<PAGE>
As filed with the Securities and Exchange Commission on May 12, 1999.
Registration No. 333-74731
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 4
to
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
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Proposed Maximum Aggregate Amount of
Securities Amount to be Offering Price Offering Registration
to be Registered Registered(1) per Share(2) Price(2) Fee(3)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0001
par value per share... 3,450,000 $19.00 $65,550,000 $18,223
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
(3) The registration fee was paid with the previous filings.
---------------
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 May 12, 1999
3,000,000 Shares
[Scient Logo Appears Here]
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 $17 and $19
per share.
-----------
The common stock has been approved for quotation 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 to Discounts and Proceeds to
Public Commissions Scient Corporation
-------- ------------- ------------------
<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 450,000 shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 1999.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
THOMAS WEISEL PARTNERS LLC
-----------
Internet Distribution Offered By
DISCOVER BROKERAGE DIRECT
May , 1999
<PAGE>
[Artwork Page 1]
Scient is a leading provider of a new category of professional services
called eBusiness systems innovation.
[Artwork Page 2]
Scient's clients are innovative companies seeking competitive advantage
through eBusiness.
[Corporate logos of clients]
Scient Clients
[Screen shot of REALTOR.com]
REALTOR.com
Pioneering online real estate services, REALTOR.com aids home buyers and
real estate professionals in the buying and selling of homes. RealSelect chose
Scient to execute a technology re-architecture and functional redesign of
REALTOR.com in order to enable the site to be more robust and responsive.
Scient worked with RealSelect to implement a new, feature-rich functional
design in under five months. The result is an online application which allows
for the addition of new features. Scient designed the eBusiness for extended
functionality to help REALTOR.com better serve their customers.
[Screen shot of PlanetRx]
PlanetRx
PlanetRx, an online drugstore, teamed with Scient to accelerate the time to
market of their eBusiness. Scient worked with PlanetRx to define their
business process and determine the functional requirements and technical
specifications needed to support their eBusiness. Based on this assessment,
Scient designed, architected and implemented an eBusiness system for PlanetRx.
From Scient's engagement through the launch of the PlanetRx site, the entire
process took only six months.
[Screen shot of innoVisions]
innoVisions
innoVisions is an integrator and operator of cash access machines, or CAMs,
that provide automated check cashing and cash access in casinos and retail
locations. Based on an open systems architecture, innoVisions has recently
developed CAMs which use emerging technologies to identify individuals using
facial recognition. innoVisions hired Scient to design, develop and test its
CAM platform and networking technologies. In approximately 30 weeks, Scient
assessed the client's needs, and architected and engineered an integrated
system using the Windows NT operating system, browser technologies, standards
for transmitting voice over the Internet and software that recognizes facial
patterns. Further, Scient designed the system to accommodate the addition of
new functionality to innoVisions' CAMs in the future.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................................................... 4
Risk Factors.......................................................... 7
Use of Proceeds....................................................... 17
Dividend Policy....................................................... 17
Preemptive Rights..................................................... 17
Capitalization........................................................ 18
Dilution.............................................................. 19
Selected Financial Data............................................... 20
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 21
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business.............................................................. 28
Management............................................................ 41
Certain Transactions.................................................. 53
Principal Stockholders................................................ 56
Description of Capital Stock.......................................... 58
Shares Eligible for Future Sale....................................... 60
Underwriters.......................................................... 62
Legal Matters......................................................... 64
Experts............................................................... 65
Additional Information................................................ 65
Index to Financial Statements......................................... F-1
</TABLE>
Scient Corporation was originally incorporated in California on November 7,
1997 and reincorporated in Delaware on May 5, 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.
In this prospectus, "Scient," "we," "us" and "our" refer to Scient
Corporation. Unless otherwise indicated, all information in this prospectus:
. Gives effect to the conversion of all outstanding shares of preferred
stock into shares of common stock effective upon the closing of the
offering;
. Assumes no exercise of the underwriters' over-allotment option; and
. Assumes no exercise of warrants to purchase an aggregate of 32,875 shares
of our common stock which were outstanding on March 31, 1999.
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, the Scient Approach, The eBusiness Systems Innovator 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 many
existing service providers are not well suited to address the broad range of
challenges posed by eBusiness because they lack the necessary combination of
strategic consulting and technological expertise. As a result, Scient believes
that there is a growing need for a new 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, and 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............................... 3,000,000 shares
Common stock to be outstanding after the offering.. 34,299,560 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>
November 7, 1997 Three Months Ended
(Inception) Year ---------------------------------------
through Ended (unaudited)
March 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1999 1998 1998 1998 1999
---------------- --------- -------- --------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 179 $ 20,675 $ 1,924 $ 3,094 $ 6,270 $ 9,387
Total operating
expenses............... 1,394 33,022 2,525 4,569 10,207 15,721
Loss from operations.... (1,215) (12,347) (601) (1,475) (3,937) (6,334)
Net loss................ (1,159) (11,701) (523) (1,288) (3,741) (6,149)
Net loss per share:
Basic and diluted...... $ (.19) $ (1.77) $ (.09) $ (.21) $ (.56) $ (.81)
Weighted average
shares................ 5,947 6,599 6,048 6,155 6,737 7,623
Pro forma net loss per
share:
Basic and diluted(2)... $ (.56) $ (.03) $ (.06) $ (.17) $ (.27)
Weighted average
shares(2)............. 20,836 18,321 20,937 21,544 22,707
</TABLE>
The following table presents our summary balance sheet as of March 31, 1999.
The data in the "As Adjusted" column has been adjusted to reflect the
conversion of our preferred stock outstanding as of March 31, 1999 into
14,732,794 shares of common stock and our sale of 3,000,000 shares of our
common stock in this offering at an assumed initial public offering price of
$18.00 per share and the application of the estimated net proceeds. See "Use of
Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
As of March 31, 1999
-----------------------
Actual As Adjusted
---------- ------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments..... $28,129 $ 76,649
Working capital....................................... 28,108 76,628
Total assets.......................................... 38,812 87,332
Bank borrowings and capital lease obligations, long-
term................................................. 1,809 1,809
Total stockholders' equity ........................... 29,977 78,497
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 31, 1999. Excludes
2,951,916 shares of common stock issuable upon exercise of outstanding
options as of March 31, 1999 at a weighted average exercise price of $2.71.
Also excludes 32,875 shares of common stock issuable upon the exercise of
warrants outstanding as of March 31, 1999 at a weighted average exercise
price of $.37 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.
Risks Related to Our Business
We Have a History of Losses and Expect to Incur Losses in the Future
We incurred net losses of $11.7 million during the year ended March 31,
1999. As of March 31, 1999, we had an accumulated deficit of $12.9 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. 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. As a result, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance. 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; and
. Costs related to the expected opening or expansion of Scient offices.
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
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. Any inability to hire,
train and retain a sufficient number of qualified employees could hinder the
growth of our business. 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. In
addition, we believe that prospective employees that we target after the
offering may perceive that the stock option component of our compensation
package is not as valuable as that 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 Our 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.
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. If we fail to
compete successfully against current or future competitors, our business,
financial condition and operating results would be seriously harmed. 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.
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.
9
<PAGE>
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. Our growth has
placed, and will continue to place, a significant strain on our management and
our operating and financial systems. Our headcount has grown from 27 as of
March 31, 1998 to 260 as of March 31, 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.
Our personnel, systems, procedures and controls may be inadequate to
support our future operations. 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.
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 clients. Our failure to manage
future acquisitions successfully could seriously harm our operating results.
Also, acquisition costs could cause our quarterly operating results to vary
significantly. Furthermore, our stockholders would be diluted if we finance
the acquisitions by incurring debt or issuing equity securities.
Our Planned International Operations May Be Expensive and May Not Succeed
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. To date, we have not generated significant
revenues from engagements with international clients, although we are
currently negotiating one contract that, if successfully completed, would
involve the delivery of services to a client outside of North America. 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 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;
. Fluctuations in currency exchange rates;
10
<PAGE>
. Restrictions on the import and export of certain sensitive technologies,
including data security and encryption technologies that we may use; and
. Seasonal reductions in business activity in certain parts of the world,
such as during the summer months in Europe.
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. 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. For the year ended March 31, 1999, our five largest
clients accounted for approximately 50% of our revenues, with First Union,
PlanetRx and innoVisions accounting for 13%, 11% and 11%, 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.
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. As a result, our revenues are difficult to predict.
Because we incur costs based on our expectations of future revenues, our
failure to predict our revenues accurately may seriously harm our financial
condition and results of operations. Although 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.
We May Lose Money on Fixed-Fee Contracts
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. 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 of fees
we may invoice on time and material contracts without client consent. In the
future our strategy is to increase the percentage of our client engagements
subject to fixed-fee arrangements, because we believe they have the potential
to be more profitable.
We Sometimes Agree Not to Perform Services for Our Clients' Competitors
We sometimes agree not to perform services for competitors 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 and the number
of potential sources of revenue. In addition, these agreements increase the
significance of our
11
<PAGE>
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 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 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 often 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;
. Requirements to provide 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 liability for damages that may arise 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.
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. Failure to respond successfully
to these technological developments, or to respond in a timely or cost-
effective way, will result in serious harm to our business and operating
results. 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 technologically knowledgeable professionals so that they can
fulfill the increasingly sophisticated needs of our clients.
Our Business Could Be Affected by Year 2000 Issues
Year 2000 issues may adversely affect our business and our clients'
businesses. 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
12
<PAGE>
by many companies, including us, our clients and our potential clients, may
need to be upgraded to comply with such "Year 2000" requirements. Any failure
on the part of our principal internal systems or the systems that we create
for our clients could seriously harm our business, financial condition and
operating results. 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. In addition, we may not be able to detect unauthorized use of our
intellectual property and take appropriate steps to enforce our 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 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. In
addition, 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.
A Few Individuals Own Much of Our Stock
Upon completion of this offering and assuming that Sequoia Capital and
Benchmark Capital purchase an aggregate of 220,000 shares which have been
reserved for their purchase in this offering, our directors, executive
officers and their affiliates will beneficially own, in the aggregate,
approximately 67.7% of our outstanding common stock. This percentage will be
approximately 66.8% 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, such as
acquisitions, and to block an unsolicited tender offer. Accordingly, this
concentration of ownership could have the effect of delaying or preventing a
third party from acquiring control over us at a premium over the then-current
market price of our common stock. See "Principal Stockholders."
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 that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. A classified board of directors with staggered, three-year, terms, which
may lengthen the time required to gain control of our board of directors;
. Prohibiting cumulative voting in the election of directors, which would
otherwise allow less than majority of stockholders to elect director
candidates;
. Requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
. Limitations on who may call special meetings of stockholders;
. Prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of the stockholders; and
. Establishing advance notice requirements for nominations of candidates
for election to the board of directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.
13
<PAGE>
In addition, Section 203 of the Delaware General Corporation 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 of the Certificate of Incorporation,
Bylaws and Delaware Law."
Risks Related to the eBusiness Systems Innovation Industry
Our Success Will Depend on the Development of a Market for eBusiness Systems
Innovation Services
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 are
unable to differentiate our services from those of our competitors, our revenue
growth and operating margins 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;
. 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.
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;
. Consumer protection; and
. The characteristics and quality of products and services offered over the
Internet.
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<PAGE>
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.
Risks Related to the Securities Markets
We May Need to Raise Additional Capital, Which 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 we cannot be
certain that we will be able to obtain additional financing on favorable terms
or 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 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:
. Changes in financial estimates or investment recommendations by
securities analysts relating to our stock;
. Changes in market valuations of other 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; 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.
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<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, if we were liquidated for book value immediately following this
offering, each stockholder purchasing in this offering would receive less than
the price they paid for their common stock. In addition, because our success
is so heavily dependent on our ability to attract and retain talented
personnel, we expect to offer a significant number of stock options to
employees in the future. 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 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.
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<PAGE>
USE OF PROCEEDS
The net proceeds to Scient from the sale of the 3,000,000 shares of common
stock offered hereby are estimated to be $48.5 million, assuming an initial
public offering price of $18.00 per share, and after deducting estimated
underwriting discounts and commissions and estimated offering expenses of $1.7
million payable by Scient. The net proceeds of this offering are estimated to
be $56.1 million 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. Pursuant to the terms of
our credit facility, we are unable to pay dividends without first obtaining
the written consent of our bank, which will not be unreasonably withheld.
PREEMPTIVE RIGHTS
As of the date of this prospectus, holders of at least 50,000 shares 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. See "Underwriters."
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<PAGE>
CAPITALIZATION
The following table sets forth our short-term debt and capitalization as of
March 31, 1999. 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 March 31, 1999 into 14,732,794 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
3,000,000 shares of common stock in this offering at an assumed initial
offering price of $18.00 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 March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Bank borrowings, current....................... $ 413 $ 413 $ 413
Capital lease obligations, current............. 625 625 625
-------- -------- --------
Total short-term debt...................... $ 1,038 $ 1,038 $ 1,038
======== ======== ========
Bank borrowings, long-term..................... $ 1,129 $ 1,129 $ 1,129
Capital lease obligations, long-term........... 680 680 680
-------- -------- --------
Total long-term debt....................... 1,809 1,809 1,809
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $.0001 par value
per share, 11,500,000 shares authorized;
9,011,960 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,
40,000,000 shares authorized, 16,566,766
shares issued and outstanding actual;
125,000,000 shares authorized, 31,299,560
shares outstanding pro forma; 125,000,000
shares authorized, 34,299,560 shares
outstanding pro forma as adjusted(1)........ 2 3 3
Additional paid-in capital................... 70,056 70,056 118,576
Unearned compensation........................ (27,222) (27,222) (27,222)
Accumulated deficit.......................... (12,860) (12,860) (12,860)
-------- -------- --------
Total stockholders' equity................. 29,977 29,977 78,497
-------- -------- --------
Total capitalization..................... $ 31,786 $ 31,786 $ 80,306
======== ======== ========
</TABLE>
- --------
(1) The share numbers exclude:
. 2,951,916 shares of common stock issuable upon exercise of stock options
outstanding as of March 31, 1999 at a weighted average exercise price of
$2.71 per share;
. 2,524,650 shares of common stock available for issuance under our 1997
Stock Option Plan as of March 31, 1999;
. 32,875 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 1999, with a weighted average exercise price
of $.37 per share; and
. 1,200,000 shares of common stock available for issuance under our 1999
Equity Incentive Plan.
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<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999, giving effect to the conversion of all shares of preferred stock
outstanding as of March 31, 1999 into common stock on the closing of this
offering, was $29,977,000 or approximately $.96 per share. Pro forma net
tangible book value per share represents the amount of our stockholders'
equity less intangible assets, divided by 31,299,560 shares of common stock
outstanding after giving effect to the conversion of the preferred stock
outstanding as of March 31, 1999 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 3,000,000 shares of common stock in this offering at an
assumed initial offering price of $18.00 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 March 31, 1999, would have been
$78,497,000, or $2.29 per share. This represents an immediate increase in net
tangible book value of $1.33 per share to existing stockholders and an
immediate dilution in net tangible book value of $15.71 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............... $18.00
Pro forma net tangible book value per share as of March 31,
1999....................................................... $ .96
Increase per share attributable to new investors............ 1.33
-----
Pro forma net tangible book value per share after this
offering..................................................... 2.29
------
Dilution per share to new investors........................... $15.71
======
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1999,
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....... 31,299,560 91.3% $35,091,000 39.4% $ 1.12
New stockholders............ 3,000,000 8.7 54,000,000 60.6 18.00
---------- ----- ----------- -----
Totals.................. 34,299,560 100.0% $89,091,000 100.0%
========== ===== =========== =====
</TABLE>
As of March 31, 1999, there were options outstanding to purchase a total of
2,951,916 shares of common stock at a weighted average exercise price of $2.71
per share under our 1997 Stock Option Plan. In addition, as of March 31, 1999,
there were warrants outstanding to purchase a total of 32,875 shares of common
stock with a weighted average exercise price of $.37 per share. To the extent
outstanding options or warrants are exercised, there will be further dilution
to new investors.
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<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 year ended March 31, 1999 and the balance sheet data at March
31, 1998 and March 31, 1999, 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>
November 7, 1997
(Inception) through Year Ended
March 31, 1998 March 31, 1999
------------------- --------------
(in thousands, except per
share data)
<S> <C> <C>
Statement of Operations Data:
Revenues................................... $ 179 $ 20,675
Operating expenses:
Professional services..................... 102 10,028
Selling, general and administrative....... 1,228 15,315
Stock compensation........................ 64 7,679
------- --------
Total operating expenses................... 1,394 33,022
------- --------
Loss from operations....................... (1,215) (12,347)
Interest income, net....................... 56 646
------- --------
Net loss................................... $(1,159) $(11,701)
======= ========
Net loss per share:
Basic and diluted........................ $ (.19) $ (1.77)
======= ========
Weighted average shares.................. 5,947 6,599
Pro forma net loss per share:
Basic and diluted (unaudited)............ $ (.56)
========
Weighted average shares (unaudited)...... 20,836
<CAPTION>
As of March 31,
----------------------------------
1998 1999
------------------- --------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments............................... $ 3,301 $ 28,129
Working capital............................ 3,299 28,108
Total assets............................... 4,225 38,812
Bank borrowings and capital lease
obligations, long-term.................... 26 1,809
Total stockholders' equity................. 3,805 29,977
</TABLE>
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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.
For the year ended March 31, 1999, 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 260 as of March 31, 1999. Through the year ended March 31, 1999, we
realized revenues of $20.7 million and incurred a net loss of $11.7 million,
of which $7.7 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 year ended
March 31, 1999, five clients accounted for approximately 50% of our revenues,
with First Union, Planet Rx and innoVisions accounting for 13%, 11% and 11%,
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 year ended March 31, 1999,
approximately 67% 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. As we obtain greater experience in estimating the costs of
performing eBusiness systems innovation services, our strategy is to enter
into more fixed-fee contracts, which we believe are potentially more
profitable. Accordingly, we anticipate that a larger percentage of revenues
will be derived from fixed-fee contracts in the future. In the year ended
March 31, 1999, substantially all clients were located within North America
and all revenues were denominated in U.S. dollars.
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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 cash expenses may increase
after the offering because prospective employees that we target after the
offering may perceive that the stock option component of our compensation
package is not as valuable as that component was prior to the offering. 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 $35.0 million in connection with certain stock option
grants through March 31, 1999. This stock compensation expense will be
recognized over a period ending March 31, 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."
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Results of Operations
Given our limited operating history and the fact that we did not begin to
generate significant amounts of revenues until the fiscal year ended March 31,
1999, 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 and the year ended March 31, 1999.
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 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) Year -------------------------------------------
through Ended (unaudited)
March 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1999 1998 1998 1998 1999
------------ --------- -------- --------- -------- ---------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 179 $ 20,675 $ 1,924 $ 3,094 $ 6,270 $ 9,387
Operating expenses:
Professional services.. 102 10,028 942 1,796 3,000 4,290
Selling, general and
administrative........ 1,228 15,315 1,225 1,630 4,852 7,608
Stock compensation..... 64 7,679 358 1,143 2,355 3,823
-------- -------- ------- -------- ------- --------
Total operating
expenses............... 1,394 33,022 2,525 4,569 10,207 15,721
-------- -------- ------- -------- ------- --------
Loss from operations.... (1,215) (12,347) (601) (1,475) (3,937) (6,334)
Interest income, net.... 56 646 78 187 196 185
-------- -------- ------- -------- ------- --------
Net loss................ $ (1,159) $(11,701) $ (523) $ (1,288) $(3,741) $ (6,149)
======== ======== ======= ======== ======= ========
As a Percentage of
Revenues:
Revenues................ 100% 100% 100% 100% 100% 100%
Operating expenses:
Professional services.. 57 49 49 58 48 46
Selling, general and
administrative........ 686 74 64 53 77 81
Stock compensation..... 35 37 18 37 38 41
-------- -------- ------- -------- ------- --------
Total operating
expenses............... 778 160 131 148 163 168
-------- -------- ------- -------- ------- --------
Loss from operations.... (678) (60) (31) (48) (63) (68)
Interest income, net.... 31 3 4 6 3 2
-------- -------- ------- -------- ------- --------
Net loss................ (647)% (57)% (27)% (42)% (60)% (66)%
======== ======== ======= ======== ======= ========
</TABLE>
Inception Period and Year Ended March 31, 1999
Revenues
The increase in revenues in the year ended March 31, 1999 compared to the
Inception Period reflected the introduction of our eBusiness professional
services in February 1998, the increase in the number of clients and wider
scope of engagements during the year ended March 31, 1999 compared to the
Inception Period, our increased capacity due to increased investment in our
sales and professional services organizations, and the comparison of a full
year period to a partial year period.
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Operating Expenses
Professional Services. Our professional services expenses increased in
absolute dollars in the year ended March 31, 1999 compared to the Inception
Period, primarily as a result of increases in the number of professional
services personnel, and the comparison of a full year period to a partial year
period.
Selling, General and Administrative. Selling, general and administrative
expenses increased in absolute dollars in the year ended March 31, 1999
compared to the Inception Period. The increase was primarily due to expenses
related to the addition of sales, marketing, recruiting, knowledge management,
technology, finance and administration personnel, the cost of leasing
additional office space to support our growth, and the comparison of a full
year period to a partial year period.
Stock Compensation. In the Inception Period and the year ended March 31,
1999, we recorded aggregate unearned stock compensation of $1.6 million and
$33.4 million, respectively, in connection with stock option grants. This
increase was primarily a result of increases in the number of options granted
due to the increased hiring of employees and the comparison of a full year
period to a partial year period. No such compensation was recorded for the
period from April 1, 1999 through April 28, 1999 since such stock options were
granted at fair market value. Stock compensation expense is being recognized
over the vesting period of the related options (generally four years). During
the Inception Period and the year ended March 31, 1999, we recognized stock
compensation of $64,000 and $7.7 million, respectively. This increase was
primarily a result of increases in the number of options granted due to
increased hiring of employees and the comparison of a full year period to a
partial year period. We expect to recognize stock compensation expense
relating to options that were granted during the Inception Period and the year
ended March 31, 1999 to range from $2.7 million to $4.4 million per quarter
during fiscal year 2000, from $1.5 million to $2.3 million per quarter during
fiscal year 2001, from $647,000 to $1.3 million per quarter during fiscal year
2002 and from $86,000 to $485,000 per quarter during fiscal year 2003. The
actual amounts that we recognize will be reduced to the extent that the
affected options are cancelled before they become fully-vested. See Note 8 of
Notes to Financial Statements.
Interest Income, Net
Interest income increased in the year ended March 31, 1999 compared to the
Inception Period. This increase was due primarily to interest income earned
over a full year period versus a partial year period and higher interest
bearing funds in the full year period resulting from our private financing
activities during 1998 and 1999.
Provision for Income Taxes
From inception through March 31, 1999, we incurred net losses for federal
and state tax purposes and have not recognized any tax provision or benefit.
As of March 31, 1999, we had approximately $4.6 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.
Quarterly Results of Operations
Revenues
Our revenues increased in each of the quarterly periods presented. The
increase in revenues in these periods reflected 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.
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Operating Expenses
Professional Services. Our professional services expenses increased in
absolute dollars in each of the quarterly 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 absolute dollars in the quarters ended September 30,
1998, December 31, 1998 and March 31, 1999. The increases were primarily due
to expenses related to the addition of sales, marketing, recruiting, knowledge
management, technology, finance and administration personnel and the costs of
leasing additional 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 of
$330,000 granted to Robert M. Howe, our President and Chief Executive Officer.
Stock Compensation. Stock compensation expenses increased in each of the
quarterly periods presented. These increases were primarily a result of
increases in the number of options granted due to increased hiring of
employees. See Note 8 of Notes to Financial Statements.
Interest Income, Net
Interest income increased in each of the quarterly periods presented. This
increase was due primarily to interest income earned on the invested portion
of the proceeds of our private financing activities. Interest income was
offset by insignificant interest expense generated from our increased drawings
under our lines of credit necessary to support our internal growth.
Liquidity and Capital Resources
To date, we have raised $30.9 million of equity capital from the sale of
preferred stock, 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, December 31, 1998 and March 31, 1999 was $1.2 million, $1
million, $1.1 million, $1.2 million and $1.3 million, respectively. As of
March 31, 1999, we had $28.1 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
March 31, 1999, there were no outstanding borrowings under this line of
credit. Three standby letters of credit totaling $950,000 have been issued
against this line of credit as security for leased space in San Francisco,
California, and New York, New York and for capital lease obligations. 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
March 31, 1999, borrowings under this capital equipment line were
approximately $1.5 million.
Capital expenditures for the Inception Period and each of the quarters
ended June 30, 1998, September 30, 1998, December 31, 1998 and March 31, 1999
were approximately $334,000, $392,000, $662,000, $604,000 and $2.1 million,
respectively. These expenditures were primarily for computer equipment and
software, including equipment acquired under capital leases, and furniture and
fixtures. We expect that capital expenditures will continue to increase to the
extent we continue to increase our headcount or expand our operations.
Recent Accounting Pronouncements
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
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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 March 31, 1999, we had an investment portfolio of fixed income
securities excluding those classified as cash and cash equivalents of
$16.9 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 March 31, 1999,
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 us,
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 of our systems are not yet certified. We have received Year
2000 compliance statements from the suppliers of some of our principal
internal systems, and have sought similar statements from other vendors. Our
review of our Year 2000 readiness programs, including our assessment of our
internal systems as well as those of third parties with whom we have material
interactions, is ongoing and has not yet been completed. We anticipate that
our assessment of such systems will be complete by August 1999. Because we and
our clients are dependent, to a very substantial degree, upon the proper
functioning of our computer systems and those of third parties with whom we
have material interactions in our operations, a failure of such systems to
correctly recognize dates beyond December 31, 1999 could materially disrupt
our operations, which could seriously harm our business, financial condition
and operating results.
The Year 2000 problem may also affect software or code that we develop or
third-party software products that are incorporated into the business systems
that we create for our clients. Although our clients license software directly
from third parties, we generally discuss Year 2000 issues with these suppliers
and sometimes perform internal testing on their products, but we do not
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 general Year 2000
compliance status of our clients, nor do we intend to examine our clients for
general Year 2000 compliance. 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 business, financial condition and operating results could be
seriously harmed.
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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,
including:
. Operational disruptions and inefficiencies for us, our clients and
vendors that provide us with internal systems that will divert
management's time and attention and financial and human resources from
ordinary business activities;
. Business disputes and claims for pricing adjustments by our clients, some
of which could result in litigation or contract termination; and
. Harm to our reputation to the extent that our clients' eBusiness systems
experience errors or interruptions of service.
The worst case scenario for Year 2000 problems for us would be the need to
cease normal operations for an indefinite period of time while we attempted to
respond to clients' Year 2000 problems without having full internal
operational capabilities.
Although it is not yet fully developed, we expect to complete our Year 2000
contingency plan by September 1999. We are designing our Year 2000 contingency
plan to address situations that may result if we are unable to achieve Year
2000 readiness for our critical operations. The cost of developing and
implementing our plan may be material.
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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
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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
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 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.
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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, and 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
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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.
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 frequently 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.
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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. 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 of the services that we have provided for three
of our clients are representative of the services we offer.
REALTOR.com. Pioneering online real estate services, RealSelect's
REALTOR.com real estate website aids home buyers and real estate professionals
in buying and selling homes. 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 chose Scient to execute
a technology re-architecture and functional redesign of REALTOR.com in order
to enable the site to be more robust and responsive. 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 better serve its consumers.
Over a five 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.
PlanetRx. PlanetRx is a full-service online pharmacy devoted to health and
wellness needs. At PlanetRx, a consumer can fill or refill medical
prescriptions from the convenience and privacy of home. PlanetRx also offers a
full selection of over-the-counter medicines, vitamins, herbs, dietary
supplements, medical supplies, and personal care and beauty products. More
than just a shopping site, PlanetRx is a place to get answers to healthcare
questions. Health information is integrated throughout the PlanetRx site, so
that consumers can shop and learn at the same time.
PlanetRx teamed with Scient to accelerate time to market. Scient worked
with PlanetRx to define its business process and determine the functional
requirements and technical specifications needed to support their eBusiness.
Based on this assessment, Scient designed, architected and implemented an
eBusiness system for
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PlanetRx that covered the entire customer life-cycle, from attracting the
customer through content and coupons to order management, fulfillment, and
customer service functionality. From Scient's engagement through the launch of
the PlanetRx site, the entire process took only six months.
innoVisions. innoVisions is an integrator and operator of cash access
machines, or CAMs, that provide automated check cashing services and cash
access in casinos and retail locations. Based on open-systems architecture,
innoVisions has recently developed CAMs that 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, standards for transmitting
voice over the Internet and software that recognizes facial patterns. Further,
Scient designed the system to accommodate the addition of new functionality to
innoVisions' CAMs in the future.
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 Scient Approach has four stages: Conceive, Architect, Engineer and
Extend.
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 infrastructure to integrate the software, network and hardware
components necessary to support the applications. This stage includes 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.
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. 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.
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;
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. Electronic Markets, which we define as companies whose business models
rely primarily on new electronic delivery channels;
. 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 March 31, 1999, our sales group and our marketing group consisted of
nine and six 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 Internet Travel Network
Global Sourcing Solutions living.com
innoVisions Naxon
NationsBanc Montgomery PlanetRx
Securities RealSelect (REALTOR.com)
</TABLE>
For the year ended March 31, 1999, our five largest clients accounted for
approximately 50% of our revenues, with First Union, PlanetRx and innoVisions
accounting for 13%, 11% and 11%, 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.
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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
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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.
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 March 31, 1999, we employed 12
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.
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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
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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.
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 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
IBM;
. Outsourcing firms, such as Computer Sciences Corporation, Electronic Data
Systems and Perot Systems;
. 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. In particular, we believe that we offer an
integrated set of strategic consulting skills and technological expertise that
many existing service providers are not well suited to provide. 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.
See "Risk Factors--Competition from Bigger, More Established Competitors Who
Have Greater Financial Resources Could Result in Price Reductions, Reduced
Profitability and Loss of Market Share."
Proprietary Rights
We have developed detailed tools, processes and methodologies underlying
the Scient Approach and software code, scripts, libraries and other technology
used internally and in client engagements. We seek to protect our proprietary
rights and our other intellectual property through a combination of
copyrights, trademarks and trade secret protection, as well as through
contractual protections such as proprietary information agreements and
nondisclosure agreements. 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. See
"Risk Factors--We May Not Be Able to Protect Our Intellectual Property and
Proprietary Rights."
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Colleagues
We generally use the term "colleagues" instead of "employees" to reinforce
our one-firm concept and collegial culture. As of March 31, 1999, we had a
total of 260 colleagues. Of these, 173 were in professional services, 15 in
sales and marketing, 12 in recruiting and 60 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 53,000 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 also recently leased 22,000 square feet of office space in
Dallas, Texas in anticipation of opening an office there. This lease expires
in November 2004. 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 March 31, 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(1)....... 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(2)...... 35 Director
Frederick W. Gluck(3)... 63 Director
Douglas Leone(2)(3)..... 42 Director
Other Key Employees
Robert N. Beck.......... 60 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 Employee Stock Purchase Plan Committee
(2) Member of Audit Committee
(3) 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
41
<PAGE>
January 1976 to February 1991, Mr. Howe was a consultant at Booz Allen &
Hamilton, a management consulting 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
42
<PAGE>
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.
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.
43
<PAGE>
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.
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 2000; Class II, whose term will expire at the
annual meeting of stockholders to be held in 2001; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2002. The
Class I director will be Frederick Gluck; the Class II directors will be David
Beirne and Douglas Leone; and the Class III directors 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, a
compensation committee and an Employee Stock Purchase Plan 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, other than the 1999 Employee Stock Purchase Plan, and makes decisions
concerning salaries and incentive compensation for our employees. The Employee
Stock Purchase Plan committee consists of Mr. Howe. This committee administers
our 1999 Employee Stock Purchase Plan.
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 on March 13, 1999,
we repurchased 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.
44
<PAGE>
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.
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;
. Acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. Unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. Any transaction from which the director 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
limited 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 fiscal year ended March 31, 1999 earned 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.............. $250,000 $ -- -- $52,474
President and Chief
Executive Officer
Eric Greenberg.............. 239,583 33,333 -- --
Chairman of the Board of
Directors
Stephen A. Mucchetti(2)..... 118,429 50,000 750,000 58,879
Chief Operating Officer and
Executive Vice President
William H. Kurtz(3)......... 159,135 50,000 550,000 78,967
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 $42,035 in commuting expenses and $16,844 for
reimbursement of taxes paid by him. Amount shown for Mr. Kurtz includes
$77,214 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.
Option Grants in Last Fiscal Year
The following table sets forth the stock options we granted during the
fiscal year ended March 31, 1999, 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. The
percentages in the column entitled "Percent of Total Options Granted to
Employees during the fiscal year ended March 31, 1999" are based on an
aggregate of 7,677,850 options granted to employees of Scient under the 1997
Stock Plan during the fiscal year ended March 31, 1999.
The amounts listed in the following table under the heading "Exercise
Price" were 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
46
<PAGE>
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.
We calculated the amounts listed in the following table under the heading
"Potential Realizable Value at Assumed Annual Rates of Stock Price
Appreciation for Option Term" based on the ten-year term of the option at the
time of grant. For purposes of these columns, we 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.
Information on how we determined the fair market value of our common stock is
disclosed in the preceding paragraph. 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.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------------ ------------------------
Percent of Total
Options Granted
Number of to Employees
Securities During
Underlying the Fiscal Year Exercise
Options Ended Price Expiration
Name Granted March 31, 1999 ($/share) Date 5% 10%
- ---- ---------- ---------------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Howe.......... -- -- % $-- -- $ -- $ --
Eric Greenberg.......... -- -- -- -- -- --
Stephen A.
Mucchetti(1)........... 500,000 6.5 1.60 10/12/08 6,841,357 10,893,718
100,000 1.3 1.60 11/10/08 1,368,271 2,178,744
150,000 2.0 1.60 12/22/08 2,052,407 3,268,115
William H. Kurtz(2)..... 500,000 6.5 .65 8/12/08 7,615,082 12,125,746
50,000 0.7 1.60 1/28/09 684,136 1,089,372
</TABLE>
- --------
(1) 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 his 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.
(2) 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 Fiscal Year Ended March 31, 1999 and Option
Values at March 31, 1999
The following table sets forth for each of the Named Executive Officers
options exercised during the fiscal year ended March 31, 1999, and the number
and value of securities underlying unexercised options that were held by the
Named Executive Officers at March 31, 1999. The numbers in the column entitled
"Value Realized" are equal to the fair market value of the purchased shares on
the option exercise date, less the exercise price paid for such shares.
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 March 31, 1999. The numbers in
the column entitled "Value of Unexercised In-the-Money Options at March 31,
1999" are based on the fair market value of our common stock at March 31, 1999
as determined by our board of directors, $10.00, less the exercise price
payable for such shares. The fair market value of our common stock at March
31, 1999 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
is expected to be higher than the estimated fair market value at March 31,
1999. Consequently, the value of unexercised options could 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.
<TABLE>
<CAPTION>
Value
Number of of Unexercised
Securities Underlying In-the-Money
Number of Unexercised Options at Options at
Shares March 31, 1999 March 31, 1999
Acquired on Value ----------------------- -------------------
Name Exercise Realized Vested Unvested Vested Unvested
- ---- ----------- -------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Howe.......... -- $ -- -- -- $ -- $ --
Eric Greenberg.......... -- -- -- -- -- --
Stephen A. Mucchetti.... 500,000 -- 12,500 237,500 105,000 1,995,000
William H. Kurtz........ 425,000 213,750 -- 125,000 -- 1,121,250
</TABLE>
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, which lapses pursuant to a four-year 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 four-year vesting 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.
48
<PAGE>
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
four-year vesting schedule. The four-year 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 A. 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 four-year 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 four-year 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 1,200,000 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 8% 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 5,000,000 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 the 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;
. 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.
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<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.
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.
1999 Employee Stock Purchase Plan
Our board of directors adopted the 1999 Employee Stock Purchase Plan on
April 22, 1999. Our stockholders also approved this plan. The 1999 Employee
Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code. We have reserved 1,000,000 shares of our common stock for
issuance under the plan. On May 1 of each year, starting with the year 2000,
the number of shares in the reserve will be increased by the number of shares
that have been issued under the 1999 Employee Stock Purchase Plan during the
prior 12-month period, such that the number of available shares in the reserve
will automatically be restored to 1,000,000. The plan will be administered by
the Employee Stock Purchase Plan committee of our board of directors.
All of our employees are eligible to participate if they are employed by us
for more than 20 hours per week and for more than five months per year.
Eligible employees may begin participating in the 1999 Employee Stock Purchase
Plan at the start of any offering period. Each offering period lasts six
months. Offering periods start on May 1 and November 1 of each year. However,
the first offering period will start on the effective date of this offering
and end on October 31, 1999.
The 1999 Employee Stock Purchase Plan permits each eligible employee to
purchase common stock through payroll deductions. An employee's payroll
deductions may not exceed 15% of the employee's salary. Purchases of our
common stock will occur on April 30 and October 31 of each year or on the last
trading day prior to those dates. Each participant may purchase up to 2,000
shares on any purchase date, provided that the value of the shares purchased
in any calendar year, measured as of the beginning of the offering period may
not exceed $25,000.
The price of each share of common stock purchased under the 1999 Employee
Stock Purchase Plan will be 85% of the lower of:
. The fair market value per share of common stock on the trading day
immediately before the first day of the applicable offering period; or
. The fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
. The price per share to the public in this offering; or
. The fair market value per share of common stock on the purchase date.
51
<PAGE>
Employees may end their participation in the 1999 Employee Stock Purchase
Plan at any time. Participation ends automatically upon termination of
employment with Scient. If a change in control of Scient occurs, the 1999
Employee Stock Purchase Plan will terminate and shares will be purchased with
the payroll deductions accumulated to date by participating employees, unless
the plan is assumed by the surviving corporation or its parent. Our board of
directors may amend or terminate the 1999 Employee Stock Purchase Plan at any
time. If our board increases the number of shares of common stock reserved for
issuance under the plan, except for the automatic increases described above,
it must seek the approval of our stockholders.
52
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Directors and Officers
In December 1997, Scient sold shares of Series A Preferred Stock to obtain
equity capital for general corporate purposes, including working capital.
Purchasers in the offering were, among others, the following stockholders in
the amounts indicated for $.90 per share or an aggregate of $4,720,001. 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
obtain additional equity capital for general corporate purposes, including
working capital, to the following director and former director for $1.50 per
share or an aggregate of $1,425,000. 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 was 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 were 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 on
March 13, 1999, we repurchased the 562,500 shares of Series A Preferred Stock
pursuant to the Stock Restriction Agreement by canceling the promissory note.
In connection with the cancellation, we forgave approximately $38,400 of
accrued interest that was due under the note.
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<PAGE>
In June 1998, Scient sold shares of Series B Preferred Stock to obtain
additional equity capital for general corporate purposes, including working
capital. Purchasers in the offering were, among others, the following
stockholders in the amounts indicated for $6.35 per share or an aggregate of
$13,499,992:
<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.
In February 1999, Scient sold shares of Series C Preferred Stock to obtain
additional equity capital for general corporate purposes, including working
capital. Purchasers in the offering were, among others, the following
stockholders in the amounts indicated for $10.85 per share or an aggregate
consideration of $11,249,540:
<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. In connection with the purchase of Series C
Preferred Stock, the purchasers of at least 50,000 shares of Series C
Preferred Stock were granted preemptive rights that entitle them to purchase
approximately three percent of the shares to be issued in this offering. See
"Preemptive Rights."
To provide further incentive to Stephen Mucchetti, our Chief Operating
Officer, we granted him 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 March 1999, Eric Greenberg, our Chairman, and Robert Howe, our President
and Chief Executive Officer, 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. We received no proceeds from either
sale. In connection with the sale by
54
<PAGE>
Mr. Greenberg we 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.
In addition, we have granted options to and have entered into compensation
agreements and other arrangements to attract, retain and provide incentive to
our directors and executive officers. These transactions are described in
"Management."
Transactions with Entities Related to Directors and Greater than 5%
Stockholders
In connection with the recruiting of our Chief Financial Officer and Chief
Technology Officer, we engaged the services of Ramsey/Beirne Associates, an
executive search firm. Mr. Beirne, one of our directors, is the chairman of
Ramsey/Beirne and 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. We
received $8,000 when Ramsey/Beirne exercised the warrant on September 9, 1998.
In connection with the recruiting of our Vice President, Sales, we again
engaged the services of Ramsey/Beirne. As payment for services, we paid
Ramsey/Beirne $50,000 and issued an immediately exercisable 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. 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, living.com, ePhysician
and WebVan and has a right to nominate one member of each company's board of
directors. During the year ended March 31, 1999, we recognized revenue of $2.3
million, $624,000, $693,000 and $78,000, respectively, from these companies in
connection with our provision of eBusiness services to them. In addition,
Benchmark has an equity interest in eBay, a client for whom we have provided
approximately $168,000 in eBusiness services.
Sequoia is also a significant shareholder of PlanetRx and WebVan and has a
right to nominate one member of each company's board of directors. We have
provided eBusiness services to each of these companies as discussed above.
