<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PERSISTENCE SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-3138935
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1720 SOUTH AMPHLETT BLVD., THIRD FLOOR
SAN MATEO, CALIFORNIA 94402
(650) 372-3600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHRISTOPHER T. KEENE
CHIEF EXECUTIVE OFFICER
PERSISTENCE SOFTWARE, INC.
1720 SOUTH AMPHLETT BLVD., THIRD FLOOR
SAN MATEO, CALIFORNIA 94402
(650) 372-3600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK A. MEDEARIS CURTIS L. MO
LAUREL FINCH JASON G. WILSON
DANIEL W. BURKE JUDY G. HAMEL
KRISTEN A. LAMB BROBECK, PHLEGER & HARRISON LLP
VENTURE LAW GROUP TWO EMBARCADERO PLACE
A PROFESSIONAL CORPORATION 2200 GENG ROAD
2800 SAND HILL ROAD PALO ALTO, CALIFORNIA 94303
MENLO PARK, CALIFORNIA 94025
</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, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common stock, par value $0.001 per share................ $41,400,000 $11,509
- --------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) and Rule 457(o) under the Securities Act.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED APRIL 23, 1999
PERSISTENCE LOGO
SHARES
COMMON STOCK
We are offering shares of our common stock. This is our initial
public offering, and no public market currently exists for our shares. We have
applied to have the shares we are offering approved for quotation on the Nasdaq
National Market under the symbol "PRSW." We anticipate that the initial public
offering price will be between $ and $ per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Persistence..................................... $ $
</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.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of our common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 1999.
-------------------------
BANCBOSTON ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
SOUNDVIEW TECHNOLOGY GROUP
The date of this prospectus is , 1999
<PAGE> 3
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, REFERENCES TO
THE "COMPANY," "PERSISTENCE," "WE," "US," AND "OUR" REFER TO PERSISTENCE
SOFTWARE, INC., AND OUR SUBSIDIARY.
-------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Special Note Regarding Forward-Looking Statements........... 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 32
Management.................................................. 46
Certain Transactions........................................ 56
Principal Stockholders...................................... 59
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 68
Experts..................................................... 68
Where You Can Find More Information......................... 68
Index to Consolidated Financial Statements.................. F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-------------------------
We own or have rights to trademarks or trade names that we use in
conjunction with the sale of our products and services. "Persistence," as well
as the logo for "Live Object Cache," are registered trademarks owned by us. We
have registrations pending for the use of our logo with "Persistence," as well
as "PowerTier." "PowerSync" and "Command Center" are also trademarks of ours.
This prospectus also makes reference to trademarks and trade names of other
companies that belong to them.
i
<PAGE> 4
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in shares of our common stock.
PERSISTENCE SOFTWARE, INC.
Persistence is a leading provider of transactional application server
software products that comprise the Internet software infrastructure for high
volume, high performance electronic commerce applications.
As the Internet has evolved into a global communications medium, companies
in many industries have begun to extend their core business processes over the
Internet to conduct electronic commerce with customers, suppliers and partners.
While creating new business opportunities, the growth of electronic commerce has
also created tremendous technological challenges. In particular, this growth has
placed stress on the underlying application infrastructure. The first generation
web application servers that emerged as this infrastructure were typically
designed to handle simple information publishing, not to accommodate the high
transaction volumes and performance requirements that characterize electronic
commerce today. Even casual users of the Internet are familiar with the effects
of these infrastructure limitations, such as poor performance and system
failures.
Our PowerTier family of products consists of transactional application
servers specifically designed to enable high performance electronic commerce.
Our products, PowerTier for EJB and PowerTier for C++, address the scalability,
availability and adaptability problems that frequently occur when delivering
business solutions over the Internet. PowerTier is one of the few application
servers that implements Sun Microsystems' full Enterprise JavaBeans, or EJB,
specification to enable businesses to deploy high performance, scalable Java
applications for the enterprise.
We believe that our PowerTier platform, which incorporates our patented
caching technology, offers performance that is orders of magnitude faster than
traditional non-caching application servers. Our products offer the following
benefits for customers launching sophisticated electronic commerce offerings:
- real-time response times for up to thousands of concurrent users and
transactions;
- scalability and reliability to prevent system crashes and downtime;
- dramatic reductions in time-to-market for building and deploying
electronic commerce applications;
- capabilities that enable businesses to extend processes across
organizational boundaries; and
- support of open Internet standards.
Our strategy is to provide the leading software platform for the deployment
of high performance electronic commerce applications. Key elements of our
strategy include:
- capturing additional market share in the emerging business-to-business
electronic commerce market;
- extending our technology leadership in standards-based platforms for next
generation electronic commerce;
- expanding our product platform to offer complementary solutions;
- increasing our partnerships with systems integrators;
- leveraging our installed customer base; and
- strengthening our international presence.
1
<PAGE> 5
Our customers use PowerTier as the platform for a broad range of electronic
commerce applications, such as real-time electronic trading, supply chain
management, Internet network management, application outsourcing and customer
relationship management. We believe our PowerTier product is particularly
well-suited for business-to-business electronic commerce applications requiring
server-to-server communication, in multi-party, multi-step transactions. Our
major customers include AT&T, Boeing, Cisco, FedEx, IBM, Instinet, Lucent,
Morgan Stanley Dean Witter, Norwest, Perkin-Elmer and SuperValu.
We market and sell our products primarily through a direct sales force in
the United States, United Kingdom and Germany, as well as through distributors.
Our current stockholders include Cisco, Intel, Reuters and Morgan Stanley
Dean Witter.
We were incorporated in May 1991 as Fulcrum Innovations, Inc. and
subsequently changed our name to Persistence Software, Inc. Our principal
executive offices are located at 1720 South Amphlett Blvd., Third Floor, San
Mateo, California 94402. Our telephone number at that location is (650)
372-3600. Information contained on our website at http://www.persistence.com
does not constitute part of this prospectus.
THE OFFERING
Common stock offered............... shares
Common stock to be outstanding
after the offering................. shares
Use of proceeds.................... Working capital and general corporate
purposes, funding product development and
expanding our sales and marketing
organization.
Proposed Nasdaq National Market
symbol............................. PRSW
This table is based on shares outstanding as of March 31, 1999 and excludes
shares that may be issued on exercise of the following options and warrants:
- 1,388,036 shares subject to outstanding options at a weighted average
exercise price of $0.64;
- 80,556 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $0.90 per share; and
- an aggregate of 4,495,033 shares available for future issuance under our
stock plans.
2
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
License................................... $ 2,603 $ 3,546 $ 7,478 $ 1,004 $ 2,116
Service................................... 1,171 1,867 2,682 706 747
------- ------- ------- ------- -------
Total revenues.................... $ 3,774 $ 5,413 $10,160 $ 1,710 $ 2,863
------- ------- ------- ------- -------
Loss from operations........................ (3,345) (4,686) (4,090) (1,708) (1,963)
Net loss.................................... (3,311) (4,674) (4,089) (1,704) (1,915)
Basic and diluted net loss per share........ $ (0.54) $ (0.73) $ (0.59) $ (0.25) $ (0.27)
======= ======= ======= ======= =======
Shares used in basic and diluted net loss
per share calculation..................... 6,135 6,366 6,879 6,733 7,044
======= ======= ======= ======= =======
Pro forma basic and diluted net loss per
share..................................... $ (0.31) $ (0.13)
======= =======
Shares used in pro forma basic and diluted
net loss per share calculation............ 13,183 14,320
======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 7,386 $ 7,386 $
Working capital..................................... 6,285 6,285
Total assets........................................ 10,455 10,455
Long-term obligations............................... 683 683
Total stockholders' equity.......................... 6,309 6,309
</TABLE>
- -------------------------
See notes 1 and 6 of notes to consolidated financial statements for an
explanation of the method used to determine the number of shares used to compute
the net loss per share and pro forma net loss per share amounts.
The pro forma column in the consolidated balance sheet data reflects the
automatic conversion of each outstanding share of preferred stock into one share
of common stock immediately before the completion of the offering.
The pro forma as adjusted numbers in the table above are adjusted to give
effect to receipt of the net proceeds from the sale of shares of common stock
offered by us at an assumed offering price of $ per share after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us.
Except as otherwise indicated, all information in this prospectus is based
on the following assumptions: (a) the conversion of each outstanding share of
preferred stock into one share of common stock immediately before the completion
of this offering, (b) no exercise of the underwriters' overallotment option, (c)
our reincorporation in Delaware before the effectiveness of this offering, and
(d) the filing of our amended and restated certificate of incorporation upon
completion of this offering.
3
<PAGE> 7
RISK FACTORS
You should carefully consider the following risks in addition to the
remainder of this prospectus before purchasing our common stock. The risks and
uncertainties described below are intended to be the ones that are specific to
our company and are not the only ones that we face. Additional risks and
uncertainties that generally apply to businesses in our industry or to companies
that are going public may also impair our business.
WE HAVE A LIMITED OPERATING HISTORY IN THE APPLICATION SERVER MARKET AND A
HISTORY OF LOSSES.
Because we only commenced selling application servers in 1997, we have a
limited operating history in the application server market. You should consider
our prospectus in light of the risks, expenses and difficulties frequently
encountered by companies in early stages of development, particularly companies
in the rapidly changing software industry. These risks include:
- our substantial dependence for revenue from our PowerTier for C++
product, which was first introduced in 1997 and has achieved only limited
market acceptance;
- our need to successfully sell our PowerTier for EJB product, which was
first introduced in 1998 and has achieved only limited market acceptance;
- our need to expand our distribution capability through both a direct
sales organization and third party distributors and systems integrators;
- our unproven ability to anticipate and respond to technological and
competitive developments in the rapidly changing market for application
servers;
- our unproven ability to compete in a highly competitive market;
- uncertainty as to the growth rate in the electronic commerce market, and
in particular the business-to-business electronic commerce market;
- our dependence on Enterprise JavaBeans, commonly known as EJB, becoming a
widely accepted standard in the transactional application server market;
and
- our dependence upon key personnel.
Our revenues may not continue to grow, and we may not be able to achieve or
maintain profitability in the future. We have incurred net losses each year
since 1996. In particular, we incurred losses of $3.3 million in 1996, $4.7
million in 1997, $4.1 million in 1998 and $1.9 million in the three months ended
March 31, 1999. As of March 31, 1999, we had an accumulated deficit of
approximately $14.7 million. In addition, we are unable to predict accurately
our future product development, sales and marketing, and administrative
expenses. If these expenses increase, we will need to increase our revenues to
become profitable. Because our product market is new and evolving, we cannot
accurately predict either the future growth rate, if any, or the ultimate size
of the market for our products.
THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT THE PRICE OF
OUR COMMON STOCK.
Our operating results have fluctuated significantly in the past and may
fluctuate significantly in the future as a result of a variety of factors, many
of which are outside our control. If our future quarterly operating results are
below the expectations of securities
4
<PAGE> 8
analysts or investors, the price of our common stock would likely decline. The
factors that may cause fluctuations of our operating results include the
following:
- our ability to close relatively large sales on schedule;
- delays or deferrals of customer orders or deployments;
- delays in shipment of scheduled software releases;
- demand for and market acceptance of our PowerTier for C++ and PowerTier
for EJB products;
- the possible loss of sales people;
- introduction of new products or services by us or our competitors;
- annual or quarterly budget cycles of our customers;
- the level of product and price competition in the application server
market;
- our lengthy sales cycle;
- our success in expanding our direct sales force and indirect distribution
channels;
- the mix of direct sales versus indirect distribution channel sales;
- the mix of products and services licensed or sold;
- the mix of domestic and international sales; and
- our success in penetrating international markets and general economic
conditions in such markets.
We typically receive a substantial portion of our orders in the last two
weeks of each fiscal quarter because our customers often delay purchases of our
products to the end of the quarter to gain price concessions. Because a
substantial portion of our costs are relatively fixed and based on anticipated
revenues, a failure to book an expected order in a given quarter would not be
offset by a corresponding reduction in costs and could adversely affect our
operating results.
OUR SALES CYCLE IS LONG, UNPREDICTABLE AND SUBJECT TO SEASONAL FLUCTUATIONS, SO
IT IS DIFFICULT TO FORECAST OUR REVENUES.
