whole or any part hereof.
13.2 Remedies Cumulative. The rights, privileges, elections, and remedies
-------------------
of Sub-Sublessor in this Sub-Sublease, at law, and in equity are cumulative and
not alternative.
13.3 Waiver of Redemption. Sub-Sublessee hereby expressly waives any and
--------------------
all rights of redemption to which it may be entitled by or under any present or
future laws in the event Sub-Sublessor shall obtain a judgment for possession of
the Sub-Subleased Premises.
13.4 Holding Over. Any holding over by Sub-Sublessee after expiration of
------------
this Sub-Sublease shall be governed by the holdover provision of the Master
Lease.
ARTICLE 14
BROKER'S COMMISSIONS
14.1 Commission. Sub-Sublessor and Sub-Sublessee represent and warrant to
----------
each other that each has not dealt with any broker, agent, finder, or other such
person with respect to this Sub-Sublease, except for The CAC Group ("CAC"), on
behalf of Sub-Sublessor, and Grubb & Ellis Company, ("G&E"), on behalf of Sub-
Sublessee, and each agrees to indemnify and hold
-9-
<PAGE>
the other harmless from any claim asserted against the other by my other broker,
agent, finder, or other such person. Commissions shall be paid by Sub-lessor to
CAC and G&E pursuant to a separate commission agreement.
ARTICLE 15
NOTICES AND PAYMENTS
15.1 Certified Mail. Any notice, demand, request, consent, approval,
--------------
submittal or communication that either party desires or is required to give to
the other party or any other person shall be in writing and either served
personally or sent by prepaid, first-class certified mail.
Sub-Sublessor:
444 Market Street, 29th Floor
San Francisco, California 94105
Attn: William Kurtz
Sub-Sublessee:
222 Sutter Street, 7th Floor
San Francisco, California
Attn: Mitch Miner
With a copy to:
222 Sutter Street, 7th Floor
San Francisco, California
Attn: Steve Gorosh
ARTICLE 16
ATTORNEYS' FEES
16.1 Sub-Sublessor Made Party to Litigation. If Sub-Sublessor becomes a
--------------------------------------
party to any litigation brought by someone other than Sub-Sublessee and
concerning this SubSublease, the Sub-Subleased Premises, or Sub-Sublessee's use
or occupancy of the SubSubleased Premises, based upon any real or alleged act or
omission of Sub-Sublessee or its authorized representatives, Sub-Sublessee
shall be liable to Sub-Sublessor for reasonable attorneys' fees and court costs
incurred by Sub-Sublessor in the litigation.
16.2 Certain Litigation Between the Parties. In the event any action or
--------------------------------------
proceeding at law or in equity or any arbitration proceeding be instituted by a
party hereof, for an alleged breach of any obligation of hereunder, the
prevailing party (by judgment or settlement) in such action or proceeding shall
be entitled to recover as part of such action or proceeding such
-10-
<PAGE>
reasonable attorneys' fee, expert witness fees, and court costs as may be fixed
by the court or jury.
ARTICLE 17
EXHIBITS
17.1 Exhibits and Attachments. All exhibits and attachments to this Sub-
------------------------
Sublease are a part hereof.
IN WITNESS WHEREOF, Sub-Sublessor and Sub-Sublessee have executed and
delivered this Sub-Sublease on the date first set forth above.
SUB-SUBLESSOR SUB-SUBLESSEE
SCIENT CORPORATION, NORTHPOINT COMMUNICATIONS INC.,
a Delaware corporation a Delaware corporation
By: By:
--------------------------------- --------------------------------
Its: Chief Financial Officer Its: Chief Financial Officer
By: By:
--------------------------------- --------------------------------
Its: Its:
-------------------------------- -------------------------------
-11-
<PAGE>
CONSENT OF LESSOR AND OF SUBLESSOR
Prime Holdings Incorporated, a California corporation, Lessor under that
certain Lease Agreement dated as of September 20, 1996, and under that certain
First Amendment to Lease Agreement dated as of February 28, 1997 (together, the
"Master Lease"), each by and between Lessor and Goodby, Silverstein & Partners,
Inc., a California corporation ("Lessee"), and Goodby, Silverstein & Partners,
Inc., a California corporation ("Sublessor") under that certain Sublease dated
February 16, 1998 (the "Sublease"), by and between Sublessor and Scient
Corporation, a California corporation ("Sub-Sublessor"), hereby consent to the
sub-sublets to NorthPoint Communications, Inc., a Delaware corporation, of the
Sub-Subleased Premises described in the foregoing Sub-Sublease. This consent
shall not constitute consent to any other or further sublease, nor shall it
release Sub-Sublessor from direct and primary liability under the Master Lease
or the Sublease, as such direct and primary liability may heretofore exist. This
Consent may be signed in counterparts.