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 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.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 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
31,299,560 shares of common stock outstanding as of March 31, 1999, and
34,299,560 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................................. 6,403,332 20.5% 18.7%
Entities associated with Benchmark Capital(1).. 5,846,370 18.7 17.0
David M. Beirne(2)........................... 5,934,245 19.0 17.3
Entities associated with Sequoia Capital(3).... 5,418,310 17.3 15.8
Douglas Leone(3)............................. 5,418,310 17.3 15.8
Robert M. Howe(4).............................. 3,650,000 11.7 10.6
Stephen A. Mucchetti(5)........................ 562,500 1.8 1.6
William H. Kurtz(6)............................ 501,562 1.6 1.5
Frederick W. Gluck(7).......................... 538,672 1.7 1.6
All directors and executive officers as a group
(7 persons)(8)................................ 23,008,621 73.5 67.1
</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.
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<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 by 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, 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.
57
<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 March 31, 1999, there were 31,299,560 shares of common stock
outstanding that were held of record by approximately 194 stockholders. As of
March 31, 1999 there were 2,951,916 shares of common stock subject to
outstanding options, 2,375,777 of which were then currently exercisable. There
will be 34,299,560 shares of common stock outstanding 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
58
<PAGE>
by the board of directors. The provisions are also meant to discourage
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 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 Delaware corporations 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 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, including Eric Greenberg, our
Chairman, and the holders of our Series A, Series B and Series C Preferred
Stock, will be entitled to 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 conditions
and limitations, including 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 U.S. Stock
Transfer Corporation, and its telephone number is (818) 502-1404.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 34,299,560 shares of common
stock outstanding, assuming no exercise of options after March 31, 1999. Of
the 3,000,000 shares which are offered hereby, at least 2,557,099 shares will
be available for immediate sale in the public market as of the date of this
prospectus, up to 252,901 shares will be subject to a 180-day lockup period
and up to 190,000 shares will be subject to a one-year lock up period after
which they will be available for sale in the public market, subject in some
cases to compliance with volume and other limitations of Rule 144. See
"Underwriters." Approximately 29,698,911 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,
1,600,649 additional shares will remain subject to either a one-year holding
period under Rule 144, which will lapse over a period ending on March 16,
2000. The foregoing is summarized in the following table:
<TABLE>
<CAPTION>
Days after Date of Approximate Shares
this Prospectus Eligible for Future Sale Comment
------------------ ------------------------ -------
<C> <C> <S>
On Effectiveness.... 2,557,099 Freely tradeable shares sold in
offering
180 Days............ 29,951,812 180 day lock-up expires; shares
salable under Rule 144 or 701
More than 180 Days.. 1,790,649 Restricted securities held for
one year or less; securities
sold in offering but subject to
one-year lock-up
</TABLE>
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, 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:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 342,996 shares immediately after this offering; or
. The average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale requirements, and
depending on the amount sold, the filing of a Form 144 with respect to the
sale.
Under Rule 144(k), a person, or persons whose shares are aggregated, is
entitled to sell his or her shares without regard to the limitations described
above if:
. The person has not been an affiliate of Scient, such as an officer,
director of 10%-or-greater stockholder,at any time during the 90 days
immediately preceding the sale; and
. The person has beneficially owned his or her shares for at least two
years.
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 some other stockholders,
including the stockholders purchasing shares in this offering through the
exercise of their preemptive rights, have agreed not to sell any common stock
without the prior consent of Morgan Stanley & Co. Incorporated for a period of
180 days from
60
<PAGE>
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 March 31, 1999, the holders of options
exercisable into approximately 2,375,777 shares of common stock will be
eligible to sell their shares on the expiration of the 180-day lockup period
or subject in some cases to vesting of such options.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issued or issuable under our stock plans. We
expect to file the registration statement covering shares offered pursuant to
the 1997 Stock Plan, the 1999 Equity Incentive Plan and the 1999 Employee
Stock Purchase Plan 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.
In addition, after this offering, the holders of approximately 21,136,126
shares of common stock will be entitled to 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."
61
<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 3,000,000 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.............................................................. 3,000,000
=========
</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. Discover Brokerage Direct Inc., an affiliate of Morgan Stanley &
Co. Incorporated and facilitator of Internet distribution, is acting as a
selected dealer in connection with the offering.
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 450,000 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 442,901 shares of
common stock to be sold in the offering and offered hereby for sale, at the
public offering price, to specified parties. Of this total, 190,000 shares and
30,000 shares have been reserved for entities affiliated with Sequoia Capital
and Benchmark Capital, respectively, 50,401 shares have been reserved for
holders of at least 50,000 shares of our Series C Preferred Stock, other than
Sequoia Capital, and 172,500 shares have been reserved for 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 persons 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.
62
<PAGE>
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 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.
As a condition of purchasing the reserved shares described above, the
purchasers of up to 252,901 of these shares will be required to agree not to
sell those shares for a period of 180 days after the date of this prospectus,
and Sequoia Capital, which may purchase up to 190,000 of these shares, will be
required to agree not to sell such shares for one year after the date of this
prospectus.
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.
63
<PAGE>
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.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners has been named as a lead or co-manager
on 20 filed public offerings of equity securities, of which seven have been
completed, and has acted as a syndicate member in an additional 10 public
offerings of equity securities. Thomas Weisel Partners does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us pursuant to the underwriting agreement entered into in connection with this
offering.
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 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.
64
<PAGE>
EXPERTS
The financial statements as of March 31, 1998 and March 31, 1999, and for
the period from November 7, 1997 through March 31, 1998 and the year ended
March 31, 1999 included in this prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
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. The Commission maintains a
website that contains reports, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the Commission. The address of the site is http://www.sec.gov.
65
<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>
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 1999, 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 year ended March 31, 1999 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
April 26, 1999
F-2
<PAGE>
SCIENT CORPORATION
BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
March 31, March 31, March 31,
1998 1999 1999
--------- --------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................... $ 3,301 $ 11,261
Short-term investments...................... -- 16,868
Restricted cash............................. 100 --
Accounts receivable, net.................... 155 6,141
Prepaid expenses and other current assets... 137 864
------- --------
Total current assets....................... 3,693 35,134
Notes receivable............................. -- 160
Property and equipment, net.................. 322 3,410
Other assets................................. 210 108
------- --------
$ 4,225 $ 38,812
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank borrowings, current.................... $ -- $ 413
Accounts payable............................ 351 832
Accrued expenses............................ 32 4,632
Deferred revenue............................ -- 524
Capital lease obligations, current.......... 11 625
------- --------
Total current liabilities.................. 394 7,026
Bank borrowings, long-term................... -- 1,129
Capital lease obligations, long-term......... 26 680
------- --------
420 8,835
------- --------
Commitments (Note 5)
Stockholders' equity
Convertible Preferred Stock; issuable in
series, $.0001 par value; 11,500 shares
authorized; 5,333 and 9,012 actual shares
issued and outstanding, respectively;
10,000 shares authorized; no shares issued
and outstanding, pro forma................. 1 1 $ --
Common Stock: $.0001 par value; 40,000
shares authorized; 10,934 and 16,567 shares
issued and outstanding, respectively;
125,000 shares authorized; 31,300 issued
and outstanding, pro forma................. 1 2 3
Additional paid-in capital.................. 6,497 70,056 70,056
Unearned compensation....................... (1,535) (27,222) (27,222)
Accumulated deficit......................... (1,159) (12,860) (12,860)
------- -------- --------
Total stockholders' equity................. 3,805 29,977 $ 29,977
------- -------- ========
$ 4,225 $ 38,812
======= ========
</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) Year
through Ended
March 31, March 31,
1998 1999
----------- ---------
<S> <C> <C>
Revenues................................................. $ 179 $ 20,675
Operating expenses:
Professional services................................... 102 10,028
Selling, general and administrative..................... 1,228 15,315
Stock compensation...................................... 64 7,679
------- --------
Total operating expenses................................. 1,394 33,022
------- --------
Loss from operations..................................... (1,215) (12,347)
Interest income, net..................................... 56 646
------- --------
Net loss................................................. $(1,159) $(11,701)
======= ========
Net loss per share:
Basic and diluted....................................... $ (.19) $ (1.77)
======= ========
Weighted average shares................................. 5,947 6,599
======= ========
Pro forma net loss per share:
Basic and diluted (unaudited)........................... $ (.56)
========
Weighted average shares (unaudited)..................... 20,836
========
</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 (873) -- -- 552
Issuance of Series B
Convertible Preferred
Stock, net of issuance
cost of $38............ 2,240 -- -- -- 14,189 -- -- -- 14,189
Issuance of Series C
Convertible Preferred
Stock, net of issuance
cost of $54............ 1,051 -- -- -- 11,346 -- -- -- 11,346
Repurchase of Series A
Convertible Preferred
Stock by cancelling the
stock subscription
receivable............. (562) -- -- -- (844) 873 -- -- 29
Unearned compensation... -- -- -- -- 33,366 -- (33,366) -- --
Amortization of unearned
compensation........... -- -- -- -- -- -- 7,679 -- 7,679
Exercise of Common Stock
options and warrants,
net.................... -- -- 5,633 1 4,077 -- -- -- 4,078
Net loss................ -- -- -- -- -- -- -- (11,701) (11,701)
------ ----- ------ ----- -------- ----- -------- -------- --------
Balance at March 31,
1999................... 9,012 $ 1 16,567 $ 2 $ 70,056 $ -- $(27,222) $(12,860) $ 29,977
====== ===== ====== ===== ======== ===== ======== ======== ========
</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) Year
through Ended
March 31, March 31,
1998 1999
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(1,159) $(11,701)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 12 622
Provision for doubtful accounts........................ -- 200
Amortization of unearned compensation.................. 64 7,679
Changes in current assets and liabilities:
Accounts receivable.................................. (155) (6,186)
Notes receivable..................................... -- (160)
Prepaid expenses and other current assets............ (137) (727)
Other assets......................................... (210) 103
Accounts payable..................................... 351 481
Accrued expenses..................................... 32 4,600
Deferred revenue..................................... -- 524
------- --------
Net cash used in operating activities............... (1,202) (4,565)
------- --------
Cash flows from investing activities:
Purchase of property and equipment, net................. (297) (2,360)
Purchase of short-term investments...................... -- (16,868)
------- --------
Net cash used in investing activities............... (297) (19,228)
------- --------
Cash flows from financing activities:
Proceeds from bank borrowing............................ -- 1,542
Proceeds from Convertible Preferred Stock, net.......... 4,780 26,116
Proceeds from exercise of Common Stock options and
warrants, net.......................................... 120 4,077
Principal payments on capital lease obligations......... -- (82)
Restricted cash......................................... (100) 100
------- --------
Net cash provided by financing activities........... 4,800 31,753
------- --------
Increase in cash and cash equivalents.................... 3,301 7,960
Cash and cash equivalents at beginning of period......... -- 3,301
------- --------
Cash and cash equivalents at end of period............... $ 3,301 $ 11,261
======= ========
Supplemental cash flow information:
Cash paid for interest.................................. $ 1 $ 85
======= ========
Supplemental non-cash financing activity:
Property and equipment acquired under capital leases.... $ 37 $ 1,350
======= ========
</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, and in April
1999 the stockholders approved, the reincorporation of the Company in the
State of Delaware. Following the reincorporation, the Company is 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. Share information
for the year ended March 31, 1999 has been retroactively adjusted to reflect
the reincorporation.
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.
F-7
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
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
The Company considers all investments with maturities of less than one year
as of March 31, 1999 to be short-term investments. In accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the Company has categorized its
marketable securities as "available-for-sale." At March 31, 1999, amortized
cost approximated fair value and unrealized gains and losses were
insignificant.
The portfolio of short-term investments (including cash and cash
equivalents) consisted of the following:
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Cash............................................................. $ 2,251
Commercial paper................................................. 5,956
Government securities............................................ 10,582
Foreign securities............................................... 3,176
Term notes....................................................... 6,164
-------
$28,129
=======
</TABLE>
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)
through Year Ended
March 31, March 31,
1998 1999
----------- ----------
<S> <C> <C>
Company A........................................... 60% 7%
Company B........................................... 35 3
Company C........................................... -- 13
Company D........................................... -- 11
Company E........................................... -- 11
</TABLE>
At March 31, 1998, Company A and B accounted for 54% and 40% of accounts
receivable, respectively. At March 31, 1999, three clients represented 31%,
21% and 12% of accounts receivable.
F-8
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
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.
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, Series B and Series C Convertible Preferred Stock will automatically
convert into approximately 11,442,000, 2,240,000 and 1,051,000 shares,
respectively, of Common Stock. Also effective upon the closing of this
offering 125,000,000 shares of Common Stock and 10,000,000 shares of
undesignated Convertible Preferred Stock will be authorized. The pro forma
effects of these transactions are unaudited and have been reflected in the
accompanying pro forma Stockholders' Equity at March 31, 1999.
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
F-9
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Stock issuable upon the exercise of stock options and warrants and upon
conversion of Series A, B and C 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)
through Year Ended
March 31, March 31,
1998 1999
----------- ----------
<S> <C> <C>
Numerator
Net loss........................................... $(1,159) $(11,701)
======= ========
Denominator
Weighted average shares............................ 8,533 13,375
Weighted average unvested common shares subject to
repurchase........................................ (2,586) (6,776)
------- --------
Denominator for basic and diluted calculation...... 5,947 6,599
======= ========
Net loss per share:
Basic and diluted ................................. $ (.19) $ (1.77)
======= ========
</TABLE>
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)
through Year Ended
March 31, March 31,
1998 1999
----------- ----------
<S> <C> <C>
Weighted average effect of common stock equivalents:
Series A Convertible Preferred Stock................... 8,680 12,300
Series B Convertible Preferred Stock................... -- 1,811
Series C Convertible Preferred Stock................... -- 127
Common Stock warrants.................................. 15 63
Unvested common shares subject to repurchase........... 2,586 6,776
Employee Stock Options................................. 972 2,351
------ ------
12,253 23,428
====== ======
</TABLE>
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended March 31, 1999 is computed
using the weighted average number of common shares outstanding, including the
conversion of the Company's Series A, Series B and Series C 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
F-10
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
1. The Company and Summary of Significant Accounting Policies (continued)
weighted average shares used to compute basic and diluted net loss per share
of 14,238,000 for the year ended March 31, 1999. 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.
Segment Information
Effective March 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
The Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the period from
November 7, 1997 (inception) through March 31, 1998 and the year ended March
31, 1999, the Company operated in a single business segment providing
eBusiness professional services, primarily in the United States. Through March
31, 1999, foreign operations have not been significant in either revenue or
investment in long-lived assets.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Recent Accounting Pronouncements
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, 2000, 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"). SFAS 133 is effective for all fiscal
quarters beginning with the quarter ending June 30, 2000. SFAS 133 establishes
accounting and reporting standards of derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The Company will adopt SFAS 133 in its quarter ending June 30,
2000 and does not expect such adoption to have an impact on the Company's
results of operations, financial position or cash flows.
F-11
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Balance Sheet Components
<TABLE>
<CAPTION>
March 31, March 31,
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
Accounts receivable:
Accounts receivable..................................... $ 83 $ 3,701
Unbilled fees and services.............................. 72 2,640
------ -------
155 6,341
Less allowance for doubtful accounts.................... ( -- ) (200)
------ -------
$ 155 $ 6,141
====== =======
Property and equipment, net:
Computer equipment and software......................... $ 278 $ 1,775
Equipment under capital leases.......................... 37 1,387
Furniture and fixtures.................................. 19 524
Leasehold improvements.................................. -- 358
------ -------
334 4,044
Less accumulated depreciation and amortization.......... (12) (634)
------ -------
$ 322 $ 3,410
====== =======
Depreciation expense from inception through March 31, 1998 and for the year
ended March 31, 1999 was $12,000 and $552,000, respectively. Accumulated
depreciation of assets under capital leases totaled $70,000 at March 31, 1999.
The equipment under capital leases collaterizes the related lease obligations.
<CAPTION>
March 31, March 31,
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
Accrued expenses:
Accrued compensation and benefits....................... $ 32 $ 2,554
Professional expenses................................... -- 735
Purchased software...................................... -- 750
Other................................................... -- 593
------ -------
$ 32 $ 4,632
====== =======
</TABLE>
3. Income Taxes
At March 31, 1998 and 1999, the Company had approximately $1,069,000 and
$4,575,000, 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 year ended March 31, 1999. 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 March 31, 1999.
F-12
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Income Taxes (continued)
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1999
--------- ---------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 439 $1,877
Accruals and reserves................................... 7 123
----- ------
446 2,000
Less valuation allowance................................ (446) (2,000)
----- ------
$ -- $ --
===== ======
</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 (8.8% at March 31,
1999) 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 (8.3% at March 31, 1999). 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 March 31, 1999, the Company had $1,542,000 outstanding under the
equipment lease line. Under the lines of credit, the Company is required to
maintain certain financial covenants. At March 31, 1999, the Company was in
compliance with all such covenants.
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 year ended March 31, 1999
was $72,000 and $1,156,000, respectively. There was no sublease income for the
period from inception through March 31, 1998 and sublease income for the year
ended March 31, 1999 was $181,000. 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.
F-13
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Commitments (continued)
Future minimum lease payments, (excluding future minimum sublease income of
$397,000), under noncancelable operating and capital leases at March 31, 1999
are as follows:
<TABLE>
<CAPTION>
Year Ended Capital Operating
March 31, Leases Leases
---------- ------- ---------
(in thousands)
<S> <C> <C>
2000....................................................... $ 713 $ 2,285
2001....................................................... 656 2,457
2002....................................................... 29 1,277
2003....................................................... 22 1,176
2004....................................................... 9 1,212
Thereafter................................................. -- 7,157
------ -------
Total minimum lease payments............................... 1,429 $15,564
=======
Less amount representing interest.......................... 124
------
Present value of capital lease obligations................. 1,305
Less current portion....................................... 625
------
Capital lease obligations, long-term..................... $ 680
======
</TABLE>
Letter of Credit
At March 31, 1999, 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 1999 at which time a new letter of credit will automatically
be issued at $300,000 which expires May 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 2003. The Company
maintained a $300,000 letter of credit to secure one of its capital leases.
The letter of credit expires March 31, 2000. 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.
6. Convertible Preferred Stock
Convertible Preferred Stock at March 31, 1999 consists of the following,
(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 5,721 $ 5,149 $ .90 $ 5,360
B................... 2,241 2,240 14,224 6.35 14,189
C................... 1,382 1,051 11,403 10.85 11,346
Undesignated........ 1,594 -- -- --
------ ----- ------- -------
Total............... 11,500 9,012 $30,776 $30,895
====== ===== ======= =======
</TABLE>
F-14
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Convertible Preferred Stock (continued)
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 March 31, 1999.
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.
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 ratio per share for Series A Convertible
Preferred Stock is two shares of common for one share of Convertible Preferred
Stock, and for Series B and C Convertible Preferred Stock is 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 Convertible
Preferred Stock as a single class and the vote of Series C Convertible
Preferred Stock voting as a separate class.
F-15
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Convertible Preferred Stock (continued)
Stock Subscription Receivable
In May 1998, the Company entered into a full-recourse note receivable (the
"Note") with a Director of the Company for approximately $844,000 bearing
interest at 5.5% per annum with principal and accrued interest payable
annually over three years. The Note was secured by Convertible Preferred
Stock. In October 1998, the Company entered into a Stock Restriction Agreement
with the Director that provided the Company the right to repurchase of the
Convertible Preferred Stock purchased with the Note upon the Director's
resignation upon certain criteria. In March 1999, upon the Director's
resignation, the Company repurchased the 562,500 shares of Convertible
Preferred Stock at $1.50 per share, the original issuance price, by canceling
the note receivable.
Transactions with Entities Related to Director
A director of the Company, who is also a shareholder of the Company, is
also a director and shareholder of four clients for which the Company
recognized $3,695,000 in revenue for the year ended March 31, 1999. The terms
and conditions of such transactions were normal and customary. No revenue was
recognized for those clients during the period from inception through March
31, 1998.
In addition, such director and another director of the Company hold equity
interests exceeding ten percent of the total outstanding equity of several of
the Company's clients.
7. Common Stock
The Company's Certificate 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 1999,
there were 2,400,000 and 6,866,000 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 1999, approximately 2,587,000 and 1,544,000 shares, respectively, of
outstanding Common Stock were subject to repurchase by the Company at the
original purchase price of $.00005.
Employee Loan
At March 31, 1999, the Company had 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 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-16
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. 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 March 31, 1999 and expires in
2003.
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. 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 March 31, 1999 and expires in 2004.
At March 31, 1999, the Company had reserved shares of Common Stock for
future issuance as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
Conversion of Series A............................................. 11,442
Conversion of Series B............................................. 2,240
Conversion of Series C............................................. 1,051
Exercise of options under the 1997 Stock Option Plan............... 13,430
Exercise of outstanding warrants................................... 33
Undesignated....................................................... 11,804
------
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.
1999 Equity Incentive Plan
In March 1999, effective upon the closing of this offer, the Board of
Directors adopted and the stockholders approved, the 1999 Equity Incentive
Plan (the "Plan") and reserved 1,200,000 shares plus the aggregate number of
shares available under the 1997 Stock Option Plan of Common Stock for issuance
thereunder. In January 2000, and every year thereafter, shares reserved for
issuance will automatically increase by a number equal to the lesser of 8% of
the total number of Common Stock outstanding or 5,000,000 shares. The Plan
authorized the award of options, restricted stock awards and stock bonuses
(the "Award"). No person will be eligible to receive more than 1,000,000
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 2,000,000
shares in the
F-17
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Employee Benefit Plans (continued)
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, outside directors, and consultants of the Company.
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.
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 13,430,000 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.
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 generally exercisable immediately and are subject to repurchase
by the Company, with the repurchase restriction lapsing 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.
F-18
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Employee Benefit Plans (continued)
The following summarizes stock option activity under the Plan (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Options Outstanding
--------------------------
Options Weighted
Available Outstanding Average
for Grant Shares Exercise Price
--------- ----------- --------------
<S> <C> <C> <C>
Shares authorized..................... 4,800 -- $ --
Options granted below fair value...... (3,582) 3,582 .05
Options exercised..................... -- (2,400) .05
Options canceled...................... -- -- --
------ ------
Balance at March 31, 1998.............. 1,218 1,182 .05
------ ------
Shares authorized..................... 8,630 --
Options granted below fair value...... (7,918) 7,918 1.53
Options exercised..................... -- (5,696) .71
Options canceled...................... 452 (452) .21
Unvested shares repurchased........... 143 -- .05
------ ------
Balance at March 31, 1999.............. 2,525 2,952 $ 2.71
====== ======
</TABLE>
The minimum value of options granted from inception through March 31, 1998
and year ended March 31, 1999 was $.012 and $.962, respectively.
The following table summarizes the information about stock options
outstanding and exercisable at March 31, 1999 (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-.25 229 9.20 years $ .08 31 $ .05
$ .65 780 9.57 years $ .65 -- $ --
$ 1.10-1.60 1,333 9.98 years $1.55 13 $1.60
$6.50-10.00 610 10.20 years $8.88 -- $ --
----- ---
2,952 9.86 years $2.71 44 $ .50
===== ===
</TABLE>
F-19
<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 year ended March 31, 1999 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) through Year Ended
March 31, 1998 March 31, 1999
------------------- --------------
<S> <C> <C>
Net loss:
As reported.............................. $(1,159) $(11,701)
======= ========
Pro forma................................ $(1,159) $(12,265)
======= ========
Net loss per share:
As reported.............................. $ (.19) $ (1.77)
======= ========
Pro forma................................ $ (.19) $ (1.86)
======= ========
</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) through Year Ended
March 31, 1998 March 31, 1999
------------------- --------------
<S> <C> <C>
Risk-free interest rates.................. 5.52% 5.26%
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 year ended March 31, 1999, the Company recognized unearned
compensation totaling $1,599,000 and $33,366,000, respectively, which is being
amortized over the vesting periods, generally four years, of the related
options. During the period from inception through March 31, 1999, the weighted
average exercise price of 10,905,000 stock options was $1.11 and the weighted
average fair value was $4.32. Amortization expense recognized from inception
through March 31, 1998 and the year ended March 31, 1999 totaled approximately
$64,000 and $7,679,000, respectively. During the period from April 1, 1999
through April 22, 1999, the Company granted options to purchase an aggregate
of 335,500 shares of Common Stock at an exercise price of $12 per share, the
estimated fair value of Common Stock.
9. Subsequent Events
Borrowings
In April 1999, the Company drew down an additional $278,000 under the
equipment lease line.
F-20
<PAGE>
SCIENT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Subsequent Events (continued)
Capital Lease Obligations
In April 1999, the Company entered into a capital lease agreement to
purchase furniture and fixtures totaling approximately $116,000. Principal and
interest under the capital lease are payable in 60 equal monthly installments.
Letter of Credit
In April 1999, the Company maintained an additional letter of credit for
approximately $104,000 to secure a lease deposit on one of its office
facilities. The letter of credit expires April 2000. The letter of credit is
secured by the line of credit.
1999 Employee Stock Purchase Plan
In April 1999, the board of directors and stockholders adopted the 1999
Employee Stock Purchase Plan (the "Plan"), which will become effective
immediately prior to the effective date of the offering. The Plan reserves
1,000,000 shares of common stock for issuance thereunder. On each May 1
beginning in 2000, the aggregate number of shares reserved for issuance under
the Plan will be increased automatically to 1,000,000 shares. Employees
generally will be eligible to participate in the Plan if they are customarily
employed by the Company for more than 20 hours per week and more than five
months in a calendar year and are not (and would not become as a result of
being granted an option under the Plan) 5% stockholders of the Company. Under
the Plan, eligible employees may select a rate of payroll deduction up to 15%
of their W-2 cash compensation subject to certain maximum purchase
limitations. The first Offering Period is expected to begin on the first
business day on which price quotations for the Company's common stock are
available on The Nasdaq National Market. Depending on the effective date, the
first Purchase Period may be more or less than six months long. Offering
Periods thereafter will begin on May 1 and November 1. Purchases will occur on
April 30 and October 31, or the last day of trading prior to these dates. The
price at which the common stock is purchased under the Plan is 85% of the
lesser of the fair market value of the Company's common stock on the first day
of the applicable offering period or on the last day of that purchase period.
Lease Agreement (unaudited)
In May 1999, the Company entered into a lease agreement for one of its
office facilities. The lease term is from May 1999 through December 2004 with
future minimum lease payments totaling $2,819.000.
Consulting Agreement (unaudited)
In May 1999, the Company entered into a 24 month consulting agreement with
a company for recruiting services. The Company paid $500,000, issued 150,000
shares and granted an option to purchase an additional 50,000 shares at $12.00
per share. The Company, using the Black-Scholes pricing model, will calculate
the fair value of the shares and option on the date of issuance and grant,
respectively, and will recognize the full value of the agreement over the
service period.
Letter of Credit (unaudited)
In May 1999, the Company maintained an additional letter of credit for
approximately $528,000 to secure future rents on one of its office facilities.
The letter of credit expires December 2000. The letter of credit is secured by
the line of credit.
F-21
<PAGE>
[Inside Back Cover Art Work]
The Scient Approach
[Schematic of the Scient Approach]
[Text explaining the schematic:
Scient's methodology delivers eBusiness systems innovation and helps our
clients go to market rapidly.
Scient's strategy is to help our clients leverage and innovate their
eBusiness capabilities in an iterative fashion.
Scient Innovation
The Scient Approach
Scient's approach is a well-defined methodology that has built-in feedback
and iteration processes that allow us to improve the services delivered to our
clients and to enhance the approach itself.
Knowledge Management
To capture, upgrade and refine our intellectual capital--including the
Scient Approach--Scient invests in knowledge management processes and systems
which are designed to enable us to bring the experiences of our entire company
to bear on each client engagement.
Technology
Scient's investments in its Innovative Centers, Applied Technology Center
and information technology infrastructure are intended to provide the robust
foundation required to deliver the full range of expertise and competencies
demanded by our clients' eBusiness needs.
People
Scient is developing a rich environment--that emphasizes professional
development--and a shared culture that we believe helps us attract, train and
retain outstanding management, strategic, technical, design, sales, marketing
and support professionals of all levels.
<PAGE>
[Scient Corporation Logo]
<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.......................................... $ 18,223
NASD fee...................................................... 5,570
Nasdaq National Market initial listing fee.................... 95,000
Printing and engraving........................................ 165,000
Legal fees and expenses of the Company........................ 700,000
Accounting fees and expenses.................................. 300,000
Blue sky fees and expenses.................................... 5,000
Transfer agent fees........................................... 10,000
Miscellaneous................................................. 401,207
----------
Total....................................................... $1,700,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant 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 7
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.
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.
II-1
<PAGE>
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 to a group of
investors pursuant to a stock purchase agreement.
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 to
Ramsey/Beirne Associates, Inc. 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 to Jerry
Michalski. The warrant was subsequently exercised and we issued
25,000 shares thereunder.
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 to a group of investors pursuant to a stock
purchase agreement.
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 to
Ramsey/Beirne Associates, Inc.
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 to a group of investors pursuant
to a stock purchase agreement.
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 May 5, 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, filed
with the Secretary of State of Delaware on April 15, 1999.
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 founder 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.
10.17+ Sublease between Scient and Robins, Kaplan, Miller & Ciresi, LLP, dated
April 13, 1999.
10.18+ Sub-Sub-Sub-Sublease between Scient and Charles Schwab & Co., Inc.,
dated October 1, 1998.
10.19+ Addendum to Sub-Sub-Sub-Sublease and Sub-Sub-Sub-Sub-Sublease between
Scient and Charles Schwab & Co., Inc., dated October 8, 1998.
10.20 Lease between Scient and Pembroke Real Estate, Inc., dated May 1, 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.
27.1+ Financial Statement Schedule (See also Item 16(b) and Schedule II).
</TABLE>
- --------
+ Previously filed with the Commission.
(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.
II-3
<PAGE>
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 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 12th day of May, 1999.
SCIENT CORPORATION
/s/ Robert M. Howe
By: _________________________________
Robert M. Howe
President and Chief Executive
Officer
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 May 12, 1999
____________________________________ Director (Principal Executive Officer)
Robert M. Howe
* Chairman May 12, 1999
____________________________________
Eric Greenberg
/s/ William H. Kurtz Chief Financial Officer, Executive May 12, 1999
____________________________________ Vice President, Treasurer and
William H. Kurtz Secretary (Principal Financial and
Accounting Officer)
* Director May 12, 1999
____________________________________
David M. Beirne
* Director May 12, 1999
____________________________________
Frederick W. Gluck
* Director May 12, 1999
____________________________________
Douglas Leone
*By: /s/ Robert M. Howe
__________________________________
(Robert M. Howe, Attorney-in-
Fact)
</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 April 26, 1999 relating
to the financial statements of Scient Corporation, which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement schedules for the period from November 7, 1997 (inception) to March
31, 1998 and the year ended March 31, 1999 listed under Item 16(b) of this
Registration Statement when such schedules are read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included these schedules. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
San Jose, California
May 8, 1999
II-6
<PAGE>
SCHEDULE II
SCIENT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions Charged to
Balance at Costs and Deductions- Balance at
Year Ended March 31 Beginning of Period Expenses Write-offs End of Period
------------------- ------------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
1998.................. $ -- $ -- $ -- $ --
1999.................. $ -- $ 200 $ -- $ 200
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1+ Form of underwriting agreement.
2.1+ Agreement and Plan of Merger, dated May , 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, filed
with the Secretary of State of Delaware on April 15, 1999.
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 founder named therein, as
amended.
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.
10.17+ Sublease between Scient and Robins, Kaplan, Miller & Ciresi, LLP,
dated April 13, 1999.
10.18+ Sub-Sub-Sub-Sublease between Scient and Charles Schwab & Co., Inc.,
dated October 1, 1998.
10.19+ Addendum to Sub-Sub-Sub-Sublease and Sub-Sub-Sub-Sub-Sublease between
Scient and Charles Schwab & Co., Inc., dated October 8, 1998.
10.20 Lease between Scient and Pembroke Real Estate, Inc., dated May 1,
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.
27.1+ Financial Statement Schedule (See also Item 16(b) and Schedule II).
</TABLE>
- --------
+ Previously filed with the Commission.
<PAGE>
Exhibit 10.20
Lease between Scient and Pembroke Real Estate, Inc. dated May 1, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
DEFINITIONS AND BASIC PROVISIONS.............................. 1
LEASE GRANT................................................... 1
TERM.......................................................... 1
Term........................................................ 1
----
RENT.......................................................... 1
(a) Payment............................................. 1
-------
(b) Consumer Price Index Increases to Basic Rental...... 1
----------------------------------------------
(c) Electrical Costs.................................... 1
----------------
(d) Annual Cost Statement............................... 1
---------------------
(e) Adjustments to Electrical Costs..................... 1
-------------------------------
DELINQUENT PAYMENT; HANDLING CHARGES.......................... 2
SECURITY DEPOSIT.............................................. 2
LANDLORD'S OBLIGATIONS........................................ 2
(a) Services............................................ 2
--------
(b) Excess Utility Use.................................. 3
------------------
(c) Discontinuance...................................... 3
--------------
(d) Restoration of Services............................. 4
-----------------------
(e) Abatement........................................... 4
---------
(f) Restoration Costs................................... 4
-----------------
IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE............... 5
(a) Improvements; Alterations........................... 5
-------------------------
(b) Repairs; Maintenance................................ 6
--------------------
(c) Performance of Work................................. 6
-------------------
(d) Mechanic's Liens.................................... 6
----------------
USE........................................................... 6
ASSIGNMENT AND SUBLETTING..................................... 7
(a) Transfers; Consent.................................. 7
------------------
(b) Cancellation........................................ 8
------------
(c) Additional Compensation............................. 8
-----------------------
(d) Transfer Restrictions............................... 8
---------------------
(e) Bankruptcy Provisions............................... 9
---------------------
(f) Withholding of Consent.............................. 10
----------------------
(g) Transfer Without Landlord Consent................... 11
---------------------------------
(h) Miscellaneous....................................... 12
-------------
INSURANCE; WAIVERS; SUBROGATION; INDEMNITY.................... 12
(a) Insurance........................................... 12
---------
(b) Waiver of Negligence Claims No Subrogation.......... 13
------------------------------------------
(c) Indemnity........................................... 14
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(d) Miscellaneous....................................... 14
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(e) Landlord Indemnity.................................. 14
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SUBORDINATION ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE...... 15
(a) Subordination....................................... 15
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(b) Attornment.......................................... 15
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(c) Notice to Landlord's Mortgagee....................... 15
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(d) Non-Disturbance Agreement from Current Landlord's
-------------------------------------------------
Mortgagee........................................... 15
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RULES AND REGULATIONS......................................... 16
CONDEMNATION.................................................. 16
(a) Taking - Landlord's and Tenant's Rights............. 16
---------------------------------------
(b) Taking - Landlord's Rights.......................... 16
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-i-
<PAGE>
(c) Award............................................... 16
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FIRE OR OTHER CASUALTY........................................ 10
(a) Repair Estimate..................................... 16
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(b) Landlord's and Tenant's Rights...................... 16
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(c) Landlord's Rights................................... 17
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(d) Repair Obligation................................... 17
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TAXES......................................................... 17
EVENTS OF DEFAULT............................................. 18
REMEDIES...................................................... 18
PAYMENT BY TENANT; NON-WAIVER................................. 19
(a) Payment by Tenant................................... 19
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(b) No Waiver........................................... 19
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LANDLORD'S LIEN............................................... 19
SURRENDER OF PREMISES......................................... 19
HOLDING OVER.................................................. 20
CERTAIN RIGHTS RESERVED BY LANDLORD........................... 20
SUBSTITUTION SPACE............................................ 21
MISCELLANEOUS................................................. 22
(a) Landlord Transfer................................... 22
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(b) Landlord's Liability................................ 22
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(c) Force Majeure....................................... 22
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(d) Brokerage........................................... 22
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(e) Estoppel Certificates............................... 23
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(f) Notices............................................. 23
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(g) Separability; Gender and Number..................... 23
-------------------------------
(h) Amendments; and Binding Effect...................... 23
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(i) Quiet Enjoyment..................................... 23
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(j) Joint and Several Liability......................... 23
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(k) Captions............................................ 24
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(1) No Merger........................................... 24
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(m) Landlord Consent.................................... 24
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(n) No Offer............................................ 24
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(o) Exhibits............................................ 24
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(p) Entire Agreement.................................... 24
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(q) Governing Law....................................... 25
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(r) Financial Reports................................... 25
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(s) Abandonment......................................... 25
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(t) Signs............................................... 26
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SPECIAL PROVISIONS............................................ 26
-ii-
<PAGE>
LEASE
THIS LEASE AGREEMENT (this "Lease") is entered into as of May 1, 1999,
-----
between PEMBROKE REAL ESTATE, INC. ("Landlord"), and SCIENT CORPORATION, a
--------
California corporation ("Tenant").
------
DEFINITIONS AND 1. The definitions and basic provisions set forth in
BASIC PROVISIONS the foregoing Basic Lease Information (the "Basic Lease
-----------
Information") executed by Landlord and Tenant
-----------
contemporaneously herewith are incorporated herein by
reference for all purposes.
LEASE GRANT 2. Subject to the terms of this Lease, Landlord
leases to Tenant, and Tenant leases from Landlord, the
Premises.
TERM 3. Term. Possession of the Initial Premises during
----
the Term shall be as follows:
RSF Floor Monthly Rental Rate Term
----------------------------------------------------------
5,000-10,000* 3rd Free 5/1/99-6/30/99
11,422 3rd Free 7/1/99-12/31/99
11,423 3rd $23.50 + E 7/1/99-12/31/99
22,845 3rd $23.50 + E 1/1/00-12/31/04
*Location on the 3rd floor of the Building and actual rentable square feet
to be determined at a later date.
RENT 4. (a) Payment. Tenant shall timely pay to Landlord
-------
the Basic Rental and all additional sums to be paid by
Tenant to Landlord under this Lease, including the amounts
set forth in Exhibit C, without deduction or set off, at
---------
Landlord's Address (or such other address as Landlord may
from time to time designate in writing to Tenant). Basic
Rental, adjusted as herein provided, shall be payable
monthly in advance. The third monthly installment of Basic
Rental shall be payable contemporaneously with the execution
of this Lease; thereafter, monthly installments of Basic
Rental shall be due on the first day of the fourth full
calendar month of the Term and continuing on the first day
of each succeeding calendar month during the Term. Basic
Rental for any fractional month at the beginning of the Term
shall be prorated based on 1/365ths of the current annual
Basic Rental for each day of the partial month this Lease is
in effect, and shall be due on the Commencement Date.
(b) Consumer Price Index Increases to Basic
---------------------------------------
Rental. Intentionally deleted.
------
(c) Electrical Costs. Tenant shall pay to Landlord
----------------
an amount equal to the product of (1) the cost of all
electricity used by the Building ("Electrical Costs"),
----------------
multiplied by (2) Tenant's Proportionate Share. Such amount
shall be payable monthly based on Landlord's estimate of the
amount due for each month, and shall be due on the
Commencement Date and on the first day of each calendar
month thereafter unless Landlord has theretofore furnished
Tenant with information indicating the amount due, in which
event such amount shall be due within thirty (30) days after
Landlord has delivered to Tenant an invoice therefor.
Landlord reserves the right to change the manner in which
electricity at the Building is metered.
(d) Annual Cost Statement. By April 1 of each
---------------------
calendar year, or as soon thereafter as practicable,
Landlord shall furnish to Tenant a statement of Landlord's
actual Electrical Costs (the "Annual Cost Statement") for
---------------------
the previous year adjusted as provided in Section 4.(e). If
the Annual Cost Statement reveals that Tenant paid more for
Electrical Costs than Tenant's Proportionate Share of
Electrical Costs in the year for which such statement was
prepared, then Landlord shall reimburse or credit Tenant for
such excess within 30 days after delivery of the Annual Cost
Statement in question; likewise, if Tenant paid less than
Tenant's Proportionate Share of Electrical Costs, then
Tenant shall pay Landlord such deficiency within 30 days
after delivery of the Annual Cost Statement in question.
(e) Adjustments to Electrical Costs. With respect
-------------------------------
to any calendar year or partial calendar year in which the
Building is not occupied to the extent of 100% of the
rentable area thereof, the Electrical Costs for such period
shall, for the purposes hereof, be increased to the amount
which would have been
1
<PAGE>
incurred had the Building been occupied to the extent of
100% of the rentable area thereof, and Tenant shall
thereafter pay to Landlord an amount equal to the product of
(1) such amount of Electrical Costs, multiplied by (2)
Tenant's Proportionate Share.
DELINQUENT 5. All payments required of Tenant hereunder shall
PAYMENT bear interest from the date due until paid at the maximum
HANDLING CHARGES lawful rate in effect at the time such payment was due or
sum was advanced, or if there is no ascertainable maximum
lawful rate then in effect, at a rate of five percent (5%)
in excess of the floating prime or base rate of interest
established from time to time for responsible commercial
borrowers by a national bank selected by Landlord. Landlord
hereby notifies Tenant that for purposes of TEX. REV. CIV.
STAT. ANN. Art. 5069-1.04, as it may from time to time be
amended, the "applicable rate ceiling" shall be the
"indicated rate" ceiling; provided, however, that, to the
extent permitted by applicable law, Landlord reserves the
right to change the "applicable rate ceiling" from time to
time by further notice and disclosure to Tenant. Tenant
agrees that such interest is to compensate Landlord for
Tenant's use of Landlord's money after the applicable
payment was due. Additionally, Tenant shall pay to Landlord
as additional rent hereunder a late charge equal to 10% of
the delinquent payment; provided, however, Tenant shall have
no obligation to pay such late charge in connection with the
first payment of Rent (including, without limitation, Basic
Rental) due during any twelve (12) month period which is not
paid by Tenant on the date such payment was due but is paid
on or before the fifth (5th) day after such payment was due.