Any delay in sales of our products or services could cause our quarterly
revenues and operating results to fluctuate. The typical sales cycle of our
products is long and unpredictable and requires both a significant capital
investment decision by our customers and our education of potential customers
regarding the use and benefits of our products. Our sales cycle is generally
between three and nine months. A successful sales cycle typically includes
presentations to both business and technical decision makers, as well as a
limited pilot program to establish technical fit. Our products typically are
purchased as part of a significant enhancement to a customer's information
technology system. The implementation of our products involves a significant
commitment of resources by prospective customers. Accordingly, a purchase
decision for a potential customer typically requires the approval of several
senior decision makers. Our sales cycle is affected by the business conditions
of each prospective customer. Due to the relative importance of many of our
product sales, a lost or delayed sale could adversely affect our quarterly
operating results. Our sales cycle is affected by seasonal fluctuations as a
result of our customers' fiscal year budgeting cycles and slow summer purchasing
patterns in Europe. Also, our revenues are typically higher in the fourth
quarter than in other quarters of the year.
5
<PAGE> 9
WE DEPEND ON A RELATIVELY SMALL NUMBER OF SIGNIFICANT CUSTOMERS, AND THE LOSS OF
ONE OR MORE OF THESE CUSTOMERS COULD RESULT IN A DECREASE IN OUR REVENUES.
Historically, we have received a substantial portion of our revenues from
product sales to a limited number of customers. For example, sales of products
to our top five customers accounted for 15% and 55% of total revenues in 1997
and 1998, respectively. In addition, the identity of our top five customers has
changed from year to year. If we lose a significant customer, or fail to
increase product sales to an existing customer as planned, we may not be able to
replace the lost revenues with sales to other customers. In addition, because
our marketing strategy is to concentrate on selling products to industry
leaders, any loss of a customer could harm our reputation within the industry
and make it harder for us to sell our products to other companies in that
industry. The loss of, or a reduction in sales to, one or more significant
customers would likely result in a decrease in our revenues.
WE DEPEND ON THE JAVA PROGRAMMING LANGUAGE, THE ENTERPRISE JAVABEANS STANDARD
AND THE EMERGING MARKET FOR DISTRIBUTED OBJECT COMPUTING, AND IF THESE
TECHNOLOGIES FAIL TO GAIN ACCEPTANCE, OUR BUSINESS COULD SUFFER.
We are focusing significant marketing efforts on our PowerTier for EJB
application server, which is based on three relatively new technologies, none of
which has been widely adopted by companies. These three technologies are a
distributed object computing architecture, Sun Microsystems' Java programming
language, and EJB. Distributed object computing combines the use of software
modules, or objects, communicating across a computer network to software
applications, such as our PowerTier application server. EJB is the standard of
use of Java in an application server. In 1998, we launched our PowerTier for EJB
product, which is a transactional application server that uses Java and conforms
to the EJB standard. Sun Microsystems released the EJB standard in 1998, and
thus far EJB has had limited market acceptance. We expect a substantial portion
of our future revenues will come from sales of products based on the EJB
standard. Thus, our success depends significantly upon broad market acceptance
of distributed object computing in general, and Java application servers in
particular. If EJB does not become a widespread programming standard for
application servers, our revenues and business could suffer.
OUR FUTURE SUCCESS DEPENDS UPON OUR ABILITY TO DEVELOP NEW APPLICATIONS AND
TECHNOLOGY DURING PERIODS OF RAPID TECHNOLOGICAL CHANGE.
The market for our products and services is characterized by rapid
technological change, dynamic customer demands and frequent new product
introductions and enhancements. Customer requirements for products can change
rapidly as a result of innovation in software applications and hardware
configurations and the emergence or adoption of new industry standards,
including Internet technology standards. We need to increase our research and
development investment to maintain our technological leadership. Our future
success depends on our ability to continue to enhance our current products and
to continue to develop and introduce new products that keep pace with
competitive product introductions and technological developments. For example,
as Sun Microsystems introduces new EJB specifications, we will need to introduce
new versions of PowerTier for EJB designed to support these new specifications
to remain competitive. If we do not bring enhancements and new versions of our
products to market in a timely manner, our market share and revenues could
decrease and our reputation could suffer. If we fail to anticipate or respond
adequately to changes in technology and customer needs,
6
<PAGE> 10
or if there are any significant delays in product development or introduction,
our revenues and business could suffer.
WE DEPEND ON OUR ABILITY TO BUILD AND TRAIN OUR DIRECT SALES TEAM.
We must expand our direct sales team to generate increased revenue. In
1998, we hired several new salespeople, replacing most of our preexisting sales
force. In order to meet our future sales goals, we will need to hire many more
salespeople within the next two years for both our domestic and international
sales effort. In the past, newly hired employees have required training and
approximately six to nine months experience to achieve full productivity.
Because our entire sales team is relatively new, we cannot be certain that they
will meet our sales goals. In addition, we cannot be certain that our recently
hired employees will become productive or that we will be able to hire enough
qualified individuals in the future.
OUR SUCCESS DEPENDS ON BUILDING RELATIONSHIPS WITH SYSTEMS INTEGRATORS AND OTHER
THIRD PARTIES.
To date, we have sold our products primarily through our direct sales
force, but our ability to achieve significant revenue growth in the future will
depend in large part on our success in establishing and leveraging relationships
with systems integrators and other third parties. It may be difficult for us to
establish these relationships, and, even if we establish these relationships, we
will then depend on the systems integrators' and other third parties' sales
efforts. In addition, because these relationships are nonexclusive, systems
integrators may choose to use application servers or other alternative solutions
offered by our competitors, and not our products. If we fail to successfully
build our third-party distribution channels or if our systems integrator and
other third party partners do not perform as expected, our business could be
harmed.
WE DEPEND ON THE COMPLETION OF ENTERPRISE-WIDE SYSTEM DEPLOYMENTS.
Because our products are often incorporated into a multi-million dollar
enterprise project, we depend on the successful and timely completion of these
enormous projects to fully deploy our products and achieve our revenue goals.
These enterprise projects often take many years to complete, and can be delayed
by a variety of factors, including general or industry-specific economic
downturns, our customers' budget constraints, year 2000 problems or other
customer-specific delays, problems with other system components, or delays
caused by the systems integrators who may be managing the system deployment. If
our customers cannot successfully implement large-scale deployments, or they
determine for any reason that our products cannot accommodate large-scale
deployments or that our products are not appropriate for widespread use, our
business could suffer. In addition, if a systems integrator fails to complete a
project utilizing our product for a customer in a timely manner, our revenues or
business reputation could suffer.
BECAUSE WE COMPETE WITH SUN MICROSYSTEMS, WHO CONTROLS THE EJB APPLICATION
SERVER STANDARD, WE FACE THE RISK THAT THEY MAY DEVELOP THIS STANDARD TO FAVOR
THEIR OWN PRODUCTS.
Our success depends on achieving widespread market acceptance of our
PowerTier for EJB application server. Because Sun Microsystems controls the EJB
standard, we need to maintain a good working relationship with Sun Microsystems
to develop future versions of PowerTier for EJB, as well as additional products
using EJB, that will gain market acceptance. In March 1998, we entered into a
license agreement with Sun Microsystems,
7
<PAGE> 11
pursuant to which we granted Sun Microsystems rights to manufacture and sell, by
itself and not jointly with others, products under a number of our patents and
Sun Microsystems granted us rights to manufacture and sell, by ourselves and not
jointly with others, products under a number of Sun Microsystems' patents. As a
result, Sun Microsystems may develop and sell certain competing products that
would, in the absence of this license agreement, infringe our patents. Because
Sun Microsystems controls the EJB standard, it could develop the EJB standard in
a more proprietary way to favor a product offered by one of its subsidiaries,
NetDynamics or KIVA Software, or a third party, which could make it much harder
for us to compete in the EJB application server market.
MICROSOFT HAS ESTABLISHED A COMPETING APPLICATION SERVER STANDARD, WHICH COULD
DIMINISH THE MARKET POTENTIAL FOR OUR PRODUCTS IF IT GAINS WIDESPREAD
ACCEPTANCE.
Microsoft has established a competing standard for distributed computing,
COM, which includes an application server product. If this standard gains
widespread market acceptance over the EJB or CORBA standards, on which our
products are based, our business would suffer. Because of Microsoft's resources
and commanding position with respect to other markets and technologies,
Microsoft's entry into the application server market may cause our potential
customers to delay purchasing decisions. We expect that Microsoft's presence in
the application server market will increase competitive pressure in the market.
WE FACE SIGNIFICANT COMPETITION FROM COMPANIES WITH GREATER RESOURCES THAN WE
HAVE AND MAY FACE ADDITIONAL COMPETITION IN THE FUTURE.
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. We believe that the principal competitive
factors in our market are:
- performance, including scalability, integrity and availability;
- ability to provide a complete software platform;
- flexibility;
- use of standards-based technology;
- ease of integration with customers' existing enterprise systems;
- quality of support and service;
- security;
- company reputation; and
- price.
Our competitors include both publicly and privately-held enterprises,
including BEA Systems (WebLogic), Gemstone Systems, IBM (WebSphere), Inprise,
Iona Technologies, Oracle (OAS) and Sun Microsystems (NetDynamics). Many
customers may not be willing to purchase our PowerTier platform because they
have already invested heavily in databases and other enterprise software
components offered by these competing companies. Many of these competitors have
preexisting customer relationships, longer operating histories, greater
financial, technical, marketing and other resources, greater name recognition
and larger installed bases of customers than we do. Moreover, there are other
very large and established companies, including Microsoft and Netscape, who
offer alternative solutions and are thus indirect competitors. Further, dozens
of companies have
8
<PAGE> 12
announced their intention to support EJB, and may compete against us in the
future. These competitors and potential competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion and sale of their
products than we can. In addition, in the PowerTier for C++ market, many
potential customers build their own custom application servers, so we
effectively compete against our potential customers' internal information
technology departments.
WE DEPEND UPON THE ADOPTION AND ACCEPTANCE OF BUSINESS-TO-BUSINESS ELECTRONIC
COMMERCE OVER THE INTERNET.
Our performance and future success will depend on the growth and widespread
adoption of the market for business-to-business electronic commerce over the
Internet. If business-to-business electronic commerce does not develop in the
manner currently envisioned, our business could be materially and adversely
affected. Moreover, critical issues concerning the commercial use of the
Internet, such as security, cost, accessibility and quality of network service,
remain unresolved and may negatively affect the growth of the Internet as a
platform for conducting business-to-business electronic commerce. In addition,
the Internet could lose its viability due to delays in the development or
adoption of new standards and protocols to handle increased activity or due to
increased government regulation and taxation of Internet commerce.
OUR FAILURE TO MANAGE GROWTH COULD IMPAIR OUR BUSINESS.
Achieving our planned revenue growth and other financial objectives will
place significant demands on our management and other resources. We anticipate
increasing our headcount significantly over the next two years. Our ability to
manage this growth effectively will require us to continue to develop and
improve our operational, financial and other internal systems and controls, as
well as our business development capabilities, and to train, motivate and manage
our employees. If we are unable to manage our growth effectively, we may not be
able to retain key personnel and the quality of our services and products may
suffer.
OUR BUSINESS COULD SUFFER IF WE CANNOT ATTRACT AND RETAIN THE SERVICES OF KEY
EMPLOYEES.
Our future success depends on the ability of our management to operate
effectively, both individually and as a group. We are substantially dependent
upon the continued service of our existing executive personnel, especially
Christopher T. Keene, our President and Chief Executive Officer. We do not have
a key person life insurance policy covering Mr. Keene or any other officer or
key employee. Our success will depend in large part upon our ability to attract
and retain highly-skilled employees, particularly sales personnel and software
engineers. There is significant competition for skilled employees, especially
for people who have experience in both the software and Internet industries. If
we are not successful in attracting and retaining these skilled employees, our
sales and product development efforts would suffer. In addition, if one or more
of our key employees resigns to join a competitor or to form a competing
company, the loss of that employee and any resulting loss of existing or
potential customers to a competitor could harm our business. If we lose any key
personnel, we may not be able to prevent the unauthorized disclosure or use of
our technical knowledge or other trade secrets by those former employees.
9
<PAGE> 13
OUR SOFTWARE PRODUCTS MAY CONTAIN DEFECTS OR ERRORS, AND SHIPMENTS OF OUR
SOFTWARE MAY BE DELAYED.