LESSOR:
PRIME HOLDINGS INCORPORATED,
a California corporation
Dated: October 23, 1998 By:
-------------------------------
Its: Director
SUBLESSOR:
GOODBY, SILVERSTEIN & PARTNERS, INC.,
a California corporation
Dated: October 23, 1998 By:
-------------------------------
Its: CFO
-12-
<PAGE>
EXHIBIT 10.16
FULL-RECOURSE PROMISSORY NOTE
$160,000.00 January 28, 1999
San Francisco, California
FOR VALUE RECEIVED, the undersigned Borrower promises to pay to Scient
Corporation (the "Company") at its principal executive offices the principal sum
of one hundred and sixty thousand dollars ($160,000), together with interest
from the date of this Note on the unpaid principal balance, upon the terms and
conditions specified below.
1. Term. The principal balance of this Note, together with interest
accrued and unpaid to date, shall be due and payable at the close of business on
January 28, 2001. Interest accrued and unpaid to date shall be paid on January
28 of each year, commencing on January 28, 2000.
2. Rate of Interest. Interest shall accrue under the Note on any
unpaid principal balance at the rate of four and sixty-four one hundredths
percent (4.64%) per annum, compounded annually.
3. Prepayment. Prepayment of principal and interest may be made at any
time without penalty.
4. Events of Acceleration. The entire unpaid principal sum and unpaid
interest under this Note shall become immediately due and payable upon:
(a) The date when the Borrower ceases to be employed by the Company
for any reason;
(b) The failure of the Borrower to pay when due the principal balance
and accrued interest on this Note and the continuation of such default for
more than thirty (30) days;
(c) The insolvency of the Borrower, the commission of an act of
bankruptcy by the Borrower, the execution by the Borrower of a general
assignment for the benefit of creditors, or the filing by or against the
Borrower of a petition in bankruptcy or a petition for relief under the
provisions of the federal bankruptcy act or another state or federal law
for the relief of debtors and the continuation of such petition without
dismissal for a period of ninety (90) days or more; or
(d) The occurrence of a material event of default under the Stock
Pledge Agreement securing this Note or any obligation secured thereby.
1
<PAGE>
5. Security. Payment of this Note shall be secured by a Stock Pledge
Agreement to be executed and delivered by the Borrower and covering shares of
the Company's Common Stock. The Borrower, however, shall remain personally
liable for payment of this Note, and assets of the Borrower, in addition to the
collateral under the Stock Pledge Agreement, may be applied to the satisfaction
of the Borrower's obligations hereunder.
6. Collection. If action is instituted to collect this Note, the
Borrower promises to pay all reasonable costs and expenses (including reasonable
attorney's fees) incurred in connection with such action.
7. Waiver. No previous waiver and no failure or delay by the Company
or the Borrower in acting with respect to the terms of this Note or the Stock
Pledge Agreement shall constitute a waiver of any breach, default or failure of
condition under this Note, the Stock Pledge Agreement or the obligations secured
thereby. A waiver of any term of this Note, the Stock Pledge Agreement or of any
of the obligations secured thereby must be made in writing and signed by a duly
authorized officer of the Company and shall be limited to the express terms of
such waiver.
The Borrower hereby expressly waives presentment and demand for payment at
such time as any payments are due under this Note.
8. Conflicting Agreements. In the event of any inconsistencies between
the terms of this Note and the terms of any other document related to the loan
evidenced by the Note, the terms of this Note shall prevail.
9. Governing Law. This Note shall be construed in accordance with the
laws of the State of California.
------------------------------------------
Aron Dutta
Address:
---------------------------------
---------------------------------
2