The parties hereto acknowledge and agree that (i) such late
charge represents a fair and reasonable estimate of the
costs Landlord will incur in processing any delinquent
payment by Tenant, (ii) such late charge shall be paid to
Landlord as liquidated damages for each payment not made by
Tenant as and when due under this Lease, and (iii) the
payment of such late charge is to compensate Landlord for
its cost and inconvenience incurred as a consequence of
Tenant's delinquency and for the additional administrative
expense incurred by Landlord or its managing agent in
handling and processing delinquent payments. In no event,
however, shall the charges permitted under this Section 5 or
elsewhere in this Lease, to the extent the same are
considered to be interest under applicable law, exceed the
maximum lawful rate of interest.
SECURITY DEPOSIT 6. Contemporaneously with the execution of this
Lease, Tenant shall pay to Landlord, in immediately
available funds, the Security Deposit, which shall be held
by Landlord without liability for interest and as security
for the performance by Tenant of its obligations under this
Lease. The Security Deposit is not an advance payment of
Rent or a measure or limit of Landlord's damages upon an
Event of Default (defined below). Landlord may, from time to
time and without prejudice to any other remedy, use all or a
part of the Security Deposit to perform any obligation which
Tenant was obligated, but failed, to perform hereunder and
such failure has continued for a period of time equal to or
greater than five (5) days after Tenant's receipt of written
notice of its failure to perform any such obligation.
Following any such application of the Security Deposit,
Tenant shall pay to Landlord on demand the amount so applied
in order to restore the Security Deposit to its original
amount. Within a reasonable time after the Term ends,
provided Tenant has performed all of its obligations
hereunder, Landlord shall return to Tenant the balance of
the Security Deposit not applied to satisfy Tenant's
obligations. If Landlord transfers its interest in the
Premises, then Landlord may assign and deliver the Security
Deposit to the transferee and Landlord thereafter shall have
no further liability for the return of the Security Deposit.
LANDLOARD'S 7. (a) Services. Provided no Event of Default exists
OBLIGATIONS --------
and subject to any event beyond the reasonable control of
Landlord (including, without limitation, the events
described in Section 25.(c) below), Landlord will furnish to
Tenant (1) water (hot and cold) at those points of supply
provided for general use of tenants of the Building; (2)
heating, ventilation, and air-conditioning ("HVAC") as
----
appropriate and at such times as Landlord normally furnishes
these services to all tenants of the Building, and at such
temperatures and in such amounts as are reasonably
considered by Landlord to be standard; (3)janitorial service
to the Premises on weekdays other than holidays for
Building-standard installations (Landlord reserves the right
to bill Tenant separately for extra janitorial service
required for non-standard installations) and such window
washing as may from time to time in Landlord's judgment be
reasonably required; (4) elevators for ingress and egress to
the floor on which the Premises are located,
2
<PAGE>
in common with other tenants, provided that Landlord may
reasonably limit the number of elevators to be in operation
at times other than during customary business hours and on
holidays; (5) replacement of Building-standard light bulbs
and fluorescent tubes, provided that Landlord's standard
charge for such bulbs and tubes shall be paid by Tenant; and
(6) electrical current during normal business hours other
than for computers, electronic data processing equipment,
special lighting, equipment that requires more than 110
volts, or other equipment whose electrical energy
consumption exceeds normal office usage. Landlord shall
maintain the common areas of the Building in reasonably good
order and condition, except for damage occasioned by Tenant,
or its employees, agents or invitees. If Tenant desires any
of the services specified in this Section 7.(a) at any time
other than times herein designated (other than HVAC service
which is governed by the immediately following sentence),
such services shall be supplied to Tenant upon the written
request of Tenant delivered to Landlord before 3:00 p.m. on
the business day preceding such extra usage, and Tenant
shall, within thirty (30) days after Tenant's receipt of an
invoice therefor, pay to Landlord the cost of such services
together with an overhead charge equal to ten percent (10%)
of the actual cost of any such service. If Tenant desires
any HVAC service at any time other than the times herein
designated, such HVAC service shall be supplied to Tenant
upon the written request of Tenant delivered to Landlord
before 3:00 p.m. on the business day preceding such extra
usage, and Tenant shall, within thirty (30) days after
Tenant's receipt of an invoice therefor, pay to Landlord the
Initial After-Hours HVAC Charge, which Initial After-Hours
HVAC Charge is subject to change by Landlord if electrical
rates are increased by any provider of electricity or if
Landlord's costs to provide this service otherwise increase
after the Commencement Date.
(b) Excess Utility Use. Landlord shall use
------------------
reasonable efforts to furnish electrical current for
computers, electronic data processing equipment, special
lighting, equipment that requires more than 110 volts, or
other equipment whose electrical energy consumption exceeds
normal office usage through the then-existing feeders and
risers serving the Building and the Premises, and Tenant
shall pay to Landlord the cost of such service within thirty
(30) days after Landlord has delivered to Tenant an invoice
therefor. Landlord may determine the amount of such
additional consumption and potential consumption by either
or both: (1) a survey of standard or average tenant usage of
electricity in the Building performed by a reputable
consultant selected by Landlord and paid for by Tenant; or
(2) a separate meter in the Premises installed, maintained,
and read by Landlord, at Tenant's expense. Tenant shall not
install any electrical equipment requiring special wiring or
requiring voltage in excess of 110 volts or otherwise
exceeding Building capacity unless approved in advance by
Landlord. The use of electricity in the Premises shall not
exceed the capacity of existing feeders and risers to or
wiring in the Premises. Any risers or wiring required to
meet Tenant's excess electrical requirements shall, upon
Tenant's written request, be installed by Landlord, at
Tenant's cost, if, in Landlord's sole and absolute judgment,
the same are necessary and shall not cause permanent damage
or injury to the Building or the Premises, cause or create a
dangerous or hazardous condition, entail excessive or
unreasonable alterations, repairs, or expenses, or interfere
with or disturb other tenants of the Building. If Tenant
uses machines or equipment (other than general office
machines and personal computers, but excluding computer
rooms and electronic data processing equipment) in the
Premises which affect the temperature otherwise maintained
by the air conditioning system or otherwise overload any
utility, Landlord may install supplemental air conditioning
units or other supplemental equipment in the Premises, and
the cost thereof, including the cost of installation,
operation, use, and maintenance, shall be paid by Tenant to
Landlord within thirty (30) days after Landlord has
delivered to Tenant an invoice therefor.
(c) Discontinuance. Landlord's obligation to
--------------
furnish services under Section 7.(a) shall be subject to the
rules and regulations of the supplier of such services and
governmental rules and regulations. Landlord may, upon not
less than 60-days' prior written notice to Tenant,
discontinue any such service to the Premises, provided
Landlord first arranges for a direct connection thereof
through the supplier of such service. Tenant shall, however,
be responsible for contracting with the supplier of such
service and for paying all deposits for, and costs relating
to, such service.
(d) Restoration of Services. Except as expressly
-----------------------
provided
3
<PAGE>
below, Landlord shall not be liable for, and Tenant shall
not be entitled to, any damages or termination right or any
abatement or reduction of rental by reason of Landlord's
failure to furnish any of the services (collectively, the
"Landlord Services") to be furnished by Landlord as provided
-----------------
above, nor shall such failure constitute a constructive
eviction of Tenant or breach of any implied warranty or
relieve Tenant from any obligation hereunder, whether such
failure is caused by accident, breakage, repairs, energy
shortages or restrictions, strikes, lockouts or other labor
disturbances or labor disputes of any character, riots,
civil disturbances or by any other cause, similar or
dissimilar, beyond the control of Landlord. Except as may be
limited by law, Landlord shall not be liable under any
circumstances for loss of or injury to property, however
occurring, through or in connection with or incidental to
failure to furnish any of the Landlord Services, nor shall
Landlord be responsible for any act or omission or
commission on the part of the person or persons employed to
furnish any of the Landlord Services. Notwithstanding
anything to the contrary contained in this Lease, Tenant
agrees that Landlord shall not be liable for, and Tenant
shall not be entitled to, any damages or any abatement or
reduction of rental by reason of Landlord's failure to
supply any of the Landlord Services during any period when
Landlord uses commercially reasonable efforts to supply such
services or the cause of such failure is beyond the control
of Landlord. After receiving notice of any interruption of
any of the Landlord Services, Landlord shall use
commercially reasonable efforts to restore any interrupted
or unavailable Landlord Services.
(e) Abatement. Subject to the provisions of the
---------
preceding Section 7.(d), if a stoppage of any of the
Landlord Services causes a material portion of the Premises
to become untenantable by Tenant for more than ten (10)
consecutive business days after Tenant gives Landlord
written notice of such stoppage, then and in that event,
Tenant, as its sole and exclusive remedy therefor, shall be
entitled to a pro-rata abatement of Rent as to such
untenantable portion of the Premises commencing on the
eleventh (11th) consecutive business day that the same are
untenantable and continuing until the restoration of such
services. Notwithstanding the foregoing, however, Tenant
shall not be entitled to any abatement of Rent due to
untenantability (a) caused by an act or omission of Tenant
or any of Tenant's employees, agents, contractors, visitors
or licensees, or (b) where the stoppage of the Landlord
Services in question is caused by (1) fire or other casualty
in which case Section 15 shall apply, or (2) condemnation or
taking in which case Section 14 shall apply.
(f) Restoration Costs. If a stoppage (other than
-----------------
any stoppage caused by an act or omission of Tenant or any
of Tenant's employees, agents, contractors, visitors or
licensees, any stoppage caused by fire or other casualty or
condemnation or taking, or any cause beyond the control of
Landlord) of any of the Landlord Services causes a material
portion of the Premises to become untenantable by Tenant for
more than thirty (30) consecutive days after Tenant gives
Landlord written notice of such stoppage, Tenant may
commence to restore the applicable Landlord Services unless
Landlord has begun taking action(s) to restore the
applicable Landlord Services and Landlord is continuing to
pursue the same with commercially reasonable diligence. All
actual third-party costs reasonably incurred by Tenant in
connection with restoring the applicable Landlord Services
("Restoration Costs") shall, if not disputed by Landlord and
-----------------
submitted to arbitration as provided below, be paid to
Tenant by Landlord within thirty (30) days following
Landlord's receipt of a written demand therefor together
with written evidence acceptable to Landlord of the amount
of such Restoration Costs. If Landlord disputes Landlord's
obligation to pay all or any portion of the Restoration
Costs set forth in any such written demand, Landlord may
dispute such costs and defer any payment of the same by
giving Tenant written notice thereof (a "Services Failure
----------------
Dispute Notice") within ten (10) business days after
--------------
Landlord's receipt of Tenant's written demand, and Landlord
and Tenant shall thereafter proceed to diligently and in
good faith attempt to resolve such dispute and, if the
parties are unable to resolve the same within sixty (60)
days after Tenant's receipt of the applicable Services
Failure Dispute Notice, such dispute shall be submitted for
resolution by binding arbitration in accordance with the
terms, conditions and provisions of the Exhibit K attached
---------
to this Lease. If Landlord does not so dispute Tenant's
claim for Restoration Costs and does not pay the same within
such thirty (30) day period, Tenant may offset such
Restoration Costs against up to twenty-five percent (25%) of
the next due installment(s) of Basic Rental until such time
as the full amount of such Restoration Costs has been
reimbursed unless the amount of such Restoration
4
<PAGE>
Costs is equal to or greater than the entire amount of Basic
Rental due and payable for the six (6) calendar months
following the date on which such stoppage initially
occurred, in which case only that amount of such Restoration
Costs may be offset against such percentage of the next due
installment(s) of Basic Rental until such time as that
amount of the applicable Restoration Costs has been
reimbursed; provided, however, in no event shall such cap on
the amount of Restoration Costs to be offset against Basic
Rental relieve Landlord from its obligation to pay the
remaining amount of such non-disputed and/or arbitrated
Restoration Costs.
IMPROVEMENTS; 8. (a) Improvements Alterations. Improvements to the
ALTERATIONS; ------------------------
REPAIRS; Premises shall be installed at the expense of Tenant only in
MAINTENANCE accordance with plans and specifications which have been
previously submitted to and approved in writing by Landlord.
After the initial Tenant improvements are made (including,
without limitation, any leasehold improvements made in
connection with expansions by Tenant pursuant to the Exhibit
G attached hereto), no alterations or physical additions in
or to the Premises which individually cost more than
$5,000.00 or, together with the cost of all alterations or
physical additions made during the immediately preceding 12
month period, cost more than $10,000.00 in the aggregate may
be made without Landlord's prior written consent, which
consent will not be unreasonably withheld or delayed;
provided, however, that Landlord will be able to withhold
its consent, in its sole and absolute discretion, with
respect to any alterations or physical additions in or to
the Premises, regardless of cost, which (A) are made to or
affect (1)the structural components of the Building, or (2)
the systems of the Building, or (B) are visible from the
exterior of the Building. If requested in writing at the
time of Tenant's request for Landlord's written consent to
any proposed alterations or physical additions in or to the
Premises, Landlord will, if Landlord's consent to the same
is given, notify Tenant in writing whether Landlord will
require that Tenant remove such alterations or physical
additions at the expiration or earlier termination of this
Lease. Tenant shall not paint or install lighting or
decorations, signs, window or door lettering, or advertising
media of any type on or about the Premises without the prior
written consent of Landlord. All alterations, additions, or
improvements (whether temporary or permanent in character,
and including without limitation all air-conditioning
equipment and all other equipment that is in any manner
connected to the Building's plumbing system) made in or upon
the Premises, either by Landlord or Tenant, shall be
Landlord's property at the end of the Term and shall remain
on the Premises without compensation to Tenant. Approval by
Landlord of any of Tenant's drawings and plans and
specifications prepared in connection with any improvements
in the Premises shall not constitute a representation or
warranty of Landlord as to the adequacy or sufficiency of
such drawings, plans and specifications, or the improvements
to which they relate, for any use, purpose, or condition,
but such approval shall merely be the consent of Landlord as
required hereunder. Notwithstanding anything in this Lease
to the contrary, Tenant shall be responsible for the cost of
all work required to comply with the retrofit requirements
of any Disability Laws (as hereinafter defined) (including,
without limitation; the Americans with Disabilities Act of
1990, and all rules, regulations, and guidelines promulgated
thereunder, as the same may be amended from time to time)
necessitated by any installations, additions, or alterations
made in or to the Premises at the request of or by Tenant or
by Tenant's or any Permitted Transferee's (as defined in
Section 25.(s) below) use of the Premises (other than
retrofit work whose cost has been particularly identified as
being payable by Landlord in an instrument signed by
Landlord and Tenant), regardless of whether such cost is
incurred in connection with retrofit work required in the
Premises (including the Work described in Exhibit D) or in
---------
other areas of the Building. All changes, alterations or
modifications (other than changes, alterations or
modifications required [1] as a result of Tenant's or any
Permitted Transferee's particular use of all or any portion
of the Premises, and/or [2] to cause the Premises to comply
with all applicable Disability Laws which Tenant has agreed
to do in this Section 8), if any, necessary to make portions
of the Building (other than the Premises) comply with all
applicable Laws (including, without limitation, Disability
Laws) shall be the responsibility of Landlord; provided,
however, if such changes, alterations or modifications are
required as a result of Tenant's or any Permitted
Transferee's use of the Premises or any changes, alterations
or modifications made to the Premises by or on behalf of
Tenant, then the same shall be made by Landlord at the sole
cost and expense of Tenant. Landlord shall have the right to
delay making any of the changes, alterations and/or
modifications referred to in the immediately preceding
sentence while Landlord is contesting in good faith the
action or actions being taken by any
5
<PAGE>
governmental authority in connection therewith. As used
in this Lease, the term "Disability Laws" shall mean the
---------------
provisions of (i) Tex. Rev. Civ. Stat. Ann. art. 9102, as
amended, (ii) the Americans With Disabilities Act of 1990,
42 U.S.C. (S)(S)12101-12213, as amended, and (iii) any other
similar public accommodation Laws (as hereinafter defined).
As used herein, the term "Laws" shall mean all laws,
----
Statutes, ordinances, resolutions, rules, codes,
regulations, restrictions (including, without limitation,
restrictive covenants or deed restrictions), policies,
orders, determinations or requirements from time to time in
existence of any governmental authority.
(b) Repairs; Maintenance. Tenant shall maintain
--------------------
the Premises in a clean, safe, operable, attractive
condition, and shall not permit or allow to remain any waste
or damage to any portion of the Premises. Tenant shall
repair or replace, subject to Landlord's direction and
supervision, any damage to the Building caused by Tenant or
Tenant's agents, contractors, or invitees. If Tenant fails
to make such repairs or replacements within 30 days after
the occurrence of such damage, then Landlord may make the
same at Tenant's cost. In lieu of having Tenant repair any
such damage outside of the Premises, Landlord may repair
such damage at Tenant's cost. The cost of any repair or
replacement work performed by Landlord under this Section 8
shall be paid by Tenant to Landlord within ten (10) days
after Landlord has delivered to Tenant an invoice therefor.
(c) Performance of Work. All work described in
-------------------
this Section 8 shall be performed only by Landlord or by
contractors and subcontractors approved in writing by
Landlord. Landlord acknowledges that Equis Corporation is
involved in the management of the Work (as defined in the
Exhibit D attached to this Lease). Tenant shall cause all
contractors and subcontractors to procure and maintain
insurance coverage against such risks, in such amounts, and
with such companies as Landlord may reasonably require, and
to procure payment and performance bonds reasonably
satisfactory to Landlord covering the cost of the work. All
such work shall be performed in accordance with all legal
requirements and in a good and workmanlike manner so as not
to damage the Premises, the primary structure or structural
qualities of the Building, or plumbing, electrical lines, or
other utility transmission facility. All such work which may
affect the HVAC system, electrical system, or plumbing must
be approved by the Building's engineer of record.
(d) Mechanic's Liens. Tenant shall not permit any
----------------
mechanic's liens to be filed against the Premises or the
Building for any work performed, materials furnished, or
obligation incurred by or at the request of Tenant. If such
a lien is filed, then Tenant shall, within ten (10) business
days after Landlord has delivered notice of the filing to
Tenant, either pay the amount of the lien or diligently
contest such lien and deliver to Landlord a bond or other
security reasonably satisfactory to Landlord. If Tenant
fails to timely take either such action, then Landlord may
pay the lien claim without inquiry as to the validity
thereof, and any amounts so paid, including expenses and
interest, shall be paid by Tenant to Landlord within ten
(10) days after Landlord has delivered to Tenant an invoice
therefor.
USE 9. Tenant shall continuously occupy and use the
Premises only for the Permitted Use and shall comply with
all Laws relating to the use, condition, and occupancy of
the Premises. The Premises shall not be used for any use
which is disreputable, creates extraordinary fire hazards or
results in an increased rate of insurance on the Building or
its contents or the storage of any hazardous materials or
substances, or is otherwise in violation of any of the terms
and provisions of this Lease. Landlord acknowledges and
agrees that the business of Tenant as indicated on the S-1
filed with the Securities and Exchange Commission is not
disreputable. If, because of Tenant's acts, the rate of
insurance on the Building or its contents increases, then
such acts shall be an Event of Default, Tenant shall pay to
Landlord the amount of such increase within five (5)
business days after Tenant's receipt of written demand for
such amount, and acceptance of such payment shall not
constitute a waiver of any of Landlord's other rights.
Tenant shall conduct its business and control its agents,
employees, and invitees in such a manner as not to create
any nuisance or interfere with other tenants or Landlord in
its management of the Building. The Premises shall not be
occupied by more than one (1) person per one hundred
seventy-five (175) net rentable square feet contained in the
Premises (with the understanding that Tenant may provide
working areas/stations at a ratio of one per 145 net
rentable square feet in the
6
<PAGE>
Premises), and (ii) Tenant shall not conduct its business
within the Premises for more than fourteen (14) consecutive
hours during any business day (an insubstantial number of
employees working more than 14 consecutive hours during any
business day shall not constitute the conduct of Tenant's
business within the Premises for more than 14 consecutive
hours during such business day).
ASSIGNMENT AND 10. (a) Transfers Consent. Tenant shall not, without
SUBLETTING -----------------
the prior written consent of Landlord (which consent will
not be unreasonably withheld or delayed), (1) assign,
transfer, or encumber this Lease or any estate or interest
herein, whether directly or by operation of law, (2) permit
any other entity to become Tenant hereunder by merger,
consolidation, or other reorganization, (3) if Tenant is an
entity other than a corporation whose stock is publicly
traded, permit the transfer of an ownership interest in
Tenant so as to result in a change in the current control of
Tenant, (4) sublet any portion of the Premises, (5) grant
any license, concession, or other right of occupancy of any
portion of the Premises, or (6) permit the use of the
Premises by any parties other than Tenant (any of the events
listed in Sections 10.(a)(1) through 10.(a)(6) being a
"Transfer"). If Tenant requests Landlord's consent to a
--------
Transfer, then Tenant shall provide Landlord with (A) a
written description of all terms and conditions of the
proposed Transfer (including, without limitation, the
proposed use of the Premises to be affected by such
Transfer), (B) copies of the proposed Transfer
documentation, (C) the following information about the
proposed transferee: name and address; reasonably
satisfactory information about its business and business
history; its proposed use of the Premises; banking,
financial, and other credit information; and general
references sufficient to enable Landlord to determine the
proposed transferee's creditworthiness and character, and
(D) such other information as Landlord may reasonably
request in writing within ten (10) days after its receipt of
the information described in clauses (A), (B) and (C) of
this paragraph. If Landlord fails to respond to any written
request by or on behalf of Tenant for Landlord's consent to
any Transfer within thirty (30) days of Landlord's receipt
of such written request and all of the information and
materials required by the immediately preceding sentence,
the request shall be deemed to have been denied by Landlord.
Tenant shall reimburse Landlord for its reasonable
attorneys' fees and other expenses reasonably incurred in
connection with considering any request for its consent to a
Transfer. If Landlord consents to a proposed Transfer, then
(i) Tenant agrees specifically to pay over to Landlord, as
Rent, all sums provided to be paid under the terms and
conditions of such Transfer which are in excess of the
amounts otherwise required to be paid by Tenant to Landlord
pursuant to this Lease, and (ii) the proposed transferee
shall deliver to Landlord a written agreement whereby it
expressly assumes the Tenant's obligations hereunder;
provided, however, that any sublessee of less than all of
the space in the Premises shall be liable only for
obligations under this Lease that are properly allocable to
the space subject to the applicable Transfer (excluding,
however, any obligation to pay Basic Rental and Tenant's
share of Excess, Tax Excess and DCURD Excess due hereunder
but including Tenant's share of Electrical Costs due
hereunder that are properly allocable to the space subject
to such Transfer). Landlord's consent to a Transfer shall
not release Tenant from performing its obligations under
this Lease, but rather Tenant and its transferee shall be
jointly and severally liable therefor. Landlord's consent to
any Transfer shall not waive Landlord's rights as to any
subsequent Transfers. If an Event of Default occurs while
the Premises or any part thereof are subject to a Transfer,
then Landlord, in addition to its other remedies, may
collect directly from such transferee all rents becoming due
to Tenant and apply such rents against Rent. Tenant
authorizes its transferees to make payments of rent directly
to Landlord upon receipt of notice from Landlord to do so.
If Tenant elects to assign this Lease or sublease all or any
portion of the Premises, Tenant may advertise the same
provided that Tenant has obtained the prior written consent
of Landlord to the form and content of any such advertising.
Tenant agrees that in the event Landlord withholds its
consent to any Transfer contrary to the provisions of this
Section 10, Tenant's sole remedy shall be to seek an
injunction in equity to compel performance by Landlord to
give its consent and Tenant expressly waives any right to
damages in the event of such withholding by Landlord of its
consent.
(b) Cancellation. Landlord may, within 30 days
------------
after submission of Tenant's written request for Landlord's
consent to a Transfer of the entire Premises or a portion of
the Premises for a term that ends within the last twelve
(12) months of the Term of this Lease, and all of the
information and
7
<PAGE>
materials required by this Section 10, cancel this Lease
(or, as to a subletting or assignment, cancel as to the
portion of the Premises proposed to be sublet or assigned)
as of the date the proposed Transfer was to be effective. If
Landlord cancels this Lease as to any portion of the
Premises, then this Lease shall cease for such portion of
the Premises and Tenant shall pay to Landlord all Rent
accrued through the cancellation date relating to the
portion of the Premises covered by the proposed Transfer and
all brokerage commissions paid or payable by Landlord in
connection with this Lease that are allocable to such
portion of the Premises. No Rent shall accrue after such
cancellation date for the portion of the Premises cancelled.
Thereafter, Landlord may lease such portion of the Premises
to the prospective transferee (or to any other person)
without liability to Tenant.
(c) Additional Compensation. Prior to the
-----------------------
occurrence and other than during the continuance of an Event
of Default, Tenant shall pay to Landlord, immediately upon
receipt thereof, 50% of all compensation received by Tenant
for a Transfer that exceeds the Basic Rental and Tenant's
share of Electrical Costs, Excess, Tax Excess and DCURD
Excess allocable to the portion of the Premises covered
thereby (100% of such compensation is herein referred to as
the "Transfer Profits"); provided, however, that to the
----------------
extent any cash payment with respect to a Transfer (or any
other proceeds of such Transfer once the same have been
converted to cash) is paid to Landlord, Tenant shall receive
a dollar-for-dollar credit towards the Rent due hereunder
which is allocable to the portion of the Premises covered by
such Transfer and Landlord shall retain the amount, if any,
of such cash payment (or any other proceeds of such
Transfer) that exceeds the Basic Rental and Tenant's share
of Electrical Costs due hereunder which is allocable to the
portion of the Premises covered by such Transfer.
Notwithstanding the foregoing, after the occurrence and
during the continuance of an Event of Default, Tenant shall
pay to Landlord, immediately upon receipt thereof, 100% of
all Transfer Profits. Tenant hereby assigns to Landlord any
and all rights it might have or ever acquire in any cash or
other proceeds of any Transfer (whether or not such Transfer
was consented to by Landlord) subject, however, to Tenant's
conditional right to receive 50% of the Transfer Profits as
provided above. This covenant and assignment shall run with
the Land and shall bind Tenant and Tenant's heirs,
executors, administrators, personal representatives,
successors and assigns. Any assignee or purchaser of
Tenant's interest in this Lease or any sublessee of all or
any portion of the Premises (each such assignee, purchaser
or sublessee is herein sometimes referred to as a
"Transferee"), by occupying the Premises or any portion(s)
----------
thereof and/or assuming Tenant's obligations hereunder,
shall assume liability to Landlord for all amounts paid to
persons other than Landlord by such Transferee in connection
with any such assignment or sale of Tenant's interest in
this Lease or subletting of all or any portion of the
Premises.
(d) Transfer Restrictions. Tenant agrees not to
---------------------
(i) sublease any space in the Building to or from another
tenant of the Building or any Affiliate of such tenant, or
(ii) accept or make any assignment of a lease of any space
in the Building to or from another tenant of the Building or
any Affiliate of such tenant, without the written consent of
Landlord first had and obtained (which Landlord may grant or
deny in its sole discretion notwithstanding anything to the
contrary contained in this Lease). Landlord agrees not to
unreasonably withhold its consent to a request by Tenant to
sublease all or any portion of the Premises to or from
another tenant of the Building if Landlord does not then
have space Available For Rent (as hereinafter defined) in
the Building that is Comparable in Size (as hereinafter
defined) to either (1) the Premises or the applicable
portion thereof to be sublet, or (2) the space to be
subleased by Tenant from another tenant of the Building. For
the purposes of this Section 10, space in the Building shall
be considered "Available For Rent" if (A) the applicable
------------------
space is not then leased by a tenant and is not then subject
to any expansion options, rights of first offer or other
options or rights of other tenants or other third parties
(or is subject to any of the foregoing, but the party owning
the same has waived, been deemed to have waived, or failed
to timely exercise the same with respect to the leasing of
the applicable space by Landlord within the consent period
identified in Section 10.(a) above), or (B) if the
applicable space is then leased and the applicable tenant's
lease expires, or shall terminate effective as of a date
which is, 4 months or less from the date on which it is
being determined whether the applicable space is Available
For Rent and such space is not then subject to any expansion
options, rights of first offer or other options or rights of
other tenants or other third parties (or is subject to any
of the foregoing, but the party owning the same has waived,
8
<PAGE>
been deemed to have waived, or failed to timely exercise the
same with respect to the leasing of the applicable space by
Landlord within the consent period identified in Section
10.(a) above), and space in the Building shall be considered
"Comparable in Size" if it is between 75% and 125% of the
------------------
amount of net rentable square feet of space being compared
to such space (by way of example only, if Tenant is
proposing to sublease 10,000 net rentable square feet of
space of the Premises, then any space containing at least
7,500 net rentable square feet of space and not more than
12,500 net rentable square feet of space would be considered
Comparable in Size). For the purposes of this Lease, the
term "Affiliate" shall mean a person or entity directly or
---------
indirectly, through one or more intermediaries, controlling,
controlled by or under common control with the party in
question. The term "control", as used in this Section 10,
-------
means, with respect to an entity that is a corporation, the
right to the exercise, directly or indirectly, of more than
50% of the voting rights attributable to the shares of the
controlled corporation and, with respect to an entity that
is not a corporation, the possession, directly or
indirectly, of the power to direct or cause the direction of
the management or policies of the controlled entity. In
determining whether a person or entity is an Affiliate of an
individual, the aggregate voting rights or interests in
other entities which are held by members of such
individual's immediate family members or by trusts for the
benefit of such individual's immediate family members shall
be attributed to such individual.
(e) Bankruptcy Provisions. Tenant (or any
---------------------
Transferee), Tenant (or any Transferee) as debtor-in-
possession, and any trustee or receiver of Tenant's (or any
Transferee's) assets (each, whether as to Tenant or any
Transferee, a "Tenant's Representative") shall have no
-------- --------------
greater rights to assume or assign this Lease or any
interest in this Lease, or to sublease all or any portion of
the Premises, than the rights provided to Tenant in this
Section 10 except to the extent Landlord shall be required
to permit such assumption, assignment or subletting by the
provisions of any Applicable Bankruptcy Law (as hereinafter
defined). Without limiting the generality of the foregoing,
if, pursuant to Applicable Bankruptcy Law, a Tenant's
Representative is permitted to assign this Lease in
disregard of the restrictions contained in this Section 10
(or if this Lease shall be assumed by a trustee or receiver
of Tenant or any Transferee), then the right of any Tenant's
Representative to assume or assign this Lease or to sublease
any of the Premises shall be subject to the following
conditions: (1) such Applicable Bankruptcy Law shall provide
to such Tenant's Representative a right of assumption of
this Lease which Tenant's Representative shall have timely
exercised and such Tenant's Representative or proposed
assignee shall have fully cured any default of Tenant (or
any Transferee) under this Lease; (2) such Tenant's
Representative or proposed assignee, as applicable, shall
have deposited with Landlord, as security for the timely
payment of Rent, cash security in an amount equal to the sum
of (i) the amount of the Security Deposit, if any, required
to be deposited with Landlord by the initial Tenant named in
this Lease, and (ii) one year's Basic Rental and Tenant's
share of Electrical Costs, Excess, Tax Excess and DCURD
Excess then reserved hereunder for the calendar year
preceding the year in which such assignment is intended to
become effective, which deposit shall be held by Landlord,
without interest, for the balance of the Term of this Lease
as security for the full and faithful performance of all of
the obligations under this Lease on the part of Tenant yet
to be performed; (3) such Tenant's Representative or
proposed assignee, as applicable, shall have provided
adequate assurance of the future performance of the
obligations of Tenant (or any Transferee) under this Lease
including, without limitation, the source of payment of Rent
and performance of all other obligations under this Lease
(which adequate assurance shall include, without limitation,
demonstration to the satisfaction of Landlord that [a] in
the case of an assumption of this Lease, Tenant's
Representative has and will continue to have sufficient
unencumbered assets after the payment of all secured
obligations and administrative expenses to assure Landlord
that Tenant's Representative will have sufficient funds to
fulfill the obligations of Tenant under this Lease, or [b]
in the case of an assignment of this Lease, such assignee
shall have a net worth, exclusive of good will and computed
in accordance with generally accepted accounting principles,
equal to the greater of (y) at least ten (10) times the sum
of all monthly installments of Basic Rental due under this
Lease during the initial Term hereof, or (z) the net worth
of the initial Tenant named in this Lease on the Lease Date,
which net worth shall be evidenced by current financial
statements of the proposed assignee, audited by an
independent certified public accountant reasonably
acceptable to Landlord); (4) the use of the Premises shall
be in accordance with the requirements of this Lease
9
<PAGE>
and, further, shall in no way diminish the reputation of the
Building as a first-class office building or impose any
additional burden upon the Building or increase the services
which Landlord would be required by this Lease to provide;
(5) the assumption or any contemplated assignment of this
Lease or subleasing of any portion of the Premises, as
applicable, shall not breach any provision in any other
lease Of space in the Building or any mortgage, financing
agreement or other agreement by which Landlord is bound; and
(6) Landlord shall have, or would have had absent the
Applicable Bankruptcy Law, no right under this Section 10 to
refuse consent to the proposed assignment or subletting by
reason of the identity or nature of the proposed assignee or
sublessee or the proposed use of the Premises to be affected
by such assignment or subletting. If all defaults are not
cured and such adequate assurance is not provided within
sixty (60) days after there has been an order for relief
under Applicable Bankruptcy Law, then (A) this Lease shall
be deemed rejected, (B) Tenant or any other person in
possession shall vacate the Premises, and (C) Landlord shall
be entitled to retain any Rent due hereunder, together with
any security deposit previously received from Tenant, and
shall have no further liability to Tenant or any person
claiming by, through or under Tenant or any trustee. If
Tenant assigns this Lease to any party and such party or its
successors or representatives causes a termination or
rejection of this Lease pursuant to Applicable Bankruptcy
Law, then, notwithstanding any such termination or
rejection, Tenant shall remain fully liable for the
performance of all covenants, agreements, terms, provisions
and conditions contained in this Lease as though the
termination or rejection never occurred and shall, without
in any way limiting the foregoing, in writing reinstate and
ratify the terms of this Lease as the same existed
immediately prior to the termination or rejection. As used
herein, the term "Applicable Bankruptcy Law" shall mean any
-------------------------
law, whether federal or state, relating to bankruptcy,
insolvency, reorganization, liquidation, winding-up or
composition or adjustment of, or relief from, debts.
Notwithstanding anything contained in this Lease to the
contrary, (i) all amounts payable by Tenant to or for the
benefit of Landlord under this Lease, whether or not
expressly denominated as Rent, shall constitute rent for the
purposes of Section 502(b)(7) of the United States
Bankruptcy Code, and (ii) this is a contract under which
applicable Law excuses Landlord from accepting performance
from (or rendering performance to) any person or entity
other than Tenant within the meaning of Sections 365(c) and
365(e)(2) of the United States Bankruptcy Code.
(f) Withholding of Consent. For the purposes of
----------------------
this Section 10, Landlord shall be deemed to have reasonably
withheld its consent to a Transfer if the refusal is based
on any one or more of the following: (1) Tenant's failure to
satisfy its obligations in the second and fourth sentences
of the Section 10.(a) above; (2) Landlord, in its sole
discretion reasonably exercised, has determined that one or
more of the reputation, business, proposed use of the
Premises, and/or the financial responsibility of and by the
proposed transferee is not satisfactory to Landlord (for the
purposes of this Lease, Landlord shall be conclusively
deemed to have reasonably exercised its discretion to
withhold its consent to an assignment or subletting to a
person or entity that either [a] is not of the character,
quality or financial strength of a tenant to whom Landlord
would generally lease space in the Building, or [b] is
similar in reputation, business, proposed use of space in
the Building and/or financial responsibility to either [i] a
prospective tenant of space in the Building to whom Landlord
elected not to lease such space, or [ii] a proposed assignee
or sublessee whose proposed assignment or subletting was not
consented to by Landlord); (3) at the time thereof an Event
of Default has occurred and is continuing or an event has
occurred and is continuing which with the giving of notice
or the passage of time, or both, would constitute an Event
of Default; (4) the proposed assignee or sublessee is an
existing tenant of the Building or Landlord reasonably
believes that the proposed assignee or sublessee is an
Affiliate (as defined in Section 10.(e) below) of an
existing tenant of the Building and Landlord then has space
Available For Rent in the Building that is Comparable in
Size to the Premises or the applicable portion thereof to be
sublet; (5) the portion(s) of the Premises subject to the
proposed Transfer will, in Landlord's sole discretion
reasonably exercised, cause the Premises to be excessively
and/or unacceptably "chopped-up"; (6) a lessor under any
Primary Lease (as defined in Section 12.(a) below) or the
holder of any Mortgage (as defined in Section 12.(a) below)
has objected to the proposed Transfer and Landlord has not
requested that such lessor or holder make such an objection;
(7) without limiting clause (4) of this paragraph, the
proposed Transfer conflicts in any manner with this Lease
(including, but not limited to, the use permitted by Section
9 above or any requirements or restrictions related
thereto); (8) the fact
10
<PAGE>
that the proposed assignee or sublessee is a governmental or
telemarketing entity or any other high-density user; (9) the
proposed assignee's or sublessee's primary business is
prohibited by a non-compete or similar provision of another
lease of space at the Building; (10) the proposed assignee
or sublessee is a competitor or Affiliate of Landlord; (11)
the proposed assignee or sublessee is then, or has within
twelve months immediately preceding Tenant's written request
for Landlord's consent to such Transfer been, a person or
entity with whom Landlord is dealing or has dealt regarding
the possibility of leasing space in the Building and
Landlord then has space Available For Rent in the Building
that is Comparable in Size to the Premises or the applicable
portion thereof to be sublet; or (12) the fact that the
instrument effecting the proposed Transfer is not in form
and content reasonably satisfactory to Landlord.
(g) Transfer Without Landlord Consent.
---------------------------------
Notwithstanding anything to the contrary set forth above,
Tenant may assign this Lease in its entirety or sublease all
or any portion of the Premises without the prior written
consent of Landlord to (1) any partnership, corporation or
other business entity into or with which Tenant shall be
merged, converted or consolidated in accordance with
applicable statutory provisions governing merger, conversion
or consolidation of the applicable business entity, or (2) a
partnership, corporation or other business entity which is a
direct successor to Tenant owning all or substantially all
of Tenant's business and assets provided that, in connection
with any assignment or subletting described in clauses (1)
and (2) of this Section 10.(g), (A) Tenant shall have
notified Landlord in writing prior to such assignment or
subletting, (B) at the time thereof, no Event of Default has
occurred and is continuing and no event has occurred and is
continuing which with the giving of notice or the passage of
time, or both, would constitute an Event of Default, (C) the
proposed transferee shall deliver to Landlord a written
agreement whereby it expressly assumes all of the Tenant's
obligations under this Lease; provided, however, that any
sublessee of less than all of the space in the Premises
shall be liable only for obligations under this Lease that
are properly allocable to the space subject to the
applicable Transfer (excluding, however, any obligation to
pay Rent due hereunder), (D) the proposed assignee or
sublessee shall not be an existing tenant of the Building or
an Affiliate of such tenant, (E) Tenant shall have agreed
specifically to pay over to Landlord, as additional rent,
all sums provided to be paid under the terms and conditions
of such assignment or sublease which are in excess of the
amounts otherwise required to be paid by Tenant to Landlord
pursuant to this Lease with respect to the portion of the
Premises covered by such Transfer, (F) Tenant shall have
reimbursed Landlord for all costs and expenses reasonably
incurred by Landlord (including, without limitation,
reasonable attorneys' fees) in connection with such
assignment and/or subletting, and (G) in the case of a
Transfer described in clauses (1) and (2) of this paragraph,
Tenant shall have provided Landlord with evidence reasonably
acceptable to Landlord that the proposed assignee/sublessee
has a demonstrable net worth not less than the net worth of
Tenant as of the date of such assignment or subletting. Any
assignment or subletting permitted without Landlord's prior
written consent as provided above (a "Permitted Transfer
------------------
Without Landlord Consent") shall not release Tenant from any
------------------------
of its obligations (including, without limitation, its
obligation to pay Rent) under this Lease. For the purposes
of this Section 10.(g), the term "Tenant" shall also mean a
permitted assignee or sublessee of the initial Tenant named
in this Lease.
(h) Miscellaneous. Landlord's consent to a
-------------
Transfer shall not release Tenant from performing its
obligations under this Lease, but rather Tenant and its
Transferee shall be jointly and severally liable therefor;
provided, however, that any sublessee of less than all of
the space in the Premises shall be liable only for
obligations under this Lease that are properly allocable to
the space subject to the applicable Transfer (excluding,
however, any obligation to pay Basic Rental and Tenant's
share of Excess, Tax Excess and DCURD Excess due hereunder
but including Tenant's share of Electrical Costs due
hereunder that are properly allocable to the space subject
to such Transfer). Landlord's consent to any Transfer shall
not waive Landlord's rights as to any subsequent Transfers.