Complex software products often contain errors or defects, particularly
when first introduced or when new versions or enhancements are released. Our
products have in the past contained and may in the future contain errors and
defects, which may be serious or difficult to correct and which may cause delays
in subsequent product releases. Delays in shipment of scheduled software
releases or serious defects or errors could result in lost revenues or a delay
in market acceptance, which could have a material adverse effect on our revenues
and reputation.
WE MAY BE SUED BY OUR CUSTOMERS FOR PRODUCT LIABILITY CLAIMS AS A RESULT OF
FAILURES IN THEIR CRITICAL BUSINESS SYSTEMS.
Because our customers use our products for important business applications,
errors, defects or other performance problems could result in financial or other
damages to our customers. They could seek damages for losses, which, if
successful, could result in our having to make substantial payments. Although
our purchase agreements typically contain provisions designed to limit our
exposure to product liability claims, existing or future laws or unfavorable
judicial decisions could negate such limitation of liability provisions. A
product liability claim brought against us, even if meritless, would likely be
time consuming and costly for us to litigate or settle.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.
Our future success will depend, in part, on our successful development of
international markets for our products. For the year ended December 31, 1998,
and for the three months ended March 31, 1999, approximately 29% and 22%,
respectively, of our revenues came from sales of products and services outside
the United States. We expect international revenues to continue to represent a
significant portion of our total revenues. To date, almost all of our
international revenues have resulted from our direct sales efforts. In
international markets, however, we expect that we will depend more heavily on
third party distributors to sell our products in the future. The success of our
international strategy will depend on our ability to develop and maintain
productive relationships with these third parties. The failure to develop key
international markets for our products could cause a reduction in our revenues.
Additional risks related to our international expansion and operation include:
- difficulties of staffing and managing foreign operations;
- our dependence on the sales efforts of our third party distributors;
- longer payment cycles typically associated with international sales;
- tariffs and other trade barriers;
- failure to comply with a wide variety of complex foreign laws and
changing regulations;
- exposure to political instability and economic downturns;
- failure to localize our products for foreign markets;
- restrictions on the export of technologies;
- potentially adverse tax consequences;
10
<PAGE> 14
- reduced protection of intellectual property rights in some countries; and
- currency fluctuations.
We sell products outside the United States in U.S. dollars. We do not
currently engage in any hedging transactions to reduce our exposure to currency
fluctuations as a result of our foreign operations. We are not currently ISO
9000 compliant, nor are we attempting to meet all foreign technical standards
that may apply to our products. Our failure to develop our international sales
channel as planned could cause a decline in our revenues.
IF WE DO NOT PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR COMPETITIVE POSITION
MAY BE IMPAIRED.
Our success may depend on our ability to protect our proprietary rights to
the technologies used in our products, and yet the measures we are taking to
protect these rights may not be adequate. If we are not adequately protected,
our competitors could use the intellectual property that we have developed to
enhance their products, which could harm our business. We rely on patent
protection, as well as a combination of copyright, trade secret and trademark
laws, and nondisclosure and other contractual restrictions to protect our
proprietary technology, but these legal means afford only limited protection.
Unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. In addition, the laws of some
foreign countries may not protect our intellectual property rights to the same
extent as do the laws of the United States. Further, litigation may be necessary
to enforce our intellectual property rights, which could result in substantial
costs and diversion of management attention and resources.
WE MAY BE SUED FOR VIOLATING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
The software industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement
and the violation of other intellectual property rights. As the number of
competitors in the application server market grows and the functionality of
products in different market segments overlaps, the possibility of an
intellectual property claim against us increases. For example, we may be
inadvertently infringing a patent of which we are unaware. In addition, because
patent applications can take many years to issue, there may be a patent
application now pending of which we are unaware, which will cause us to be
infringing when it is issued in the future. To address such patent infringement
or other intellectual property claims, we may have to enter into royalty or
licensing agreements on disadvantageous commercial terms. Alternatively, we may
be unable to obtain a necessary license. A successful claim against us, and our
failure to license the infringed or similar technology, would harm our business.
In addition, any infringement or other intellectual property claims, with or
without merit, which are brought against us could be time consuming and
expensive to litigate or settle and could divert management attention from
administering our core business.
WE FACE RISKS ASSOCIATED WITH THE YEAR 2000 ISSUE, INCLUDING THE RISK THAT OUR
PRODUCTS OR INTERNAL SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT AND THE RISK THAT
OUR CUSTOMERS MAY DELAY THE PURCHASE OF OUR POWERTIER PLATFORM AS A RESULT OF
THEIR OWN YEAR 2000 CONCERNS.
We have designed and tested the most current versions of our products to be
year 2000 compliant. However, we have not tested our products on all platforms
or all versions of operating systems that we currently support. Despite this
testing, our products may
11
<PAGE> 15
contain undetected errors or defects associated with year 2000 date functions
that may be expensive for us to remedy. Because our products are generally
incorporated into a large enterprise-wide system enhancement, we may face claims
based on year 2000 issues arising from the integration of multiple products,
including ours, within an overall system. Some commentators have stated that a
significant amount of litigation will arise out of year 2000 issues, and we are
aware of a growing number of lawsuits against other software vendors.
We may experience serious unanticipated problems and material costs caused
by undetected errors or defects in the technology used in our internal systems
relating to the year 2000 transition. These systems include the hardware and
third-party software products that our research and development staff use in
their daily activities, as well as our management information systems. The most
likely worst case scenarios include:
- hardware or software failures that would prevent our research and
development staff from effectively performing their duties;
- corruption of data contained in our internal information systems; and
- the failure of infrastructure services provided by government agencies
and other third parties, including public utilities and Internet service
providers.
Finally, our potential customers may cease or delay the purchase and
installation of new complex systems, such as systems incorporating our PowerTier
application server, or may defer an enterprise-wide deployment of our PowerTier
platform, as a result of, and during, their own internal year 2000 testing. Any
resulting delay or decrease in orders for our products could cause our revenues
to decline, either on a quarterly or absolute basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our current stockholders sell substantial amounts of common stock,
including shares issued upon the exercise of outstanding options and warrants,
in the public market, the market price of our common stock could fall. In
addition, these sales of common stock after the offering could impede our
ability to raise funds at an advantageous price through the sale of securities.
After this offering, we will have outstanding shares of common
stock. The shares sold in this offering will be immediately
available for sale in the public market. Beginning 90 days after the effective
date of this prospectus, approximately 652,358 shares will be eligible for sale.
Beginning 180 days after the effective date, approximately 13,929,582 shares
will be eligible for sale, 6,914,909 of which will be subject to volume and
other restrictions under Rule 144. The remaining 866,001 shares will be eligible
for sale upon the expiration of various one-year holding periods during the six
months following 180 days after the effective date, subject to volume and other
restrictions under Rule 144.
OUR STOCK PRICE MAY BE VOLATILE.
Before this offering, there has been no public market for our common stock.
An active public market for our common stock may not develop or be sustained
after this offering. If you purchase shares in this offering, you will pay a
price that was not established in a competitive market, but was rather a price
that we negotiated with the underwriters. After
12
<PAGE> 16
the offering, the market price of our common stock is likely to be highly
volatile and may rise or fall as a result of many factors, such as:
- variations in our quarterly results;
- announcements of technological innovations by us or our competitors;
- introductions of new products by us or our competitors;
- acquisitions or strategic alliances by us or our competitors;
- hiring or departure of key personnel;
- the gain or loss of a significant customer or order;
- changes in estimates of our financial performance or changes in
recommendations by securities analysts;
- market conditions in the software industry and in our customers'
industries; and
- adoption of new accounting standards affecting the software industry.
The stock market in general has experienced extreme price and volume
fluctuations, which could adversely affect the market price of our stock. In
particular, the market prices of the common stock of many companies in the
software and Internet industries have experienced this volatility, which has
often been unrelated to these companies' operating performance. In the past,
securities class action litigation has often been brought against a company
after a period of volatility in the market price of its stock. We may in the
future be a target of similar litigation. Securities litigation could result in
substantial costs and divert management's attention and resources, which could
harm our business.
EXISTING CONTROLLING STOCKHOLDERS WILL CONTINUE TO CONTROL THE COMPANY AFTER
THIS OFFERING.
Immediately after this offering, our executive officers and directors, and
entities affiliated with them, will continue to own approximately % of our
outstanding common stock. Accordingly, these stockholders may, as a practical
matter, continue to control the election of a majority of the directors and the
determination of all corporate actions after this offering. This concentration
of voting control could have the effect of delaying or preventing a merger or
other change in control, even if it would benefit our other stockholders.
THE ANTITAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW
COULD DISCOURAGE A TAKEOVER.
Certain provisions of our certificate of incorporation, bylaws and Delaware
law may discourage, delay or prevent a merger or other change in control that a
stockholder may consider favorable. These provisions may also discourage proxy
contests or make it more difficult for stockholders to take corporate action.
Such provisions include the following:
- establishing a classified board in which only a portion of the total
board members will be elected at each annual meeting;
- authorizing the board to issue preferred stock;
- prohibiting cumulative voting in the election of directors;
- limiting the persons who may call special meetings of stockholders;
- prohibiting stockholder action by written consent; and
13
<PAGE> 17
- establishing advance notice requirements for nominations for election of
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
See "Management -- Board Composition" and "Description of Capital Stock --
Delaware Antitakeover Law and Provisions of our Certificate of Incorporation and
Bylaws."
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT COULD DISRUPT OUR BUSINESS AND DILUTE
OUR STOCKHOLDERS.
As part of our business strategy, we expect to review acquisition prospects
that we believe would be advantageous to the development of our business. For
example, we expect to expand our PowerTier platform to include object request
broker technology. While we have no current agreements or negotiations underway
with respect to any major acquisitions, we may make acquisitions of businesses,
products or technologies in the future. If we make any acquisitions, we could
take any or all of the following actions, any of which could materially and
adversely affect our financial results and the price of our common stock:
- issue equity securities that would dilute existing stockholders'
percentage ownership;
- incur substantial debt;
- assume contingent liabilities; or
- take substantial charges in connection with the amortization of goodwill
and other intangible assets.
Acquisitions also entail numerous risks, including:
- difficulties in assimilating acquired operations, products and personnel
with our pre-existing business;
- unanticipated costs;
- diversion of management's attention from other business concerns;
- adverse effects on existing business relationships with suppliers and
customers;
- risks of entering markets in which we have limited or no prior
experience; and
- potential loss of key employees from either our preexisting business or
the acquired organization.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might acquire in the future, and our failure
to do so could harm our business.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
If you purchase shares of common stock in this offering, you will
experience immediate and substantial dilution, in that the price you pay will be
substantially greater than the net tangible book value per share of the shares
you acquire. This dilution is in large part because the earlier investors in
Persistence paid substantially less than the public offering price when they
purchased their shares of common stock. You will experience additional dilution
upon the exercise of outstanding stock options or warrants to purchase common
stock.
14
<PAGE> 18
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS OF THIS OFFERING.
We have not designated any specific use for the net proceeds of this
offering. As a result, our management and board of directors will have broad
discretion in spending the proceeds of this offering. We currently expect to use
the net proceeds primarily for working capital and general corporate purposes,
funding product development and expanding our sales and marketing organization.
In addition, we may use a portion of the net proceeds for further development of
our product lines through acquisitions of products, technologies and businesses.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, for funding growth and,
therefore, do not expect to declare or pay any dividends in the foreseeable
future. In addition, our line of credit agreement prohibits us from paying
dividends.
---------------
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 are forward-looking
statements. These statements relate to future events or our future financial
performance, and 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 these
forward-looking statements.
In some cases, you can identify forward-looking statements by words such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue," or the negative of these and
other similar words.
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.
15
<PAGE> 19
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock
we are offering are estimated to be $ ($ if the
underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $ per share, after deducting the estimated
underwriting discount and commissions and the estimated offering expenses.
We currently expect to use the net proceeds primarily for working capital
and general corporate purposes, funding product development and expanding our
sales and marketing organization. In addition, we may use a portion of the net
proceeds for further development of our product lines through acquisitions of
products, technologies and businesses, although we have no present commitments
or agreements to make any major acquisitions. The amount of cash that we
actually expend for working capital purposes will vary significantly depending
on a number of factors, including future revenue growth, if any, and the amount
of cash we generate from operations. Thus, management will have significant
discretion in applying the net proceeds of this offering. Pending the uses
described above, we will invest the net proceeds in short-term, investment
grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid dividends on our common stock or preferred stock. We
currently intend to retain any future earnings to fund the development of our
business. Therefore, we do not currently anticipate declaring or paying
dividends in the foreseeable future. In addition, our line of credit agreement
prohibits us from paying dividends.