If an Event of Default occurs while the Premises or any part
thereof are subject to a Transfer, then Landlord, in
addition to its other rights and/or remedies, may collect
directly from such Transferee all rents becoming due to
Tenant and apply such rents against all Rent due hereunder
(including, without limitation, all Basic Rental and
Tenant's share of Electrical Costs, Excess, Tax Excess and
DCURD Excess due hereunder). Tenant authorizes its
Transferees to make payments of
11
<PAGE>
rent directly to Landlord upon receipt of notice from
Landlord to do so. Without limiting Landlord's consent
rights and as a condition to obtaining Landlord's consent to
any proposed Transfer, (i) each sublessee must confirm in
writing that its sublease is subject and subordinate to this
Lease, and (ii) each Transferee shall agree to cause the
Premises to comply at all times with all applicable Laws
(including, without limitation, all Disability Laws
applicable to such Transferee's particular use of, or
activities or business operations conducted within, the
applicable portion(s) of the Premises or any specific
handicaps that such Transferee's employees, officers or
directors might have). Except as expressly provided in this
Lease to the contrary, no assignee or sublessee of the
Premises or any portion thereof shall have the right to
assign or sublet the Premises or any portion thereof. In the
event that, following an assignment or subletting permitted
by this Section 10, this Lease or the rights and obligations
of Tenant hereunder are terminated for any reason, Landlord
may, at its sole option, deem this Lease to be thereafter a
direct lease to the assignee or sublessee of Tenant covering
such assignee's or sublessee's premises.
INSURANCE; 11. (a) Insurance. Tenant shall at its expense procure
WAIVERS; ---------
SUBROGATION; and maintain throughout the Term the following insurance
INDEMNITY policies' (1) commercial general liability insurance in
amounts of not less than a combined single limit of
$5,000,000 (the "Initial Liability Insurance Amount"),
----------------------------------
insuring Tenant, Landlord and all other Landlord Parties (as
hereinafter defined) against all liability for injury to or
death of a person or persons or damage to property arising
from the use and occupancy of the Premises (this insurance
coverage shall include broad form property damage liability
and shall contain an exception to any pollution exclusion
which insures damage or injury arising out of heat, smoke or
fumes from a hostile fire), (2) contractual liability
insurance coverage sufficient to cover Tenant's indemnity
obligations hereunder, (3) Special Form (formerly referred
to as "All Risk") insurance (no exclusions shall be
permitted with respect to vandalism, malicious mischief,
theft and sprinkler leakage) covering the full value of
Tenant's property and improvements, and other property
(including property of others), in the Premises (in the
event there is a dispute as to the amount that comprises
full value of such property and improvements, the decision
of Landlord shall be conclusive, and evidence of this
insurance shall be provided on ACORD Form 27), (4) workers'
compensation insurance in the statutory limits and
employer's liability insurance (no "alternative" form of
coverage shall be acceptable) in an amount of not less than
$1,000,000.00 bodily injury by accident, each accident,
$1,000,000.00 bodily injury by disease, policy limit, and
$1,000,000.00 bodily injury by disease, each employee, each
(and any commercial umbrella applicable thereto) containing
a waiver of subrogation endorsement using endorsement form
WC 429394 (i.e., a waiver of subrogation endorsement) or
such other endorsement form as may be reasonably required by
Landlord, and such endorsements shall be in favor of all
Landlord Parties, (5) business income and extra expense
insurance (formerly known as "business interruption
insurance") in such amounts as will reimburse Tenant for
direct or indirect loss of earnings attributable to all
perils commonly insured against by prudent tenants or
attributable to prevention of access to the Premises or to
the Building as a result of such perils, but in no event
shall such coverage be for less than twelve (12) months of
income and expenses, (6) business automobile liability
insurance covering owned, non-owned and hired vehicles in an
amount of not less than $1,000,000 combined single limit for
bodily injury and property damage should Landlord deem such
insurance to be necessary, and (7) any other and further
insurance as Tenant, Landlord or any Landlord's Mortgagee
may require from time to time in form, amounts and for
insurance risks against which a prudent tenant would protect
itself. Not more frequently than every five (5) years, if,
in the opinion of Landlord's risk management group, the
amount of liability insurance at that time maintained by
Tenant as required by this Lease (i.e., commercial general
liability, employer's liability and/or business automobile
liability insurance) is not adequate, Landlord shall notify
Tenant of Landlord's risk management group's recommended
increase of the same and Tenant shall increase the
applicable liability insurance coverage to such recommended
amount. As used herein, the term "Landlord Parties" shall
----------------
mean (i) Landlord, (ii) any Landlord's Mortgagee, (iii) the
Building manager and any other parties which Landlord shall
deem necessary, (iv) Landlord's, Landlord's Mortgagee's and
the Building manager's respective shareholders, members,
partners and Affiliates, and (v) any directors, officers,
employees, agents or contractors of such persons or
entities. Tenant's insurance shall provide primary coverage
to Landlord when any policy issued to Landlord provides
duplicate or similar coverage, and in such
12
<PAGE>
circumstance Landlord's policy will be excess over Tenant's
policy. All property insurance policies written on behalf of
Tenant shall name all Landlord Parties as a loss payee as
their respective interests may appear, and shall contain (or
be endorsed to provide) a waiver of any subrogation rights
which Tenant's insurers may have against Landlord Parties
and against those for whom Landlord Parties are, at law,
responsible whether any such damage is caused by the act,
omission or fault of any Landlord Parties or by those for
whom any Landlord Parties are, at law, responsible. Tenant's
liability insurance shall (1) be written on an occurrence
basis on either Insurance Services Office ("ISO") form CG
---
0001 1092 or CG 0001 0695, (2) contain standard commercial
general liability "other insurance" wording, unmodified in
any way that would make it excess over or contributory with
an additional insured's own commercial general liability
insurance coverage, and (3) be primary and noncontributory
to any other insurance carried by Landlord or any other
Landlord Parties. All commercial general liability insurance
maintained by Tenant as required by this Lease (and any
commercial umbrella applicable thereto) shall be endorsed
using ISO form CG 2404 1093 (i.e., a waiver of subrogation
endorsement) and ISO form CG 2026 1185, and both such
endorsements shall be unmodified and shall be in favor of
all Landlord Parties. No deductible or self-insured
retention in excess of $10,000.00 shall apply to any
liability insurance of Tenant without the prior written
consent of Landlord. All policies shall be taken out with
insurers acceptable to Landlord, licensed in the State of
Texas and with a rating of (i) "A-" "XII" or better as set
forth in the most current issue of Best's Key Rating Guide,
and/or (ii) "A-" or better as set forth in the most current
issue of Standard & Poor Insurance Solvency Review. Tenant
agrees that certificates of insurance (or, if required by
Landlord or any Landlord's Mortgagee, certified copies of
each such insurance policy), in form and content acceptable
to Landlord, will be delivered to Landlord as soon as
practicable after the placing of the required insurance, but
in no event later than five (5) days prior to which Tenant
takes possession of all or any part of the Premises. All
policies shall indicate that at least thirty (30) days prior
written notice shall be delivered to Landlord and any
Landlord's Mortgagee by the insurer prior to termination,
cancellation or change of such insurance. Copies of
endorsements must be attached to all certificates delivered
by Tenant to Landlord as required by this Lease and Landlord
Parties must be identified, as applicable, as the
"additional insured" or "beneficiary" on such certificates.
Landlord must be notified in writing immediately by Tenant
of claims against Tenant that might cause a reduction below
seventy-five percent (75%) of any aggregate limit of any
insurance policy maintained by Tenant as required by this
Lease. Any deductible selected by Tenant shall be the sole
responsibility of Tenant.
(b) Waiver of Negligence Claims No Subrogation.
------------------------------------------
Landlord shall not be liable to Tenant or those claiming by,
through, or under Tenant for any injury to or death of any
person or persons or the damage to or theft, destruction,
loss, or loss of use of any property or inconvenience (a
"Loss") caused by casualty, theft, fire, third parties, or
----
any other matter (including Losses arising through repair or
alteration of any part of the Building, or failure to make
repairs, or from any other cause), regardless of whether the
negligence of any party caused such Loss in whole or in
part. Landlord and Tenant each waives any claim it might
have against the other for any damage to or theft,
destruction, loss, or loss of use of any property, to the
extent the same is insured against under any insurance
policy that covers the Building, the Premises, Landlord's or
Tenant's fixtures, personal property, leasehold
improvements, or business, or, in the case of Tenant's
waiver, is required to be insured against under the terms
hereof, regardless of whether the negligence or fault of the
other party caused such loss; however, Landlord's waiver
shall not include any deductible amounts on insurance
policies carried by Landlord or apply to any coinsurance
penalty which Landlord might sustain. Each party shall cause
its insurance carrier to endorse all applicable policies
waiving the carrier's rights of recovery under subrogation
or otherwise against the other party.
(c) Indemnity. Subject to Section 11.(b), Tenant
---------
shall defend, indemnify, and hold harmless Landlord and its
agents from and against all claims, demands, liabilities,
causes of action, suits, judgments, and expenses (including
attorneys' fees) for any Loss arising from any occurrence on
the Premises or from Tenant's failure to perform its
obligations under this Lease (other than a Loss arising from
the sole or gross negligence of Landlord or its agents),
even though caused or alleged to be caused by the joint,
comparative, or concurrent negligence or fault of Landlord
or its agents, and even though any such claim, cause of
13
<PAGE>
action, or suit is based upon or alleged to be based upon
the strict liability of Landlord or its agents. THIS
INDEMNITY PROVISION IS INTENDED TO INDEMNIFY LANDLORD AND
ITS AGENTS AGAINST THE CONSEQUENCES OF THEIR OWN NEGLIGENCE
OR FAULT AS PROVIDED ABOVE WHEN LANDLORD OR ITS AGENTS ARE
JOINTLY, COMPARATIVELY, OR CONCURRENTLY NEGLIGENT WITH
TENANT. This indemnity provision shall survive termination
or expiration of this Lease.
(d) Miscellaneous. If Tenant or any contractor of
-------------
Tenant performs any work on any portion or portions of the
Premises, prior to the commencement of any such work, Tenant
shall deliver to Landlord certificates issued by insurance
companies licensed to do business in the State of Texas, in
form and content acceptable to Landlord, evidencing that
commercial general liability, workers' compensation,
employer's liability, automobile liability and other
insurance as required by Landlord and any Landlord's
Mortgagee, in amounts and with companies reasonably
satisfactory to Landlord, are in force and effect and
maintained by all contractors and subcontractors engaged by
Tenant or any contractor of Tenant to perform such work, and
name all Landlord Parties as additional insureds. Tenant
agrees that in the event of damage or destruction to the
leasehold improvements in the Premises covered by insurance
required to be taken out by Tenant pursuant to this Section,
Tenant will use the proceeds of such insurance for the
purpose of repairing or restoring such leasehold
improvements. In the event of (1) damage or destruction to
the Building entitling Landlord or Tenant to terminate this
Lease pursuant to Section 15 below, and (2) a termination of
this Lease pursuant to such Section, then (i) if the
Premises have also been damaged, Tenant will pay to Landlord
all of Tenant's insurance proceeds relating to the leasehold
improvements in the Premises, and (ii) if the Premises have
not been damaged, Tenant will deliver to Landlord, in
accordance with the provisions of this Lease, possession of
the Premises together with all leasehold improvements
located therein except as otherwise expressly provided in
this Lease.
(e) Landlord Indemnity. Landlord shall be liable
------------------
for, and shall indemnify, defend, protect and hold Tenant
and Tenant's partners and their respective officers,
directors, employees, agents, successors and assigns
(collectively, the "Tenant Indemnitees") harmless from and
------------------
against, any and all claims, demands, actions, damages
(excluding, however, consequential or special damages),
losses, liabilities, judgments, costs and expenses
(including, without limitation, attorneys' fees and court
costs) (each a "Claim" and collectively the "Claims"), to
----- ------
the extent (i) arising or resulting from the sole or gross
negligence or willful misconduct of Landlord or any Landlord
Indemnitees, and (ii) not covered or required to be covered
by Tenant's insurance described in Section 11.(a) above;
provided, however, such indemnification by Landlord shall
not include Claims waived by Tenant in Section 11.(b) above
and any Claim to the extent caused by or resulting from the
negligence, gross negligence or willful misconduct of Tenant
or its assignees, sublessees, officers, directors,
employees, agents, servants, contractors, customers or
invitees.
SUBORDINATION 12. (a) Subordination. This Lease shall be
ATTORNMENT; -------------
NOTICE TO Subordinate to any deed of trust, mortgage, or other
LANDLORD'S security instrument (a "Mortgage"), or any ground lease,
MORTGAGEE --------
master lease, or primary lease (a "Primary Lease"), that now
------- -----
or hereafter covers all or any part of the Premises (the
mortgagee under any Mortgage or the lessor under any Primary
Lease is referred to herein as "Landlord's Mortgagee");
---------- ---------
provided, however, that the foregoing subordination in
respect of any Primary Lease or Mortgage placed on the
Building after the Lease Date shall not become effective
until and unless the lessor under such Primary Lease or the
holder of such Mortgage delivers to Tenant a non-disturbance
agreement (a "Non-Disturbance Agreement") which provides
-------------------------
that if Tenant is not then in default under, or in breach of
any provision of, this Lease, Landlord's Mortgagee will not
disturb Tenant's right of occupancy of the Premises (i.e.,
Tenant's quiet enjoyment rights as more particularly
provided in Section 25(i) below) in the event of a
foreclosure of any such Mortgage or a termination of any
such Primary Lease (a Non-Disturbance Agreement may also
include Tenant's agreement to attorn as set forth below and
will contain such other provisions as Landlord's Mortgagee
shall require in connection therewith). Although the
subordination in the immediately preceding sentence shall be
self-operating, Tenant, or its successors in interest,
shall, upon Landlord's request, execute and deliver upon
14
<PAGE>
demand any and all Non-Disturbance Agreements delivered to
Tenant subordinating this Lease to such Primary Lease or
Mortgage. Tenant also agrees that any Landlord's Mortgagee
may elect (which election shall be revocable) to have this
Lease superior to its Primary Lease or the lien of its
Mortgage and, in the event of such election and upon
notification by such Landlord's Mortgagee to Tenant to that
effect, this Lease shall be deemed superior to the said
Primary Lease or Mortgage, whether this Lease is dated prior
to or subsequent to the date of such Primary Lease or
Mortgage. Although the subordination in the immediately
preceding sentence shall be self-operating, Tenant, or its
successors in interest, shall, upon Landlord's request,
execute and deliver upon the demand of Landlord any and all
instruments desired by Landlord, subordinating, in the
manner reasonably requested by Landlord, any such Primary
Lease or Mortgage to this Lease. If Tenant fails to execute
and deliver to Landlord any Non-Disturbance Agreement or any
such subordination instrument delivered to Tenant for
Tenant's execution within ten (10) business days after
Tenant's receipt of the same, then (1) such failure shall
constitute an Event of Default until such time as the
applicable instrument has been executed by Tenant and
delivered to Landlord, (2) Tenant shall be deemed to have
agreed to all of the terms and provisions of such Non-
Disturbance Agreement or such subordination instrument, and
(3) Tenant shall thereafter be estopped from disclaiming any
of the obligations, benefits and burdens set forth therein
including, without limitation, (i) the subordination of this
Lease to any Mortgage, Primary Lease or similar instruments,
(ii) any non-disturbance rights provided to Tenant therein,
and (iii) any attornment agreements of Tenant set forth
therein. Landlord is hereby irrevocably appointed and
authorized as agent and attorney-in-fact of Tenant, coupled
with an interest, to execute all such Non-Disturbance
Agreements and subordination instruments in the event Tenant
fails to execute said instruments within ten (10) business
days after Tenant's receipt of the same.
(b) Attornment. Tenant shall attorn to any party
----------
succeeding to Landlord's interest in the Premises, whether
by purchase, foreclosure, deed in lieu of foreclosure, power
of sale, termination of lease, or otherwise, upon such
party's request, and shall execute such agreements
confirming such attornment as such party may reasonably
request.
(c) Notice to Landlord's Mortgagee. Tenant shall
------------------------------
not seek to enforce any remedy it may have for any default
on the part of the Landlord without first giving written
notice by certified mail, return receipt requested,
specifying the default in reasonable detail, to any
Landlord's Mortgagee whose address has been given to Tenant,
and affording such Landlord's Mortgagee a reasonable
opportunity to perform Landlord's obligations hereunder.
(d) Non-Disturbance Agreement from Current
--------------------------------------
Landlord's Mortgagee. Landlord shall use its reasonably best
--------------------
efforts to obtain a Non-Disturbance Agreement from the
Landlord's Mortgagee whose Mortgage currently covers the
Building. Upon the delivery to Tenant of multiple originals
of a Non-Disturbance Agreement executed by such Landlord's
Mortgagee and the other party or parties thereto (other than
Tenant), Tenant shall, within ten (10) days after Tenant's
receipt of the same, execute each of the same and return all
but one of such originals to Landlord at Landlord's address
for notices set forth in this Lease.
RULES AND 13. Tenant shall comply with the rules and regulations
REGULATIONS of the Building which are attached hereto as Exhibit B.
---------
Landlord may, from time to time, change such rules and
regulations for the safety, care, or cleanliness of the
Building and related facilities, provided that such changes
are applicable to all tenants of the Building and will not
unreasonably interfere with Tenant's use of the Premises.
Tenant shall be responsible for the compliance with such
rules and regulations by its employees, agents, and
invitees.
CONDEMNATION 14. (a) Taking - Landlord's and Tenant's Rights. If
-------- ------------------------------
any part of the Building is taken by right of eminent domain
or conveyed in lieu thereof (a "Taking"), and such Taking
------
prevents Tenant from conducting its business in the Premises
in a manner reasonably comparable to that conducted
immediately before such Taking, then Landlord may, at its
expense, relocate Tenant to office space reasonably
comparable to the Premises, provided that Landlord notifies
Tenant of its intention to do so within 30 days after the
Taking. Such relocation may be for a portion of the
remaining Term or the entire Term. Landlord shall complete
any such relocation within 180 days after Landlord has
notified Tenant
15
<PAGE>
of its intention to relocate Tenant. If Landlord does not
elect to relocate Tenant following such Taking, then Tenant
may terminate this Lease as of the date of such Taking by
giving written notice to Landlord within 60 days after the
Taking, and Rent shall be apportioned as of the date of such
Taking. If Landlord does not relocate Tenant and Tenant does
not terminate this Lease, then Rent shall be abated on a
reasonable basis as to that portion of the Premises rendered
untenantable by the Taking.
(b) Taking - Landlord's Rights. If any material
--------------------------
portion, but less than all, of the Building becomes subject
to a Taking, or if Landlord is required to pay any of the
proceeds received for a Taking to Landlord's Mortgagee, then
this Lease, at the option of Landlord, exercised by written
notice to Tenant within 30 days after such Taking, shall
terminate and Rent shall be apportioned as of the date of
such Taking. If Landlord does not so terminate this Lease
and does not elect to relocate Tenant, then this Lease will
continue, but if any portion of the Premises has been taken,
Basic Rental shall abate as provided in the last sentence of
Section 14.(a).
(c) Award. If any Taking occurs, then Landlord
-----
shall receive the entire award or other compensation for the
Land, the Building, and other improvements taken, and Tenant
may separately pursue a claim against the condemnor for the
value of Tenant's personal property which Tenant is entitled
to remove under this Lease, moving costs, loss of business,
and other claims it may have.
FIRE OR OTHER 15. (a) Repair Estimate. If the Premises or the
CASUALTY ---------------
Building are damaged by fire or other casualty (a
"Casualty"), Landlord shall, within 60 days after such
--------
Casualty, deliver to Tenant a good faith estimate (the
"Damage Notice") of the time needed to repair the damage
-------------
caused by such Casualty.
(b) Landlord's and Tenant's Rights. In the event
------------------------------
the Premises or the Building are damaged by a Casualty and
the insurance proceeds have been made available therefor by
the holder or holders of any Mortgages or the lessor under
any Primary Lease, the damage shall be repaired by and at
the expense of Landlord to the extent of such insurance
proceeds available therefor, provided such repairs can, in
Landlord's sole opinion, be made within one hundred twenty
(120) days after the occurrence of such damage without the
payment of overtime or other premiums. Until such repairs
are completed, Rent shall be abated effective as of the date
of such fire or other casualty in proportion to the part of
the Premises which is unusable by Tenant in the conduct of
its business. If repairs cannot, in Landlord's sole opinion,
be made within one hundred twenty (120) days after the
occurrence of such damage without the payment of overtime or
other premiums, Landlord may, at its option, make them
within a reasonable time, and in such event, this Lease
shall continue in effect and Rent shall be abated in the
manner provided in the immediately preceding sentence. In
the case of repairs which, in Landlord's opinion, cannot be
made within such one hundred twenty (120) day period, or in
the event that sufficient insurance proceeds for repairs are
not available to Landlord, Landlord shall notify Tenant
within sixty (60) days of the date of occurrence of such
damage as to whether or not Landlord will make such repairs.
If Landlord elects not to make such repairs which cannot be
made within such one hundred twenty (120) day period, or for
which sufficient insurance proceeds are not available to
Landlord, then either party may, by written notice to the
other, terminate this Lease as of the date of the occurrence
of such damage, and Landlord shall have no liability to
Tenant for failure to make such repairs except for abatement
of Rent. If such repairs are indicated in the applicable
Damage Notice as repairs requiring more than 270 days to be
completed and Landlord elects to make such repairs, Tenant
shall have the right to terminate this Lease by giving
Landlord written notice thereof within 10 days after
Tenant's receipt of the Damage Notice. If such repairs are
indicated in the applicable Damage Notice as repairs
requiring 270 days or less to be completed, and if such
repairs have not been completed such that Landlord has, on
or before the 270th day after the occurrence of such
Casualty, delivered possession of the Premises to Tenant
repaired as required by this Lease, then Tenant shall have
the right to terminate this Lease effective as of the 30th
day after Landlord's receipt of written notice of such
termination; provided, however, that any such termination
shall be of no force and effect if Landlord delivers
possession of the Premises to Tenant repaired as required by
this Lease prior to the expiration of such 30 day period. If
such repairs are indicated in the applicable Damage Notice
as repairs
16
<PAGE>
requiring more than 270 days to be completed and Tenant does
not terminate this Lease as provided hereby, Tenant shall
have no termination right in the event such repairs are not
completed by the 270th day after the occurrence of such
Casualty or by the estimated repair completion date set
forth in the applicable Damage Notice. Except as provided in
this Section 15.(b), there shall be no abatement of Rent and
no liability of Landlord by reason of any injury to or
interference with Tenant's business or property arising from
the making of any repairs, alterations or improvements in or
to any portion of the Building and/or the Premises, or in or
to fixtures, appurtenances and equipment located therein,
and, in any event, there shall be no liability of Landlord
should repairs require more than one hundred twenty (120)
days for completion. Notwithstanding anything to the
contrary contained herein, if (i) the Premises are damaged
by a Casualty during the last 9 months of the Term and
Tenant has not exercised an extension option available to it
pursuant to the Exhibit F attached to this Lease, and (ii)
the time to repair the damage caused by such Casualty set
forth in the applicable Damage Notice is more than 30 days,
then Tenant shall have the right to terminate this Lease
effective as of the date of such damage by giving Landlord
written notice thereof within 10 business days after
Tenant's receipt of the applicable Damage Notice.
(c) Landlord's Rights. If a Casualty damages a
-----------------
material portion of the Building, and Landlord makes a good
faith determination that restoring the Premises would be
uneconomical, or if Landlord is required to pay any
insurance proceeds arising out of the Casualty to Landlord's
Mortgagee, then Landlord may terminate this Lease by giving
written notice of its election to terminate within 30 days
after the Damage Notice has been delivered to Tenant, and
Basic Rental hereunder shall be abated as of the date of the
Casualty.
(d) Repair Obligation. If neither party elects to
-----------------
terminate this Lease following a Casualty, then Landlord
shall, within a reasonable time after such Casualty,
commence to repair the Building and the Premises and shall
proceed with reasonable diligence to restore the Building
and Premises to substantially the same condition as they
existed immediately before such Casualty; however, Landlord
shall not be required to repair or replace any part of the
furniture, equipment, fixtures, and other improvements which
may have been placed by, or at the request of, Tenant or
other occupants in the Building or the Premises, and
Landlord's obligation to repair or restore the Building or
Premises shall be limited to the extent of the insurance
proceeds actually received by Landlord for the Casualty in
question.
TAXES 16. Tenant shall be liable for all taxes levied or
assessed against personal property, furniture, or fixtures
placed by Tenant in the Premises. If any taxes for which
Tenant is liable are levied or assessed against Landlord or
Landlord's property and Landlord elects to pay the same, or
if the assessed value of Landlord's property is increased by
inclusion of such personal property, furniture or fixtures
and Landlord elects to pay the taxes based on such increase,
then Tenant shall pay to Landlord, within thirty (30) days
after Tenant's receipt of written demand therefor, that part
of such taxes for which Tenant is primarily liable
hereunder.
EVENTS OF DEFAULT 17. Each of the following occurrences shall constitute
an "Event of Default":
-------- -------
(a) Tenant's failure to pay Rent, or any other
sums due from Tenant to Landlord under the Lease (or any
other lease executed by Tenant for space in the Building),
which failure continues for three (3) days after Tenant
receives written notice specifying that the applicable
payment was not made when such payment was due;
(b) except for a failure covered by subsection
17.(a) above or subsection 17.(f) below, Tenant's failure to
perform, comply with, or observe any other agreement or
obligation of Tenant under this Lease (or any other lease
executed by Tenant for space in the Building) where such
failure continues for ten (10) days after written notice to
Tenant (or, in the case of an emergency, as soon as
practicable after receipt of written or telephonic notice
thereof to Tenant), provided, however, that if such failure
(other than an emergency situation as indicated above) is
curable but cannot by its nature be cured within said ten
(10) day period, Tenant shall not be in default hereunder so
long as Tenant commences curative action within such ten
(10) day period and diligently and continuously pursues the
curative action so as to fully and completely cure the
failure within
17
<PAGE>
sixty (60) days after such written notice of default, but in
any event prior to the time such failure would result in a
violation of applicable Laws or a default by Landlord under
any Mortgage or Primary Lease;
(c) the filing of a petition by or against Tenant
(the term "Tenant" shall include, for the purpose of this
Section 17.(c), any guarantor of the Tenant's obligations
hereunder) (1) in any bankruptcy or other insolvency
proceeding; (2) seeking any relief under any state or
federal debtor relief law; (3) for the appointment of a
liquidator or receiver for all or substantially all of
Tenant's property or for Tenant's interest in this Lease; or
(4) for the reorganization or modification of Tenant's
capital structure;
(d) Tenant shall desert, vacate (as defined in
Section 25.(s) below) or fail to occupy at least fifty
percent (50%) of the Premises for a period of twelve (12)
consecutive months;
(e) the admission by Tenant that it cannot meet
its obligations as they become due or the making by Tenant
of an assignment for the benefit of its creditors; and
(f) notwithstanding Section 17.(a) and 17.(b)
above, the third failure (and any subsequent failure) in any
twelve (12) month period of Tenant to perform, comply with,
or observe any agreement or obligation of Tenant under this
Lease (or any other lease executed by Tenant for space in
the Building), no notice being required for any third such
failure and any subsequent failures.
REMEDIES 18. Upon any Event of Default, Landlord may, in
addition to all other rights and remedies afforded Landlord
hereunder or by law or equity, take any of the following
actions:
(a) Terminate this Lease by giving Tenant written
notice thereof, in which event, Tenant shall pay to Landlord
the sum of (1) all Rent accrued hereunder through the date
of termination, (2) all amounts due under Section 19.(a),
and (3) an amount equal to (A) the total Rent that Tenant
would have been required to pay for the remainder of the
Term discounted to present value at a per annum rate equal
to the "Prime Rate" as published on the date this Lease is
terminated by The Wall Street Journal, Southwest Edition, in
its listing of "Money Rates", minus (B) the then present
fair rental value of the Premises for such period, similarly
discounted; or
(b) Terminate Tenant's right to possession of the
Premises without terminating this Lease by giving written
notice thereof to Tenant, in which event Tenant shall pay to
Landlord (1) all Rent and other amounts accrued hereunder to
the date of termination of possession, (2) all amounts due
from time to time under Section 19.(a), and (3) all Rent and
other sums required hereunder to be paid by Tenant during
the remainder of the Term, diminished by any net sums
thereafter received by Landlord through reletting the
Premises during such period. Landlord shall use reasonable
efforts to relet the Premises on such terms and conditions
as Landlord in its sole discretion may determine (including
a term different from the Term, rental concessions, and
alterations to, and improvement of, the Premises); however,
Landlord shall not be obligated to relet the Premises before
leasing other portions of the Building. Landlord shall not
be liable for, nor shall Tenant's obligations hereunder be
diminished because of, Landlord's failure to relet the
Premises or to collect rent due for such reletting. To the
extent Landlord is obligated under Texas law to mitigate its
damages following a default by Tenant under this Lease,
Landlord may satisfy such obligation by retaining a real
estate broker (such broker can be the same as the broker
that is leasing the other space in the Building which is
available for rent) and acknowledging that all portions of
the Premises as available for lease; provided, however, in
no event shall Landlord be obligated to lease all or any
portion(s) of the Premises unless there is/are no other
comparable space/spaces available for lease at the Building
or any other property owned by Landlord or any Affiliate of
Landlord within the City of Irving/Las Colinas. Tenant shall
not be entitled to the excess of any consideration obtained
by reletting over the Rent due hereunder. Reentry by
Landlord in the Premises shall not affect Tenant's
obligations hereunder for the unexpired Term; rather,
Landlord may, from time to time, bring action against Tenant
to collect amounts due by Tenant, without the necessity of
Landlord's waiting until the expiration of the Term. Unless
Landlord delivers written notice to Tenant expressly stating
that it has elected to terminate this Lease, all actions
18
<PAGE>
taken by Landlord to exclude or dispossess Tenant of the
Premises shall be deemed to be taken under this Section
18.(b). If Landlord elects to proceed under this Section
18.(b), it may at any time elect to terminate this Lease
under Section 18.(a).
Additionally, without notice, Landlord may, as
permitted by the Texas Property Code, alter locks or other
security devices at the Premises to deprive Tenant of access
thereto, and Landlord shall not be required to provide a new
key or right of access to Tenant.
PAYMENT BY 19. (a) Payment by Tenant. Upon any default by
TENANT; NON- -----------------
WAIVER Tenant, Tenant shall pay to Landlord all costs incurred by
Landlord (including court costs and reasonable attorneys'
fees and expenses) in (1) obtaining possession of the
Premises, (2) removing and storing Tenant's or any other
occupant's property, (3) repairing, restoring, altering,
remodeling, or otherwise putting the Premises into condition
acceptable to a new tenant, (4) if Tenant is dispossessed of
the Premises and this Lease is not terminated, reletting all
or any part of the Premises (including brokerage
commissions, cost of tenant finish work, and other costs
incidental to such reletting), (5) performing Tenant's
obligations which Tenant failed to perform, and (6)
enforcing, or advising Landlord of, its rights, remedies,
and recourses arising out of the Event of Default.
(b) No Waiver. Landlord's acceptance of Rent
---------
following an Event of Default shall not waive Landlord's
rights regarding such Event of Default. No waiver by
Landlord of any violation or breach of any of the terms
contained herein shall waive Landlord's rights regarding any
future violation of such term or violation of any other
term.
LANDLORD'S LIEN 20. Intentionally deleted.
SURRENDER OF 21. No act by Landlord shall be deemed an acceptance
PREMISES of a surrender of the Premises, and no agreement to accept a
surrender of the Premises shall be valid unless the same is
made in writing and signed by Landlord. At the expiration or
termination of this Lease, Tenant shall deliver to Landlord
the Premises with all improvements located thereon (other
than those improvements which Landlord has requested in
writing that Tenant remove subject to Section 8 above) in
good repair and condition, reasonable wear and tear and
condemnation and fire or other casualty damage not caused by
Tenant (as to which Sections 14 and 15 shall control)
excepted, and shall deliver to Landlord all keys to the
Premises. Provided that Tenant has performed all of its
obligations hereunder, Tenant may remove all unattached
trade fixtures, furniture, and personal property placed in
the Premises by Tenant (but Tenant shall not remove any such
item which was paid for, in whole or in part, by Landlord
unless Landlord has requested in writing that Tenant remove
the same as contemplated by the immediately following
sentence). Additionally, Tenant shall, at Tenant's sole cost
and expense and within thirty (30) days after Tenant's
receipt of Landlord's written request for such removal,
remove such alterations, additions, improvements, trade
fixtures, equipment, wiring, and furniture as Landlord may
request in writing. Tenant shall reasonably repair all
damage caused by such removal. All items not so removed
shall be deemed to have been abandoned by Tenant and may be
appropriated, sold, stored, destroyed, or otherwise disposed
of by Landlord without notice to Tenant and without any
obligation to account for such items. The provisions of this
Section 21 shall survive the end of the Term.
HOLDING OVER 22. If Tenant fails to vacate the Premises at the end
of the Term, then Tenant shall be a tenant at will and, in
addition to all other damages (both consequential as well as
direct) and remedies to which Landlord may be entitled for
such holding over, Tenant shall pay, in addition to the
other Rent, a daily Basic Rental equal to the greater of (a)
150% of the daily Basic Rental payable during the last month
of the Term, or (b) the prevailing rental rate in the
Building for similar space. The provisions of this paragraph
shall not in any way exclude Landlord's right of re-entry or
any other right under this Lease.
CERTAIN RIGHTS 23. Provided that the exercise of such rights does not
RESERVED BY unreasonably interfere with Tenant's occupancy of the
LANDLORD Premises, Landlord shall have the following rights:
(a) to decorate and to make inspections, repairs,
alterations, additions, changes, or improvements, whether
structural or otherwise, in and
19
<PAGE>
about the Building, or any part thereof; for such purposes,
to enter upon the Premises and, during the continuance of
any such work, to temporarily close doors, entryways, public
space, and corridors in the Building; to interrupt or
temporarily suspend Building services and facilities; and to
change the arrangement and location of entrances or
passageways, doors, and doorways, corridors, elevators,
stairs, restrooms, or other public parts of the Building;
(b) to take such reasonable measures as Landlord
deems advisable for the security of the Building and its
occupants, including without limitation searching all
persons entering or leaving the Building; evacuating the
Building for cause, suspected cause, or for drill purposes;
temporarily denying access to the Building; and closing the
Building after normal business hours and on Saturdays,
Sundays, and holidays, subject, however, to (i) Tenant's
right to enter when the Building is closed after normal
business hours under such reasonable regulations as Landlord
may prescribe from time to time which may include by way of
example, but not of limitation, that persons entering or
leaving the Building, whether or not during normal business
hours, identify themselves to a security officer by
registration or otherwise and that such persons establish
their right to enter or leave the Building, and (ii)
Tenant's right, in the event Tenant leases two (2) or more
full floors of the Building pursuant to one or more of the
expansion rights set forth in the Exhibit G attached hereto
and after delivering to Landlord a written request to have
the following access rights, to enter the fire escape
stairwell of the Building for the sole purpose of gaining
access to another full floor occupied by Tenant, which right
is contingent upon Tenant paying to Landlord, prior to the
commencement of the necessary work, all costs incurred or to
be incurred by Landlord in connection with providing Tenant
with this access right within the Building including,
without limitation, all expenses incurred or to be incurred
to provide for restriction(s) to access to other floors of
the Building as well as restriction(s) to access to Tenant-
occupied floors;
(c) to change the name by which the Building is
designated; and
(d) to enter the Premises at all reasonable hours
(and, in the event of an emergency, at any time) for the
purpose of examining or inspecting the same, to supply
janitorial services and any other services to be provided by
Landlord to Tenant hereunder, to show the same to
prospective purchasers, lenders, or tenants, to make such
alterations, repairs, improvements or additions, whether
structural or otherwise, to the Premises or to the Building
as Landlord may deem necessary or desirable, and to enforce
any of Landlord's rights provided in this Lease. Landlord
may enter by means of a master key without liability to
Tenant except for any failure to exercise due care for
Tenant's property and without affecting this Lease.
SUBSTITUTION 24. (a) From time to time during the Term, Landlord
SPACE may substitute for the Premises other space that has an area
at least equal to that of the Premises (or for a portion of
the Premises if all portions of the Premises are not
contiguous and as long as the Substitution Space [as
hereinafter defined] has an area equal to or greater than
that of the portion of the Premises being substituted) and
is located in the Building (the "Substitution Space"). The
------------ -----
Substitution Space may contain a portion of the former
Premises. Notwithstanding anything to the contrary contained
in this Section 24.(a), (1) Landlord shall have no right to
relocate the Premises (or any portion(s) thereof) during any
period of time in which Tenant has any of the expansion
rights or preferential rights to lease other space in the
Building as provided in the Exhibit G attached to this
---------
Lease, (2) Landlord shall have no right to substitute other
space in the Building for an entire floor of the Building
occupied by Tenant unless the Substitution Space is also an
entire floor of the Building, (3) except as provided in
subpart (4) below, if Tenant occupies space on two or more
entire contiguous floors of the Building and Landlord is
electing to relocate one or more of such entire floors, the
Substitution Space must consist of the same number of
contiguous floors as are being relocated by Landlord or, if
only one of such entire floors of the Building is being
relocated, the Substitution Space must be contiguous to and
above or below another full floor of the Building then
occupied by Tenant which is not being relocated, and (4) if
Tenant occupies all of the 2nd and 3rd floors of the
Building or all of the 2nd, 3rd, and 4th floors of the
Building, Landlord shall have no right to relocate the
Premises (or any portion(s) thereof) located on such floors
during the period of such occupancy by Tenant.
(b) If Landlord exercises such right by giving
Tenant notice
20
<PAGE>
thereof (a "Substitution Notice") at least 60 days before
------------ ------
the effective date of such substitution, then (1) the
description of the Premises shall be modified accordingly;
and (2) all of the terms and conditions of this Lease shall
apply to the Substitution Space and the remaining portions
of the Premises, if any, except that if the then unexpired
balance of the Term shall be less than eighteen (18) months
but not less than nine (9) months, then the Term shall be
extended so that the Term shall expire on the last day of
the eighteenth (18th) month following the Substitution
Effective Date (defined below). Each Substitution Notice
must identify the portion(s) of the Premises to be affected
by the applicable substitution. Subject to adjustment as
provided in the immediately following sentence, the
effective date of such substitution (the "Substitution
------------
Effective Date.") shall be either (i) the date specified in
--------------
the applicable Substitution Notice, or (ii) if Landlord is
required to perform tenant finish work to the Substitution
Space under Section 24.(c) below, the date on which Landlord
tenders possession of the Substitution Space to Tenant with
such tenant finish work substantially completed. However, if
Landlord is delayed in performing such tenant finish work by
actions or inaction of Tenant or its officers, employees,
architects, consultants, contractors, workmen, mechanics,
engineers, space planners or any other agents or
representatives of Tenant (whether due to any requested
changes to the plans and specifications for such work by
Tenant or otherwise), then the Substitution Effective Date
shall not be extended and Tenant shall pay Rent for the
Substitution Space beginning on the date specified in the
applicable Substitution Notice.
(c) Tenant may either accept possession of the
Substitution Space in its "as is" condition as of the
Substitution Effective Date or require Landlord to alter the
Substitution Space in such a manner so as to cause such
Substitution Space (including, without limitation, the
leasehold improvements therein) to be in a condition
comparable to the condition, as of the date of the
Substitution Notice, of the portion(s) of the Premises being
substituted. Tenant shall deliver to Landlord written notice
of its election within ten (10) business days after the
applicable Substitution Notice has been delivered to Tenant.
If Tenant fails to timely deliver notice of its election or
if an Event of Default exists at the time of any such
election, then Tenant shall be deemed to have elected to
accept possession of the Substitution Space in its "as is"
condition. If Tenant timely elects to require Landlord to
alter the Substitution Space as provided by this Section,
then (1) Landlord shall alter the Substitution Space in such
a manner so as to cause such Substitution Space (including,
without limitation, the leasehold improvements therein) to
be in a condition comparable to the condition, as of the
date of the Substitution Notice, of the portion(s) of the
Premises being substituted, and (2) Tenant shall continue to
occupy the Premises (upon all of the terms of this Lease)
until the Substitution Effective Date.
(d) Tenant shall, on the date Landlord tenders
possession of the Substitution Space to Tenant (with the
tenant improvements, if any are required by this Section,
substantially completed), (i) move its business operations
from the Premises (or the applicable portion(s) of the
Premises if a partial substitution is permitted hereby) into
the Substitution Space, and (ii) surrender possession of the
Premises (or the substituted portion(s) thereof, if
applicable) in accordance with Section 21 above. If Tenant
occupies the Premises (or the substituted portion(s)
thereof, if applicable) after the date Landlord tenders
possession of the Substitution Space to Tenant (with the
tenant improvements, if any are required by this Section,
substantially completed), Tenant's occupancy of the Premises
shall be a tenancy at will and, without limiting all other
rights and remedies available to Landlord (including,
without limitation, the filing of a forcible detainer suit),
Tenant shall pay Basic Rental for the Premises (or the
substituted portion(s) thereof, if applicable) as provided
in Section 22 and all other Rent due therefor until such
occupancy ends, and such amounts shall be in addition to the
Rent due for the Substitution Space.
(e) If Landlord exercises its substitution right,
then Landlord shall, at Landlord's sole cost and expense,
move Tenant's furniture, equipment, supplies and telephone
equipment from the Premises (or applicable portion(s)
thereof) to the Substitution Space. Landlord shall also
reimburse Tenant for reprinting Tenant's stationery of the
same quality and quantity of Tenant's stationery supply on
hand immediately prior to Landlord's notice to Tenant of the
exercise of this relocation right. If the Substitution Space
contains more square footage than the Premises being
relocated, and if such relocated Premises were carpeted,
Landlord shall supply and install an equal amount of
carpeting of the
21
<PAGE>
same or equivalent quality and color.
MISCELLANEOUS 25. (a) Landlord Transfer. Landlord may transfer, in
-------- --------
whole or in part, the Building and any of its rights under
this Lease. If Landlord assigns its rights under this Lease,
then Landlord shall thereby be released from any further
obligations hereunder, subject to Section 6.
(b) Landlord's Liability. The liability of
---------- ---------
Landlord to Tenant for any default by Landlord under the
terms of this Lease shall be limited to Tenant's actual
direct, but not consequential, damages therefor and shall be
recoverable from the interest of Landlord in the Building
and the Land, and Landlord shall not be personally liable
for any deficiency except for the return of the Security
Deposit if Landlord is not released from its liability to
return the same as provided in Section 6 above. This section
shall not be deemed to limit or deny any remedies which
Tenant may have in the event of default by Landlord
hereunder which do not involve the personal liability of
Landlord.
(c) Force Majeure. Other than for Tenant's
-------------
monetary obligations under this Lease and obligations which
can be cured by the payment of money (e.g., maintaining
insurance), whenever a period of time is herein prescribed
for action to be taken by either party hereto, such party
shall not be liable or responsible for, and there shall be
excluded from the computation for any such period of time,
any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations, or
restrictions, or any other causes of any kind whatsoever
which are beyond the control of such party.
(d) Brokerage. Landlord and Tenant each warrant to
---------
the other that it has not dealt with any broker or agent in
connection with the negotiation or execution of this Lease
other than Landlord's Broker and Tenant's Broker. Tenant and
Landlord shall each indemnify the other against all costs,
expenses, attorneys' fees, and other liability for
commissions or other compensation claimed by any broker or
agent claiming the same by, through, or under the
indemnifying party.
(e) Estoppel Certificates. From time to time,
-------- ------------
Tenant shall furnish to any party designated by Landlord,
within ten (10) business days after Landlord has made a
request therefor, a certificate signed by Tenant confirming
and containing such factual certifications and
representations as to this Lease as Landlord may reasonably
request. It is expressly understood and agreed that any such
certificate may be relied upon by any prospective purchaser
or encumbrancer of all or any portion of the Land or by any
other person to whom it is delivered. Tenant's failure to
deliver such certificate within such time shall be
conclusive upon Tenant that this Lease is in full force and
effect, without modification except as may be represented by
Landlord, that there are no uncured defaults in Landlord's
performance and that not more than one (1) months' Rent has
been paid in advance. If Tenant fails to execute and deliver
to Landlord any certificate required by this Section which
has been delivered to Tenant for Tenant's execution within
ten (10) business days after Tenant's receipt of the same,
such failure shall constitute an Event of Default hereunder
until such time as the required certificate has been
delivered to Landlord. Landlord is hereby irrevocably
appointed and authorized as agent and attorney-in-fact of
Tenant, coupled with an interest, to execute all
certificates required by this Section in the event Tenant
fails to execute said certificates Within such ten (10)
business day period.
(f) Notices. All notices and other communications
-------
given pursuant to this Lease shall be in writing and shall
be (1) mailed by first class, United States Mail, postage
prepaid, certified, with return receipt requested, and
addressed to the parties hereto at the address specified in
the Basic Lease Information, (2) hand delivered to the
intended address, or (3) sent by prepaid telegram, cable,
facsimile transmission, or telex followed by a confirmatory
letter. Notice sent by certified mail, postage prepaid,
shall be effective three business days after being deposited
in the United States Mail; all other notices shall be
effective upon delivery to the address of the addressee. The
parties hereto may change their addresses by giving notice
thereof to the other in conformity with this provision.
(g) Separability Gender and Number. If any clause
------------------------------
or provision of this Lease is illegal, invalid, or
unenforceable under present or future
22
<PAGE>
Laws, then the remainder of this Lease shall not be affected
thereby and in lieu of such clause or provision, there shall
be added as a part of this Lease a clause or provision as
similar in terms to such illegal, invalid, or unenforceable
clause or provision as may be possible and be legal, valid,
and enforceable. Singular words shall connote the plural
number as well as the singular and vice versa, and the
masculine shall include the feminine and the neuter
(h) Amendments and Binding Effect. This Lease may
-----------------------------
not be amended except by instrument in writing signed by
Landlord and Tenant. No provision of this Lease shall be
deemed to have been waived by Landlord unless such waiver is
in writing signed by Landlord, and no custom or practice
which may evolve between the parties in the administration
of the terms hereof shall waive or diminish the right of
Landlord to insist upon the performance by Tenant in strict
accordance with the terms hereof. The terms and conditions
contained in this Lease shall inure to the benefit of and be
binding upon the parties hereto, and upon their respective
successors in interest and legal representatives, except as
otherwise herein expressly provided. This Lease is for the
sole benefit of Landlord and Tenant, and, other than
Landlord's Mortgagee, no third party shall be deemed a third
party beneficiary hereof.
(i) Quiet Enjoyment. Provided Tenant has performed
---------------
all of the terms and conditions of this Lease to be
performed by Tenant, Tenant shall peaceably and quietly hold
and enjoy the Premises for the Term, without hindrance from
Landlord or any party claiming by, through, or under
Landlord, subject to the terms and conditions of this Lease.
(j) Joint and Several Liability. If there is more
---------------------------
than one Tenant, then the obligations hereunder imposed upon
Tenant shall be joint and several. If there is a guarantor
of Tenant's obligations hereunder, then the obligations
hereunder imposed upon Tenant shall be the joint and several
obligations of Tenant and such guarantor, and Landlord need
not first proceed against Tenant before proceeding against
such guarantor nor shall any such guarantor be released from
its guaranty for any reason whatsoever.
(k) Captions. The captions contained in this Lease
--------
are for convenience of reference only, and do not limit or
enlarge the terms and conditions of this Lease.
(1) No Merger. There shall be no merger of the
---------
leasehold estate hereby created with the fee estate in the
Premises or any part thereof if the same person acquires or
holds, directly or indirectly, this Lease or any interest in
this Lease and the fee estate in the leasehold Premises or
any interest in such fee estate.
(m) Landlord Consent. Except as expressly set
----------------
forth to the contrary in this Lease, any time Landlord's
consent is required for Tenant to take (or fail to take) any
action (including without limitation, any assignment of this
Lease or subletting of all or any portion of the Premises),
Landlord may withhold such consent in Landlord's sole and
absolute discretion.
(n) No Offer. The submission of this Lease to
--------
Tenant shall not be construed as an offer, nor shall Tenant
have any rights under this Lease unless Landlord executes a
copy of this Lease and delivers it to Tenant.
23
<PAGE>
(o) Exhibits. All exhibits and attachments
--------
attached hereto are incorporated herein by this reference.
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Outline of the Initial Premises
Exhibit A-1 - Outline of 2nd Floor Expansion Premises
Exhibit A - Outline of 4th Floor Expansion Premises
Exhibit B - Building Rules and Regulations
Exhibit C - Operating Expense and Tax Escalator
Exhibit D - Tenant Finish Work: Allowance
Exhibit E - Parking
Exhibit F - Extension Options
Exhibit G - Expansion Options
Exhibit G-1 - First 2nd Floor Expansion Option Provisions
Exhibit G-2 - Second 2nd Floor Expansion Option Provisions
Exhibit G-3 - First Right of First Opportunity for the 4th Floor
Expansion Premises
Exhibit G-4 - First Right of First Opportunity for the 2nd Floor
Expansion Premises
Exhibit G-5 - First Expansion Option for the 4th Floor
Expansion Premises
Exhibit G-6 - 2nd Right of First Opportunity Provisions for the
4th Floor Expansion Premises
Exhibit G-7 - Right of First Opportunity Provisions for the
"To Be Determined" Premises
Exhibit H - DTPA Waiver
Exhibit I - Confidentiality
Exhibit J - Letter of Credit Provisions
Exhibit J-1 - Extra Construction Allowance Letter of Credit
Provisions
Exhibit K - Arbitration Provisions Rider
Rider A - Form of Initial Letter of Credit and Extra
Construction Allowance LC
</TABLE>
(p) Entire Agreement. This Lease constitutes the
----------------
entire agreement between Landlord and Tenant regarding the
subject matter hereof and supersedes all oral statements and
prior writings relating thereto. Except for those set forth
in this Lease, no representations, warranties, or agreements
have been made by Landlord or Tenant to the other with
respect to this Lease or the obligations of Landlord or
Tenant in connection therewith.
(q) Governing Law. This Lease and the rights and
-------------
obligations of the parties hereto shall be interpreted,
construed, and enforced in accordance with the laws of the
State of Texas.
(r) Financial Reports. Within ten (10) business
-----------------
days after Tenant's receipt of Landlord's written request
for the same, Tenant will deliver to Landlord an annual
report or similar audited statement of Tenant's financial
condition for Tenant's preceding fiscal year and such other
financial information with respect to Tenant as Landlord may
from time to time reasonably request. Except as hereinafter
provided, Landlord covenants and agrees to keep such
financial information of Tenant (and any financial
information of guarantors, if any, of this Lease) strictly
confidential and not disclose the same except as follows:
(a) to the extent disclosure of some or all of such
financial information may be required by any Law or court
order; (b) in connection with any financing sought by
Landlord; (c) in connection with attempts by Landlord to
sell all or any portion of its interest in the Land and/or
the Building; and (d) to persons who "need to know" such as
Landlord's officers, directors, employees, attorneys,
accountants, advisors, consultants, financiers, partners,
investors, or current or prospective lenders. If this Lease
is guaranteed by other individuals, companies or
institutions, Tenant agrees to concurrently deliver to
Landlord an annual report or similar audited financial
statement, as applicable (and any other financial
information reasonably required by Landlord), of each such
guarantor.
(s) Abandonment. Neither Tenant nor any Permitted
-----------
Sublessee (as hereinafter defined) or Permitted Assignee (as
hereinafter defined) shall vacate (as hereinafter defined),
abandon or surrender all or any portion of the Premises at
any time during the Term. If Tenant (or, as applicable, any
Permitted Sublessee or Permitted Assignee) shall vacate or
fail to occupy at least fifty percent (50%) of
24
<PAGE>
the Premises for a period of twelve (12) consecutive months,
Landlord may, at its option, terminate this Lease with
respect to any portion(s) of the Premises to the extent such
portion(s) has/have been vacated (as hereinafter defined) or
is/are no longer occupied. Such partial termination of this
Lease shall be done by delivering written notice of such
termination to Tenant (or, as applicable, such Permitted
Sublessee or Permitted Assignee) prior to the date, if any,
on which Tenant re-occupies and/or is deemed to have no
longer vacated the applicable portion(s) of the Premises,
and such written notice of termination shall specify the
date or dates on which such termination shall be effective;
provided, however, Tenant shall have the right, within ten
(10) days after its receipt of such written termination
notice, to re-occupy at least 50% of the Premises in which
case Landlord's termination notice shall be of no force or
effect. Tenant shall have the burden of proving that, within
such ten (10) day period, Tenant has no longer vacated
and/or is then occupying at least 50% of the Premises.
Notwithstanding anything to the contrary contained in this
Lease, Tenant may, in connection with any Permitted
Transfer, vacate and abandon all or any portion of the
Premises for a period of time not to exceed fifteen (15)
days. As used herein, the term "Permitted Transfer" shall
------------------
mean (1) any Transfer after Tenant's receipt of Landlord's
prior written consent thereto, and (2) any Permitted
Transfer Without Landlord Consent, and the term "Permitted
---------
Transferee" shall mean any sublessee or assignee in
----------
connection with a Permitted Transfer. As used herein, the
term "Permitted Sublessee" shall mean either (A) a sublessee
-------------------
in connection with a subletting of all or any portion of the
Premises after Tenant's receipt of Landlord's prior written
consent thereto, or (B) a sublessee in connection with a
Permitted Transfer Without Landlord Consent (as defined in
Section 10.(g) above), and the term "Permitted Assignee"
------------------
shall mean either (y) an assignee in connection with an
assignment of all or any portion of Tenant's interest in the
Lease after Tenant's receipt of Landlord's prior written
consent thereto, or (z) an assignee in connection with a
Permitted Transfer without Landlord Consent (as defined in
Section 10.(g) above). After the expiration of the above-
described ten (10) day period, Landlord may re-enter the
Premises or such vacated or unoccupied portion or portions
thereof that in total exceed fifty percent (50%) of the
Premises for purposes of marketing the same and making the
same ready for a new tenant at any time after being vacated
or no longer occupied, but Landlord shall in no event be
deemed to have terminated this Lease (either in its entirety
or as to the applicable vacated or unoccupied portion or
portions of the Premises) by taking any such actions. If
Landlord terminates this Lease as to less than the entire
Premises in accordance with this Section 25.(s) (i.e., after
the expiration of the above-referenced 10 day period),
Landlord and Tenant (or, as applicable, such Permitted
Assignee) shall, within fifteen (15) days thereafter,
execute an amendment to this Lease evidencing such partial
termination and such other amendments to this Lease as are
necessary (including, without limitation, the applicable
decrease in Basic Rental and Tenant's Proportionate Share
and Tenant's or such Permitted Assignee's agreement to pay
to Landlord an amount equal to the lesser of [i] 50% of the
costs and expenses incurred by Landlord in connection with
the construction of any demising wall between the remaining
Premises and the recaptured portion(s) of the Premises, and
[ii] the sum of all Basic Rental and Additional Rental
attributable to the recaptured portion(s) of the Premises
for the period beginning on the date of recapture until the
scheduled expiration date of the Lease, such payment to be
made within 15 days after the applicable party's receipt of
written invoice(s) evidencing such costs and expenses). If
Tenant (or any Permitted Sublessee or Permitted Assignee)
shall (a) after January 1, 2000, vacate or fail to occupy
the entire Premises or at least fifty percent (50%) of the
Premises for a period of twelve (12) consecutive months and
the foregoing continue after the expiration of the above-
described 10 day period, (b) surrender (whether at the end
of the Term or otherwise) the entire Premises or all or any
substantial portion thereof, or (c) be dispossessed by
process of law, or otherwise, of all or any portion or
portions of the Premises, then any personal property
belonging to Tenant or such Permitted Sublessee or Permitted
Assignee and left in any such vacated or unoccupied portion
or portions of the Premises shall, at Landlord's option, be
deemed abandoned. Such personal property may be
appropriated, sold, stored, destroyed, or otherwise disposed
of by Landlord without notice to Tenant or such Permitted
Sublessee or Permitted Assignee, as applicable, and without
any obligation to account for such property. As used herein,
the terms "vacate" and "vacated" shall mean to conduct,
during the normal business hours of the Building, Tenant's
(or any Permitted Sublessee's or Permitted Assignee's)
activities within any portion(s) of the Premises such that
the applicable portion(s) of the Premises is/are being
occupied by less than one (1)
25
<PAGE>
person per one thousand (1000) net rentable square feet
contained therein. The provisions of this Section 25.(s)
shall survive the expiration or earlier termination of this
Lease.
(t) Signs. Except as otherwise permitted by this
-----
Section 25.(0, Tenant shall not install, paint, display,
inscribe, place or affix any sign, picture, advertisement,
notice, lettering or direction on any part of the outside of
the Building or in the interior of the Premises or other
portion of the Building which is visible from the outside of
the Building. Landlord will prescribe a uniform pattern of
identification signs for Tenant to be placed on the outside
of the Premises and in the directory of tenants of the
Building located in the lobby thereof and, other than such
identification signs, Tenant shall not install, paint,
display, inscribe, place or affix, or otherwise attach, any
sign, picture, advertisement, notice, lettering or direction
on the outside of the Premises for exterior view without the
prior written consent of Landlord. Any sign, picture,
advertisement, notice, lettering or direction installed,
painted, displayed, inscribed, placed, affixed or otherwise
attached on the outside of the Premises or on any part of
the outside of the Building by Tenant without the prior
written consent of Landlord may be removed by Landlord at
Tenant's expense. If Landlord installs a multi-tenant
monument sign outside of the Building on the Land, at such
time(s) as Tenant occupies 45,690 rentable square feet or
more of space in the Building, Landlord shall, at Landlord's
sole cost and expense and to the extent permitted by the
City of Irving, the Las Colinas Association and any other
governmental authority with jurisdiction over the Land, the
Building and/or such signage, identify Tenant on such multi-
tenant monument sign. The location on such monument sign of
Tenant's identification listing shall be determined by
Landlord in Landlord's sole and absolute discretion.
Additionally, such identification listing shall be composed
of the same sign materials as is then found on such monument
sign. The foregoing shall in no way be deemed an agreement
by, or an obligation of, Landlord to install any such multi-
tenant monument sign.
SPECIAL PROVISIONS 26. Letter of Credit. Contemporaneously with its
----------------
delivery of executed originals of this Lease, Tenant shall
deliver to Landlord the Initial Letter of Credit (as defined
in the Exhibit J attached hereto)
---------
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE, AND TENANT'S OBLIGATION
TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR THE
PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, TENANT SHALL CONTINUE TO PAY THE RENT, WITHOUT
ABATEMENT, SETOFF, DEDUCTION, NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS
DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
26
<PAGE>
DATED as of the date first written above.
LANDLORD:
PEMBROKE REAL ESTATE, INC.
By: /s/ Richard Backer
-------------------------
Name: Richard Backer
-----------------------
Title: Sr. Vice President
----------------------
TENANT:
SCIENT CORPORATION, a California corporation
By: /s/ [illegible signature]
-------------------------
Name:
-----------------------
Title:
----------------------
27
<PAGE>
EXHIBIT A
Outline of the Initial Premises
-------------------------------
A-1
<PAGE>
#EXHIBIT A-1
Outline of the 2nd Floor Expansion Premises
-------------------------------------------
A-1-1
<PAGE>
EXHIBIT A-2
-----------
Outline of the 4th Floor Expansion Premises
-------------------------------------------
A-2-1
<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
------------------------------
The following rules and regulations shall apply to the Premises, the
Building, the parking garage associated therewith, the Land and the
appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or deposited therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or its agents, employees or invitees, shall
be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows or doors or other part of the Building without the prior written
consent of Landlord. No nails, hooks or screws shall be driven or inserted in
any part of the Building except by Building maintenance personnel. No curtains
or other window treatments shall be placed between the glass and the Building
standard window treatments.
4. Landlord shall provide and maintain an alphabetical directory for all
tenants in the main lobby of the Building.
5. Landlord shall provide all door locks in each tenant's leased premises,
at the cost of such tenant, and no tenant shall place any additional door locks
in its leased premises without Landlord's prior written consent. Landlord shall
furnish to each tenant a reasonable number of keys to such tenant's leased
premises, at such tenant's cost, and no tenant shall make a duplicate thereof.
6. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by tenants of any bulky material, merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances or lobby shall be conducted under Landlord's supervision at such times
and in such a manner as Landlord may reasonably require. Each tenant assumes all
risks of and shall be liable for all damage to articles moved and injury to
persons or public engaged or not engaged in such movement, including equipment,
property and personnel of Landlord if damaged or injured as a result of acts in
connection with carrying out this service for such tenant.
7. Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which shall in all cases be placed
in the Building so as to distribute weight in a manner acceptable to Landlord
which may include the use of such supporting devices as Landlord may require.
All damages to the Building caused by the installation or removal of any
property of a tenant, or done by a tenant's property while in the Building,
shall be repaired at the expense of such tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall be
swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises. No portion of any tenant's leased premises shall at any time be
used or occupied as sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its leased
premises neat and clean. Tenants shall not employ any person for the purpose of
such cleaning other than the Building's cleaning and maintenance personnel.
10. To ensure orderly operation of the Building, no ice, mineral or other
water, towels, newspapers, etc. shall be delivered to any leased area except by
persons approved by Landlord.
11. Tenant shall not make or permit any improper, objectionable or
unpleasant noises or odors in the Building or otherwise interfere in any way
with other tenants or persons having business with them.
12. No machinery of any kind (other than normal office equipment) shall be
operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
13. Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenant's leased premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry or
not.
14. No vending or dispensing machines of any kind may be maintained in any
leased premises without the prior written permission of Landlord.
B-1
<PAGE>
15. All mail chutes located in the Building shall be available for use by
Landlord and all tenants of the Building according to the rules of the United
States Postal Service.
B-2
<PAGE>
EXHIBIT C
OPERATING EXPENSE AND TAX ESCALATOR
-----------------------------------
1. Tenant shall pay an amount (per each rentable square foot in the
Premises) equal to the excess ("Excess") from time to time of actual Basic Cost
------
(as hereinafter defined) per rentable square foot in the Building over the
actual Basic Cost per rentable square foot in the Building paid or incurred for
calendar year 1999 (the "Expense Stop"). Landlord may collect such amount in a
------------
lump sum, to be due within 30 days after Landlord furnishes to Tenant the Annual
Cost Statement. Alternatively, Landlord may make a good faith estimate of the
Excess to be due by Tenant for any calendar year or part thereof during the
Term, and, unless Landlord delivers to Tenant a revision of the estimated
Excess, Tenant shall pay to Landlord, on January l, 2000 and on the first day of
each calendar month thereafter, an amount equal to the estimated Excess for such
calendar year or part thereof divided by the number of months in such calendar
year during the Term. If Landlord thereafter fails to give Tenant notice of the
monthly estimated payments of Excess for a new calendar year, Tenant shall
continue making monthly estimated payments in accordance with the estimate for
the previous calendar year until a new estimated monthly payment amount is
provided to Tenant. From time to time during any calendar year, Landlord may
estimate and re-estimate the Excess to be due by Tenant for that calendar year
and deliver a copy of the estimate or re-estimate to Tenant. Thereafter, the
monthly installments of Excess payable by Tenant shall be appropriately adjusted
in accordance with the estimations so that, by the end of the calendar year in
question, Tenant shall have paid all of the Excess as estimated by Landlord. Any
amounts paid based on such an estimate shall be subject to adjustment pursuant
to Paragraph 3 of this Exhibit when actual Basic Cost is available for each
calendar year.
2. For the purposes of this Exhibit and the foregoing Lease, the term
"Basic Cost" shall mean all expenses and disbursements of every kind (subject to
- -----------
the limitations set forth below) which Landlord incurs, pays or becomes
obligated to pay in connection with the ownership, operation, and maintenance of
the Building (including the associated parking facilities), determined in
accordance with generally accepted federal income tax basis accounting
principles consistently applied, including but not limited to the following:
(a) Wages and salaries (including management fees) of all employees
engaged in the operation, repair, replacement, maintenance, and security of the
Building, including taxes, insurance and benefits relating thereto;
(b) All supplies and materials used in the operation, maintenance,
repair, replacement, and security of the Building;
(c) Annual cost of (i) all capital improvements made to the Building
which are minor in nature (i.e., cost less than $10,000.00), and (ii) all
capital improvements which, although capital in nature, can reasonably be
expected to reduce the Basic Cost, as well as all capital improvements made in
order to comply with any applicable Laws or to prevent the interruption of any
Landlord Services, as amortized over the useful economic life of such
improvements as determined by Landlord in its reasonable discretion (without
regard to the period over which such improvements may be depreciated or
amortized for federal income tax purposes);
(d) Cost of all utilities, other than the cost of utilities actually
reimbursed to Landlord by the Building's tenants (including Tenant under Section
7.(b) of this Lease);
(e) Cost of any insurance or insurance related expense applicable to
the Building and Landlord's personal property used in connection therewith;
(f) Cost of repairs, replacements, and general maintenance of the
Building, other than repair, replacement, and general maintenance of the roof,
foundation and exterior walls of the Building;
(g) Cost of service or maintenance contracts with independent
contractors for the operation, maintenance, repair, replacement, or security of
the Building (including, without limitation, alarm service, window cleaning, and
elevator maintenance); and
(h) [Intentionally deleted].
There are specifically excluded from the definition of the term "Basic Cost"
costs (1) for capital improvements made to the Building, other than capital
improvements described in subparagraph 2.(c) of this Exhibit and except for
items which, though capital for accounting purposes, are properly considered
maintenance and repair items, such as painting of common areas, replacement of
carpet in elevator lobbies, and the like; (2) for repair, replacements and
general maintenance paid by proceeds of insurance or by Tenant or other third
parties, and alterations attributable solely to tenants of the Building other
than Tenant; (3) for interest, amortization or other payments on loans to
Landlord; (4) for depreciation of the Building; (5) for leasing commissions; (6)
for legal expenses, other than those incurred for the general benefit of the
Building's tenants (e.g., tax disputes); (7) for renovating or otherwise
improving space for occupants of the Building or vacant space in the Building;
(8) for correcting defects in the construction of the Building; (9) for overtime
or other expenses of Landlord in curing
C-1
<PAGE>
defaults or performing work expressly provided in this Lease to be borne at
Landlord's expense; and (10) for federal income taxes imposed on or measured by
the income of Landlord from the operation of the Building.
3. The Annual Cost Statement shall include a statement of Landlord's
actual Basic Cost for the previous year adjusted as provided in Paragraph 4 of
this Exhibit. If the Annual Cost Statement reveals that Tenant paid more for
Basic Cost than the actual Excess in the year for which such statement was
prepared, then Landlord shall credit or reimburse Tenant for such excess within
30 days after delivery of the Annual Cost Statement; likewise, if Tenant paid
less than the actual Excess, then Tenant shall pay Landlord such deficiency
within 30 days after delivery of the Annual Cost Statement.
4. With respect to any calendar year or partial calendar year in which
the Building is not occupied to the extent of 95% of the rentable area thereof,
the Basic Cost for such period shall, for the purposes hereof, be increased to
the amount which would have been incurred had the Building been occupied to the
extent of 95% of the rentable area thereof.
5. Tenant shall pay an amount (per each rentable square foot in the
Premises) equal to the excess ("Tax Excess") from time to time of actual Taxes
(as hereinafter defined) per rentable square foot in the Building over the
actual Taxes per rentable square foot in the Building paid or incurred for
calendar year 1999 (the "Tax Expense Stop"). Landlord may collect such amount in
----------------
a lump sum, to be due within 30 days after Landlord furnishes to Tenant the
Annual Cost Statement. Alternatively, Landlord may make a good faith estimate of
the Tax Excess to be due by Tenant for any calendar year or part thereof during
the Term, and, unless Landlord delivers to Tenant a revision of the estimated
Tax Excess, Tenant shall pay to Landlord, on January 1, 2000 and on the first
day of each calendar month thereafter, an amount equal to the estimated Tax
Excess for such calendar year or part thereof divided by the number of months in
such calendar year during the Term. If Landlord thereafter fails to give Tenant
notice of the monthly estimated payments of Excess for a new calendar year,
Tenant shall continue making monthly estimated payments in accordance with the
estimate for the previous calendar year until a new estimated monthly payment
amount is provided to Tenant. From time to time during any calendar year,
Landlord may estimate and re-estimate the Tax Excess to be due by Tenant for
that calendar year and deliver a copy of the estimate or re-estimate to Tenant.
Thereafter, the monthly installments of Tax Excess payable by Tenant shall be
appropriately adjusted in accordance with the estimations so that, by the end of
the calendar year in question, Tenant shall have paid all of the Tax Excess as
estimated by Landlord. For the purposes of this Exhibit and the foregoing Lease,
the term "Taxes" shall mean all taxes and assessments and governmental charges
-----
whether federal, state, county or municipal, and whether they be by taxing or
management districts or authorities presently taxing or by others, subsequently
created or otherwise, and any other taxes and assessments attributable to the
Building (or its operation), and the grounds, parking areas, driveways, and
alleys around the Building including, without limitation, real estate taxes,
personal property taxes, sewer rents, water rents, general or special
assessments, and duties or levies charged or levied upon or assessed against the
Building and/or the Land or any portion thereof and personal property, transit
taxes, all costs and expenses (including legal fees and court costs) incurred,
charged, and/or assessed against Landlord, for the evaluation, protest or
reduction of property taxes or assessments in connection with the Building
and/or the Land, or any tax or excise on rent or any other tax (however
described) on account of rental received for use and occupancy of any or all of
the Building, whether any such taxes are imposed by the United States of
America, the State of Texas, the County of Dallas, or any local governmental
municipality, authority or agency or any political subdivision of any thereof,
but excluding, however, (i) federal and state taxes on income, and (ii) net
amounts paid to the Dallas County Utility & Reclamation District (such amounts
are herein collectively referred to as "DCURD Taxes") which are due as provided
-----------
below; provided, however, if the present method of taxation changes so that in
lieu of the whole or any part of any Taxes levied on the Land and/or the
Building, there is levied on Landlord a capital tax directly on the rents
received therefrom or a franchise tax, assessment, or charge based, in whole or
in part, upon such rents for the Building, then all such taxes, assessments, or
charges, or the part thereof so based, shall be deemed to be included within the
term "Taxes" for the purposes hereof.
6. Tenant shall pay an amount (per each rentable square foot in the
Premises) equal to the excess (the "DCURD Excess") from time to time of (a)
------------
actual DCURD Taxes per net rentable square foot in the Building over (b) the
actual DCURD Taxes per rentable square foot in the Building paid or incurred for
calendar year 1999 (the "DCURD Expense Stop"); provided, however, that during
------------------
the initial Term only and only with respect to (1) the Initial Premises, (2) the
2nd Floor Expansion Premises (as defined in the Exhibit G attached to this
Lease) if Tenant has exercised the First Expansion Option (as defined in Exhibit
G) by July 1, 2000, and (3) the 4th Floor Expansion Premises (as defined in the
Exhibit G attached to this Lease) if Tenant has exercised the Fourth Floor
Expansion Option (as defined in Exhibit G) by January 1, 2001, the amount of
actual DCURD Taxes to be used in subparts (a) and (b) of this Paragraph 6 for
the purpose of calculating the DCURD Excess shall not exceed the amount (on a
per net rentable square foot in the Building basis) of DCURD Taxes assessed
based on a DCURD tax rate of $3.00 per $100.00 of property value. By way of
example only:
(a) If the Waterway Tower DCURD tax bill for 1999 is $330,000.00, then
such amount would be Tenant's DCURD Expense Stop.
C-2
<PAGE>
(b) If the DCURD tax rate per $100.00 of value increases to $2.75 per
$100.00 of value in 2000 causing the DCURD Taxes in 2000 to increase to
$340,000.00, and assuming that Tenant is then only leasing the Initial
Premise, then Tenant would pay its proportionate share of the $10,000.00
increase, resulting in a DCURD Excess payment in 2000 that is equal to the
following amount:
22,845/221,941 = 10.293% x $10,000.00 = $1,029.30
(c) However, if the DCURD tax rate per $100.00 of value increases to
$3.25 per $100.00 of value in 2000 causing the DCURD Taxes in 2000 to
increase to $360,000.00, and again assuming that Tenant is then only
leasing the Initial Premises, then Tenant would pay its proportionate share
of such increase, up to the $3.00 per $100.00 cap amount, as follows:
DCURD Expense Stop: $330,000.00
DCURD Taxes @ $3.00 cap on tax rate: $350,000.00
DCURD Taxes @actual $3.25 tax rate: $360,000.00
(A) $350,000.00 - $330,000.00 = $20,000.00
(B) $360,000.00 - $350,000.00 = $10,000.00
Result:
-------
(1) Tenant's Proportionate Share = 10.293% x $20,000 (A)=
$2,058.00.
(2) Landlord excludes the tax of $10,000 (B) for Tenant's
escalation purposes.
PLEASE NOTE THAT THE NUMBERS SET FORTH ABOVE ARE NOT ESTIMATES OR
ACTUALS OF THE DCURD TAXES, BUT ARE INSTEAD "PLUG" NUMBERS IN AN
EFFORT TO SHOW THE MECHANICS OF THE "CAP" BEING PROVIDED TO TENANT AS
PROVIDED HEREBY.
7. With respect to any period of time after the initial Term of this
Lease (i.e., any renewal terms in the event Tenant exercises one or more of the
extension options set forth in Exhibit F), Landlord shall provide a new "cap" on
the amount of DCURD Taxes used to calculate the DCURD Excess payable with
respect to the portion(s) of the Premises that the $3.00 DCURD tax rate cap
applied; provided, however, in no event shall such "cap" be less than the "cap"
applicable to such DCURD Taxes with respect to the Initial Premises and, if
applicable, the 2nd Floor Expansion Premises and the 4th Floor Expansion
Premises (such cap to be in effect during any renewal terms is referred to as
the "DCURD Taxes Cap"). Landlord shall also provide a new "cap" on the amount of
---------------
DCURD Taxes used to calculate the DCURD Excess payable with respect to the 2nd
Floor Expansion Premises in the event that Tenant expands into such premises
pursuant to the Second Expansion Option (as defined in Exhibit G), and this
"cap" will also not be less than the "cap" applicable to DCURD Taxes with
respect to the Initial Premises and, if applicable, the 4th Floor Expansion
Premises.
8. Landlord may collect the DCURD Excess in a lump sum, to be due within
30 days after Landlord furnishes to Tenant the Annual Cost Statement.
Alternatively, Landlord may make a good faith estimate of the DCURD Excess to be
due by Tenant for any calendar year or part thereof during the Term, and, unless
Landlord delivers to Tenant a revision of the estimated DCURD Excess, Tenant
shall pay to Landlord, on January 1, 2000 and on the first day of each calendar
month thereafter, an amount equal to the estimated DCURD Excess for such
calendar year or part thereof divided by the number of months in such calendar
year during the Term. If Landlord thereafter fails to give Tenant notice of the
monthly estimated payments of Excess for a new calendar year, Tenant shall
continue making monthly estimated payments in accordance with the estimate for
the previous calendar year until a new estimated monthly payment amount is
provided to Tenant. From time to time during any calendar year, Landlord may
estimate and re-estimate the DCURD Excess to be due by Tenant for that calendar
year and deliver a copy of the estimate or re-estimate to Tenant. Thereafter,
the monthly installments of DCURD Excess payable by Tenant shall be
appropriately adjusted in accordance with the estimations so that, by the end of
the calendar year in question, Tenant shall have paid all of the DCURD Excess as
estimated by Landlord.
C-3
<PAGE>
EXHIBIT D
TENANT FINISH-WORK: ALLOWANCE
-----------------------------
1. If the Premises have heretofore been occupied by any prior tenant,
then except as set forth in this Exhibit, Tenant accepts the Premises in their
"as is" condition on the date that this Lease is entered into.
2. On or before June 15, 1999, Tenant shall provide to Landlord for its
approval final working drawings, prepared by an architect that has been approved
by Landlord (which approval shall not be unreasonably withheld or delayed), of
all improvements that Tenant proposes to install in the Initial Premises; such
working drawings shall include the partition layout, ceiling plan, electrical
outlets and switches, telephone outlets, drawings for any modifications to the
mechanical and plumbing systems of the Building, and detailed plans and
specifications for the construction of the improvements called for under this
Exhibit in accordance with all applicable Laws. Further, if any of Tenant's
proposed construction work will affect the Building's HVAC, electrical,
mechanical, or plumbing systems, then the working drawings pertaining thereto
shall be prepared by the Building's engineer of record, whom Tenant shall at its
cost engage for such purpose. Landlord's approval of such working drawings shall
not be unreasonably withheld, provided that (a) they comply with all applicable
Laws, (b) such working drawings are sufficiently detailed to allow construction
of the improvements in a good and workmanlike manner, and (c) the improvements
depicted thereon conform to the rules and regulations promulgated from time to
time by the Landlord for the construction of tenant improvements (a copy of
which has been delivered to Tenant). As used herein, "Working Drawings" shall
----------------
mean the final working drawings approved by Landlord, as amended from time to
time by any approved changes thereto, and "Work" shall mean all improvements to
----
be constructed in accordance with and as indicated on the Working Drawings.
Approval by Landlord of the Working Drawings shall not be a representation or
warranty of Landlord that such drawings are adequate for any use, purpose, or
condition, or that such drawings comply with any applicable law or code, but
shall merely be the consent of Landlord to the performance of the Work. Tenant
shall, at Landlord's request, sign the Working Drawings to evidence its review
and approval thereof. All changes in the Work must receive the prior written
approval of Landlord, and in the event of any such approved change Tenant shall,
upon completion of the Work, furnish Landlord with an accurate, reproducible
"as-built" plan (e.g., sepia) of the improvements as constructed, which plan
shall be incorporated into this Lease by this reference for all purposes.
3. The Work shall be performed only by contractors and subcontractors
approved in writing by Landlord, which approval shall not be unreasonably
withheld. All contractors and subcontractors shall be required to procure and
maintain (a) insurance against such risks, in such amounts, and with such
companies as Landlord may reasonably require and (b) payment and performance
bonds covering the cost of the Work and otherwise reasonably satisfactory to
Landlord. Certificates of such insurance, with paid receipts therefor, and
copies of such bonds must be received by Landlord before the Work is commenced.
The Work shall be performed (i) in a good and workmanlike manner that is free of
defects and is in strict conformance with the Working Drawings, (ii) in such a
manner and at such times as to maintain harmonious labor relations and not to
interfere with or delay Landlord's other contractors, the operation of the
Building, and the occupancy thereof by other tenants, and (iii) in such a manner
so that, upon its Substantial Completion, Tenant will be able to occupy the
applicable portion(s) of the Premises. All contractors and subcontractors shall
contact Landlord and schedule time periods during which they may use Building
facilities in connection with the Work (e.g., elevators, excess electricity,
etc.).
4. Landlord shall cooperate with Tenant and Equis Corporation to cause
the Work to be commenced as soon as practicable after Landlord's approval of the
Working Drawings and to be substantially completed on or before the target date
of January 1, 2000. Tenant agrees to similarly cooperate with Landlord and its
managing agent during and in connection with the construction of the Work
(including, without limitation, moving out of the applicable non-finished-out
portions of the Initial Premises into the finished-out portions of the Initial
Premises as the Work in such finished-out portions of the Initial Premises is
substantially completed and such portions become available for occupancy by
Tenant) to cause the Work to be substantially completed on or before the target
date of January 1, 2000.
5. Tenant shall bear the entire cost of performing the Work (including,
without limitation, the Construction Fees [as defined in Paragraph 7 below],
costs in connection with the design of the Work and preparation of the Working
Drawings, costs of construction labor and materials, electrical usage during
construction, additional janitorial services, general tenant signage, related
taxes and insurance costs, all of which costs are herein collectively called the
"Total Construction Costs") in excess of the Construction Allowance (hereinafter
-------------------
defined), the Space Plan Allowance (hereinafter defined) and the Plan Revisions
Allowance (hereinafter defined). Upon approval of the Working Drawings and
selection of a contractor, Tenant shall promptly (a) execute a work order
agreement prepared by Landlord which identifies such drawings, itemizes the
Total Construction Costs and sets forth the Construction Allowance, the Space
Plan Allowance and the Plan Revisions Allowance, and (b) if applicable, pay to
Landlord the amount by which the estimated Total Construction Costs exceed the
Construction Allowance, the Space Plan Allowance and the Plan Revisions
Allowance (such excess is herein referred to as the "Estimated Construction
----------------------
Excess"). Once the Work has been Substantially Completed and before Tenant
occupies the applicable portion of the Initial Premises, Tenant
D-1
<PAGE>
shall pay to Landlord an amount equal to the Total Construction Costs (as
adjusted for any approved changes to the Work), less (1) the amount of the
payments already made by Tenant pursuant to this Paragraph 5, (2) the amount of
the Construction Allowance, the Space Plan Allowance and the Plan Revisions
Allowance, and (3) the cost reasonably estimated by Landlord for completing all
punch-list items; finally, upon completion of the punch-list items, Tenant shall
pay to Landlord the costs incurred in completing the same.
6. Landlord shall provide to Tenant a construction allowance (the
"Construction Allowance") equal to the lesser of (a) $15.00 per rentable square
----------------------
foot in the Premises, or (b) the Total Construction Costs, as adjusted for any
approved changes to the Work; provided, however, because Equis Corporation is
managing the performance of the Work, Tenant shall, not become entitled to full
credit for the Construction Allowance, the Space Plan Allowance and the Plan
Revisions Allowance until the Work has been Substantially Completed and Tenant
has caused to be delivered to Landlord (1) all invoices from contractors,
subcontractors, and suppliers evidencing the cost of performing the Work,
together with lien waivers from such parties, (2) a certificate of occupancy
from the appropriate governmental authority, if applicable to the Work, or
evidence of governmental inspection and approval of the Work, and (3) evidence
reasonably satisfactory to Landlord of the amount of costs, if any, incurred by
Tenant in connection with the preparation of the Working Drawings and any
revisions to the Working Drawings after the preparation of the initial plans
approved by Landlord (i.e., evidence needed in connection with determining the
amount of credit to be provided Tenant utilizing the Space Plan Allowance and
the Plan Revisions Allowance). Notwithstanding anything to the contrary
contained in this Exhibit, if the Total Construction Costs are less than
$342,675.00 and Tenant has become entitled to a credit of more than $296,985.00
(i.e., $13.00 per rentable square foot in the Initial Premises) toward the
construction of standard building improvements utilizing the Construction
Allowance (the difference between $342,675.00 and the amount of the Construction
Allowance utilized by Tenant in excess of $296,985.00 is herein referred to as
the "Available Unused Allowance"), Tenant shall have the right, after the Work
--------------------------
has been Substantially Completed and Tenant has begun to occupy all of the
Initial Premises, to direct Landlord in writing to apply the amount of the
Available Unused Allowance as a credit against the next due installment(s) of
Basic Rental due under this Lease until such time as the full amount of the
Available Unused Allowance has been credited against such installment(s).