16
<PAGE> 20
CAPITALIZATION
The following table sets forth the following information:
- the actual capitalization of Persistence as of March 31, 1999;
- the pro forma capitalization of Persistence, after giving effect to the
automatic conversion of all outstanding shares of preferred stock into
7,697,885 shares of common stock;
- the pro forma as adjusted capitalization, after giving effect to the sale
of shares of common stock at an assumed initial public offering price of
$ per share in this offering, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
that Persistence expects to pay in connection with this offering; and
- the authorization of 75,000,000 shares of common stock and 5,000,000
shares of preferred stock upon our reincorporation in Delaware.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes to the consolidated financial statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, less current
portion.................................... $ 683 $ 683 $ 683
-------- --------
Stockholders' equity:
Preferred stock, par value $0.001 per share;
7,900,000 shares authorized, actual,
7,697,885 shares issued and outstanding;
7,900,000 shares authorized, none issued or
outstanding, pro forma; 5,000,000 shares
authorized, none issued or outstanding, pro
forma as adjusted.......................... 19,859 -- --
Common stock, par value $0.001 per share;
41,100,000 shares authorized, 7,750,056
shares issued and outstanding, actual;
41,100,000 shares authorized, 15,447,941
issued and outstanding, pro forma;
75,000,000 shares authorized,
shares issued and
outstanding, pro forma as adjusted......... 3,997 23,856
Deferred stock compensation.................. (2,705) (2,705) (2,705)
Notes receivable from stockholders........... (161) (161) (161)
Accumulated deficit.......................... (14,681) (14,681) (14,681)
-------- -------- --------
Total stockholders' equity......... 6,309 6,309
-------- -------- --------
Total capitalization............... $ 6,992 $ 6,992 $
======== ======== ========
</TABLE>
- ---------------
This table excludes the following shares:
- 1,388,036 shares issuable upon exercise of outstanding options at a weighted
average exercise price of $0.64 per share as of March 31, 1999,
- 80,556 shares issuable upon exercise of outstanding warrants at a weighted
average exercise price of $0.90 per share as of March 31, 1999, and
- an aggregate of 4,495,033 shares available for future issuance under our
1997 stock plan, 1999 directors' stock option plan and 1999 employee stock
purchase plan as of March 31, 1999. See "Management -- Stock Plans" and
notes 5 and 11 of notes to consolidated financial statements.
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<PAGE> 21
DILUTION
The pro forma net tangible book value on March 31, 1999 was $6,309,000, or
$0.41 per share of common stock. Pro forma net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding, after giving effect
to the conversion of all outstanding shares of preferred stock into common stock
immediately prior to the closing of this offering. Dilution in net tangible book
value per share represents the difference between the amount per share paid by
purchasers of shares of our common stock in this offering and the net tangible
book value per share of our common stock immediately following this offering.
After giving effect to our sale of shares of common stock in this offering and
after deducting the estimated underwriting discount and commissions and our
estimated offering expenses, our pro forma net tangible book value as of March
31, 1999 would have been $ , or $ per share of common
stock. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution of
$ per share to new investors. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ $
Pro forma net tangible book value per share as of March
31, 1999............................................... 0.41
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value after the offering........
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1999,
the differences between the existing stockholders and new investors with respect
to the number of shares of common stock purchased from us, the total
consideration paid to us, and the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 15,447,941 % $ % $
New investors................................
Totals....................................... 100.0% $ 100.0%
========== ===== ======== ======
</TABLE>
This table excludes the following shares:
- 1,388,036 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $0.64 per share as of March 31, 1999,
- 80,556 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $0.90 per share as of March 31, 1999,
and
- an aggregate of 4,495,033 shares available for future issuance under our
1997 stock plan, 1999 directors' stock option plan and 1999 employee
stock purchase plan as of March 31, 1999. See "Management -- Stock Plans"
and notes 5 and 11 of notes to consolidated financial statements.
If the underwriters' over-allotment option is exercised in full, the
following will occur:
- the number of shares of common stock held by existing stockholders will
decrease to approximately % of the total number of shares of our
common stock outstanding after this offering; and
- the number of shares held by new investors will be increased to
or approximately % of the total number of shares of our
common stock outstanding after this offering.
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<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this prospectus. The consolidated
statements of operations data for the years ended December 31, 1996, 1997 and
1998, and the consolidated balance sheet data at December 31, 1997 and 1998, are
derived from audited consolidated financial statements included elsewhere in
this prospectus. The consolidated statements of operations data for the years
ended December 31, 1994 and 1995, and the consolidated balance sheet data as of
December 31, 1994, 1995 and 1996 are derived from audited financial statements
not included in this prospectus. The consolidated statements of operations data
for the three-months ended March 31, 1998 and 1999 and the consolidated balance
sheet data as of March 31, 1999 are derived from unaudited consolidated
financial statements included elsewhere in this prospectus. In our opinion,
these unaudited statements include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the information when
read in conjunction with the consolidated financial statements and notes
thereto.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License............................................ $ 978 $ 3,053 $ 2,603 $ 3,546 $ 7,478 $ 1,004 $ 2,116
Service............................................ 318 954 1,171 1,867 2,682 706 747
------- ------- ------- ------- ------- ------- -------
Total revenues................................... 1,296 4,007 3,774 5,413 10,160 1,710 2,863
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
License............................................ 32 16 139 342 239 56 42
Service............................................ 60 142 221 729 1,372 326 580
------- ------- ------- ------- ------- ------- -------
Total cost of revenues........................... 92 158 360 1,071 1,611 382 622
------- ------- ------- ------- ------- ------- -------
Gross profit......................................... 1,204 3,849 3,414 4,342 8,549 1,328 2,241
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................................ 1,092 2,011 3,798 4,712 7,168 1,687 2,015
Research and development........................... 542 1,129 1,976 2,954 4,234 1,038 1,503
General and administrative......................... 361 590 985 1,362 1,237 311 686
------- ------- ------- ------- ------- ------- -------
Total operating expenses......................... 1,995 3,730 6,759 9,028 12,639 3,036 4,204
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........................ (791) 119 (3,345) (4,686) (4,090) (1,708) (1,963)
Interest income (expense), net....................... 12 (1) 34 12 1 4 48
------- ------- ------- ------- ------- ------- -------
Net income (loss).................................... $ (779) $ 118 $(3,311) $(4,674) $(4,089) $(1,704) $(1,915)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share:
Basic.............................................. $ (0.15) $ 0.02 $ (0.54) $ (0.73) $ (0.59) $ (0.25) $ (0.27)
======= ======= ======= ======= ======= ======= =======
Diluted............................................ $ (0.15) $ 0.02 $ (0.54) $ (0.73) $ (0.59) $ (0.25) $ (0.27)
======= ======= ======= ======= ======= ======= =======
Shares used in computing net income (loss) per share:
Basic.............................................. 5,196 5,360 6,135 6,366 6,879 6,733 7,044
======= ======= ======= ======= ======= ======= =======
Diluted............................................ 5,196 5,365 6,135 6,366 6,879 6,733 7,044
======= ======= ======= ======= ======= ======= =======
Pro forma basic and diluted net loss per share....... $ (0.31) $ (0.13)
======= =======
Shares used in pro forma basic and diluted net loss
per share.......................................... 13,183 14,320
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------ MARCH 31,
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 368 $ 370 $4,535 $2,610 $4,938 $ 7,386
Working capital............................................. 207 264 4,437 1,604 3,384 6,285
Total assets................................................ 821 1,424 6,478 5,447 7,604 10,455
Long-term obligations, net of current portion............... 24 121 528 419 714 683
Total stockholders' equity.................................. 422 592 4,697 2,057 3,422 6,309
</TABLE>
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of our prospectus includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. We use words such as "anticipates," "believes,"
"expects," "future," and "intends," and similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results or
our predictions. For a description of these risks, see "Risk Factors."
OVERVIEW
We are a leading provider of transactional application server software
products that comprise the Internet software infrastructure for high volume,
high performance electronic commerce applications. We were incorporated and
began operations in 1991. Our first products incorporated patented
object-to-relational mapping and caching technologies, which have since become
the foundation for our PowerTier product family. From 1992 to 1996, we
introduced a variety of enhancements to these products, including a patented
data transformation technology for mapping objects to database tables, and
caching capabilities.
In 1996, we developed our PowerTier transactional application server, which
integrates all of these previously released Persistence products with new shared
transactional caching technologies, which enable multiple users to
simultaneously access the same cached data. We first shipped our PowerTier for
C++ transactional application server in 1997. Sales of PowerTier for C++
accounted for the majority of our revenues in 1997 and 1998, during which years
we added a professional services staff to enable our customers to implement
PowerTier more rapidly. We were one of the first companies to adopt and
implement the EJB specification. In 1998, we introduced PowerTier for EJB, which
customers have frequently purchased together with PowerTier for C++. Our next
version of PowerTier for EJB is currently in use by several major customers and
is expected to be commercially released later in 1999. We currently plan to
continue to focus product development efforts on enhancements to both the
PowerTier for C++ and the PowerTier for EJB products.
Our revenues, which consist of software license revenues and service
revenues, totaled $3.8 million, $5.4 million and $10.2 million in 1996, 1997 and
1998, respectively, and $2.9 million in the three months ended March 31, 1999.
License revenues consist of licenses of our software products, which generally
are priced based on the number of users or servers. Service revenues consist of
professional services consulting, customer support and training. Because we only
commenced selling application servers in 1997, we have a limited operating
history in the application server market. We expect that, in the near term, the
majority of our revenues will be derived from PowerTier for C++ transactional
server and related services. In the longer term, we expect that PowerTier for
EJB will increase as a component of our total revenues.
We market our software and services primarily through our direct sales
organizations in the United States, the United Kingdom and Germany. Revenues
from PowerTier licenses and services to customers outside the United States
represented approximately $566,000, $639,000, $2.9 million and $626,000, or 15%,
12%, 29% and 22% of total revenues in 1996, 1997, 1998 and the three months
ended March 31, 1999, respectively. Our future success will depend, in part, on
our successful development of international markets for our products.
20
<PAGE> 24
Historically, we have received a substantial portion of our revenues from
product sales to a limited number of customers. Sales of products to our top
five customers accounted for 15% and 55% of total revenues in 1997 and 1998,
respectively. In the future, we expect to have relatively few large customers
continue to account for a relatively large proportion of our revenues.
To date, we have sold our products primarily through our direct sales
force, and we will need to hire many more sales people within the next two years
in order to meet our sales goals. In addition, our ability to achieve
significant revenue growth will depend in large part on our success in
establishing and leveraging relationships with systems integrators and other
third parties.
For 1997 and prior years, we recognized revenues in accordance with the
American Institute of Certified Public Accountants Statement of Position 91-1.
Commencing in 1998, we began recognizing revenues in accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2,
"Software Revenue Recognition," or SOP 97-2, as amended by Statements of
Position 98-4 and 98-9. Our adoption of these new standards has not to date had
any material effect on our revenue recognition. Further implementation
guidelines relating to these standards may result in unanticipated changes in
our revenue recognition practices, and such changes could affect our future
revenues and earnings.
We recognize license revenues upon shipment of the software if collection
of the resulting receivable is probable, an executed agreement has been signed,
the fee is fixed or determinable and vendor-specific objective evidence exists
to allocate a portion of the total fee to any undelivered elements of the
arrangement. Undelivered elements in these arrangements typically consist of
services. Revenues from nonrecurring engineering services are generally
recognized based on the attainment of milestones. This method approximates the
percentage of completion method of accounting. We recognize revenues from
customer training, support and consulting services as the services are
performed. We generally recognize support revenues ratably over the term of the
support contract. If support or professional services are included in an
arrangement that includes a license agreement, amounts related to support or
professional services are allocated based on vendor-specific objective evidence.
Since inception, we have incurred substantial research and development
costs and have invested heavily in the expansion of our sales, marketing and
professional services organizations to build an infrastructure to support our
long-term growth strategy. The number of our full-time employees increased from
64 as of December 31, 1997 to 77 as of December 31, 1998, representing an
increase of 20%. As a result of investments in our infrastructure, we have
incurred net losses in each fiscal quarter since 1996 and, as of March 31, 1999,
had an accumulated deficit of $14.7 million. We anticipate that our operating
expenses will increase substantially for the foreseeable future as we expand our
product development, sales and marketing and other staff. In addition, we expect
to incur substantial expenses associated with sales personnel, referral fees,
marketing programs and increased administrative expenses associated with being a
public company. Accordingly, we expect to incur net losses for the foreseeable
future.