7. The $15.00 per rentable square foot amount provided above may be
increased by up to $10.00 per rentable square foot at Tenant's written request
therefor; provided, however, Basic Rental shall then be increased as provided in
the following sentence based on the actual amount of extra construction
allowance (the "Extra Construction Allowance") provided to Tenant by Landlord
----------------------------
after Landlord's receipt of Tenant's written request therefor. In the event
Landlord provides Tenant with all or any of the Extra Construction Allowance,
Basic Rental shall be increased by the amount which is necessary to fully
amortize the actual amount of the Extra Construction Allowance provided to
Tenant using a sixty (60) month term and a ten percent (10%) per annum interest
rate factor. By way of example only, if the actual amount of the Extra
Construction Allowance provided to Tenant was $45,690.00 (i.e., $2.00 per
rentable square foot in the Premises), then the monthly Basic Rental due under
this Lease for the Initial Premises would be increased by $970.78, thus
increasing the Basic Rental payable for the Initial Premises to $45,708.91.
Except as expressly provided in this Exhibit to the contrary, any Extra
Construction Allowance not used for the Work by January 1, 2000 shall be
forfeited and may not be used for any other purposes except as expressly
provided in this Exhibit to the contrary. Prior to the date on which Landlord
has notified Tenant that Landlord anticipates the construction of the Work to
commence, Tenant shall deposit with Landlord an irrevocable letter of credit
(such required letter of credit is referred to a the "Extra Construction
----- ------------
Allowance LC") in an amount equal to the amount, as reasonably estimated by
- ------------
Landlord, equal to the Extra Construction Allowance to be provided to Tenant by
Landlord based on Landlord's review of the Working Drawings and the bid or bids
for the construction of the Work (the date on which Landlord receives such
irrevocable letter of credit is referred to as the "Extra Construction Allowance
----------------------------
LC Delivery. Date"). Landlord shall, at least ten (10) days prior to the date on
- ----------- ----
which Landlord anticipates the construction of the Work to commence, notify
Tenant in writing of the required initial amount of the Extra Construction
Allowance LC. The rights and obligations of the parties with respect to this
letter of credit shall be governed by the Exhibit J-1 attached to the Lease.
8. Landlord or its Affiliate or agent shall supervise the Work, make
disbursements required to be made to the contractor, and act as a liaison
between the contractor and Tenant and coordinate the relationship between the
Work, the Building, and the Building's systems. In consideration for Landlord's
construction supervision services, Tenant shall pay to Landlord a construction
supervision fee equal to three percent (3%) of the Total Construction Costs (the
"LaSalle Fee"). Tenant's project manager, Equis Corporation, is managing the
-----------
performance of the Work and will participate in the coordination, bidding and
management of all phases of the construction thereof. In consideration of such
services, Tenant shall pay Equis Corporation a construction management fee equal
to five percent (5%) of the Total Construction Costs (the "Equis Fee"). The
---------
supervision and management fees described above are herein referred to as the
"Construction Fees"). Notwithstanding the foregoing, the LaSalle Fee and the
- ------------------
Equis Fee shall each be reduced by an amount equal to 50% of the costs of the
Work attributable to modifications to the Initial Premises necessary to cause
the same to comply with applicable Disability Laws (as defined in Section 8.(a)
of the Lease) including, without limitation, the Americans With Disabilities Act
of 1990 (such costs are herein referred to as the "ADA Compliance Costs"). If
--------------------
the amount of the ADA Compliance Costs exceeds the amount of the Construction
Fees, Jones Lang LaSalle Management Services, Inc. and Equis Corporation shall
each pay to Tenant, within thirty (30) days after the
D-2
<PAGE>
Work has been Substantially Completed and Tenant has begun to occupy all of the
Initial Premises, an amount equal to 50% of such excess amount; provided,
however, in lieu of paying Tenant its 50% share of such excess amount, Equis
Corporation may elect pursuant to its written brokerage commission agreement
with Landlord to reduce its brokerage commission payable by Landlord in an
amount equal to its 50% share of such excess amount. If, and only if, Equis
Corporation so reduces its brokerage commission payable by Landlord, then
Landlord shall pay to Tenant an amount equal to such reduction in the brokerage
commission.
9. To the extent not inconsistent with this Exhibit, Section 8.(a) of
this Lease shall govern the performance of the Work and the Landlord's and
Tenant's respective rights and obligations regarding the improvements installed
pursuant thereto.
10. In addition to the Construction Allowance, Landlord shall provide to
Tenant (i) an allowance (the "Space Plan Allowance") equal to $1,599.15 (i.e.,
--------------------
$0.07 per rentable square feet of space in the Initial Premises) to be used to
pay for costs incurred in connection with the preparation of the Working
Drawings, and (ii) an allowance (the "Plan Revisions Allowance") equal to
------------------------
$685.35 (i.e., $0.03 per rentable square feet of space in the Initial Premises)
to be used to pay for costs incurred in connection with any revisions to the
Working Drawings after the preparation of the initial plans approved by
Landlord.
D-3
<PAGE>
EXHIBIT E
PARKING
-------
Except as otherwise provided to the contrary in this Exhibit E, Tenant
shall be permitted to use ninety-one (91) undesignated vehicular parking spaces
(collectively, the "Initial Garage Parking Spaces") in the parking garage
-----------------------------
associated with the Building (the "Waterway Parking Garage") during the initial
-----------------------
Term at such rates and subject to such terms, conditions and regulations as are
from time to time charged or applicable to patrons of the Waterway Parking
Garage including, without limitation, the right of Landlord to periodically
confirm the number of assigned parking cards and the identity of the persons to
whom such cards have been assigned, the right of Landlord to charge Tenant for
all parking cards provided to Tenant (other than parking cards for the Initial
Garage Parking Spaces) at a current rate of $18.00 per card, and the right to
confirm that Tenant's employees are not using the non-employee designated
visitor parking areas and, if such employees are using such non-employee
designated parking areas, Landlord shall have the right to enforce established
Building parking policies and regulations. Such parking has been allocated by
Landlord in the Waterway Parking Garage on a first come - first served basis in
an amount equal to one non-reserved and non-exclusive space per 250 net rentable
square feet of the Premises (the "Initial Parking Ratio"). All of the Initial
---------------------
Garage Parking Spaces will be undesignated and unreserved parking spaces
(collectively, the "Unreserved Spaces"). Subject to availability and provided
-----------------
that no Event of Default has occurred and is continuing and no event has
occurred and is continuing which with the passage of time or the giving of
notice, or both, would constitute an Event of Default, Tenant shall have the
right during the initial Term to convert up to eight percent (8%) of the
Unreserved Spaces in the Waterway Parking Garage to reserved parking spaces by
giving Landlord written notice thereof and paying the monthly parking charges
required hereby (such converted Unreserved Spaces are herein collectively
referred to as the "Reserved Spaces"). Tenant shall pay $20.00 (plus all
---------------
applicable taxes) per month per space for each of the Unreserved Spaces. Tenant
shall pay $75.00 (plus all applicable taxes) per month per space for each of the
Reserved Spaces. If, for any reason, Landlord fails or is unable to provide, or
Tenant is not permitted to use, all or any portion of the parking spaces to
which it is entitled hereunder, then Tenant's obligation to pay for such spaces
shall be abated for so long as Tenant does not have the use thereof; this
abatement shall be in full settlement of all claims that Tenant might otherwise
have against Landlord because of Landlord's failure or inability to provide
Tenant with such parking spaces. If Tenant sublets any portion of the Premises
or assigns any of its interest in this Lease, then, if applicable, the parking
spaces allocated to Tenant pursuant to this Exhibit (including, without
limitation, any Unreserved Other Spaces [as hereinafter defined]) shall be
reduced from the number of spaces based on the Initial Parking Ratio to a number
of parking spaces equal to the number of spaces to be allocated to Tenant based
on the Building standard ratio of parking space per rentable square foot as
established by Landlord at the time of such assignment or subletting for non-
reserved and reserved spaces (and, if applicable, with the number of Unreserved
Spaces and Unreserved Other Spaces being adjusted to reflect a ratio comparable
to the ratio of Unreserved Spaces to Unreserved Other Spaces at the time of such
decrease). At such time as the net rentable square foot of floor area of the
Premises increases or decreases, the number of parking spaces allocated to
Tenant pursuant to this Exhibit shall be increased or decreased, as applicable,
based on a ratio of one (1) parking space per two hundred fifty (250) net
rentable square feet of space within the Premises (and, if applicable, with the
number of Unreserved Spaces and Unreserved Other Spaces being adjusted to
reflect a ratio comparable to the ratio of Unreserved Spaces to Unreserved Other
Spaces at the time of such increase or decrease in the net rentable square foot
of floor area of the Premises). All parking is subject to space availability and
Landlord shall designate the location of all reserved parking spaces.
During the initial Term and any renewals thereof, Landlord shall have the
right from time to time to re-allocate the number of Unreserved Spaces based on
the following ratios (each based on the number of net rentable square feet of
space in the Premises):
3.1 per 1,000 in the Waterway Parking Garage and 0.9 per 1,000 at another
location or locations designated by Landlord which is/are in close
proximity to the Building (each an "Other Parking Area" and collectively
------------------
the "Other Parking Areas").
-------------------
In connection with any such re-allocation, Landlord must grant to Tenant a
non-exclusive license (subject to revocation only upon a termination of this
Lease or a termination of Tenant's right of possession of the Premises or upon
any reduction in the number of Unreserved Other Spaces as provided in this
Exhibit) to use an equal number of undesignated and unreserved parking spaces in
the Other Parking Areas (each an "Unreserved Other Space" and collectively the
---------- -----------
"Unreserved Other Spaces"). Landlord shall exercise this right by giving Tenant
-----------------------
written notice thereof (a "Re-Allocation Notice"). Each Re-Allocation Notice
--------------------
shall indicate the number of Unreserved Spaces to be relocated to the Other
Parking Area or Other Parking Areas. Any reduction of the number of Unreserved
Spaces (and the effective date of Tenant's non-exclusive license to use the
comparable number of Unreserved Other Spaces) shall be effective on the first
day of the first full calendar month following the date of Tenant's receipt of
the applicable Re-Allocation Notice. Tenant shall pay to Landlord all required
parking fees (plus all applicable taxes) for the Unreserved Other Spaces
(Landlord shall attempt to secure a parking rate for the Unreserved Other Spaces
that is similar to the rate payable for the Unreserved Spaces) and stop paying
the parking fee for re-allocated Unreserved Spaces at the Waterway Parking
Garage. Upon Tenant's return to Landlord's property manager of the parking
card(s) for any
E-1
<PAGE>
Unreserved Spaces "recaptured" by Landlord as provided in this Exhibit, Landlord
shall provide, at Tenant's sole cost and expense, a like number of parking
card(s) for each of the Unreserved Other Spaces that will be replacing such re-
allocated Unreserved Spaces. Parking in the Other Parking Areas shall be subject
to such terms, conditions and regulations as are from time to time applicable to
persons parking in the Other Parking Areas. All parking in the Other Parking
Areas is subject to space availability.
During the initial Term and any renewals thereof, Landlord shall have the
right from time to time to relocate one or more of Unreserved Other Spaces from
the applicable Other Parking Area(s) to the Waterway Parking Garage by giving
Tenant written notice thereof (a "Relocation Notice"). Each Relocation Notice
-----------------
shall indicate the number of Unreserved Other Spaces to be relocated to the
Waterway Parking Garage. Any relocation of one or more of the Unreserved Other
Spaces shall be effective on the first day of the first full calendar month
following the date of Tenant's receipt of the applicable Relocation Notice.
After such effective date, Tenant shall pay to Landlord $20.00 (plus all
applicable taxes) per month per space for each of such relocated Unreserved
Other Spaces. Tenant shall no longer pay the previously payable parking fee for
the relocated Unreserved Other Spaces until such time, if any, as Landlord
relocates the same back to the applicable Other Parking Area(s). Upon Tenant's
return to Landlord's property manager of the parking card(s) for any Unreserved
Other Spaces relocated by Landlord as provided in this Exhibit, Landlord shall
provide, at Landlord's sole cost and expense, a like number of parking card(s)
for each such space.
E-2
<PAGE>
EXHIBIT F
EXTENSION OPTIONS
-----------------
Provided that Tenant is occupying at least 22,845 net rentable square feet
of space in the Building at the time of such election and, at such time, no
Event of Default has occurred and is continuing and no event has occurred and is
continuing which with the giving of notice or the passage of time, or both,
would constitute an Event of Default, Tenant may renew this Lease for two (2)
additional periods of five (5) years each on the same terms provided in this
Lease (except as set forth below), by delivering written notice of the exercise
thereof to Landlord not later than nine (9) months before the expiration of the
Term or, if applicable, the expiration of the first renewal thereof. On or
before the commencement date of the extended Term in question, Landlord and
Tenant shall execute an amendment to this Lease (a "Lease Amendment") extending
---------------
the Term on the same terms provided in this Lease, except as follows:
(a) The Basic Rental payable for each month during each such extended
Term shall be the prevailing fair market rental rate and terms for renewals
in the Building (or, if no such renewals have taken place at the Building
within a reasonable period of time prior to the date on which such
prevailing fair market rental rate is being determined by Landlord, the
rate and terms for renewals at comparable buildings in the Las Colinas
Urban Center) at the commencement of such extended Term, for space of
equivalent quality, size, utility and location, with the length of the
extended Term and the credit standing and financial condition of Tenant to
be taken into account;
(b) Tenant shall have no further renewal options unless expressly
granted by Landlord in writing;
(c) The portion(s) of the Premises subject to a $3.00 DCURD tax rate
cap shall be subject to the DCURD Taxes Cap (as defined in the Exhibit C
attached to this Lease); and
(d) Landlord shall lease to Tenant the Premises in their then-current
condition, and Landlord shall not provide to Tenant any allowances (e.g.,
moving allowance, construction allowance, and the like) or other tenant
inducements.
Tenant's rights under this Exhibit shall terminate if (i) this Lease or
Tenant's right to possession of all or any portion of the Premises is
terminated, (ii) Tenant assigns any of its interest in this Lease or sublets any
portion of the Premises (other than any Permitted Transfer Without Landlord
Consent), or (iii) Tenant fails to timely exercise its option under this
Exhibit, time being of the essence with respect to Tenant's exercise thereof.
F-1
<PAGE>
EXHIBIT G
This Exhibit G (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
- ------
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease.
EXPANSION OPTIONS
-----------------
(A) First 2nd Floor Expansion Right.
--------------------------------
1. Date of Exercise. Provided that Tenant is occupying at least
----------------
22,845 net rentable square feet of space on the 3rd floor of the Building at the
time of such election and, at such time, no Event of Default has occurred and is
continuing and no event has occurred and is continuing which with the giving of
notice or the passage of time, or both, would constitute an Event of Default,
Tenant may lease all of the rentable square feet of space on the 2nd floor of
the Building (approximately 22,833 rentable square feet of space) (the "2nd
---
Floor Expansion Premises") by delivering to Landlord, on or before July 1, 2000,
- ------------------------
written notice of Tenant's election to include such space in the Premises (such
written notice is herein referred to as the "First Expansion Election Notice"
-------------------------------
and the foregoing expansion option is referred to as the "First Expansion
---------------
Option"). The 2nd Floor Expansion Premises is more particularly depicted on the
Exhibit A-1 attached to the Lease. If requested in a writing received by
Landlord from Tenant at least 30 days prior to July 1, 2000 (the "First
-----
Expansion Notice of Intent"), and provided that Tenant satisfies the
- --------------------------
requirements set forth in this subparagraph, Landlord shall, not less than ten
(10) days prior to July 1, 2000, notify Tenant in writing (the "First Expansion
---------------
Option Notice") of the following: (1) the Fair Market Rental Rate (as defined in
- -------------
the Exhibit G-1 attached to the Lease); (2) the 2nd Floor Finish-Out Allowance
(as defined in Exhibit G-l); (3) the amount of the First Expansion LC (as
defined below); and (4) the date that Landlord anticipates will be the 2nd Floor
Premises Delivery Date (as defined in Exhibit G-l). In the First Expansion
Notice of Intent, Tenant shall indicate the date on which Tenant would like to
add the 2nd Floor Expansion Premises to the Initial Premises (such date to in no
event be later than January 1, 2001). Contemporaneously with Tenant's delivery
of the First Expansion Notice of Intent, Tenant shall deliver to Landlord (i)
the most recent annual report or similar audited statement of Tenant's financial
condition for the preceding fiscal year, and (ii) Tenant's most recent quarterly
financial statement (audited, as applicable) and the most recent year-to-date
statement of Tenant's operations and financial condition. Within five (5)
business days after Tenant's receipt of Landlord's written request for the same,
Tenant shall deliver to Landlord such other information with respect to Tenant
that Landlord may from time to time reasonably request in writing from Tenant
after Landlord's receipt of the First Expansion Notice of Intent. If Tenant does
not satisfy the requirements of the two (2) immediately preceding sentences,
Landlord shall have no obligation to deliver the First Expansion Option Notice
to Tenant as provided hereby. If Tenant exercises the First Expansion Option on
or before July 1, 2000, then the expansion rights provisions set forth in the
Exhibit G-1 attached to the Lease shall apply to Tenant's expansion into the 2nd
Floor Expansion Premises.
2. Rental Rate. If Tenant expands into the 2nd Floor Expansion
-----------
Premises pursuant to this subparagraph (A), Basic Rental for the 2nd Floor
Expansion Premises shall be payable on and after the 2nd Floor Premises Delivery
Date (as defined in the Exhibit G-1 attached to the Lease) and shall be equal to
the Fair Market Rental Rate (as defined in Exhibit G-1).
3. Term. If Tenant expands into the 2nd Floor Expansion Premises
----
pursuant to this subparagraph (A), the term of the leasing of the 2nd Floor
Expansion Premises will be a minimum of five (5) years unless Landlord and
Tenant otherwise agree in writing to a longer term and the existing Term shall
be extended so that it becomes coterminous with the term of the leasing of the
2nd Floor Expansion Premises.
4. Tenant Improvements and Letter of Credit Provisions. If Tenant
---------------------------------------------------
expands into the 2nd Floor Expansion Premises pursuant to this subparagraph (A),
then (i) Landlord will provide to Tenant a tenant improvement allowance which
Landlord, in its sole discretion reasonably exercised, determines is appropriate
taking into account the Fair Market Rental Rate, the condition of the 2nd Floor
Expansion Premises at the time of Tenant's exercise of the First Expansion
Option and the financial condition of Tenant at such time, and (ii) Landlord may
require that Tenant deposit with Landlord at the time of the execution of the
applicable lease amendment an irrevocable letter of credit, in form and content
acceptable to Landlord, which Landlord, in its sole discretion reasonably
exercised, determines is appropriate based on Landlord's review of the credit
standing and financial condition of Tenant at the time of the expansion and the
total costs to be incurred by Landlord (and that are ultimately incurred by
Landlord) in connection with the expansion (the "First Expansion LC") may
------------------
include, without limitation, all brokerage commissions and all costs and
expenses (hard and soft) related to the design and construction (including the
management thereof) of leasehold alterations and improvements performed in
connection therewith.
5. Space Delivery. If Landlord cannot deliver possession of the 2nd
--------------
Floor Expansion Premises to Tenant by January 1,2001, then Landlord will have
the right, as more particularly provided in the Exhibit G-1 attached to the
Lease, to deliver possession of the 2nd Floor Expansion Premises to Tenant on a
later date without being in default under the Lease.
G-1
<PAGE>
(B) Second 2nd Floor Expansion Right.
--------------------------------
1. Date of Exercise. If Tenant has not exercised the First Expansion
----------------
Option on or before July 1, 2000 and provided that Tenant is occupying at least
22,845 net rentable square feet of space on the 3rd floor of the Building at the
time of such election and, at such time, no Event of Default has occurred and is
continuing and no event has occurred and is continuing which with the giving of
notice or the passage of time, or both, would constitute an Event of Default,
Tenant may lease all of the 2nd Floor Expansion Premises by delivering to
Landlord, on or before January 1,2001, written notice of Tenant's election to
include such space in the Premises (such written notice is herein referred to as
the "Second Expansion Election Notice" and the foregoing expansion option is
--------------------------------
referred to as the "Second Expansion Option"), If requested in a writing
-----------------------
received by Landlord from Tenant at least 30 days prior to January 1, 2001 (the
"Second Expansion Notice of Intent"), and provided that Tenant satisfies the
---------------------------------
requirements set forth in this subparagraph, Landlord shall, not less than ten
(10) days prior to January 1, 2001, notify Tenant in writing (the "Second
------
Expansion Option Notice") of the following: (1) the Fair Market Rental Rate (as
- -----------------------
defined in the Exhibit G-2 attached to the Lease); (2) the Second 2nd Floor
Finish-Out Allowance (as defined in Exhibit G-2); (3) the amount of the Second
Expansion LC (as defined below); and (4) the date that Landlord anticipates will
be the 2nd Floor Premises Delivery Date (as defined in Exhibit G-2). In the
Second Expansion Notice of Intent, Tenant shall indicate the date on which
Tenant would like to add the 2nd Floor Expansion Premises to the Initial
Premises (such date to in no event be later than July 1, 2001).
Contemporaneously with Tenant's delivery of the Second Expansion Notice of
Intent, Tenant shall deliver to Landlord (i) the most recent annual report or
similar audited statement of Tenant's financial condition for the preceding
fiscal year, and (ii) Tenant's most recent quarterly financial statement
(audited, as applicable) and the most recent year-to-date statement of Tenant's
operations and financial condition. Within five (5) business days after Tenant's
receipt of Landlord's written request for the same, Tenant shall deliver to
Landlord such other information with respect to Tenant that Landlord may from
time to time reasonably request in writing from Tenant after Landlord's receipt
of the Second Expansion Notice of Intent. If Tenant does not satisfy the
requirements of the two (2) immediately preceding sentences, Landlord shall have
no obligation to deliver the Second Expansion Option Notice to Tenant as
provided hereby. If Tenant exercises the Second Expansion Option on or before
January 1, 2001, then the expansion rights provisions set forth in the Exhibit
G-2 attached to the Lease shall apply to Tenant's expansion into the 2nd Floor
Expansion Premises.
2. Rental Rate. If Tenant expands into the 2nd Floor Expansion
-----------
Premises pursuant to this subparagraph (B), Basic Rental for the 2nd Floor
Expansion Premises shall be payable on and after the 2nd Floor Premises Delivery
Date (as defined in the Exhibit G-2 attached to the Lease) and shall be equal to
the Fair Market Rental Rate (as defined in Exhibit G-2).
3 Term. If Tenant expands into the 2nd Floor Expansion Premises
----
pursuant to this subparagraph (B), the term of the leasing of the 2nd Floor
Expansion Premises will be a minimum of five (5) years unless Landlord and
Tenant otherwise agree in writing to a longer term and the existing Term shall
be extended so that it becomes coterminous with the term of the leasing of the
2nd Floor Expansion Premises.
4. Tenant Improvements and Letter of Credit Provisions. If Tenant
---------------------------------------------------
expands into the 2nd Floor Expansion Premises pursuant to this subparagraph (B),
then (i) Landlord will provide to Tenant a tenant improvement allowance which
Landlord, in its sole discretion reasonably exercised, determines is appropriate
taking into account the Fair Market Rental Rate, the condition of the 2nd Floor
Expansion Premises at the time of Tenant's exercise of the Second Expansion
Option and the financial condition of Tenant at such time, and (ii) Landlord may
require that Tenant deposit with Landlord at the time of the execution of the
applicable lease amendment an irrevocable letter of credit, in form and content
acceptable to Landlord, which Landlord, in its sole discretion reasonably
exercised, determines is appropriate based on Landlord's review of the credit
standing and financial condition of Tenant at the time of the expansion and the
total costs to be incurred by Landlord (and that are ultimately incurred by
Landlord) in connection with the expansion (the "Second Expansion LC") may
-----------------
include, without limitation, all brokerage commissions and all costs and
expenses (hard and soft) related to the design and construction (including the
management thereof) of leasehold alterations and improvements performed in
connection therewith.
5. Space Delivery. If Landlord cannot deliver possession of the 2nd
--------------
Floor Expansion Premises to Tenant by July 1, 2001, then Landlord will have the
right, as more particularly provided in the Exhibit G-2 attached to the Lease,
to deliver possession of the 2nd Floor Expansion Premises to Tenant on a later
date without being in default under the Lease.
(B-1) First ROFO for the 4th Floor Expansion Premises.
------------------------------------------------
1. Conditions Precedent to Tenant Obtaining this ROFO. If Tenant has
--------------------------------------------------
failed to exercise the First Expansion Option on or before July 1, 2000 and
provided that Tenant is occupying at least 22,845 net rentable square feet of
space on the 3rd floor of the Building at the time of such election and at such
time no Event of Default has occurred and is continuing and no event has
occurred and is continuing which with the giving of notice or the passage of
time, or both, would constitute an Event of Default, Tenant shall have a right
of first opportunity to lease (the "First 4th Floor ROFO") all of the 4th Floor
--------------------
Expansion Premises (as defined
G-2
<PAGE>
in subparagraph (D). 1 below), which First 4th Floor ROFO shall be on the terms
and conditions set forth in the Exhibit G-3 attached to the Lease.
2. Rental Rate. If Tenant expands into the 4th Floor Expansion
-----------
Premises pursuant to this subparagraph (B-l), Basic Rental for the 4th Floor
Expansion Premises shall be payable on and after the First 4th Floor ROFO
Delivery Date (as defined in the Exhibit G-3 attached to the Lease) and shall be
in the amount determined pursuant to Exhibit G-3.
3. Term. If Tenant expands into the 4th Floor Expansion Premises
----
pursuant to this subparagraph (B-l), the term of the leasing of the 4th Floor
Expansion Premises will be a minimum of five (5) years unless Landlord and
Tenant otherwise agree in writing to a longer term and the existing Term shall
be extended so that it becomes coterminous with the term of the leasing of the
4th Floor Expansion Premises.
4. Tenant Improvements and Letter of Credit Provisions. If the Offer
---------------------------------------------------
Notice (as defined in Exhibit G-3) provides for the furnishing by Landlord of
any allowances or other tenant inducements (collectively, the "First 4th Floor
---------------
ROFO Allowance"), then (i) Landlord will provide to Tenant the First 4th Floor
- --------------
ROFO Allowance, and (ii) Landlord may require that Tenant deposit with Landlord
at the time of the execution of the applicable lease amendment an irrevocable
letter of credit, in form and content acceptable to Landlord, which Landlord, in
its sole discretion reasonably exercised, determines is appropriate based on
Landlord's review of the credit standing and financial condition of Tenant on
the date of the Offer Notice and the total costs to be incurred by Landlord (and
that are ultimately incurred by Landlord) in connection with an expansion
pursuant to this subparagraph (B-1) and the Exhibit G-3 attached to the Lease
(the "First 4th Floor ROFO LC") may include, without limitation, all brokerage
-----------------------
commissions and all costs and expenses (hard and soft) related to the design and
construction (including the management thereof) of leasehold alterations and
improvements performed in connection therewith.
(C) First ROFO for the 2nd Floor Expansion Premises.
-----------------------------------------------
1. Conditions Precedent to Tenant Obtaining this ROFO. If Tenant has
--------------------------------------------------
failed to timely exercise both the First Expansion Option and the Second
Expansion Option and provided that Tenant is occupying at least 22,845 net
rentable square feet of space on the 3rd floor of the Building at the time of
such election and at such time no Event of Default has occurred and is
continuing and no event has occurred and is continuing which with the giving of
notice or the passage of time, or both, would constitute an Event of Default,
Tenant shall have a right of first opportunity to lease (the "2nd Floor ROFO")
--------------
all of the 2nd Floor Expansion Premises, which 2nd Floor ROFO shall be on the
terms and conditions set forth in the Exhibit G-4 attached to the Lease.
2. Rental Rate. If Tenant expands into the 2nd Floor Expansion
-----------
Premises pursuant to this subparagraph (C), Basic Rental for the 2nd Floor
Expansion Premises shall be payable on and after the 2nd Floor ROFO Delivery
Date (as defined in the Exhibit G-4 attached to the Lease) and shall be in the
amount determined pursuant to Exhibit G-4.
3. Term. If Tenant expands into the 2nd Floor Expansion Premises
----
pursuant to this subparagraph (C), the term of the leasing of the 2nd Floor
Expansion Premises will be a minimum of five (5) years unless Landlord and
Tenant otherwise agree in writing to a longer term and the existing Term shall
be extended so that it becomes coterminous with the term of the leasing of the
2nd Floor Expansion Premises.
4. Tenant Improvements and Letter of Credit Provisions. If the Offer
---------------------------------------------------
Notice (as defined in Exhibit G-4) provides for the furnishing by Landlord of
any allowances or other tenant inducements (collectively, the "2nd Floor ROFO
--------------
Allowance"), then (i) Landlord will provide to Tenant the 2nd Floor ROFO
- ---------
Allowance, and (ii) Landlord may require that Tenant deposit with Landlord at
the time of the execution of the applicable lease amendment an irrevocable
letter of credit, in form and content acceptable to Landlord, which Landlord, in
its sole discretion reasonably exercised, determines is appropriate based on
Landlord's review of the credit standing and financial condition of Tenant on
the date of the Offer Notice and the total costs to be incurred by Landlord (and
that are ultimately incurred by Landlord) in connection with an expansion
pursuant to this subparagraph (C) and the Exhibit G-4 attached to the Lease (the
"2nd Floor ROFO LC") may include, without limitation, all brokerage commissions
-----------------
and all costs and expenses (hard and soft) related to the design and
construction (including the management thereof) of leasehold alterations and
improvements performed in connection therewith.
(D) First 4th Floor Expansion Right.
--------------------------------
1. Date of Exercise. If Tenant has exercised the First Expansion
----------------
Option on or before July 1, 2000 and provided that Tenant is occupying at least
45,678 net rentable square feet of space on the 2nd and 3rd floors of the
Building at the time of such election and, at such time, no Event of Default has
occurred and is continuing and no event has occurred and is continuing which
with the giving of notice or the passage of time, or both, would constitute an
Event of Default, Tenant may lease all of the rentable square feet of space on
the 4th floor of the Building (approximately 18,103 rentable square feet of
space) (the "4th Floor Expansion
-------------------
G-3
<PAGE>
Premises") by delivering to Landlord, on or before January 1, 2001, written
- --------
notice of Tenant's election to include such space in the Premises (such written
notice is herein referred to as the "Election Notice" and the foregoing
---------------
expansion option is referred to as the "Fourth Floor Expansion Option"). The 4th
-----------------------------
Floor Expansion Premises is more particularly depicted on the Exhibit A-2
attached to the Lease. If requested in a writing received by Landlord from
Tenant at least 30 days prior to January 1, 2001 (the "4th Floor Expansion
-------------------
Notice of Intent"), and provided that Tenant satisfies the requirements set
- ----------------
forth in this subparagraph, Landlord shall, not less than ten (10) days prior to
January 1,2001, notify Tenant in writing (the "4th Floor Expansion Option
--------------------------
Notice") of the following: (1) the Fair Market Rental Rate (as defined in the
- ------
Exhibit G-5 attached to the Lease); (2) the 4th Floor Finish-Out Allowance (as
defined in Exhibit G-5); (3) the amount of the 4th Floor Expansion LC (as
defined below); and (4) the date that Landlord anticipates will be the 4th Floor
Premises Delivery Date (as defined in Exhibit G-5). In the 4th Floor Expansion
Notice of Intent, Tenant shall indicate the date on which Tenant would like to
add the 4th Floor Expansion Premises to the Initial Premises (such date to in no
event be later than July 1, 2001). Contemporaneously with Tenant's delivery of
the 4th Floor Expansion Notice of Intent, Tenant shall deliver to Landlord (i)
the most recent annual report or similar audited statement of Tenant's financial
condition for the preceding fiscal year, and (ii) Tenant's most recent quarterly
financial statement (audited, as applicable) and the most recent year-to-date
statement of Tenant's operations and financial condition. Within five (5)
business days after Tenant's receipt of Landlord's written request for the same,
Tenant shall deliver to Landlord such other information with respect to Tenant
that Landlord may from time to time reasonably request in writing from Tenant
after Landlord's receipt of the 4th Floor Expansion Notice of Intent. If Tenant
does not satisfy the requirements of the two (2) immediately preceding
sentences, Landlord shall have no obligation to deliver the 4th Floor Expansion
Option Notice to Tenant as provided hereby. If Tenant exercises the Fourth Floor
Expansion Option on or before January 1, 2001, then the expansion rights
provisions set forth in the Exhibit G-5 attached to the Lease shall apply to
Tenant's expansion into the 4th Floor Expansion Premises.
2. Rental Rate. If Tenant expands into the 4th Floor Expansion
-----------
Premises pursuant to this subparagraph (D), Basic Rental for the 4th Floor
Expansion Premises shall be payable on and after the 4th Floor Premises Delivery
Date (as defined in the Exhibit G-5 attached to the Lease) and shall be equal to
the Fair Market Rental Rate (as defined in Exhibit G-5).
3. Term. If Tenant expands into the 4th Floor Expansion Premises
----
pursuant to this subparagraph (D), the term of the leasing of the 4th Floor
Expansion Premises will be a minimum of five (5) years unless Landlord and
Tenant otherwise agree in writing to a longer term and the existing Term shall
be extended so that it becomes coterminous with the term of the leasing of the
4th Floor Expansion Premises.
4. Tenant Improvements and Letter of Credit Provisions. If Tenant
---------------------------------------------------
expands into the 4th Floor Expansion Premises pursuant to this subparagraph (D),
then (i) Landlord will provide to Tenant a tenant improvement allowance which
Landlord, in its sole discretion reasonably exercised, determines is appropriate
taking into account the Fair Market Rental Rate, the condition of the 4th Floor
Expansion Premises at the time of Tenant's exercise of the Fourth Floor
Expansion Option and the financial condition of Tenant at such time, and (ii)
Landlord may require that Tenant deposit with Landlord at the time of the
execution of the applicable lease amendment an irrevocable letter of credit, in
form and content acceptable to Landlord, which Landlord, in its sole discretion
reasonably exercised, determines is appropriate based on Landlord's review of
the credit standing and financial condition of Tenant at the time of the
expansion and the total costs to be incurred by Landlord (and that are
ultimately incurred by Landlord) in connection with the expansion (the "4th
---
Floor Expansion LC") may include, without limitation, all brokerage commissions
- ------------------
and all costs and expenses (hard and soft) related to the design and
construction (including the management thereof) of leasehold alterations and
improvements performed in connection therewith.
5. Space Delivery. If Landlord cannot deliver possession of the 4th
--------------
Floor Expansion Premises to Tenant by July 1, 2001, then Landlord will have the
right, as more particularly provided in the Exhibit G-5 attached to the Lease,
to deliver possession of the 4th Floor Expansion Premises to Tenant on a later
date without being in default under the Lease.
(E) Second ROFO for the 4th Floor Expansion Premises.
-------------------------------------------------
1. Conditions Precedent to Tenant Obtaining this ROFO. If Tenant has
--------------------------------------------------
exercised the First Expansion Option on or before July 1, 2000 but has failed to
exercise the Fourth Floor Expansion Option on or before January 1, 2001, and
provided that Tenant is occupying at least 45,678 net rentable square feet of
space on the 2nd and 3rd floors of the Building at the time of such election and
at such time no Event of Default has occurred and is continuing and no event has
occurred and is continuing which with the giving of notice or the passage of
time, or both, would constitute an Event of Default, Tenant shall have a right
of first opportunity to lease (the "Second 4th Floor ROFO") all of the 4th Floor
---------------------
Expansion Premises, which Second 4th Floor ROFO shall be on the terms and
conditions set forth in the Exhibit G-6 attached to the Lease.
2. Rental Rate. If Tenant expands into the 4th Floor Expansion
-----------
Premises pursuant to this subparagraph (E), Basic Rental for the 4th Floor
Expansion Premises shall be payable on and after the 4th Floor
G-4
<PAGE>
ROFO Delivery Date (as defined in the Exhibit G-6 attached to the Lease) and
shall be in the amount determined pursuant to Exhibit G-6.
3. Term. If Tenant expands into the 4th Floor Expansion Premises
----
pursuant to this subparagraph (E), the term of the leasing of the 4th Floor
Expansion Premises will be a minimum of five (5) years unless Landlord and
Tenant otherwise agree in writing to a longer term and the existing Term shall
be extended so that it becomes coterminous with the term of the leasing of the
4th Floor Expansion Premises.
4. Tenant Improvements and Letter of Credit Provisions. If the Offer
---------------------------------------------------
Notice (as defined in Exhibit G-6) provides for the furnishing by Landlord of
any allowances or other tenant inducements (collectively, the "Second 4th Floor
----------------
ROFO Allowance"), then (i) Landlord will provide to Tenant the Second 4th Floor
- --------------
ROFO Allowance, and (ii) Landlord may require that Tenant deposit with Landlord
at the time of the execution of the applicable lease amendment an irrevocable
letter of credit, in form and content acceptable to Landlord, which Landlord, in
its sole discretion reasonably exercised, determines is appropriate based on
Landlord's review of the credit standing and financial condition of Tenant on
the date of the Offer Notice and the total costs to be incurred by Landlord (and
that are ultimately incurred by Landlord) in connection with an expansion
pursuant to this subparagraph (E) and the Exhibit G-6 attached to the Lease (the
"Second 4th Floor ROFO LC") may include, without limitation, all brokerage
------------------------
commissions and all costs and expenses (hard and soft) related to the design and
construction (including the management thereof) of leasehold alterations and
improvements performed in connection therewith.
(F) Temporary Expansion Space after 4 Month Delay in Delivering Expansion
---------------------------------------------------------------------
Space. With respect to expansions pursuant to subparagraphs (A), (B) and (D)
- -----
above (and the exhibits attached to the Lease which are related thereto), if
Landlord is unable to deliver possession of the applicable expansion premises by
the date that is four (4) months after the target commencement date, Landlord
will make available for lease by Tenant up to 20,000 rsf of contiguous temporary
expansion space, subject to availability, located in the Building, which
temporary expansion space will be leased by Tenant at fair market rental rates
on an "as is" basis on the terms more particularly set forth in the applicable
exhibit attached to the Lease. Tenant shall vacate such temporary expansion
space within five (5) business days after possession of the applicable expansion
space has been delivered to Tenant.
(G) ROFO on a "To Be Determined" Vacant Floor. If Tenant has timely
---------- ---------------- -------------
exercised both the First Expansion Option and the Fourth Floor Expansion Option
and provided that Tenant is occupying at least 63,781 net rentable square feet
of space on the 2nd, 3rd and 4th floors of the Building at the time of such
election and at such time no Event of Default has occurred and is continuing and
no event has occurred and is continuing which with the giving of notice or the
passage of time, or both, would constitute an Event of Default, Tenant shall
have a right of first opportunity to lease (the "Additional Space ROFO") all of
---------------------
any vacant full floor of the Building that Landlord identifies in the Offer
Notice (as defined in the Exhibit G-7 attached to the Lease) (such vacant full
floor identified in the Offer Notice is herein referred to as the "Additional
----------
Space"), which Additional Space ROFO shall be on the terms and conditions set
- -----
forth in the Exhibit G-7 attached to the Lease. If the Offer Notice (as defined
in Exhibit G-7) provides for the furnishing by Landlord of any allowances or
other tenant inducements (collectively, the "Additional Space Allowance"), then
--------------------------
(i) Landlord will provide to Tenant the Additional Space Allowance, and (ii)
Landlord may require that Tenant deposit with Landlord at the time of the
execution of the applicable lease amendment an irrevocable letter of credit, in
form and content acceptable to Landlord, which Landlord, in its sole discretion
reasonably exercised, determines is appropriate based on Landlord's review of
the credit standing and financial condition of Tenant on the date of the Offer
Notice and the total costs to be incurred by Landlord (and that are ultimately
incurred by Landlord) in connection with an expansion pursuant to this
subparagraph (G) and the Exhibit G-7 attached to the Lease (the "Additional
----------
Space LC") may include, without limitation, all brokerage commissions and all
- --------
costs and expenses (hard and soft) related to the design and construction
(including the management thereof) of leasehold alterations and improvements
performed in connection therewith.
(H) Termination of Expansion Rights. Tenant's rights under this Exhibit
-------------------------------
(and the exhibits attached to the Lease which are related thereto) shall
terminate if (a) the Lease or Tenant's right to possession of all or any portion
of the Premises is terminated, or (b) Tenant assigns any of its interest in the
Lease or sublets any portion of the Premises (other than any Permitted Transfer
Without Landlord Consent).
G-5
<PAGE>
EXHIBIT G-1
This Exhibit G-1 (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease
(including, without limitation, the Exhibit G attached thereto). The capitalized
terms which are defined in this Exhibit shall have the meanings assigned to them
herein in this Exhibit only and, if such terms are used in any other exhibits
attached to the Lease, such terms shall in such exhibits have the meanings given
to them therein. Tenant's rights under this Exhibit are conditioned upon
Tenant's satisfaction of the applicable requirements and conditions precedent
thereto contained in the Exhibit G attached to the Lease.
FIRST 2ND FLOOR EXPANSION OPTION PROVISIONS
-------------------------------------------
1. Effect of a Timely Exercise of the First Expansion Option. If Tenant
---------------------------------------------------------
exercises the First Expansion Option on or before July 1, 2000, then (a)
possession of the 2nd Floor Expansion Premises shall be delivered to Tenant on
the earlier of January 1, 2001 or the date on which Tenant occupies the 2nd
Floor Expansion Premises with Landlord's prior written consent (subject to
adjustment as provided below in this Exhibit, the date on which possession of
the 2nd Floor Expansion Premises is delivered to Tenant after the exercise of
the First Expansion Option is herein referred to as the "2nd Floor Premises
------------------
Delivery Date"), and (b) Tenant and Landlord shall, within fifteen (15) days
- -------------
after Landlord's receipt of the First Expansion Election Notice, execute an
amendment to the Lease (the "Lease Amendment") reflecting the following: (i)
---------------
that, if Landlord cannot acquire possession of all or any portion of the 2nd
Floor Expansion Premises before January 1, 2001 and deliver the same to Tenant
by such date, then (1) Tenant's obligation to pay increased Basic Rental,
Excess, Tax Excess and DCURD Excess as provided in the Lease Amendment shall be
waived until Landlord delivers possession of the applicable portions of the 2nd
Floor Expansion Premises at which time an appropriate increase in Tenant's
Proportionate Share, Basic Rental, Excess, Tax Excess and DCURD Excess will
occur, (2) Landlord shall not be in default under the Lease as a result of such
failure to deliver possession of all or any portion of the 2nd Floor Expansion
Premises to Tenant on or before January 1, 2001 or be liable for damages
therefor, (3) Tenant shall accept possession of the respective portions of the
2nd Floor Expansion Premises when Landlord tenders possession thereof to Tenant,
and (4) if the 2nd Floor Premises Delivery Date has not occurred by May 1, 2001,
Landlord shall lease the Alternative Premises (as defined in Paragraph 2 below)
to Tenant "as is" on the terms and conditions that are applicable thereto in
this Exhibit; (ii) that Tenant shall, within 90 days after the date of the
execution of the Lease Amendment, deliver to Landlord for its approval final
working drawings, prepared by an architect that has been approved by Landlord
(which approval shall not be unreasonably withheld or delayed), of all
improvements that Tenant proposes to install in the 2nd Floor Expansion Premises
(such working drawings shall include the partition layout, ceiling plan,
electrical outlets and switches, telephone outlets, drawings for any
modifications to the mechanical and plumbing systems of the Building, and
detailed plans and specifications for the construction of the improvements
called for under the Lease Amendment in accordance with all applicable Laws);
(iii) the terms and conditions pursuant to which Tenant will deliver, and
Landlord will hold, the First Expansion LC, which terms and conditions shall be
the same (subject to applicable changes in dates and amount) as set forth in the
Exhibit J-1 attached to the Lease (the amount of the First Expansion LC may
include, without limitation, all brokerage commissions and all costs and
expenses [hard and soft] related to the design and construction [including the
management thereof] of leasehold alterations and improvements performed in
connection with the leasing of the 2nd Floor Expansion Premises to Tenant
pursuant to this Exhibit); and (iv) that the 2nd Floor Expansion Premises is to
be added to the Premises and will be leased by Tenant on the same terms as the
Lease except as follows:
(a) the number of rentable square feet in the Premises shall increase
by the number of rentable square feet in the 2nd Floor Expansion Premises,
and Tenant's Proportionate Share shall be adjusted accordingly, effective
as of the 2nd Floor Premises Delivery Date;
(b) Basic Rental for the 2nd Floor Expansion Premises shall be payable
on and after the 2nd Floor Premises Delivery Date and shall be equal to the
prevailing fair market rental rate in the Building on the 2nd Floor
Premises Delivery Date for space of equivalent quality, size, utility and
location, with the length of the term, the amount of the 2nd Floor Finish-
Out Allowance (as hereinafter defined) and credit standing and financial
condition of Tenant to be taken into account (the "Fair Market
-----------
Rental Rate");
-----------
(c) Landlord shall not provide to Tenant any allowances (e.g., moving
allowance, construction allowance, and the like) or other tenant
inducements other than a tenant improvement allowance (the "2nd Floor
---------
Finish-Out Allowance") which Landlord, in its sole discretion reasonably
--------------------
exercised, determines is appropriate taking into account the Fair Market
Rental Rate and the condition of, and leasehold improvements located in,
the 2nd Floor Expansion Premises, and such allowance shall be provided to
Tenant in the same manner as the Construction Allowance is provided to
Tenant pursuant to the Exhibit D attached to the Lease (i.e., as a credit
to costs incurred in connection with the construction of leasehold
improvements to the 2nd Floor Expansion Premises);
G-1-1
<PAGE>
(d) the construction of any leasehold improvements to the 2nd Floor
Expansion Premises will be done pursuant to the terms and conditions set
forth in the Exhibit D attached to the Lease (with applicable revisions to
reflect the fact that the 2nd Floor Expansion Premises, not the Premises,
are being finished-out after the date of Tenant's timely exercise of the
First Expansion Option) plus the addition of Landlord's standard lease
language regarding what constitutes a tenant delay and the effect thereof;
(e) the number of rentable square feet in the Premises shall, if
applicable, increase by the number of rentable square feet in the
Alternative Premises, and Tenant's Proportionate Share shall be adjusted
accordingly, effective as of the Alternative Premises Delivery Date (as
defined in Paragraph 2 below);
(f) Basic Rental for the Alternative Premises shall be payable on and
after the Alternative Premises Delivery Date until the 2nd Floor Premises
Delivery Date and shall be equal to the Fair Market Rental Rate;
(g) possession of the Alternative Premises shall be delivered to
Tenant in an "as is" condition and Tenant shall vacate and re-deliver
possession of the Alternative Premises to Landlord within five (5) business
days after the 2nd Floor Premises Delivery Date;
(h) Landlord shall not provide to Tenant any allowances (e.g., moving
allowance, construction allowance, and the like) or other tenant
inducements with respect to the Alternative Premises; and
(i) the Scheduled Expiration Date shall be modified and extended to
the date that is the last day of the sixtieth (60th) full calendar month
after the 2nd Floor Premises Delivery Date unless a longer term is agreed
to in writing by Landlord and Tenant.
2. Alternative Premises Definitions and Provisions. As used herein, the
-----------------------------------------------
term "Alternative Premises" shall mean the up to 20,000 contiguous rentable
--------------------
square feet of space in the Building which is Available For Rent (as hereinafter
defined) that Landlord identifies in a written notice (the "Alternative
-----------
Premises Notice") delivered to Tenant on or before May 1,2001 in the event
- ---------------
Landlord reasonably believes that the 2nd Floor Premises Delivery Date will not
occur by such date. Landlord shall choose the portion(s) of the Available For
Rent space in the Building to be used for the Alternative Premises and identify
the same in the Alternative Premises Notice; provided, however, in no event
shall the space identified in the Alternative Premises Notice exceed 20,000
rentable square feet. Landlord shall also identify in the Alternative Premises
Notice the date or dates, as applicable, on which possession of the Alternative
Premises will be delivered to Tenant; provided, however, in no event shall the
earliest date of such delivery take place before the fourteenth (14th) day after
the date of Tenant's receipt of the Alternative Premises Notice. As used herein,
the term "Available For Rent" shall mean any vacant space in the Building that
------------------
is not then leased by a tenant and is not then subject to any expansion options,
rights of first offer or other options or rights of other tenants or other third
parties. As used herein, the term "Alternative Premises Delivery Date" shall
----------------------------------
mean the date on which possession of all or any portion of the Alternative
Premises has been delivered by Landlord to Tenant.
3. Termination of Tenant's Expansion Rights. Tenant's rights pursuant to
----------------------------------------
Paragraph 1 of this Exhibit and subparagraph (A) of the Exhibit G attached to
the Lease shall terminate if Tenant fails to timely exercise the First Expansion
Option, time being of the essence with respect to Tenant's exercise thereof.
G-1-2
<PAGE>
EXHIBIT G-2
This Exhibit G-2 (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease
(including, without limitation, the Exhibit G attached thereto). The capitalized
terms which are defined in this Exhibit shall have the meanings assigned to them
herein in this Exhibit only and, if such terms are used in any other exhibits
attached to the Lease, such terms shall in such exhibits have the meanings given
to them therein. Tenant's rights under this Exhibit are conditioned upon
Tenant's satisfaction of the applicable requirements and conditions precedent
thereto contained in the Exhibit G attached to the Lease.
SECOND 2ND FLOOR EXPANSION OPTION PROVISIONS
--------------------------------------------
1. Effect of a Timely Exercise of the Second Expansion Option. If
----------------------------------------------------------
Tenant exercises the Second Expansion Option on or before January 1, 2001, then
(a) possession of the 2nd Floor Expansion Premises shall be delivered to Tenant
on the earlier of July 1, 2001 or the date on which Tenant occupies the 2nd
Floor Expansion Premises with Landlord's prior written consent (subject to
adjustment as provided below in this Exhibit, the date on which possession of
the 2nd Floor Expansion Premises is delivered to Tenant after the exercise of
the Second Expansion Option is herein referred to as the "2nd Floor Premises
------------------
Delivery Date"), and (b) Tenant and Landlord shall, within fifteen (15) days
- -------------
after Landlord's receipt of the Second Expansion Election Notice, execute an
amendment to the Lease (the "Second Expansion Lease Amendment") reflecting the
--------------------------------
following: (i) that, if Landlord cannot acquire possession of all or any portion
of the 2nd Floor Expansion Premises before July 1, 2001 and deliver the same to
Tenant by such date, then (1) Tenant's obligation to pay increased Basic Rental,
Excess, Tax Excess and DCURD Excess as provided in the Second Expansion Lease
Amendment shall be waived until Landlord delivers possession of the applicable
portions of the 2nd Floor Expansion Premises at which time an appropriate
increase in Tenant's Proportionate Share, Basic Rental, Excess, Tax Excess and
DCURD Excess will occur, (2) Landlord shall not be in default under the Lease as
a result of such failure to deliver possession of all or any portion of the 2nd
Floor Expansion Premises to Tenant on or before July 1, 2001 or be liable for
damages therefor, (3) Tenant shall accept possession of the respective portions
of the 2nd Floor Expansion Premises when Landlord tenders possession thereof to
Tenant, (4) the new "cap" on the amount of DCURD Taxes payable with respect to
the 2nd Floor Expansion Premises as provided in Paragraph 7 of the Exhibit C
attached to the Lease; and (5) if the 2nd Floor Premises Delivery Date has not
occurred by November 1, 2001, Landlord shall lease the Alternative Premises (as
hereinafter defined) to Tenant "as is" on the terms and conditions that are
applicable thereto in this Exhibit; (ii) that Tenant shall, within 90 days after
the date of the execution of the Lease Amendment, deliver to Landlord for its
approval final working drawings, prepared by an architect that has been approved
by Landlord (which approval shall not be unreasonably withheld or delayed), of
all improvements that Tenant proposes to install in the 2nd Floor Expansion
Premises (such working drawings shall include the partition layout, ceiling
plan, electrical outlets and switches, telephone outlets, drawings for any
modifications to the mechanical and plumbing systems of the Building, and
detailed plans and specifications for the construction of the improvements
called for under the Lease Amendment in accordance with all applicable Laws);
(iii) the terms and conditions pursuant to which Tenant will deliver, and
Landlord will hold, the Second Expansion LC, which terms and conditions shall be
the same (subject to applicable changes in dates and amount) as set forth in the
Exhibit J-1 attached to the Lease (the amount of the Second Expansion LC may
include, without limitation, all brokerage commissions and all costs and
expenses [hard and soft] related to the design and construction [including the
management thereof] of leasehold alterations and improvements performed in
connection with the leasing of the 2nd Floor Expansion Premises to Tenant
pursuant to this Exhibit); and (iv) that the 2nd Floor Expansion Premises is to
be added to the Premises and will be leased by Tenant on the same terms as the
Lease except as follows:
(a) the number of rentable square feet in the Premises shall increase
by the number of rentable square feet in the 2nd Floor Expansion Premises,
and Tenant's Proportionate Share shall be adjusted accordingly, effective
as of the 2nd Floor Premises Delivery Date;
(b) Basic Rental for the 2nd Floor Expansion Premises shall be payable
on and after the 2nd Floor Premises Delivery Date and shall be equal to the
prevailing fair market rental rate in the Building on the 2nd Floor
Premises Delivery Date for space of equivalent quality, size, utility and
location, with the length of the term, the amount of the Second 2nd Floor
Finish-Out Allowance (as hereinafter defined) and credit standing and
financial condition of Tenant to be taken into account (the "Fair Market
-----------
Rental Rate");
-----------
(c) Landlord shall not provide to Tenant any allowances (e.g., moving
allowance, construction allowance, and the like) or other tenant
inducements other than a tenant improvement allowance (the "Second 2nd
----------
Floor Finish-Out Allowance") which Landlord, in its sole discretion
--------------------------
reasonably exercised, determines is appropriate taking into account the
Fair Market Rental Rate and the condition of, and leasehold improvements
located in, the 2nd Floor Expansion Premises, and such allowance shall be
provided to Tenant in the same manner as the Construction Allowance is
provided to Tenant pursuant to the Exhibit D attached to the Lease (i.e.,
as a credit to costs incurred in connection with the construction of
leasehold improvements to the 2nd Floor Expansion Premises);
G-2-1
<PAGE>
(d) the construction of any leasehold improvements to the 2nd Floor
Expansion Premises will be done pursuant to the terms and conditions set
forth in the Exhibit D attached to the Lease (with applicable revisions to
reflect the fact that the 2nd Floor Expansion Premises, not the Premises,
are being finished-out after the date of Tenant's timely exercise of the
Second Expansion Option) plus the addition of Landlord's standard lease
language regarding what constitutes a tenant delay and the effect thereof;
(e) the number of rentable square feet in the Premises shall, if
applicable, increase by the number of rentable square feet in the
Alternative Premises, and Tenant's Proportionate Share shall be adjusted
accordingly, effective as of the Alternative Premises Delivery Date (as
defined in Paragraph 2 below);
(f) Basic Rental for the Alternative Premises shall be payable on and
after the Alternative Premises Delivery Date until the 2nd Floor Premises
Delivery Date and shall be equal to the Fair Market Rental Rate;
(g) possession of the Alternative Premises shall be delivered to
Tenant in an "as is" condition and Tenant shall vacate and re-deliver
possession of the Alternative Premises to Landlord within five (5) business
days after the 2nd Floor Premises Delivery Date;
(h) Landlord shall not provide to Tenant any allowances (e.g., moving
allowance, construction allowance, and the like) or other tenant
inducements with respect to the Alternative Premises; and
(i) the Scheduled Expiration Date shall be modified and extended to
the date that is the last day of the sixtieth (60th) full calendar month
after the 2nd Floor Premises Delivery Date unless a longer term is agreed
to in writing by Landlord and Tenant.
2. Alternative Premises Definitions and Provisions. As used herein, the
-----------------------------------------------
term "Alternative Premises" shall mean the up to 20,000 contiguous rentable
--------------------
square feet of space in the Building which is Available For Rent (as hereinafter
defined) that Landlord identifies in a written notice (the "Alternative
-----------
Premises Notice") delivered to Tenant on or before November 1, 2001 in the event
- ---------------
Landlord reasonably believes that the 2nd Floor Premises Delivery Date will not
occur by such date. Landlord shall choose the portion(s) of the Available For
Rent space in the Building to be used for the Alternative Premises and identify
the same in the Alternative Premises Notice; provided, however, in no event
shall the space identified in the Alternative Premises Notice exceed 20,000
rentable square feet. Landlord shall also identify in the Alternative Premises
Notice the date or dates, as applicable, on which possession of the Alternative
Premises will be delivered to Tenant; provided, however, in no event shall the
earliest date of such delivery take place before the fourteenth (14th) day after
the date of Tenant's receipt of the Alternative Premises Notice. As used herein,
the term "Available For Rent" shall mean any vacant space in the Building that
------------------
is not then leased by a tenant and is not then subject to any expansion options,
rights of first offer or other options or rights of other tenants or other third
parties. As used herein, the term "Alternative Premises Delivery Date" shall
----------------------------------
mean the date on which possession of all or any portion of the Alternative
Premises has been delivered by Landlord to Tenant.
3. Termination of Tenant's Expansion Rights. Tenant's rights pursuant to
----------------------------------------
Paragraph 1 of this Exhibit and subparagraph (B) of the Exhibit G attached to
the Lease shall terminate if Tenant fails to timely exercise the Second
Expansion Option, time being of the essence with respect to Tenant's exercise
thereof.
G-2-2
<PAGE>
EXHIBIT G-3
This Exhibit G-3 (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease
(including, without limitation, the Exhibit G attached thereto). The capitalized
terms which are defined in this Exhibit shall have the meanings assigned to them
herein in this Exhibit only and, if such terms are used in any other exhibits
attached to the Lease, such terms shall in such exhibits have the meanings given
to them therein. Tenant's rights under this Exhibit are conditioned upon
Tenant's satisfaction of the applicable requirements and conditions precedent
thereto contained in the Exhibit G attached to the Lease.
FIRST RIGHT OF FIRST OPPORTUNITY FOR THE 4TH FLOOR EXPANSION PREMISES
---------------------------------------------------------------------
1. Offer to Tenant of Right to Lease the 4th Floor Expansion Premises.
------------------------------------------------------------------
Once the 4th Floor Expansion Premises have become Available For Lease (as
defined in Paragraph 3 below), if Landlord has a bona fide prospect (the
"Prospect") for all or any portion(s) of the 4th Floor Expansion Premises,
--------
Landlord shall offer in writing (the "Offer Notice") to lease to Tenant all of
------------
the 4th Floor Expansion Premises (regardless of the amount of space offered to
the Prospect) on the same terms and conditions as offered to the Prospect except
as otherwise provided in this Exhibit. The Offer Notice shall specify the rent
to be paid for the 4th Floor Expansion Premises (regardless of the amount of
space offered to the Prospect), the other basic terms and conditions offered to
the Prospect (other than the length of the term offered to the Prospect), and
the date or dates, as applicable, on which the 4th Floor Expansion Premises
shall be included in the Premises (such date or dates is/are herein referred to
as the "Proposed Occupancy Date(s)"). Tenant shall notify Landlord in writing
--------------------------
within five (5) business days after Tenant's receipt of the Offer Notice whether
Tenant elects to lease the entire 4th Floor Expansion Premises on the Proposed
Occupancy Date(s) at the rental rate set forth in the Offer Notice (such written
notice is herein referred to as the "Election Notice"). Contemporaneously with
---------------
Tenant's delivery of the Election Notice, Tenant shall deliver to Landlord (i)
the most recent annual report or similar audited statement of Tenant's financial
condition for the preceding fiscal year, and (ii) Tenant's most recent quarterly
financial statement (audited, as applicable) and a year-to-date statement of
Tenant's operations and financial condition. Within five (5) business days after
Tenant's receipt of Landlord's written request for the same, Tenant shall
deliver to Landlord such other information with respect to Tenant that Landlord
may from time to time reasonably request in writing from Tenant after Landlord's
receipt of the Election Notice.
2. Effect of a Timely Acceptance of the First 4th Floor ROFO. If Tenant
---------------------------------------------------------
timely elects to lease the 4th Floor Expansion Premises by timely delivering to
Landlord the Election Notice, Landlord and Tenant shall, within 30 days after
Landlord's receipt of the Election Notice, execute an amendment to the Lease
(the "Lease Amendment") reflecting the following: (i) the fact that the 4th
---------------
Floor Expansion Premises is to be included in the Premises on the Proposed
Occupancy Date(s) and will be leased by Tenant on the same terms as the Lease
except that (a) the rentable area of the Premises shall be increased by the
rentable area of the 4th Floor Expansion Premises (and Tenant's Proportionate
Share shall be increased accordingly), (b) the Basic Rental shall be increased
by the amount specified for such space in the Offer Notice once possession of
the 4th Floor Expansion Premises is delivered by Landlord to Tenant (the date
possession of the 4th Floor Expansion Premises is delivered to Tenant after the
exercise of the First 4th Floor ROFO is herein referred to as the "First 4th
---------
Floor ROFO Delivery Date"), (c) the Excess, Tax Excess and DCURD Excess payable
- ------------------------
by Tenant shall be increased accordingly once possession of the 4th Floor
Expansion Premises is delivered by Landlord to Tenant, (d) the 4th Floor
Expansion Premises shall be accepted by Tenant in its "as is" condition and
Landlord shall not be obligated to provide Tenant with any leasehold
improvements, allowances (e.g., any moving allowance, construction allowance,
and the like) or other tenant inducements in connection therewith other than
those specified in the Offer Notice, (e) the Scheduled Expiration Date shall be
modified and extended to the date that is the last day of the sixtieth (60th)
full calendar month after the First 4th Floor ROFO Delivery Date unless a longer
term is agreed to in writing by Landlord and Tenant, and (f) other matters set
forth in the Lease which are inconsistent with the terms of the Offer Notice
shall be modified accordingly; (ii) that, if Landlord cannot acquire possession
of all or any portion of the 4th Floor Expansion Premises before the applicable
Proposed Occupancy Date(s) and deliver the same to Tenant by such date(s), then
(1) Tenant's obligation to pay increased Basic Rental, Excess, Tax Excess and
DCURD Excess for the 4th Floor Expansion Premises as provided in the Lease
Amendment shall be waived until Landlord delivers possession of the applicable
portions of the 4th Floor Expansion Premises (at which time an appropriate
increase in Tenant's Proportionate Share, Basic Rental, Excess, Tax Excess and
DCURD Excess will occur), (2) Landlord shall not be in default under the Lease
as a result of such failure to deliver possession of all or any portion of the
4th Floor Expansion Premises to Tenant on or before the applicable Proposed
Occupancy Date(s) or be liable for damages therefor, and (3) Tenant shall accept
possession of the respective portions of the 4th Floor Expansion Premises when
Landlord tenders possession thereof to Tenant; (iii) the terms and conditions
pursuant to which Tenant will deliver, and Landlord will hold, the First 4th
Floor ROFO LC, which terms and conditions shall be the same (subject to
applicable changes in dates and amount) as set forth in the Exhibit J-1 attached
to the Lease (the amount of the First 4th Floor ROFO LC may include, without
limitation, all brokerage commissions and all costs and expenses [hard and soft]
related to the design and construction [including the management thereof] of
leasehold alterations and improvements performed in connection with the leasing
of the 4th Floor Expansion Premises to Tenant pursuant to this Exhibit); and
(iv) such other amendments to the Lease as are necessary. If Tenant fails or is
unable to
G-3-1
<PAGE>
timely exercise the First 4th Floor ROFO, then such right shall lapse, time
being of the essence with respect to the exercise thereof, and Landlord may
thereafter lease all or any portion of the 4th Floor Expansion Premises to third
parties on such terms as Landlord may elect and free of any rights of Tenant
thereto. Tenant acknowledges and agrees that the First 4th Floor ROFO is a one-
time right and that if Tenant fails or is unable to timely exercise this right,
Tenant shall have no further rights pursuant to this Exhibit in and to the 4th
Floor Expansion Premises regardless of whether Landlord leases all or any
portion of such premises to the Prospect.
3. Available For Lease. For the purposes of this Exhibit, the 4th Floor
-------------------
Expansion Premises shall be considered "Available For Lease" if (A) the 4th
-------------------
Floor Expansion Premises is not then leased by a tenant and is not then subject
to any expansion options, rights of first offer or other options or rights of
other tenants or other third parties (or is subject to any of the foregoing, but
the party owning the same has waived, been deemed to have waived, or failed to
timely exercise the same with respect to the leasing of the applicable space to
Tenant pursuant to this Exhibit), or (B) if the 4th Floor Expansion Premises is
then leased and the applicable tenant's lease expires, or shall terminate
effective as of a date which is, less than 6 months from the date on which it is
being determined whether all or any portion of the 4th Floor Expansion Premises
is Available For Lease and such 4th Floor Expansion Premises is not then subject
to any expansion options, rights of first offer or other options or rights of
other tenants or other third parties (or is subject to any of the foregoing, but
the party owning the same has waived, been deemed to have waived, or failed to
timely exercise the same with respect to the leasing of the applicable space to
Tenant pursuant to this Exhibit).
4. Termination of Tenant's Expansion Rights. Tenant's rights pursuant to
----------------------------------------
Paragraphs 1 and 2 of this Exhibit and subparagraph (B-l) of the Exhibit G
attached to the Lease shall terminate if Tenant fails to timely exercise either
the First 4th Floor ROFO or the Second Expansion Option, time being of the
essence with respect to Tenant's exercise thereof.
G-3-2
<PAGE>
EXHIBIT G-4
This Exhibit G-4 (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease
(including, without limitation, the Exhibit G attached thereto). The capitalized
terms which are defined in this Exhibit shall have the meanings assigned to them
herein in this Exhibit only and, if such terms are used in any other exhibits
attached to the Lease, such terms shall in such exhibits have the meanings given
to them therein. Tenant's rights under this Exhibit are conditioned upon
Tenant's satisfaction of the applicable requirements and conditions precedent
thereto contained in the Exhibit G attached to the Lease.
FIRST RIGHT OF FIRST OPPORTUNITY FOR THE 2ND FLOOR EXPANSION PREMISES
---------------------------------------------------------------------
1. Offer to Tenant of Right to Lease the 2nd Floor Expansion Premises.
------------------------------------------------------------------
Once the 2nd Floor Expansion Premises has become Available For Lease (as defined
in Paragraph 3 below), if Landlord has a bona fide prospect (the "Prospect") for
--------
all or any portion(s) of the 2nd Floor Expansion Premises, Landlord shall offer
in writing (the "Offer Notice") to lease to Tenant all of the 2nd Floor
------------
Expansion Premises (regardless of the amount of space offered to the Prospect)
on the same terms and conditions as offered to the Prospect except as otherwise
provided in this Exhibit. The Offer Notice shall specify the rent to be paid for
the 2nd Floor Expansion Premises (regardless of the amount of space offered to
the Prospect), the other basic terms and conditions offered to the Prospect
(other than the length of the term offered to the Prospect), and the date or
dates, as applicable, on which the 2nd Floor Expansion Premises shall be
included in the Premises (such date or dates is/are herein referred to as the
"Proposed Occupancy Date(s)"). Tenant shall notify Landlord in writing within
- ---------------------------
five (5) business days after Tenant's receipt of the Offer Notice whether Tenant
elects to lease the entire 2nd Floor Expansion Premises on the Proposed
Occupancy Date(s) at the rental rate set forth in the Offer Notice (such written
notice is herein referred to as the "Election Notice"). Contemporaneously with
---------------
Tenant's delivery of the Election Notice, Tenant shall deliver to Landlord (i)
the most recent annual report or similar audited statement of Tenant's financial
condition for the preceding fiscal year, and (ii) Tenant's most recent quarterly
financial statement (audited, as applicable) and a year-to-date statement of
Tenant's operations and financial condition. Within five (5) business days after
Tenant's receipt of Landlord's written request for the same, Tenant shall
deliver to Landlord such other information with respect to Tenant that Landlord
may from time to time reasonably request in writing from Tenant after Landlord's
receipt of the Election Notice.
2. Effect of a Timely Acceptance of the Offer Notice. If Tenant timely
-------------------------------------------------
elects to lease the 2nd Floor Expansion Premises by timely delivering to
Landlord the Election Notice, Landlord and Tenant shall, within 30 days after
Landlord's receipt of the Election Notice, execute an amendment to the Lease
(the "Lease Amendment") reflecting the following: (i) the fact that the 2nd
---------------
Floor Expansion Premises is to be included in the Premises on the Proposed
Occupancy Date(s) and will be leased by Tenant on the same terms as the Lease
except that (a) the rentable area of the Premises shall be increased by the
rentable area of the 2nd Floor Expansion Premises (and Tenant's Proportionate
Share shall be increased accordingly), (b) the Basic Rental shall be increased
by the amount specified for such space in the Offer Notice once possession of
the 2nd Floor Expansion Premises is delivered by Landlord to Tenant (the date
possession of the 2nd Floor Expansion Premises is delivered to Tenant after the
exercise of the 2nd Floor ROFO is herein referred to as the "2nd Floor
---------
ROFO Delivery Date"), (c) the Excess, Tax Excess and DCURD Excess payable by
- ------------------
Tenant shall be increased accordingly once possession of the 2nd Floor Expansion
Premises is delivered by Landlord to Tenant, (d) the 2nd Floor Expansion
Premises shall be accepted by Tenant in its "as is" condition and Landlord shall
not be obligated to provide Tenant with any leasehold improvements, allowances
(e.g., any moving allowance, construction allowance, and the like) or other
tenant inducements in connection therewith other than those specified in the
Offer Notice, (e) the Scheduled Expiration Date shall be modified and extended
to the date that is the last day of the sixtieth (60th) full calendar month
after the 2nd Floor ROFO Delivery Date unless a longer term is agreed to in
writing by Landlord and Tenant, and (f) other matters set forth in the Lease
which are inconsistent with the terms of the Offer Notice shall be modified
accordingly; (ii) that, if Landlord cannot acquire possession of all or any
portion of the 2nd Floor Expansion Premises before the applicable Proposed
Occupancy Date(s) and deliver the same to Tenant by such date(s), then (1)
Tenant's obligation to pay increased Basic Rental, Excess, Tax Excess and DCURD
Excess for the 2nd Floor Expansion Premises as provided in the Lease Amendment
shall be waived until Landlord delivers possession of the applicable portions of
the 2nd Floor Expansion Premises (at which time an appropriate increase in
Tenant's Proportionate Share, Basic Rental, Excess, Tax Excess and DCURD Excess
will occur), (2) Landlord shall not be in default under the Lease as a result of
such failure to deliver possession of all or any portion of the 2nd Floor
Expansion Premises to Tenant on or before the applicable Proposed Occupancy
Date(s) or be liable for damages therefor, and (3) Tenant shall accept
possession of the respective portions of the 2nd Floor Expansion Premises when
Landlord tenders possession thereof to Tenant; (iii) the terms and conditions
pursuant to which Tenant will deliver, and Landlord will hold, the 2nd Floor
ROFO LC, which terms and conditions shall be the same (subject to applicable
changes in dates and amount) as set forth in the Exhibit J-1 attached to the
Lease (the amount of the 2nd Floor ROFO LC may include, without limitation, all
brokerage commissions and all costs and expenses [hard and soft] related to the
design and construction [including the management thereof] of leasehold
alterations and improvements performed in connection with the leasing of the 2nd
Floor Expansion Premises to Tenant pursuant to this Exhibit); and (iv) such
other amendments to the Lease as are necessary. If Tenant fails or is unable to
timely
G-4-1
<PAGE>
exercise the 2nd Floor ROFO, then such right shall lapse, time being of the
essence with respect to the exercise thereof, and Landlord may thereafter lease
all or any portion of the 2nd Floor Expansion Premises to third parties on such
terms as Landlord may elect and free of any rights of Tenant thereto. Tenant
acknowledges and agrees that the 2nd Floor ROFO is a one-time right and that if
Tenant fails or is unable to timely exercise this right, Tenant shall have no
further rights pursuant to this Exhibit in and to the 2nd Floor Expansion
Premises regardless of whether Landlord leases all or any portion of such
premises to the Prospect.
3. Available For Lease. For the purposes of this Exhibit, the 2nd Floor
-------------------
Expansion Premises shall be considered "Available For Lease" if (A) the 2nd
-------------------
Floor Expansion Premises is not then leased by a tenant and is not then subject
to any expansion options, rights of first offer or other options or rights of
other tenants or other third parties (or is subject to any of the foregoing, but
the party owning the same has waived, been deemed to have waived, or failed to
timely exercise the same with respect to the leasing of the applicable space to
Tenant pursuant to this Exhibit), or (B) if the 2nd Floor Expansion Premises is
then leased and the applicable tenant's lease expires, or shall terminate
effective as of a date which is, less than 6 months from the date on which it is
being determined whether all or any portion of the 2nd Floor Expansion Premises
is Available For Lease and such 2nd Floor Expansion Premises is not then subject
to any expansion options, rights of first offer or other options or rights of
other tenants or other third parties (or is subject to any of the foregoing, but
the party owning the same has waived, been deemed to have waived, or failed to
timely exercise the same with respect to the leasing of the applicable space to
Tenant pursuant to this Exhibit).
4. Termination of Tenant's Expansion Rights. Tenant's rights pursuant to
----------------------------------------
Paragraphs 1 and 2 of this Exhibit and subparagraph (C) of the Exhibit G
attached to the Lease shall terminate if Tenant fails to timely exercise the 2nd
Floor ROFO, time being of the essence with respect to Tenant's exercise thereof
G-4-2
<PAGE>
EXHIBIT G-5
This Exhibit G-5 (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease
(including, without limitation, the Exhibit G attached thereto). The capitalized
terms which are defined in this Exhibit shall have the meanings assigned to them
herein in this Exhibit only and, if such terms are used in any other exhibits
attached to the Lease, such terms shall in such exhibits have the meanings given
to them therein. Tenant's rights under this Exhibit are conditioned upon
Tenant's satisfaction of the applicable requirements and conditions precedent
thereto contained in the Exhibit G attached to the Lease.
FIRST EXPANSION OPTION FOR THE 4TH FLOOR EXPANSION PREMISES
-----------------------------------------------------------
1. Effect of a Timely Exercise of the Fourth Floor Expansion Option.
----------------------------------------------------------------
If Tenant exercises the Fourth Floor Expansion Option on or before January
1,2001, then (a) possession of the 4th Floor Expansion Premises shall be
delivered to Tenant on the earlier of July 1, 2001 or the date on which Tenant
occupies the 4th Floor Expansion Premises with Landlord's prior written consent
(subject to adjustment as provided below in this Exhibit, the date on which
possession of the 4th Floor Expansion Premises is delivered to Tenant after the
exercise of the Fourth Floor Expansion Option is herein referred to as the "4th
---
Floor Premises Delivery Date"), and (b) Tenant and Landlord shall, within
- ----------------------------
fifteen (15) days after Landlord's receipt of the Election Notice, execute an
amendment to the Lease (the "Lease Amendment") reflecting the following: (i)
---------------
that, if Landlord cannot acquire possession of all or any portion of the 4th
Floor Expansion Premises before July 1, 2001 and deliver the same to Tenant by
such date, then (1) Tenant's obligation to pay increased Basic Rental, Excess,
Tax Excess and DCURD Excess as provided in the Lease Amendment shall be waived
until Landlord delivers possession of the applicable portions of the 4th Floor
Expansion Premises at which time an appropriate increase in Tenant's
Proportionate Share, Basic Rental, Excess, Tax Excess and DCURD Excess will
occur, (2) Landlord shall not be in default under the Lease as a result of such
failure to deliver possession of all or any portion of the 4th Floor Expansion
Premises to Tenant on or before July 1, 2001 or be liable for damages therefor,
(3) Tenant shall accept possession of the respective portions of the 4th Floor
Expansion Premises when Landlord tenders possession thereof to Tenant, and (4)
if the 4th Floor Premises Delivery Date has not occurred by November 1, 2001,
Landlord shall lease the Alternative Premises (as defined in Paragraph 2 below)
to Tenant "as is" on the terms and conditions that are applicable thereto in
this Exhibit; (ii) that Tenant shall, within 90 days after the date of the
execution of the Lease Amendment, deliver to Landlord for its approval final
working drawings, prepared by an architect that has been approved by Landlord
(which approval shall not be unreasonably withheld or delayed), of all
improvements that Tenant proposes to install in the 4th Floor Expansion Premises
(such working drawings shall include the partition layout, ceiling plan,
electrical outlets and switches, telephone outlets, drawings for any
modifications to the mechanical and plumbing systems of the Building, and
detailed plans and specifications for the construction of the improvements
called for under the Lease Amendment in accordance with all applicable Laws);
(iii) the terms and conditions pursuant to which Tenant will deliver, and
Landlord will hold, the 4th Floor Expansion LC, which terms and conditions shall
be the same (subject to applicable changes in dates and amount) as set forth in
the Exhibit J-1 attached to the Lease (the amount of the 4th Floor Expansion LC
may include, without limitation, all brokerage commissions and all costs and
expenses [hard and soft] related to the design and construction [including the
management thereof] of leasehold alterations and improvements performed in
connection with the leasing of the 4th Floor Expansion Premises to Tenant
pursuant to this Exhibit); and (iv) that the 4th Floor Expansion Premises is to
be added to the Premises and will be leased by Tenant on the same terms as the
Lease except as follows:
(a) the number of rentable square feet in the Premises shall increase
by the number of rentable square feet in the 4th Floor Expansion Premises,
and Tenant's Proportionate Share shall be adjusted accordingly, effective
as of the 4th Floor Premises Delivery Date;
(b) Basic Rental for the 4th Floor Expansion Premises shall be payable
on and after the 4th Floor Premises Delivery Date and shall be equal to the
prevailing fair market rental rate in the Building on the 4th Floor
Premises Delivery Date for space of equivalent quality, size, utility and
location, with the length of the term, the amount of the 4th Floor Finish-
Out Allowance (as hereinafter defined) and credit standing and financial
condition of Tenant to be taken into account (the "Fair Market Rental
------------------
Rate");
----
(c) Landlord shall not provide to Tenant any allowances (e.g., moving
allowance, construction allowance, and the like) or other tenant
inducements other than a tenant improvement allowance (the "4th Floor
---------
Finish-Out Allowance") which Landlord, in its sole discretion reasonably
--------------------
exercised, determines is appropriate taking into account the Fair Market
Rental Rate and the condition of, and leasehold improvements located in,
the 4th Floor Expansion Premises, and such allowance shall be provided to
Tenant in the same manner as the Construction Allowance is provided to
Tenant pursuant to the Exhibit D attached to the Lease (i.e., as a credit
to costs incurred in connection with the construction of leasehold
improvements to the 4th Floor Expansion Premises);
G-5-1
<PAGE>
(d) the construction of any leasehold improvements to the 4th Floor
Expansion Premises will be done pursuant to the terms and conditions set
forth in the Exhibit D attached to the Lease (with applicable revisions to
reflect the fact that the 4th Floor Expansion Premises, not the Premises,
are being finished-out after the date of Tenant's timely exercise of the
Fourth Floor Expansion Option) plus the addition of Landlord's standard
lease language regarding what constitutes a tenant delay and the effect
thereof;
(e) the number of rentable square feet in the Premises shall, if
applicable, increase by the number of rentable square feet in the
Alternative Premises, and Tenant's Proportionate Share shall be adjusted
accordingly, effective as of the Alternative Premises Delivery Date (as
defined in Paragraph 2 below);
(f) Basic Rental for the Alternative Premises shall be payable on and
after the Alternative Premises Delivery Date until the 4th Floor Premises
Delivery Date and shall be equal to the Fair Market Rental Rate;
(g) possession of the Alternative Premises shall be delivered to
Tenant in an "as is" condition and Tenant shall vacate and re-deliver
possession of the Alternative Premises to Landlord within five (5) business
days after the 4th Floor Premises Delivery Date;
(h) Landlord shall not provide to Tenant any allowances (e.g., moving
allowance, construction allowance, and the like) or other tenant
inducements with respect to the Alternative Premises; and
(i) the Scheduled Expiration Date shall be modified and extended to
the date that is the last day of the sixtieth (60th) full calendar month
after the 4th Floor Premises Delivery Date unless a longer term is agreed
to in writing by Landlord and Tenant.
2. Alternative Premises Definitions and Provisions. As used in this
-----------------------------------------------
Exhibit, the term "Alternative Premises" shall mean the up to 20,000 contiguous
--------------------
rentable square feet of space in the Building which is Available For Rent (as
hereinafter defined) that Landlord identifies in a written notice (the
"Alternative Premises Notice") delivered to Tenant on or before July 1,2001 in
---------------------------
the event Landlord reasonably believes that the 4th Floor Premises Delivery Date
will not occur by such date. Landlord shall choose the portion(s) of the
Available For Rent space in the Building to be used for the Alternative Premises
and identify the same in the Alternative Premises Notice; provided, however, in
no event shall the space identified in the Alternative Premises Notice exceed
20,000 rentable square feet. Landlord shall also identify in the Alternative
Premises Notice the date or dates, as applicable, on which possession of the
Alternative Premises will be delivered to Tenant; provided, however, in no event
shall the earliest date of such delivery take place before the fourteenth (14th)
day after the date of Tenant's receipt of the Alternative Premises Notice. As
used herein, the term "Available For Rent" shall mean any vacant space in the
------------------
Building that is not then leased by a tenant and is not then subject to any
expansion options, rights of first offer or other options or rights of other
tenants or other third parties. As used herein, the term "Alternative Premises
--------------------
Delivery Date" shall mean the date on which possession of all or any portion
- -------------
of the Alternative Premises has been delivered by Landlord to Tenant.
3. Termination of Tenant's Expansion Rights. Tenant's rights pursuant to
----------------------------------------
Paragraph 1 of this Exhibit and subparagraph (D) of the Exhibit G attached to
the Lease shall terminate if Tenant fails to timely exercise the Fourth Floor
Expansion Option, time being of the essence with respect to Tenant's exercise
thereof.
G-5-2
<PAGE>
EXHIBIT G-6
This Exhibit G-6 (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease
(including, without limitation, the Exhibit G attached thereto). The capitalized
terms which are defined in this Exhibit shall have the meanings assigned to them
herein in this Exhibit only and, if such terms are used in any other exhibits
attached to the Lease, such terms shall in such exhibits have the meanings given
to them therein. Tenant's rights under this Exhibit are conditioned upon
Tenant's satisfaction of the applicable requirements and conditions precedent
thereto contained in the Exhibit G attached to the Lease.