We believe that period-to-period comparisons of our operating results are
not meaningful and should not be relied upon as indicative of future
performance. Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving markets.
Although we have experienced significant revenue growth
21
<PAGE> 25
recently, this trend may not continue. We may not achieve or maintain
profitability in the future. Our success depends significantly upon broad market
acceptance of our PowerTier for EJB application server. Because Sun Microsystems
controls the EJB standard, we need to maintain a good working relationship with
them to develop future versions of PowerTier for EJB, as well as additional
products using the EJB standard. Our performance will also depend on the growth
and widespread adoption of the market for business-to-business electronic
commerce over the Internet.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
Revenues
Our revenues were $1.7 million and $2.9 million for the three months ended
March 31, 1998 and 1999, respectively, representing an increase of 67%.
International revenues were $390,000 and $626,000 for the three months ended
March 31, 1998 and 1999, respectively.
License Revenues. License revenues were $1.0 million and $2.1 million for
the three months ended March 31, 1998 and 1999, respectively, representing an
increase of 111%. License revenues represented 59% and 74% of total revenues for
the three months ended March 31, 1998 and 1999, respectively. The increase in
software license revenues was primarily due to sales of our new PowerTier for
EJB application server and the increased size and productivity of our sales
team.
Service Revenues. Our service revenues were $706,000 and $747,000 for the
three months ended March 31, 1998 and 1999, respectively, representing an
increase of 6%. The dollar increase in service revenues was primarily due to an
increase in customer support fees related to increased sales of our PowerTier
platform. Service revenues represented 41% and 26% of total revenues for the
three months ended March 31, 1998 and 1999, respectively. This decrease as a
proportion of total revenues was primarily attributed to an increase in sales of
our new PowerTier for EJB platform.
Cost of Revenues
Cost of License Revenues. Cost of license revenues consists of packaging,
documentation and associated shipping costs. Our cost of license revenues was
$56,000 and $42,000 for the three months ended March 31, 1998 and 1999,
respectively. As a percentage of license revenues, cost of license revenues were
6% and 2% for the three months ended March 31, 1998 and 1999, respectively.
Cost of Service Revenues. Cost of service revenues consists of personnel
and other costs related to professional services, technical support and
training. Our cost of service revenues was $326,000 and $580,000 for the three
months ended March 31, 1998 and 1999, respectively, representing an increase of
78%. This increase was primarily due to increased staffing in our professional
services organization to support a greater installed base of customers. As a
percentage of service revenues, cost of service revenues were 46% and 78% in the
three months ended March 31, 1998 and 1999, respectively. In particular, cost of
service revenues as a percentage of service revenues may vary between periods
due to our use of third party professional services.
22
<PAGE> 26
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
travel and entertainment, and promotional expenses. Our sales and marketing
expenses were $1.7 million and $2.0 million for the three months ended March 31,
1998 and 1999, respectively, representing an increase of 19%. This increase was
primarily due to our investment in our sales and marketing infrastructure, which
included significant personnel-related costs to recruit and hire sales people
and sales engineers, sales commissions and trade show expenses. Sales and
marketing expenses represented 99% and 70% of total revenues for the three
months ended March 31, 1998 and 1999, respectively. We believe that a
significant increase in our sales and marketing efforts is essential for us to
maintain our market position and further increase acceptance of our products.
Accordingly, we anticipate we will continue to invest significantly in sales and
marketing for the foreseeable future, and sales and marketing expenses will
increase in future periods.
Research and Development. Research and development expenses consist
primarily of salaries and benefits for software developers, product managers and
quality assurance personnel and payments to outside software developers. Our
research and development expenses were $1.0 million and $1.5 million for the
three months ended March 31, 1998 and 1999, respectively, representing an
increase of 45%. This increase was primarily related to an increase in employee
and consultant software developers, and program management and documentation
personnel hired to support product development. Research and development
expenses represented 61% and 52% of total revenues for the three months ended
March 31, 1998 and 1999, respectively. We believe that a significant increase in
our research and development investment is essential for us to maintain our
market position, to continue to expand our product line and to enhance our
technology. Accordingly, we anticipate that we will continue to invest
significantly in product research and development for the foreseeable future,
and research and development expenses are likely to increase in future periods.
General and Administrative. General and administrative expenses consist
primarily of salaries, benefits and related costs for our finance,
administrative and general management personnel. Our general and administrative
expenses were $311,000 and $686,000 for the three months ended March 31, 1998
and 1999, respectively, representing an increase of 121%. This increase was
primarily the result of a one time $303,000 compensation charge associated with
the issuance of common stock to a strategic investor and, to a lesser extent,
the hiring of additional finance and administrative personnel. General and
administrative expenses represented 18% and 24% of our total revenues for the
three months ended March 31, 1998 and 1999, respectively. We believe that our
general and administrative expenses will continue to increase as a result of the
expenses associated with being a public company, including annual and other
public reporting costs, directors' and officers' liability insurance, investor
relations programs and accounting and legal expenses.
Net Interest Income. Net interest income was $4,000 and $48,000 for the
three months ended March 31, 1998 and 1999, respectively, representing an
increase of $44,000. Net interest income consists primarily of earnings on our
cash and cash equivalent balances.
Stock-Based Compensation. Certain options granted and common stock issued
during the years ended December 31, 1997 and 1998 and during the three months
ended March 31, 1999 have been considered to be compensatory, as the estimated
fair value for accounting purposes was greater than the stock price as
determined by the board of
23
<PAGE> 27
directors on the date of grant or issuance. Total deferred stock compensation
associated with equity transactions as of March 31, 1999 amounted to $2.7
million, net of amortization. Deferred stock compensation is being amortized
over the vesting periods of these securities. Amortization expense was $25,000
and $504,000 in the three months ended March 31, 1998 and 1999, respectively.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Revenues
Our revenues were $3.8 million, $5.4 million and $10.2 million in 1996,
1997 and 1998, respectively, representing increases of 88% from 1997 to 1998 and
43% from 1996 to 1997. Revenues derived from international operations were
$566,000, $639,000 and $2.9 million in 1996, 1997 and 1998, respectively. In
1998, sales of software licenses to Cisco and Instinet accounted for 14% and
17%, respectively, of total revenues. In 1997, sales of products to Lucent
accounted for 11% of total revenues.
License Revenues. Our license revenues were $2.6 million, $3.5 million and
$7.5 million in 1996, 1997 and 1998, respectively, representing increases of
111% from 1997 to 1998 and 36% from 1996 to 1997. License revenues represented
69%, 66% and 74% of our total revenues in 1996, 1997 and 1998, respectively. The
increase in license revenues from 1997 to 1998 was attributable primarily to an
increase in the size and productivity of our sales force, including the
introduction of our direct sales team in Europe, and the release of our
PowerTier for EJB product. The increase in revenues from 1996 to 1997 was
primarily due to the introduction of our PowerTier product family.
Service Revenues. Our service revenues were $1.2 million, $1.9 million and
$2.7 million in 1996, 1997 and 1998, respectively, representing increases of 44%
from 1997 to 1998 and 59% from 1996 to 1997. Service revenues represented 31%,
34% and 26% of our total revenues in 1996, 1997 and 1998, respectively. The
increase in service revenues between 1997 and 1998 was primarily due to an
increase in customer support fees related to an increase in our installed base
of PowerTier customers, and, to a lesser extent, an increase in professional
services fees. The increase in service revenues between 1996 and 1997 was
primarily due to an increase in both professional services and customer support
fees.
Cost of Revenues
Cost of License Revenues. Cost of license revenues was $139,000, $342,000
and $239,000 in 1996, 1997 and 1998, respectively, representing a decrease of
30% from 1997 to 1998 and an increase of 146% from 1996 to 1997. Cost of license
revenues as a percentage of license revenues was 5%, 10% and 3% for 1996, 1997
and 1998, respectively. The decrease in cost of license revenues from 1997 to
1998 was attributable primarily due to lower packaging and document distribution
costs. The increase in cost of license revenues from 1996 to 1997 was
attributable primarily to a higher level of printed documentation.
Cost of Service Revenues. Cost of service revenues was $221,000, $729,000
and $1.4 million in 1996, 1997 and 1998, respectively, representing increases of
88% from 1997 to 1998 and 230% from 1996 to 1997. Cost of service revenues as a
percentage of service revenues was 19%, 39% and 51% for 1996, 1997 and 1998,
respectively. The increases during these periods were due to increased staffing
in our professional services and support organizations.
24
<PAGE> 28
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $3.8 million, $4.7
million and $7.2 million in 1996, 1997 and 1998, respectively, representing
increases of 52% from 1997 to 1998 and 24% from 1996 to 1997. Sales and
marketing expenses represented 101%, 87% and 71% of our total revenues for 1996,
1997 and 1998, respectively. The dollar increases during these periods primarily
reflected our investment in our sales and marketing infrastructure, which
included significant personnel-related expenses such as salaries, benefits and
commissions, and, to a lesser extent, travel and entertainment expenses, trade
shows and other marketing expenses.
Research and Development. Research and development expenses were $2.0
million, $3.0 million and $4.2 million in 1996, 1997 and 1998, respectively,
representing increases of 43% from 1997 to 1998 and 50% from 1996 to 1997.
Research and development expenses represented 52%, 55% and 42% of our total
revenues in 1996, 1997 and 1998, respectively. The dollar increases during these
periods were primarily related to the increase in headcount to support product
development and, to a lesser extent, an increase in average compensation.
General and Administrative. General and administrative expenses were $1.0
million, $1.4 million and $1.2 million in 1996, 1997 and 1998, respectively,
representing a decrease of 9% from 1997 to 1998 and an increase of 38% from 1996
to 1997. General and administrative expenses represented 26%, 25% and 12% of our
total revenues in 1996, 1997 and 1998, respectively. The dollar decrease in
general and administrative expenses from 1997 to 1998 was attributable primarily
to a decrease in consulting fees, offset in part by an increase in headcount and
average compensation. The dollar increase in general and administrative expenses
from 1996 to 1997 was attributable primarily to an increase in headcount, and
legal and accounting expenses.
Net Interest Income. Net interest income was $34,000, $12,000 and $1,000
in 1996, 1997 and 1998, respectively. Net interest income consists primarily of
earnings on our cash and cash equivalent balances, offset by interest expense
related to obligations under capital leases and other borrowings. The decrease
in net interest income from 1997 to 1998 was due to an increase in interest
expense related to obligations under capital leases and an equipment loan. The
decrease in interest income from 1996 to 1997 was due to a lower level of
average cash and cash equivalent balances.
Stock-Based Compensation. We recorded no stock-based compensation expense
for 1996 and 1997. As of December 31, 1998, total deferred stock compensation
associated with equity transactions amounted to $2.2 million, net of
amortization. Amortization expense was $331,000 in 1998. We expect to record
amortization expense of approximately $1.1 million, $800,000 and $800,000 in
1999, 2000 and 2001, respectively, related to these securities.
Provision for Income Taxes. Since inception, we have incurred net
operating losses for federal and state tax purposes and have not recognized any
tax provision or benefit. As of December 31, 1998, we had $10.8 million of
federal and $3.6 million of state net operating loss carryforwards available to
offset future taxable income. The federal net operating loss carryforwards
expire through 2018, while the state net operating loss carryforwards expire
through 2003. The net operating loss carryforwards for state tax purposes are
substantially less than for federal tax purposes, primarily because only 50% of
state net operating loss carryforwards can be utilized to offset future state
taxable income. The Tax Reform Act of 1986 limits the use of net operating loss
carryforwards in
25
<PAGE> 29
situations where changes occur in the stock ownership of a company. If we should
be acquired or otherwise have an ownership change, as defined in the Tax Reform
Act of 1986, our utilization of these carryforwards could be restricted.
As of December 31, 1998, the Company also had research and development tax
credit carryforwards of $570,000 and $320,000 available to offset future federal
and state income taxes, respectively. The federal credit carryforward expires in
2018, while the state credit carryforward has no expiration.