2ND RIGHT OF FIRST OPPORTUNITY PROVISIONS FOR THE 4TH FLOOR EXPANSION PREMISES
------------------------------------------------------------------------------
1. Offer to Tenant of Right to Lease the 4th Floor Expansion Premises.
------------------------------------------------------------------
Once the 4th Floor Expansion Premises have become Available For Lease (as
defined in Paragraph 3 below), if Landlord has a bona fide prospect (the
"Prospect") for all or any portion(s) of the 4th Floor Expansion Premises,
--------
Landlord shall offer in writing (the "Offer Notice") to lease to Tenant all of
the 4th Floor Expansion Premises (regardless of the amount of space offered to
the Prospect) on the same terms and conditions as offered to the Prospect except
as otherwise provided in this Exhibit. The Offer Notice shall specify the rent
to be paid for the 4th Floor Expansion Premises (regardless of the amount of
space offered to the Prospect), the other basic terms and conditions offered to
the Prospect (other than the length of the term offered to the Prospect), and
the date or dates, as applicable, on which the 4th Floor Expansion Premises
shall be included in the Premises (such date or dates is/are herein referred to
as the "Proposed Occupancy Date(s)"). Tenant shall notify Landlord in writing
-------------------------
within five (5) business days after Tenant's receipt of the Offer Notice whether
Tenant elects to lease the entire 4th Floor Expansion Premises on the Proposed
Occupancy Date(s) at the rental rate set forth in the Offer Notice (such written
notice is herein referred to as the "Election Notice"). Contemporaneously with
---------------
Tenant's delivery of the Election Notice, Tenant shall deliver to Landlord (i)
the most recent annual report or similar audited statement of Tenant's financial
condition for the preceding fiscal year, and (ii) Tenant's most recent quarterly
financial statement (audited, as applicable) and a year-to-date statement of
Tenant's operations and financial condition. Within five (5) business days after
Tenant's receipt of Landlord's written request for the same, Tenant shall
deliver to Landlord such other information with respect to Tenant that Landlord
may from time to time reasonably request in writing from Tenant after Landlord's
receipt of the Election Notice.
2. Effect of a Timely Acceptance of the Second 4th Floor ROFO. If Tenant
----------------------------------------------------------
timely elects to lease the 4th Floor Expansion Premises by timely delivering to
Landlord the Election Notice, Landlord and Tenant shall, within 30 days after
Landlord's receipt of the Election Notice, execute an amendment to the Lease
(the "Lease Amendment") reflecting the following: (i) the fact that the 4th
---------------
Floor Expansion Premises is to be included in the Premises on the Proposed
Occupancy Date(s) and will be leased by Tenant on the same terms as the Lease
except that (a) the rentable area of the Premises shall be increased by the
rentable area of the 4th Floor Expansion Premises (and Tenant's Proportionate
Share shall be increased accordingly), (b) the Basic Rental shall be increased
by the amount specified for such space in the Offer Notice once possession of
the 4th Floor Expansion Premises is delivered by Landlord to Tenant (the date
possession of the 4th Floor Expansion Premises is delivered to Tenant after the
exercise of the Second 4th Floor ROFO is herein referred to as the "4th Floor
---------
ROFO Delivery Date"), (c) the Excess, Tax Excess and DCURD Excess payable by
- ------------------
Tenant shall be increased accordingly once possession of the 4th Floor Expansion
Premises is delivered by Landlord to Tenant, (d) the 4th Floor Expansion
Premises shall be accepted by Tenant in its "as is" condition and Landlord shall
not be obligated to provide Tenant with any leasehold improvements, allowances
(e.g., any moving allowance, construction allowance, and the like) or other
tenant inducements in connection therewith other than those specified in the
Offer Notice, (e) the Scheduled Expiration Date shall be modified and extended
to the date that is the last day of the sixtieth (60th) full calendar month
after the Second 4th Floor ROFO Delivery Date unless a longer term is agreed to
in writing by Landlord and Tenant, and (f) other matters set forth in the Lease
which are inconsistent with the terms of the Offer Notice shall be modified
accordingly; (ii) that, if Landlord cannot acquire possession of all or any
portion of the 4th Floor Expansion Premises before the applicable Proposed
Occupancy Date(s) and deliver the same to Tenant by such date(s), then (1)
Tenant's obligation to pay increased Basic Rental, Excess, Tax Excess and DCURD
Excess for the 4th Floor Expansion Premises as provided in the Lease Amendment
shall be waived until Landlord delivers possession of the applicable portions of
the 4th Floor Expansion Premises (at which time an appropriate increase in
Tenant's Proportionate Share, Basic Rental, Excess, Tax Excess and DCURD Excess
will occur), (2) Landlord shall not be in default under the Lease as a result of
such failure to deliver possession of all or any portion of the 4th Floor
Expansion Premises to Tenant on or before the applicable Proposed Occupancy
Date(s) or be liable for damages therefor, and (3) Tenant shall accept
possession of the respective portions of the 4th Floor Expansion Premises when
Landlord tenders possession thereof to Tenant; (iii) the terms and conditions
pursuant to which Tenant will deliver, and Landlord will hold, the Second 4th
Floor ROFO LC, which terms and conditions shall be the same (subject to
applicable changes in dates and amount) as set forth in the Exhibit J-1 attached
to the Lease (the amount of the Second 4th Floor ROFO LC may include, without
limitation, all brokerage commissions and all costs and expenses [hard and soft]
related to the design and construction [including the management thereof] of
leasehold alterations and improvements performed in connection with the leasing
of the 4th Floor Expansion Premises to Tenant pursuant to this Exhibit); and
(iv) such other amendments to the Lease as are necessary. If Tenant fails or is
unable to
G-6-1
<PAGE>
timely exercise the Second 4th Floor ROFO, then such right shall lapse, time
being of the essence with respect to the exercise thereof, and Landlord may
thereafter lease all or any portion of the 4th Floor Expansion Premises to third
parties on such terms as Landlord may elect and free of any rights of Tenant
thereto. Tenant acknowledges and agrees that the Second 4th Floor ROFO is a one-
time right and that if Tenant fails or is unable to timely exercise this right,
Tenant shall have no further rights pursuant to this Exhibit in and to the 4th
Floor Expansion Premises regardless of whether Landlord leases all or any
portion of such premises to the Prospect.
3. Available For Lease. For the purposes of this Exhibit, the 4th Floor
-------------------
Expansion Premises shall be considered "Available For Lease" if (A) the 4th
-------------------
Floor Expansion Premises is not then leased by a tenant and is not then subject
to any expansion options, rights of first offer or other options or rights of
other tenants or other third parties (or is subject to any of the foregoing, but
the party owning the same has waived, been deemed to have waived, or failed to
timely exercise the same with respect to the leasing of the applicable space to
Tenant pursuant to this Exhibit), or (B) if the 4th Floor Expansion Premises is
then leased and the applicable tenant's lease expires, or shall terminate
effective as of a date which is, less than 6 months from the date on which it is
being determined whether all or any portion of the 4th Floor Expansion Premises
is Available For Lease and such 4th Floor Expansion Premises is not then subject
to any expansion options, rights of first offer or other options or rights of
other tenants or other third parties (or is subject to any of the foregoing, but
the party owning the same has waived, been deemed to have waived, or failed to
timely exercise the same with respect to the leasing of the applicable space to
Tenant pursuant to this Exhibit).
4. Termination of Tenant's Expansion Rights. Tenant's rights pursuant to
----------------------------------------
Paragraphs 1 and 2 of this Exhibit and subparagraph (E) of the Exhibit G
attached to the Lease shall terminate if Tenant fails to timely exercise the
Second 4th Floor ROFO, time being of the essence with respect to Tenant's
exercise thereof.
G-6-2
<PAGE>
EXHIBIT G-7
This Exhibit G-7 (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease
(including, without limitation, the Exhibit G attached thereto). The capitalized
terms which are defined in this Exhibit shall have the meanings assigned to them
herein in this Exhibit only and, if such terms are used in any other exhibits
attached to the Lease, such terms shall in such exhibits have the meanings given
to them therein. Tenant's rights under this Exhibit are conditioned upon
Tenant's satisfaction of the applicable requirements and conditions precedent
thereto contained in the Exhibit G attached to the Lease.
RIGHT OF FIRST OPPORTUNITY PROVISIONS FOR THE "TO BE DETERMINED" PREMISES
-------------------------------------------------------------------------
1. Offer to Tenant of Right to Lease the Additional Space. Once the
------------------------------------------------------
Additional Space has become Available For Lease (as defined in Paragraph 3
below), if Landlord has a bona fide prospect (the "Prospect") for all or any
--------
portion(s) of the Additional Space, Landlord shall offer in writing (the "Offer
-----
Notice") to lease to Tenant all of the Additional Space (regardless of the
- ------
amount of space offered to the Prospect) on the same terms and conditions as
offered to the Prospect except as otherwise provided in this Exhibit. The Offer
Notice shall specify the rent to be paid for the Additional Space (regardless of
the amount of space offered to the Prospect), the other terms and conditions
offered to the Prospect (other than the length of the term offered to the
Prospect), and the date or dates, as applicable, on which the Additional Space
shall be included in the Premises (such date or dates is/are herein referred to
as the "Proposed Occupancy Date(s)"). Tenant shall notify Landlord in writing
--------------------------
within five (5) business days after Tenant's receipt of the Offer Notice whether
Tenant elects to lease the entire Additional Space on the Proposed Occupancy
Date(s) at the rental rate set forth in the Offer Notice (such written notice is
herein referred to as the "Election Notice"). Contemporaneously with Tenant's
---------------
delivery of the Election Notice, Tenant shall deliver to Landlord (i) the most
recent annual report or similar audited statement of Tenant's financial
condition for the preceding fiscal year, and (ii) Tenant's most recent quarterly
financial statement (audited, as applicable) and a year-to-date statement of
Tenant's operations and financial condition. Within five (5) business days after
Tenant's receipt of Landlord's written request for the same, Tenant shall
deliver to Landlord such other information with respect to Tenant that Landlord
may from time to time reasonably request in writing from Tenant after Landlord's
receipt of the Election Notice.
2. Effect of a Timely Acceptance of the Offer Notice. If Tenant timely
-------------------------------------------------
elects to lease the Additional Space by timely delivering to Landlord the
Election Notice, Landlord and Tenant shall, within 30 days after Landlord's
receipt of the Election Notice, execute an amendment to this Lease (the "Lease
-----
Amendment") reflecting the following: (i) the fact that the Additional Space is
- ---------
to be included in the Premises on the Proposed Occupancy Date(s) and will be
leased by Tenant on the same terms as the Lease except that (a) the rentable
area of the Premises shall be increased by the rentable area of the Additional
Space (and Tenant's Proportionate Share shall be increased accordingly), (b) the
Basic Rental shall be increased by the amount specified for such space in the
Offer Notice once possession of the Additional Space is delivered by Landlord to
Tenant (the date possession of the Additional Space is delivered to Tenant after
the exercise of the Additional Space ROFO is herein referred to as the
"Additional Space Delivery Date"), (c) the Excess, Tax Excess and DCURD Excess
- -------------------------------
payable by Tenant shall be increased accordingly once possession of the
Additional Space is delivered by Landlord to Tenant, (d) the Additional Space
shall be accepted by Tenant in its "as is" condition and Landlord shall not be
obligated to provide Tenant with any leasehold improvements, allowances (e.g.,
any moving allowance, construction allowance, and the like) or other tenant
inducements in connection therewith other than those specified in the Offer
Notice, (e) the Scheduled Expiration Date shall be modified and extended to the
date that is the last day of the sixtieth (60th) full calendar month after the
Additional Space Delivery Date unless a longer term is agreed to in writing by
Landlord, and (f) other matters set forth in the Lease which are inconsistent
with the terms of the Offer Notice shall be modified accordingly; (ii) that, if
Landlord cannot acquire possession of all or any portion of the Additional Space
before the applicable Proposed Occupancy Date(s) and deliver the same to Tenant
by such date(s), then (1) Tenant's obligation to pay increased Basic Rental,
Excess, Tax Excess and DCURD Excess for the Additional Space as provided in the
Lease Amendment shall be waived until Landlord delivers possession of the
applicable portions of the Additional Space (at which time an appropriate
increase in Tenant's Proportionate Share, Basic Rental, Excess, Tax Excess and
DCURD Excess will occur), (2) Landlord shall not be in default under the Lease
as a result of such failure to deliver possession of all or any portion of the
Additional Space to Tenant on or before the applicable Proposed Occupancy
Date(s) or be liable for damages therefor, and (3) Tenant shall accept
possession of the respective portions of the Additional Space when Landlord
tenders possession thereof to Tenant; (iii) the terms and conditions pursuant to
which Tenant will deliver, and Landlord will hold, the Additional Space LC,
which terms and conditions shall be the same (subject to applicable changes in
dates and amount) as set forth in the Exhibit J-1 attached to the Lease (the
amount of the Additional Space LC may include, without limitation, all brokerage
commissions and all costs and expenses [hard and soft] related to the design and
construction [including the management thereof] of leasehold alterations and
improvements performed in connection with the leasing of the Additional Space to
Tenant pursuant to this Exhibit); and (iv) such other amendments to the Lease as
are necessary. If Tenant fails or is unable to timely exercise the Additional
Space ROFO, then such right shall lapse, time being of the essence with respect
to the exercise thereof, and Landlord may thereafter lease all or any portion of
the Additional Space to third parties on such terms as Landlord may elect and
free of any rights of
G-7-1
<PAGE>
Tenant thereto. Tenant acknowledges and agrees that the Additional Space ROFO is
a one-time right and that if Tenant fails or is unable to timely exercise this
right, Tenant shall have no further rights pursuant to this Exhibit in and to
the Additional Space regardless of whether Landlord leases all or any portion of
such premises to the Prospect.
3. Available For Lease. For the purposes of this Exhibit, the Additional
-------------------
Space shall be considered "Available For Lease" if (A) the Additional Space is
-------------------
not then leased by a tenant and is not then subject to any expansion options,
rights of first offer or other options or rights of other tenants or other third
parties (or is subject to any of the foregoing, but the party owning the same
has waived, been deemed to have waived, or failed to timely exercise the same
with respect to the leasing of the applicable space to Tenant pursuant to this
Exhibit), or (B) if the Additional Space is then leased and the applicable
tenant's lease expires, or has been terminated effective as of a date which is,
less than 6 months from the date on which it is being determined whether all or
any portion of the Additional Space is Available For Lease and such Additional
Space is not then subject to any expansion options, rights of first offer or
other options or rights of other tenants or other third parties (or is subject
to any of the foregoing, but the party owning the same has waived, been deemed
to have waived, or failed to timely exercise the same with respect to the
leasing of the applicable space to Tenant pursuant to this Exhibit).
4. Termination of Tenant's Expansion Rights. Tenant's rights pursuant to
----------------------------------------
Paragraphs 1 and 2 of this Exhibit and subparagraph (G) of the Exhibit G
attached to the Lease shall terminate on the earlier to occur of the following:
(1) March 30, 2001; or (2) the date on which (a) the Lease or Tenant's right to
possession of all or any portion of the Premises is terminated, or (b) Tenant
assigns any of its interest in the Lease or sublets any portion of the Premises
(other than any Permitted Transfer Without Landlord Consent).
G-7-2
<PAGE>
EXHIBIT H
WAIVER OF RIGHTS UNDER THE
DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT
---------------------------------------------------
Pursuant to, and to the extent permitted by Section 17.42 of the Texas
Deceptive Trade Practices -Consumer Protection Act (Tex. Bus. & Com. Code Ann.
(S) 17.41, et. seq.), Landlord and Tenant hereby agree that the Texas Deceptive
Trade Practices - Consumer Protection Act is waived and shall have no
applicability to this Lease, except that such waiver shall not apply to Section
17.555 of such Act.
H-1
<PAGE>
EXHIBIT I
CONFIDENTIALITY
---------------
Tenant acknowledges and agrees that the rental rates and other terms of
this Lease must be held confidential and may not be disclosed by Tenant to any
person or entity, without in each case Landlord's prior written consent. If
Tenant or its partners, agents, employees, officers, directors, attorneys or
other representatives (with the exception of Tenant, the foregoing persons or
entities are herein collectively referred to as the "Tenant Related Parties")
----------------------
violate this provision, Landlord shall be entitled to seek any and all relief
available at law or equity including, without limitation, the right to seek an
injunction prohibiting such violation. Tenant further agrees to pay on demand to
Landlord an amount equal to all of Landlord's lost profits, opportunity costs
and other damages resulting from Tenant's or any of the Tenant Related Parties'
disclosure of such confidential information in violation of this Exhibit I.
Notwithstanding the foregoing, Tenant may disclose the terms of this Lease to
its accountants and other financial representatives as long as such
representatives agree in writing to hold any information concerning this Lease
in confidence. Tenant will remain responsible for any violation by such
representatives. Tenant and the Tenant Related Parties shall additionally have
the right to disclose the terms and conditions of this Lease as follows: (a) to
the extent disclosure of some or all of such terms, conditions or provisions may
be required by law; (b) the financial terms of this Lease to the extent that the
disclosure of the same is required in connection with any financing sought by
Tenant; and (c) in connection with the enforcement of Tenant's rights hereunder.
The covenants of Tenant in this Exhibit I have been given by Tenant as a
material inducement to Landlord to lease the Premises to Tenant.
I-1
<PAGE>
EXHIBIT J
This Exhibit J (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease. The
capitalized terms which are defined in this Exhibit shall have the meanings
assigned to them herein in this Exhibit only and, if such terms are used in any
other exhibits attached to the Lease, such terms shall in such exhibits have the
meanings given to them therein.
LETTER OF CREDIT PROVISIONS
---------------------------
1. Contemporaneously with its execution of the Lease, Tenant shall deliver
to Landlord an irrevocable letter of credit (the "Initial Letter of Credit") in
------------------------
the amount of $528,162.52, in substantially the form set forth in the Rider A
attached to the Lease and otherwise in form and content acceptable to Landlord.
The Initial Letter of Credit and any other Letter of Credit (as hereinafter
defined) shall be issued by a Dallas, Texas branch office of either (i) Bank of
America, or (ii) another financial institution acceptable to Landlord for the
benefit of Landlord or its successors or assigns. As used herein, the term
"Letter of Credit" shall mean the applicable irrevocable letter of credit
----------------
(including, without limitation, the Initial Letter of Credit) delivered to
Landlord by Tenant as required or permitted by this Exhibit, each of which shall
be in substantially the form set forth in the Rider A attached to the Lease and
otherwise in form and content and by an issuer acceptable to Landlord and,
except with respect to the Initial Letter of Credit, shall, except as otherwise
provided in Paragraph 4 below, be in an amount equal to the amount of the Total
Leasing Costs (as hereinafter defined) less all theretofore accrued Annual
Reductions (as defined in Paragraph 3 below). As used in this Exhibit, the term
"Total Leasing Costs" shall mean all costs and expenses actually incurred by
-------------------
Landlord in connection with the leasing and finish-out of all of the Initial
Premises, which costs and expenses shall include, without limitation, the
following: (1) all costs and expenses (hard and soft) actually incurred by
Landlord to satisfy its obligations set forth in the Exhibit D attached to the
Lease and to otherwise finish-out the Initial Premises for Tenant; (2) any costs
and/or expenses incurred by or on behalf of Tenant for which Tenant is
reimbursed using any tenant improvement allowance(s) provided by Landlord to
Tenant; (3) any and all fees and expenses related to space planning,
architectural design and the preparation of plans and specifications for tenant
improvements and other work performed in connection with the finish-out of the
Initial Premises; and (4) compensation paid to brokers representing Landlord and
brokers representing Tenant in connection with the leasing of the Initial
Premises.
2. The Initial Letter of Credit and any replacement Letter of Credit
delivered to Landlord pursuant to this Exhibit shall have an expiration date not
earlier than one (1) year after the issuance date of the Initial Letter of
Credit or such replacement Letter of Credit. On or before the thirtieth (30th)
day prior to the expiration date of any Letter of Credit, Tenant shall deliver
to Landlord a replacement Letter of Credit in the form, content and amount
required or permitted by this Exhibit and, upon Landlord's receipt of such
replacement Letter of Credit, Landlord shall deliver to Tenant the Letter of
Credit then held by Landlord. Additionally, after Tenant's delivery of the
Initial Letter of Credit and within ten (10) business days after Tenant's
receipt of written notice from Landlord or any agent or attorney of Landlord of
the amount of the Total Leasing Costs, Tenant shall, from time to time, deliver
to Landlord a replacement Letter of Credit in the amount of such Total Leasing
Costs (less any Annual Reduction [as defined in Paragraph 3 below] or IPO
Reduction [as defined in Paragraph 4 below], if any, theretofore available to
Tenant) and otherwise in form and content and by an issuer required by this
Exhibit. Contemporaneously with the delivery to Landlord of the replacement
Letter of Credit required by the immediately preceding sentence, Landlord shall
deliver to Tenant the Letter of Credit then held by Landlord.
3. Except as otherwise provided in Paragraph 4 below, upon the expiration
of the First Letter of Credit Period (as hereinafter defined) and each and every
Letter of Credit Year (as hereinafter defined) thereafter and provided that at
the time of such expiration no Event of Default has occurred and is continuing
or any event which with the giving of notice or the passage of time, or both,
would constitute an Event of Default, Tenant shall be entitled to a reduction in
the amount of the Letter of Credit required hereby (each such reduction being
herein called an "Annual Reduction" and all such reductions being herein
----------------
collectively called "Annual Reductions") equal to twenty percent (20%) of the
-----------------
amount of the Letter of Credit then held by Landlord; provided, however,
notwithstanding anything to the contrary contained in this Exhibit, in no event
shall the amount of the Letter of Credit ever be reduced to less than
$178,952.00. As used herein, the term "First Letter of Credit Period" shall mean
-----------------------------
the period of time beginning on May 1, 1999 and ending on December 31, 2000, and
the term "Letter of Credit Year" shall mean each 12 calendar month period
---------------------
following the expiration of the First Letter of Credit Period. By way of example
only, if, upon the expiration of the First Letter of Credit Period, neither (i)
an Event of Default, nor (ii) any event which with the giving of notice or the
passage of time, or both, would constitute an Event of Default, had occurred and
been continuing on such expiration date, Tenant would be entitled to a reduction
of $105,632.50 (i.e., 20% of the amount of the Initial Letter of Credit).
Provided that at the time of such delivery no Event of Default has occurred and
is continuing or any event which with the giving of notice or the passage of
time, or both, would constitute an Event of Default, Tenant shall have the right
at any time to deliver to Landlord a replacement Letter of Credit in the amount
required by this Exhibit (i.e., the amount of the Total Leasing Costs less all
theretofore accrued Annual Reductions) and otherwise satisfying the requirements
of this Exhibit. Contemporaneously with the delivery to Landlord of the
J-1
<PAGE>
replacement Letter of Credit permitted by the immediately preceding sentence,
Landlord shall deliver to Tenant the Letter of Credit then being held by
Landlord.
4. On the later to occur of (i) the last day of the first full calendar
quarter following the date of the initial public offering of Tenant's stock, or
(ii) December 31, 1999 (such later date is herein referred to as the "IPO
---
Reduction Date"), and provided that on the IPO Reduction Date (1) Tenant has
- --------------
raised at least $50,700,000.00 in its initial public offering of stock (with
this amount less underwriting discounts and commissions to be used for working
capital), (2) no Event of Default has occurred and is continuing or any event
which with the giving of notice or the passage of time, or both, would
constitute an Event of Default, and (3) Tenant is a publicly-held company in
good standing with the United States Securities and Exchange Commission with its
stock being publicly traded on the New York Stock Exchange, the American Stock
Exchange or the NASDAQ, Tenant shall be entitled to a reduction (the "IPO
---
Reduction") in the amount of the Letter of Credit required hereby as follows:
- ---------
The amount of the Letter of Credit shall be reduced to $178,952.00 for the Term
of the Lease.
5. The failure of Tenant to deliver any replacement Letter of Credit
required by this Exhibit on or before the date required hereby shall constitute
an Event of Default until such time as the applicable replacement Letter of
Credit required by this Exhibit is delivered to Landlord, and Landlord shall
thereafter have the right to draft upon the Letter of Credit then held by
Landlord to obtain funds in the amount of all of the amount of the Letter of
Credit then held by Landlord (or, if Landlord shall, in its sole and absolute
discretion, elect to draft upon the Letter of Credit to obtain less than all of
the amount of the Letter of Credit then held by Landlord, Landlord may draft
upon such Letter of Credit in such amount). To obtain drafts upon any Letter of
Credit, Landlord must merely (i) present the Letter of Credit, (ii) submit a
written draft indicating the amount to be obtained by Landlord, and (iii)
deliver to the issuer of the Letter of Credit a statement that Tenant is in
default under the Lease. Upon the expiration of the Term (such date is herein
referred to as the "Letter of Credit Return Date"), and provided that no Event
----------------------------
of Default has occurred and is continuing or any event which with the giving of
notice or the passage of time, or both, could constitute an Event of Default,
Landlord shall (or, if the Letter of Credit Return Date occurs prior to the
expiration of the initial Term, on the first business day after Landlord' s
receipt of Tenant's written request for the return of the applicable Letter of
Credit) return the Letter of Credit then held by Landlord to Tenant (or, if
requested in writing by Tenant, to the issuer thereof).
6. Neither the Letter of Credit itself nor the funds available to Landlord
pursuant to the Letter of Credit shall be considered an advance payment of
rental or a measure of Landlord's damages in case of default by Tenant. After
the occurrence and during the continuance of any Event of Default, Landlord may,
but shall not be required to, from time to time, without prejudice to any other
remedy Landlord might have, draft upon the Letter of Credit to obtain funds in
the amount of all of the amount of the Letter of Credit then held by Landlord
(or, if Landlord shall, in its sole and absolute discretion, elect to draft upon
the Letter of Credit to obtain less than all of the amount of the Letter of
Credit then held by Landlord, Landlord may draft upon such Letter of Credit in
such amount). The funds obtained by Landlord pursuant to any draft upon the
Letter of Credit shall be used, applied or retained by Landlord, in such order
as Landlord in its sole and absolute discretion shall elect, for any of the
following: (i) for the payment of Basic Rental or any other sum due and payable,
or to be deposited, by Tenant pursuant to the Lease; (ii) for the payment of any
other amount which Landlord may spend or become obligated to spend by reason of
Tenant's default; (iii) to compensate Landlord for any other loss or damage
which Landlord may suffer by reason of Tenant's default including, without
limitation, costs and attorneys' fees incurred by Landlord in connection with
Landlord's recovery of possession of the Premises (including, without
limitation, any expenses incurred by or on behalf of Landlord to remove any
abandoned property from the Premises and to otherwise satisfy Tenant's delivery
of possession obligations set forth in the Lease); and/or (iv) to reimburse
Landlord for all of the unamortized Total Leasing Costs using a sixty (60) month
term and a 10% per annum interest rate factor.
7. The IPO Reduction and all other terms and provisions set forth in this
Exhibit will not apply to any letters of credit (other than the Initial Letter
of Credit and all Letters of Credit given in replacement of the Initial Letter
of Credit) heretofore delivered to Landlord by Tenant in connection with the
leasing of space in the Building other than the Initial Premises.
J-2
<PAGE>
EXHIBIT J-1
This Exhibit J-1 (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease
(including, without limitation, the Exhibit D attached thereto). The capitalized
terms which are defined in this Exhibit shall have the meanings assigned to them
herein in this Exhibit only and, if such terms are used in any other exhibits
attached to the Lease, such terms shall in such exhibits have the meanings given
to them therein. The rights and obligations of Landlord and Tenant set forth in
this Exhibit shall exist and be in force and effect provided that Tenant is
obligated pursuant to the Exhibit D attached to the Lease to deliver to Landlord
the Extra Construction Allowance LC (as defined in Exhibit D).
EXTRA CONSTRUCTION ALLOWANCE LETTER OF CREDIT PROVISIONS
--------------------------------------------------------
1. On or before the delivery date set forth in Exhibit D, Tenant shall
deliver the Extra Construction Allowance LC to Landlord. The Extra Construction
Allowance LC shall be in substantially the form set forth in the Rider A
attached to the Lease and otherwise in form and content acceptable to Landlord.
The Extra Construction Allowance LC and any other Letter of Credit (as
hereinafter defined) shall be issued by a Dallas, Texas branch office of either
(i) Bank of America, or (ii) another financial institution acceptable to
Landlord for the benefit of Landlord or its successors or assigns. As used
herein, the term "Letter of Credit" shall mean the applicable irrevocable letter
----------------
of credit (including, without limitation, the Extra Construction Allowance LC)
delivered to Landlord by Tenant as required or permitted by this Exhibit, each
of which shall be in substantially the form set forth in the Rider A attached to
the Lease and otherwise in form and content and by an issuer acceptable to
Landlord and, except with respect to the Extra Construction Allowance LC, shall
be in an amount equal to the amount of the Extra Construction Allowance (as
defined in Exhibit D) less all theretofore accrued Annual Reductions (as defined
in Paragraph 3 below).
2. The Extra Construction Allowance LC and any replacement Letter of
Credit delivered to Landlord pursuant to this Exhibit shall have an expiration
date not earlier than one (1) year after the issuance date of the Extra
Construction Allowance LC or such replacement Letter of Credit. On or before the
thirtieth (30th) day prior to the expiration date of any Letter of Credit,
Tenant shall deliver to Landlord a replacement Letter of Credit in the form,
content and amount required or permitted by this Exhibit and, upon Landlord's
receipt of such replacement Letter of Credit, Landlord shall deliver to Tenant
the Letter of Credit then held by Landlord. Additionally, after Tenant's
delivery of the Extra Construction Allowance LC and within ten (10) business
days after Tenant's receipt of written notice from Landlord or any agent or
attorney of Landlord of the amount of the Extra Construction Allowance, Tenant
shall, from time to time, deliver to Landlord a replacement Letter of Credit in
the amount of such Extra Construction Allowance (less any Annual Reduction [as
defined in Paragraph 3 below], if any, theretofore available to Tenant) and
otherwise in form and content and by an issuer required by this Exhibit.
Contemporaneously with the delivery to Landlord of the replacement Letter of
Credit required by the immediately preceding sentence, Landlord shall deliver to
Tenant the Letter of Credit then held by Landlord.
3. Upon the expiration of the First Extra Letter of Credit Period (as
hereinafter defined) and each and every Letter of Credit Year (as hereinafter
defined) thereafter and provided that at the time of such expiration no Event of
Default has occurred and is continuing or any event which with the giving of
notice or the passage of time, or both, would constitute an Event of Default,
Tenant shall be entitled to a reduction in the amount of the Letter of Credit
required hereby (each such reduction being herein called an "Annual Reduction"
----------------
and all such reductions being herein collectively called "Annual Reductions")
-----------------
equal to an amount based on an amortization of the amount of the Extra
Construction Allowance at 10% on an annual basis compounded monthly. As used
herein, the term "First Extra Letter of Credit Period" shall mean the period of
-----------------------------------
time beginning on May 1, 1999 and ending on December 31, 2000, and the term
"Letter of Credit Year" shall mean each 12 calendar month period following the
---------------------
expiration of the First Extra Letter of Credit Period. By way of example only,
if, (1)the amount of the Extra Construction Allowance was $45,690.00, and
(2)upon the expiration of the First Extra Letter of Credit Period, neither (i)
an Event of Default, nor (ii) any event which with the giving of notice or the
passage of time, or both, would constitute an Event of Default, had occurred and
been continuing on such expiration date, Tenant would be entitled to a reduction
of $6,626.64 (i.e., the amortized amount of the Extra Construction Allowance on
the date of the expiration of the First Extra Letter of Credit Period based a 60
month term and a 10% per annum interest rate factor). Provided that at the time
of such delivery no Event of Default has occurred and is continuing or any event
which with the giving of notice or the passage of time, or both, would
constitute an Event of Default, Tenant shall have the right at any time to
deliver to Landlord a replacement Letter of Credit in the amount required by
this Exhibit (i.e., the amount of the Extra Construction Allowance less all
theretofore accrued Annual Reductions) and otherwise satisfying the requirements
of this Exhibit. Contemporaneously with the delivery to Landlord of the
replacement Letter of Credit permitted by the immediately preceding sentence,
Landlord shall deliver to Tenant the Letter of Credit then being held by
Landlord.
4. The failure of Tenant to deliver any replacement Letter of Credit
required by this Exhibit on or before the date required hereby shall constitute
an Event of Default until such time as the applicable
J-1-1
<PAGE>
replacement Letter of Credit required by this Exhibit is delivered to Landlord,
and Landlord shall thereafter have the right to draft upon the Letter of Credit
then held by Landlord to obtain funds in the amount of all of the amount of the
Letter of Credit then held by Landlord (or, if Landlord shall, in its sole and
absolute discretion, elect to draft upon the Letter of Credit to obtain less
than all of the amount of the Letter of Credit then held by Landlord, Landlord
may draft upon such Letter of Credit in such amount). To obtain drafts upon any
Letter of Credit, Landlord must merely (i) present the Letter of Credit, (ii)
submit a written draft indicating the amount to be obtained by Landlord, and
(iii) deliver to the issuer of the Letter of Credit a statement that Tenant is
in default under the Lease. Upon the expiration of the Term (such date is herein
referred to as the "Letter of Credit Return Date"), and provided that no Event
----------------------------
of Default has occurred and is continuing or any event which with the giving of
notice or the passage of time, or both, could constitute an Event of Default,
Landlord shall (or, if the Letter of Credit Return Date occurs prior to the
expiration of the initial Term, on the first business day after Landlord's
receipt of Tenant' s written request for the return of the applicable Letter of
Credit) return the Letter of Credit then held by Landlord to Tenant (or, if
requested in writing by Tenant, to the issuer thereof).
5. Neither the Letter of Credit itself nor the funds available to Landlord
pursuant to the Letter of Credit shall be considered an advance payment of
rental or a measure of Landlord's damages in case of default by Tenant. After
the occurrence and during the continuance of any Event of Default, Landlord may,
but shall not be required to, from time to time, without prejudice to any other
remedy Landlord might have, draft upon the Letter of Credit to obtain funds in
the amount of all of the amount of the Letter of Credit then held by Landlord
(or, if Landlord shall, in its sole and absolute discretion, elect to draft upon
the Letter of Credit to obtain less than all of the amount of the Letter of
Credit then held by Landlord, Landlord may draft upon such Letter of Credit in
such amount). The funds obtained by Landlord pursuant to any draft upon the
Letter of Credit shall be used, applied or retained by Landlord, in such order
as Landlord in its sole and absolute discretion shall elect, for any of the
following: (i) for the payment of Basic Rental or any other sum due and payable,
or to be deposited, by Tenant pursuant to the Lease; (ii) for the payment of any
other amount which Landlord may spend or become obligated to spend by reason of
Tenant's default; (iii) to compensate Landlord for any other loss or damage
which Landlord may suffer by reason of Tenant's default including, without
limitation, costs and attorneys' fees incurred by Landlord in connection with
Landlord's recovery of possession of the Premises (including, without
limitation, any expenses incurred by or on behalf of Landlord to remove any
abandoned property from the Premises and to otherwise satisfy Tenant's delivery
of possession obligations set forth in the Lease); and/or (iv) to reimburse
Landlord for all of the unamortized Extra Construction Allowance using a sixty
(60) month term and a 10% per annum interest rate factor.
J-1-2
<PAGE>
EXHIBIT K
This Exhibit K (this "Exhibit") is attached to that certain Lease (the
-------
"Lease") by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT
-----
CORPORATION, a California corporation, as tenant. Any capitalized term not
defined in this Exhibit shall have the meaning assigned to it in the Lease.
ARBITRATION PROVISIONS
----------------------
The disputes or disagreements which in Section 7.(0 of the Lease are
specifically identified as a dispute or disagreement to be submitted for
resolution by binding arbitration (herein referred to as "Disputes Subject
----------------
to Arbitration") shall be settled by arbitration administered by the American
- --------------
Arbitration Association (the "AAA") under its Commercial Arbitration Rules (the
---
"Rules"), and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. Landlord and Tenant agree as follows:
(1) all Disputes Subject to Arbitration which are not resolved by such parties
within the time period set forth in Section 7.(f) of the Lease shall be
submitted to arbitration (using three arbitrators selected as provided below)
administered by the AAA under the Rules; and (2) both Landlord and Tenant will
abide by and perform any award rendered by the arbitrators.
In the event of a need for the submission of any Disputes Subject to
Arbitration to arbitration, the initiating party shall (1) give written notice
to the other party of its intention to arbitrate, which notice must contain a
statement setting forth the nature of the dispute, the amount involved, if any,
the remedy sought, and the hearing locale requested, and (2) file at any
regional office of the AAA three copies of such written notice, three copies of
the applicable arbitration provisions of the Lease, and the appropriate filing
fee as provided by the Rules. Within fifteen (15) days after the non-initiating
party has received notice of such filing, Landlord and Tenant each may appoint
one arbitrator by identifying such appointed arbitrator in a written notice
delivered to the other party and filing such written notice at the appropriate
regional office of the AAA within such fifteen (15) day period. If either
Landlord or Tenant fail to so appoint an arbitrator, the AAA shall, as provided
in the Rules, appoint the arbitrator to have been selected by such party or
parties and the third arbitrator. The arbitration proceedings shall thereafter
take place as provided by the Rules. As provided in the Lease, the unsuccessful
party in the arbitration proceedings shall promptly pay to the successful party
all costs and expenses (including, without limitation, court costs and
attorneys' fees) incurred therein; provided, however, Landlord and Tenant shall
each be responsible for 50% of (i) all filing fees related to such arbitration
proceedings, and (ii) all fees payable to one or more of the arbitrators.
K-1
<PAGE>
RIDER A
This Rider A (this "Rider") is attached to that certain Lease (the "Lease")
----- -----
by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT CORPORATION,
a California corporation, as tenant.
FORM OF INITIAL LETTER OF CREDIT AND EXTRA CONSTRUCTION ALLOWANCE LC
--------------------------------------------------------------------
[To come]
Rider A-1
<PAGE>
RIDER A
This Rider A (this "Rider") is attached to that certain Lease (the "Lease")
----- -----
by and between PEMBROKE REAL ESTATE, INC., as landlord, and SCIENT CORPORATION,
a California corporation, as tenant.
FORM OF INITIAL LETTER OF CREDIT AND EXTRA CONSTRUCTION ALLOWANCE LC
--------------------------------------------------------------------
[To come]
Rider A-1
<PAGE>
BASIC LEASE INFORMATION
Lease Date: May 1, 1999
Tenant: Scient Corporation, a California corporation
Tenant's Address: 444 Market Street, 28th Floor, San Francisco,
California 94111
Contact: Jeff Van Zanten (Telephone Number: 415/733-8200)
Landlord: Pembroke Real Estate, Inc.
Landlord's Address: c/o Doug Lanois
82 Devonshire Street
Mail Zone R27B
Boston, Massachusetts 02109-3614
Contact: Jones Lang LaSalle Management Services, Inc. (Telephone
No: 972/584-7272)
Premises: Suite No. [300] in the office building (the "Building")
--------
currently known as Waterway Tower and located on the
land (the "Land") described as abstract No. 1452-1,
----
Irving, Dallas County, Texas, which Suite consists of
all of the 3rd floor premises (the "Initial Premises")
----------------
outlined on the plan attached as Exhibit A to this
Lease (as hereinafter defined). As used in this Lease,
the term "Premises" shall mean the Initial Premises
--------
together with any other space in the Building hereafter
leased to Tenant pursuant to the terms and provisions
of this Lease and the Exhibits attached hereto. The
street address of the Building is 433 East Las Colinas
Boulevard, Irving, Texas 75039. The portions of the
Premises to be occupied by Tenant during the Term (as
hereinafter defined), and the periods of time of such
occupancy, are more particularly set forth in this
Lease.
Term: Commencing on May 1, 1999 (the "Commencement Date"),
-----------------
and ending at 5:00 p.m. on December 31, 2004, subject
to adjustment and earlier termination as provided in
this Lease and the Exhibits attached hereto (the
"Term"). The possession of the Initial Premises shall
be as follows:
RSF Floor Rental Rate Term
--------------- ----- ----------- ---------------
5,000-10,000* 3rd Free 5/1/99-6/30/99
11,422 3rd Free 7/1/99-12/31/99
11,423 3rd $23.50 + E 7/1/99-12/31/99
22,845 3rd $23.50 + E 1/1/00-12/31/04
*Location on the 3rd floor of the Building and actual
rentable square feet to be determined at a later date.
<TABLE>
<CAPTION>
Basic Rental: RSF Floor Monthly Basic Rental Term
------------- ----- -------------------- ---------------
<S> <C> <C> <C> <C>
5,000-10,000* 3rd Free 5/1/99-6/30/99
11,422 3rd Free 7/1/99-12/31/99
11,423 3rd $22,370.04 7/1/99-12/31/99
22,845 3rd $44,738.13 1/1/00-12/31/04
</TABLE>
*Location on the 3rd floor of the Building and actual
rentable square feet to be determined at a later date.
Security Deposit: $44,738.13
Rent: Basic Rental, Tenant's Proportionate Share of
Electrical Costs, Tenant's share of Excess (as defined
in the Exhibit C attached hereto), Tax Excess (as
---------
defined in Exhibit C) and DCURD Excess (as defined in
---------
Exhibit C), and all other sums that Tenant may owe to
---------
Landlord under this Lease.
Permitted Use: Continuous use and occupancy for general offices and
related purposes and for no other purpose without the
prior written consent of Landlord
Tenant's Proportionate Initially 10.29%, which is the percentage obtained by
dividing (a) the 22,845