We have placed a full valuation allowance against our net deferred tax
assets due to the uncertainty surrounding the realization of such assets. We
evaluate on a quarterly basis the recoverability of the net deferred tax assets
and the level of the valuation allowance. If and when we determine that it is
more likely than not that the deferred tax assets are realizable, the valuation
allowance will be reduced.
26
<PAGE> 30
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated statement of
operations data for the nine quarters in the 27-month period ended March 31,
1999, as well as such data expressed as a percentage of our total revenues for
the periods indicated. This data has been derived from our unaudited
consolidated financial statements, which have been prepared on the same basis as
the audited consolidated financial statements and, in the opinion of our
management, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the information when read in conjunction
with the consolidated financial statements and notes thereto. Our quarterly
results have been in the past and may in the future be subject to significant
fluctuations. As a result, we believe that results of operations for interim
periods should not be relied upon as any indication of the results to be
expected in any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
License...................... $ 659 $ 1,044 $ 696 $ 1,147 $ 1,004 $ 1,447 $2,250 $2,777 $ 2,116
Service...................... 271 315 414 867 706 604 643 729 747
------- ------- ------- ------- ------- ------- ------ ------ -------
Total revenues............. 930 1,359 1,110 2,014 1,710 2,051 2,893 3,506 2,863
------- ------- ------- ------- ------- ------- ------ ------ -------
Cost of revenues:
License...................... 39 67 120 116 56 63 93 27 42
Service...................... 59 123 164 383 326 345 334 367 580
------- ------- ------- ------- ------- ------- ------ ------ -------
Total cost of revenues... 98 190 284 499 382 408 427 394 622
------- ------- ------- ------- ------- ------- ------ ------ -------
Gross profit................... 832 1,169 826 1,515 1,328 1,643 2,466 3,112 2,241
------- ------- ------- ------- ------- ------- ------ ------ -------
Operating expenses:
Sales and marketing.......... 1,069 1,257 1,116 1,270 1,687 1,449 1,885 2,147 2,015
Research and development..... 558 724 722 950 1,038 1,072 1,032 1,092 1,503
General and administrative... 257 336 306 463 311 272 290 364 686
------- ------- ------- ------- ------- ------- ------ ------ -------
Total operating expenses... 1,884 2,317 2,144 2,683 3,036 2,793 3,207 3,603 4,204
------- ------- ------- ------- ------- ------- ------ ------ -------
Loss from operations........... (1,052) (1,148) (1,318) (1,168) (1,708) (1,150) (741) (491) (1,963)
Interest income (expense),
net.......................... 9 6 -- (3) 4 (20) (20) 37 48
------- ------- ------- ------- ------- ------- ------ ------ -------
Net loss....................... $(1,043) $(1,142) $(1,318) $(1,171) $(1,704) $(1,170) $ (761) $ (454) $(1,915)
======= ======= ======= ======= ======= ======= ====== ====== =======
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
License...................... 70.9% 76.8% 62.7% 57.0% 58.7% 70.6% 77.8% 79.2% 73.9%
Service...................... 29.1 23.2 37.3 43.0 41.3 29.4 22.2 20.8 26.1
------- ------- ------- ------- ------- ------- ------ ------ -------
Total revenues............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- ------- ------ ------ -------
Cost of revenues:
License...................... 4.2 4.9 10.8 5.8 3.3 3.1 3.2 0.8 1.5
Service...................... 6.3 9.1 14.8 19.0 19.0 16.8 11.5 10.4 20.2
------- ------- ------- ------- ------- ------- ------ ------ -------
Total cost of revenues..... 10.5 14.0 25.6 24.8 22.3 19.9 14.7 11.2 21.7
------- ------- ------- ------- ------- ------- ------ ------ -------
Gross margin................... 89.5 86.0 74.4 75.2 77.7 80.1 85.3 88.8 78.3
------- ------- ------- ------- ------- ------- ------ ------ -------
Operating expenses:
Sales and marketing.......... 114.9 92.5 100.5 63.1 98.7 70.6 65.2 61.2 70.4
Research and development..... 60.1 53.3 65.0 47.2 60.7 52.3 35.7 31.1 52.5
General and administrative... 27.6 24.7 27.6 22.9 18.1 13.3 10.0 10.5 24.0
------- ------- ------- ------- ------- ------- ------ ------ -------
Total operating expenses... 202.6 170.5 193.1 133.2 177.5 136.2 110.9 102.8 146.9
------- ------- ------- ------- ------- ------- ------ ------ -------
Loss from operations........... (113.1) (84.5) (118.7) (58.0) (99.8) (56.1) (25.6) (14.0) (68.6)
Interest income (expense),
net.......................... 0.9 0.5 -- (0.1) 0.2 (0.9) (0.7) 1.1 1.7
------- ------- ------- ------- ------- ------- ------ ------ -------
Net loss....................... (112.2)% (84.0)% (118.7)% (58.1)% (99.6)% (57.0)% (26.3)% (12.9)% (66.9)%
======= ======= ======= ======= ======= ======= ====== ====== =======
</TABLE>
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<PAGE> 31
Our quarterly operating results have fluctuated significantly in the past,
and may continue to fluctuate in the future, as a result of a number of factors,
many of which are outside our control. These factors include:
- our ability to close relatively large sales on schedule;
- delays or deferrals of customer orders or deployments;
- delays in shipment of scheduled software releases;
- demand for and market acceptance of our PowerTier for C++ and PowerTier
for EJB products;
- the possible loss of sales people;
- introduction of new products or services by us or our competitors;
- annual or quarterly budget cycles of our customers;
- the level of product and price competition in the application server
market;
- our lengthy sales cycle;
- our success in expanding our direct sales force and indirect distribution
channels;
- the mix of direct sales versus indirect distribution channel sales;
- the mix of products and services licensed or sold;
- the mix of domestic and international sales; and
- our success in penetrating international markets and general economic
conditions in such markets.
The typical sales cycle of our products is long and unpredictable, and is
affected by seasonal fluctuations as a result of our customers' fiscal year
budgeting cycles and slow summer purchasing patterns in Europe. We typically
receive a substantial portion of our orders in the last two weeks of each
quarter because our customers often delay purchases of our products to the end
of the quarter to gain price concessions. Because a substantial portion of our
costs are relatively fixed and based on anticipated revenues, a failure to book
an expected order in a given quarter would not be offset by a corresponding
reduction in costs and could adversely affect our operating results.
Our license revenues in the first quarter of 1998 and 1999 were lower than
those of the fourth quarter of 1997 and 1998, respectively. In the future, we
expect this trend to continue, with the fourth quarter of each year accounting
for the greatest percentage of total revenues for the year and with an absolute
decline in revenues from the fourth quarter to the first quarter of the next
year.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our business primarily through private
sales of convertible preferred stock, which totaled $19.9 million in aggregate
net proceeds through March 31, 1999. We have also financed our business through
a loan in the principal amount of $800,000 and capitalized leases. As of March
31, 1999, we had $7.4 million of cash and cash equivalents and $6.3 million of
working capital.
Net cash used for operating activities was $3.1 million, $3.1 million and
$3.0 million for each of 1996, 1997 and 1998, respectively, and $1.7 million for
the three months ended March 31, 1999. For each of 1996, 1997 and 1998, and for
the three months ended
28
<PAGE> 32
March 31, 1999, cash used for operating activities was attributable primarily to
net losses and increases in accounts receivable, offset by depreciation and
amortization of deferred stock compensation and deferred revenues.
Net cash used for investing activities was $9,000, $589,000 and $436,000
for 1996, 1997 and 1998, respectively, and $96,000 for the three months ended
March 31, 1999. For each of the periods, cash used in investing activities
primarily reflected investments in property and equipment and deposits.
Net cash provided by financing activities was $7.3 million, $1.8 million
and $5.7 million for each of 1996, 1997 and 1998, respectively, and $4.3 million
for the three months ended March 31, 1999. Cash provided by financing activities
during these periods was primarily attributable to proceeds from the issuance of
preferred stock and, in 1998, borrowings under a term loan, primarily offset by
repayments of a capital lease obligations.
In February 1998, we entered into a loan agreement with Comerica Bank for
an amount up to $2,000,000. As of March 31, 1999 we had no borrowings
outstanding under this loan. As of March 31, 1999, we had an $800,000 promissory
note in favor of Comerica. We are required to make principal payments of $22,222
per month plus interest of 7.75% per annum on the unpaid principal balance,
payable in 36 monthly installments beginning April 1, 1999. The promissory note
is collateralized by substantially all of our assets, including our patents and
intellectual property.
Although we have no material commitments for capital expenditures, we
anticipate a substantial increase in capital expenditures and lease commitments
consistent with our anticipated growth in operations, infrastructure and
personnel. We also may increase our capital expenditures as we expand into
additional international markets.
We believe that the net proceeds from this offering, together with our
current cash, cash equivalents and short-term investments, will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least the next 18 months. If cash generated from operations is insufficient
to satisfy our liquidity requirements, we may seek to sell additional equity or
debt securities or to obtain a credit facility. If additional funds are raised
through the issuance of debt securities, these securities could have certain
rights, preferences and privileges senior to holders of common stock, and the
term of this debt could impose restrictions on our operations. The sale of
additional equity or convertible debt securities could result in additional
dilution to our stockholders, and we may not be able to obtain additional
financing on acceptable terms, if at all. If we are unable to obtain this
additional financing, we may be required to reduce the scope of our planned
product development and marketing efforts, which could harm our business.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are unable to distinguish between
twentieth century dates and twenty-first century dates because such systems were
developed using two digits rather than four to determine the applicable year.
This error could result in software failures or the creation of erroneous
results.
We have conducted the first phases of a year 2000 readiness review for the
current versions of our products. The review includes assessment,
implementation, including remediation, upgrading and replacement of product
versions, validation testing and contingency planning.
We have largely completed all phases of this plan, except for contingency
planning, for the current versions of our products. As a result, we believe all
current versions of our
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products to be "year 2000 compliant," as defined below, when configured and used
in accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software used with or in the
host machine or with our products are also year 2000 compliant. We have not
tested our products on all platforms or all versions of operating systems that
we currently support.
We have defined "year 2000 compliant" as the ability to:
- correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
- if the date elements in interfaces and data storage specify the century,
store and provide output of date information in ways that are unambiguous
as to century; and
- recognize the year 2000 as a leap year.
We have tested software obtained from third parties, including licensed
software, shareware and freeware, that is incorporated into our products, and we
are seeking assurances from our vendors that licensed software is year 2000
compliant. We plan to continue to test our current and future products by
applying our year 2000 compliance criteria and to include any necessary
modifications the compliance process reveals. Despite testing and assurances,
our products may contain undetected errors or defects associated with year 2000
date functions. Any errors or defects in our products could result in the delay
or loss of revenue, increased service costs and damage to our reputation. We are
aware of lawsuits against software vendors involving year 2000 claims, and,
despite testing our products, we may be sued by a customer on a year 2000 claim.
Our internal systems include both our information technology, or IT, and
non-IT systems. We have reviewed our material internal IT systems, including
both our custom software and third-party software and hardware technology, but
we have not performed an assessment of our non-IT systems. To the extent that we
cannot test the technology provided by third party vendors, we are seeking
assurances from vendors that their systems are year 2000 compliant. We are not
currently aware of any material operational issues or costs associated with
preparing our internal IT and non-IT systems for the year 2000. However, we may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in our internal IT and non-IT systems.
We do not currently have any information concerning the year 2000
compliance status of our customers. If our current or future customers fail to
achieve year 2000 compliance or if they delay or divert technology expenditures,
especially technology expenditures that were reserved for enterprise software
systems, to address year 2000 compliance problems, our business could suffer.
Through March 31, 1999, we have incurred nominal expenses relating to our
year 2000 compliance activities and estimate that any additional costs will be
nominal. However, we may experience material problems and costs that are not
currently identified in our year 2000 plan.
We have not yet fully developed a contingency plan to address situations
that may result if we cannot achieve year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
material. We intend to develop a contingency plan by the fourth quarter of 1999.
Finally, we are also subject to external
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forces that might generally affect businesses, such as utility or transportation
company year 2000 failures.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity. Our operating results are sensitive to changes
in the general level of U.S. interest rates, particularly because most of our
cash equivalents are invested in short-term debt instruments. If market interest
rates were to change immediately and uniformly by one percent from levels at
March 31, 1999, the fair value of our cash equivalents would change by an
insignificant amount.
Foreign Currency Fluctuations. We have not had any significant
transactions in foreign currencies, nor do we have any significant balances that
are due or payable in foreign currencies at March 31, 1999. Therefore, a
hypothetical one percent change in foreign currency rates would have an
insignificant impact on our financial position or results of operations. We do
not hedge any of our foreign currency exposure.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued accounting
statement No. 130, Reporting Comprehensive Income, which requires an enterprise
to report, by major components and as a single total, the change in its net
assets during the period from nonowner sources. We had no comprehensive income
items to report, other than net loss, for any of the periods presented. The FASB
also issued accounting statement No. 131, Disclosures About Segments of an
Enterprise and Related Information, which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
We currently operate in one reportable segment.
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. This standard requires companies to capitalize
qualifying computer software costs, which are incurred during the application
development stage, and amortize them over the software's estimated useful life.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998. We are
currently evaluating the impact of SOP 98-1 on our financial statements and
related disclosures.
In June 1998, the Financial Accounting Standards Board issued accounting
statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement requires companies to record derivatives on the balance sheet as
assets or liabilities measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 will be effective for us beginning in 2000. We are currently evaluating
the impact of SFAS No. 133 on our financial statements and related disclosures.
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BUSINESS
COMPANY OVERVIEW
We are a leading provider of transactional application server software
products that comprise the Internet software infrastructure for high volume,
high performance electronic commerce applications. Our PowerTier products are
designed to address the scalability, availability and adaptability demands of
delivering business solutions over the Internet. Our PowerTier platform is one
of the few application server solutions that implements the full Enterprise Java
Beans, or EJB, specification to enable businesses to deploy high performance,
scalable Java applications for the enterprise. We believe that our robust
product architecture, which incorporates several patented technologies, is
particularly well suited to meet the infrastructure requirements of
business-to-business electronic commerce. Our major customers include AT&T,
Boeing, Cisco, FedEx, IBM, Instinet, Lucent, Morgan Stanley Dean Witter,
Norwest, Perkin-Elmer and SuperValu.
INDUSTRY BACKGROUND
The Internet has evolved into a global communications medium enabling
millions of people to share information and conduct business electronically. As
the Internet's popularity has increased, companies in industries ranging from
securities trading to book selling are extending their core business processes
over the Web to conduct electronic commerce with customers, suppliers and
partners. The growth of these electronic commerce offerings has led to
significant growth in the number of users and transactions conducted over the
Web.
While creating new business opportunities, the significant growth of
electronic commerce has also created tremendous technological challenges for
electronic commerce companies struggling to meet the needs of a rapidly
increasing number of users. These companies are discovering that their existing
Internet software infrastructure is unable to support thousands of concurrent
users or process up to thousands of transactions per second. Even casual
observers of the Internet are familiar with these limitations, which include:
- Poor performance: Initial electronic commerce offerings were not
designed to scale to handle large numbers of users. Internet users
accessing these systems often experience lengthy delays as the number of
concurrent users increases.
- System failures: Initial electronic commerce offerings did not
anticipate the level of robustness required to operate 24 hours a day, 7
days a week. Internet users accessing these systems at peak volume can
experience frequent system crashes.
- Limited adaptability: Initial electronic commerce offerings were built
on software infrastructures that offered only limited ability for
customization and personalization. To remain competitive, companies must
continuously enhance and differentiate their electronic commerce
offerings.
While these problems have been well-publicized in the business-to-consumer
market, we believe that business-to-business interactions face even more
pronounced problems due to the added complexity of managing transactions between
multiple companies. In addition, the growth of the business-to-business
electronic commerce market is expected to outpace the growth in the
business-to-consumer market. While Forrester Research estimates that the
business-to-consumer market in the United States is expected to grow from $7.8
billion in 1998 to $108 billion in 2003, they estimate that the business-to-
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business electronic commerce market in the United States will grow even more
rapidly, from $43 billion to $1.3 trillion, in this same period.
In large part, the problems facing these organizations, both in
business-to-business and business-to-consumer electronic commerce, are derived
from the continuing evolution and increasing sophistication of web-based
applications. In the early days of the Internet, organizations turned to the Web
for information publishing, decision support and simple transaction processing.
This first generation of web-based applications focused on extending legacy
applications to the Internet. These applications were typically not
business-critical, and had relatively simple interactions and limited
functionality. The web application server emerged as the infrastructure used to
support these first generation applications.
Today, use of the Web has changed dramatically as the Web has emerged as a
leading platform for conducting electronic commerce. The number of individuals
and organizations conducting transactions over the Internet has increased
significantly, as organizations have offered increasingly sophisticated and
feature-rich electronic commerce applications. At the same time, as
organizations have begun to conduct significant volumes of business over the
Internet, system failures and delays in transaction processing have ceased to be
mere inconveniences and have become serious impediments to doing business. To
achieve a competitive advantage in today's environment, many businesses are
looking to create web-based electronic commerce offerings that are available 24
hours per day, 7 days per week and that enhance customer loyalty by leveraging
partner, supplier and third party relationships. Complicating these challenges
further is the need to rapidly develop and deploy these applications on
"Internet time."
As the Internet has evolved into a critical business platform, the
limitations of the software infrastructure used to support electronic commerce
have become apparent. The first generation web application servers were not
designed to accommodate the high transaction volumes and high performance
requirements that characterize electronic commerce today.
The next generation of electronic commerce will require a fundamentally new
software infrastructure, based on an application server platform optimized for
high volume transaction processing over the Internet. The platform must provide:
- Real-time scalability: accommodate up to thousands of end users with
consistent sub-second response times;
- High availability: handle system failures without interruption, and
without losing critical information for potentially thousands of
concurrent users;
- Rapid adaptability: allow companies to continuously improve their
business processing through automated development and management of
differentiated electronic commerce offerings; and
- Business-to-business integration: enable businesses to extend their
processing across organizational boundaries.
PERSISTENCE SOLUTION
Our PowerTier family of products consists of transactional application
servers that are specifically designed to enable high volume, high performance
electronic commerce applications. Our products, PowerTier for EJB and PowerTier
for C++, address the
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scalability, availability and adaptability demands that typically occur when
delivering business solutions over the Internet. Our products offer the
following key benefits:
Real-Time Response for Thousands of Concurrent Users. Our PowerTier
platform was designed specifically to accommodate high volume transaction
processing and the data integrity requirements of distributed applications. The
platform utilizes our patented caching technology. Caching is a process in which
relational data is pulled out of back-end systems and into the PowerTier server
cache, which allows the data to be shared and manipulated at the application
server level. Replication between PowerTier server caches using the PowerSync
feature allows a cluster of PowerTier servers to provide highly scalable
performance as the number of users increases. This architecture helps reduce the
work load on back-end systems and accelerates application performance. The
effect of this architecture is to minimize unnecessary network traffic and
thereby enable high performance and reliability even with significant
transaction volumes. We believe our PowerTier platform offers performance that
is orders of magnitude faster than traditional non-caching application servers.
Dramatic Reductions In Time-to-Market for Electronic Commerce
Applications. Our PowerTier platform decreases time to market and development
cycles for sophisticated electronic commerce applications due to our proprietary
and patented object-to-relational mapping technology. This technology enables
the automatic generation of software code, which minimizes basic, low-level
programming tasks, such as security and database access. The PowerTier platform
accelerates development by giving developers access to data in a familiar way,
as software components, and provides application developers with a framework to
rapidly build electronic commerce applications.
Protects and Leverages Existing Information Technology Investments. The
PowerTier platform enables developers to build new electronic commerce
applications while simultaneously integrating existing back-end systems.
PowerTier's flexible architecture integrates with disparate database servers,
web servers and multiple clients, while supporting multiple programming
languages and computing platforms. PowerTier provides enhanced flexibility and
interoperability to link existing enterprise applications and systems, allowing
businesses to leverage their investments in information technology and extend
them over the Internet.
Leadership in Emerging Standards. Customers are increasingly seeking open,
standards-based technology solutions that enable them to develop and implement
new applications rapidly. Our PowerTier products provide one of the few
application server solutions that implements the full EJB specification to
enable businesses to deploy high performance, scalable Java applications for the
enterprise. We worked with the Sun Microsystems consortium to define an
industry-wide component standard to be used when building enterprise
applications with the Java language. It is this standard upon which our
PowerTier platform is built, and we believe that this emerging platform has the
potential to dramatically simplify the development of distributed, multi-tier
electronic commerce applications. As EJB and other emerging electronic commerce
standards evolve, we intend to continue to be a leading adopter and contributor
to these technologies.
Optimized Platform For Business-to-Business Electronic Commerce. Our
transactional application server is designed and optimized to enable complex
online transactions, providing the necessary scalable, reliable and secure
infrastructure. Platforms designed to support the next generation of
business-to-business electronic commerce applications must handle hundreds and
potentially thousands of concurrent users while simultaneously providing
reliability and security, and enabling connections to a myriad of existing and
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emerging back-end applications. In addition, we believe our PowerTier products
are particularly well suited for multi-party, multi-step business-to-business
transactions that require server-to-server communication.
PERSISTENCE STRATEGY
Our objective is to become the leading provider of transactional
application server software products that comprise the Internet software
infrastructure for high volume, high performance electronic commerce
applications. To achieve this goal, we intend to:
Capture Market Share in the Emerging Business-to-Business Electronic
Commerce Market. We intend to become the market leader in providing software
infrastructure to enable sophisticated business-to-business electronic commerce
applications. To achieve this objective, we will continue to make significant
investments in building our sales and marketing organizations. We plan to launch
a variety of sales and marketing programs designed to capture market share. For
example, we plan to use a seeding strategy to extend our market share by
offering a development version of our software that may be downloaded over the
Internet to provide wide dissemination of our product to developers. We also
offer educational seminars on our products and the advantages of EJB. We will
continue to collaborate with our innovative and advanced customers to develop
and deliver product features that address their needs. We believe that this
collaboration focuses our overall product development effort and speeds our
time-to-market.
Extend Technology Leadership Position in Standards-Based Platforms for Next
Generation Electronic Commerce. We intend to extend our technology leadership
in the transactional application server market by enhancing our underlying
technology to offer real-time scalability, high availability and rapid
adaptability for the next generation of electronic commerce applications. To
achieve this objective, we will continue to make significant investments in our
research and development organization. In addition, we intend to be a leader in
the definition and adoption of emerging technology standards, such as EJB, which
we believe have the potential to dramatically simplify the development of
distributed, multi-tier applications. We have been a pioneer in the areas of
caching and object-relational mapping, and hold several patents on core
technologies. We intend to continue to innovate and create new enabling
technologies for electronic commerce.
Expand Product Platform to Offer Complementary Solutions. In addition to
extending our technology leadership, we intend to broaden and enhance our
product platform to incorporate complementary solutions for developing and
deploying sophisticated electronic commerce applications. We will continue to
make investments in our research and development organization for many of these
product initiatives. We will also consider, from time to time, bolstering these
internal efforts with strategic acquisitions. We expect to expand our PowerTier
platform to include object request broker technology, which provides the
communications link between the transactional application server and the client.
The addition of these complementary technologies will enable us to offer a
broader platform for our customers.
Increase Partnerships With Systems Integrators. We intend to continue to
develop and expand relationships with systems integrators. We believe these
third parties can effectively market our products through their existing
relationships with our target market customers. In addition, our PowerTier
platform is often included as part of an enterprise-wide system deployment, in
which the system integrator plays a leading role. We believe that these
relationships will provide additional marketing and sales channels for our
products and facilitate the successful deployment of customer applications. We
are
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currently working with a number of systems integrators, including: Alta
Software, Andersen Consulting, Cambridge Technology Partners, Component Systems,
Computer Sciences Corporation, Electronic Data Systems, Genesis Development
Corporation and Unisys.
Leverage Installed Customer Base. We believe that there are significant
opportunities to expand the use of our products throughout our current customer
base. Although most organizations initially deploy our products on a
departmental or pilot basis, we believe that initial customer success with these
deployments will lead to significant opportunities for enterprise-wide adoption.
Further, we believe that most companies, including our customers, are just
beginning to fully capitalize on the opportunities created by the Web. As these
companies increasingly migrate their core business processes to the Web, we
believe they will need additional licenses of our software to support and enable
their new electronic commerce applications.
Strengthen International Presence. We believe there are significant
international opportunities for our products and services. We intend to continue
to build our sales, marketing and services organizations in Europe to capitalize
on these opportunities. Currently, we have established direct sales operations
in the United Kingdom and Germany, and we intend to open an office in France. In
addition to our direct sales operations, we also distribute our products
throughout Europe with distributors and systems integrators. We intend to
continue to build and extend these international third-party distributor and
systems integrator relationships.
PRODUCTS
Our PowerTier platform is a family of transactional application server
products that deliver real-time scalability, high availability and rapid
adaptability for high volume, high performance electronic commerce applications.
Our current product line consists of PowerTier for EJB, which was released in
1998, and PowerTier for C++, which was released in 1997. The following table
describes the major features and benefits of our PowerTier platform.
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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
PRODUCT FEATURES BENEFITS
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
POWERTIER FOR ENTERPRISE Shared transactional object cache Enables real-time scalability by
JAVABEANS reducing database traffic
Application server cache Allows cooperative processing
synchronization across organizational boundaries
Application server failover Delivers high availability by
replicating information across
clusters of application server
caches
Support for EJB standard Protects customers' IT
investments as a result of open
solution
- --------------------------------------------------------------------------------------------------
POWERTIER FOR C++ Shared transactional object cache Enables real-time scalability by
reducing database traffic
Application server cache Allows cooperative processing
synchronization across organizational boundaries
Application server failover Delivers high availability by
replicating information across
clusters of application server
caches
Support for CORBA standard Protects customers' IT
investments as a result of open
solution
- --------------------------------------------------------------------------------------------------
POWERTIER DEVELOPMENT Object-to-relational mapping Provides rapid development
ENVIRONMENT services adaptability by automating time-
consuming development tasks
Integrates with leading Enables customer to choose best
third-party developer tools. of class development tools
Supports both Java/EJB development Flexibility in selection of
and C++/CORBA development development language
- --------------------------------------------------------------------------------------------------
POWERTIER COMMAND CENTER Monitors status and performance of Increases application
remote application servers availability by simplifying
detection and resolution of
system problems
Manages configuration for clusters Increases deployment
of application servers adaptability by allowing instant
reconfiguration of application
servers to meet changing
business requirements
- --------------------------------------------------------------------------------------------------
</TABLE>
PowerTier for EJB
Our PowerTier for EJB application server platform incorporates our patented
technologies into one of the few transactional application servers to deliver
the full EJB version 1.0 standard. The EJB standard, as defined by the JavaSoft
division of Sun Microsystems, is gaining rapid acceptance as a programming
language for complex enterprise applications. EJB provides a consistent way to
program and integrate services for companies building distributed
business-to-business applications with the Java programming language.
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The EJB standard specifies container-managed persistent objects, which
automate the mapping between EJB components and relational database tables. This
feature allows programmers to build complex applications quickly by making
relational data look like software components, which can be easily manipulated.
We worked with the Sun Microsystems consortium to help define the initial EJB
standard, and we continue to contribute to new versions of the EJB standard. Our
PowerTier for EJB platform runs on the Windows NT and Unix operating systems.
The latest version of our PowerTier for EJB adds a new architecture,
PowerSync, to enable enterprise scalability and interoperability. PowerSync is a
cache replication architecture, which allows companies to deploy tens to
hundreds of PowerTier servers, each with a mirror image of every other server's
data. This PowerSync feature enables companies to address increasing demands on
an application by easily adding additional servers, all operating with
synchronized, high-performance PowerTier caching. This version of PowerTier for
EJB is currently in use by several of our major customers and is scheduled for
commercial release in 1999.
PowerTier for C++
Our PowerTier for C++ product is a high-performance transactional
application server platform, which is based on our patented technologies and the
Common Object Request Broker Architecture, or CORBA, standard for communication
between distributed applications. The CORBA standard is managed by an industry
group called the Object Management Group, of which we are a contributing member.
We are also one of the authors, along with Oracle, IBM and others, of an
emerging component of the overall CORBA standard, called the Persistent State
Service specification. Our PowerTier for C++ platform runs on the Windows NT and
Unix operating systems.
[GRAPHIC]
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Patented Technology Platform
Our application server cache software architecture and cache replication
technology have been designed to serve as the foundation for a variety of
scalable electronic commerce applications.
- Shared Caching. Our cache technology is the foundation for the high
performance characteristics of our transactional application server. To
maximize performance, dynamic information such as product inventory data
is retrieved from a database into the application server cache. This
in-memory information may be accessed simultaneously by multiple users,
saving each user from having to access a disk-based database for that
information. This feature reduces network traffic between the application
server and the database, delivering higher performance.
- Transactional Caching. To enable users to get a consistent view of
information within the shared cache, our technology prevents one user
from seeing uncommitted changes made by another user. The ability of our
shared application server cache to isolate users from dynamic changes to
component information, such as inventory data, differentiates our
application server cache from other caching technologies which can only
manage static information, such as web pages. This feature allows high
performance caching of dynamic or transactional information.
- Cache Replication. Our cache replication technology provides the
foundation for the scalability, stateful availability and fault tolerance
of our transactional application server. We define stateful availability
as a system that can transfer a user in the middle of a complex business
operation, such as a portfolio valuation, from one application server to
another without interruption or losing business state, such as the user's
portfolio information. To provide stateful scalability, information from
one application server cache can be synchronized with information in one
or more other application server caches. Companies can deploy additional
replicated application server caches to increase their ability to support
more users, allowing them to use several smaller computers to do the work
of one larger and more expensive computer. Users' requests are
automatically routed to the application server with the most free
capacity, enabling high performance, notwithstanding increases in user
volumes. In the event of an application server failure, that application
server's responsibilities are automatically reassigned to another
application server, improving system availability.
- Cluster Management. We have developed complementary, proprietary
administration software, which enables remote administration for clusters
of application servers, reducing both administrative costs and the
possibility of error. This management software also enables centralized
monitoring, via a standard web browser, of the cluster through any
individual application server. This feature contributes to greater system
availability and reduced administrative costs.
- Development Automation. Our PowerTier development environment includes
frameworks to automate or eliminate many development tasks. The
proprietary and patented object-relational mapping feature automatically
generates the software code to translate software components into
relational databases. This feature reduces the programming time required
to build enterprise applications. The PowerTier application server
includes pre-built software services for data management, transaction
management and communications, relieving the developer from having to
build such services from scratch.
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- Standards-based. The PowerTier application server platform uses an open
architecture that is based on industry standards such as Java, C++,
Common Object Request Broker Architecture, or CORBA, Windows NT, UNIX,
SQL and others.
We believe that research and product development will be a key to our
success as a leader in the transactional application server market. For the
years ended December 31, 1996, 1997 and 1998, and for the first three months
ended March 31, 1999, we spent $2.0 million, $3.0 million, $4.2 million and $1.5
million, respectively, on research and product development.
CUSTOMERS
Our software products are licensed to customers worldwide for use in a wide
range of electronic commerce applications, such as real-time electronic trading,
supply chain management, internet network management, application outsourcing
and customer relationship management. The following table lists a representative
selection of customers who have purchased our products.
INTERNET/COMMUNICATIONS
AT&T*
BellCore*
BellSouth
Bull Ingenerie (France Telecom)
CellularOne Group
Cisco
Cross Keys Systems
Globe ID
Imind
Lucent
Motorola
Netscape
Nokia
Scientific-Atlanta
Sequel Systems
Telstra (Australia)
MANUFACTURING & DISTRIBUTION
Asea Brown Boveri Power T&D
Boeing
IBM*
Non-Stop Solutions
Perkin-Elmer*
Qualcomm
SuperValu*
Titan Systems
Xerox
FINANCIAL SERVICES
Capital Group
Capital One Financial
CNP Assurances*
Instinet*
JP Morgan
Morgan Stanley Dean Witter*
Nike Securities
Norwest*
TRANSPORTATION & LOGISTICS
Air Canada
Air France
FedEx*
Sabre Group Holdings (American Airlines)
Transquest Information (Delta Airlines)*
OTHER
Caldwell-Spartin
Fermi National Accelerator Laboratory
National Aeronautics and Space Administration
* Denotes customers who have ordered at least $500,000 in products.
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In 1998, sales of products and services to Cisco and Instinet accounted for
14% and 17% of our total revenues, respectively.
The following case studies illustrate how selected customers have used our
products to address their electronic commerce and core business application
needs. These case studies are based on information supplied by these customers,
however we believe the information is accurate in all material respects.
Reuters, the parent of Instinet, and Cisco are both major stockholders in our
company.
REAL-TIME ELECTRONIC TRADING NETWORK
Instinet Corporation. Instinet is the world's largest electronic agency
broker in equity securities. Today, trading in fixed income securities occurs
almost exclusively over the telephone. Instinet plans to revolutionize this
telephone-based fixed income trading with a global electronic broker trading
service for fixed income dealers that can accommodate up to 1,000 transactions
per second. It has designed a system which ultimately will use hundreds of
replicated PowerTier application servers operating in concert to meet the
performance and scalability requirements of its electronic fixed income broker
service.
INTRANET SUPPLY CHAIN MANAGEMENT
Federal Express Corporation. The world's largest express transportation
company, FedEx transports more than three million items to over 200 countries
each business day, using a fleet of more than 620 aircraft and 44,000 vehicles.
In its effort to improve on-time deliveries, FedEx has built a global operations
center to monitor and control the movement of shipments worldwide. The global
operations center functions as the nerve center of the FedEx transportation
system, handling daily occurrences such as changing flight schedules, emergency
maintenance, inclement weather and excess package volumes. Because the company's
existing mainframe systems lacked the required flexibility and performance,
FedEx turned to us for help in building a high performance intranet system. By
managing complex flight schedule information from multiple data sources within a
PowerTier application server cache, the global operations center can provide
real-time contingency plans, enabling FedEx to provide consistently high on-time
package delivery rates and superior customer service. FedEx estimates that,
using the PowerTier development environment, it has been able to significantly
reduce development time for new system functionality compared to development in
its traditional mainframe environment.
INTERNET SERVICE PROVIDER NETWORK MANAGEMENT
Cisco Systems, Inc. A worldwide leader in networking for the Internet,
Cisco Systems is committed to delivering hardware and software solutions that
enable Service Providers to meet the rapid growth of the Internet. The Cisco
Service Management System, or CSM, gives Service Providers sophisticated tools
to automate time consuming network management tasks. For this system, Cisco
required a highly scalable, standards-based application server platform for
deploying network management applications for managed business services such as
virtual private networks, Internet telephony and electronic commerce. To meet
these requirements, Cisco chose the PowerTier platform. For the Cisco IP Manager
product within the CSM system, PowerTier application server caching enables
real-time simulation of network configuration changes, preventing costly network
outages. The PowerTier development environment also enables Cisco to create a
common component framework that can be reused to reduce development time for
future CSM network services.
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APPLICATION OUTSOURCING OVER THE INTERNET
PE Genscope. PE GenScope, recently incorporated into Celera Genomics,
provides gene discovery and characterization services for drug discovery and
development. Celera's GeneTag technology is a novel gene expression analysis
method that enables pharmaceutical companies to develop new and potentially
life-saving drugs by discovering and monitoring genes involved in disease,
Celera's BioScope software application allows customers to access their data
securely and remotely over the internet. To allow clients to quickly analyze and
view the GeneTag results, Celera needed a sophisticated software platform that
could process hundreds of thousands of gene expression comparisons while
avoiding data bottlenecks. Celera selected PowerTier to achieve these goals. The
BioScope application utilizes the PowerTier application server cache for high
volume data analysis. With the PowerTier development environment, Celera has
been able to use both the Java and C++ languages to deliver the BioScope
software application in only four months.
SALES AND MARKETING
We sell our products through both a direct sales force and third party
distributors. As of March 31, 1999, we had 32 people in our sales and marketing
organization, of which 26 were in the United States and six were in our London
and Munich offices. To support the complex enterprise nature of our sales, our
direct sales force is organized into two-member teams of one sales
representative and one sales engineer. We intend to increase the size of our
direct sales force and to establish additional sales offices domestically and
internationally.
Our sales cycle is relatively long, generally between three and nine
months. A successful sales cycle typically includes presentations to both
business and technical decision makers, as well as a limited pilot program to
establish technical fit.
We engage in a variety of marketing activities, including advertising,
public relations, seminars, trade shows and web site management. In particular,
we have made substantial marketing investments in education and training for the
EJB and C++ markets. We trained over 2,000 developers in 1998 in the EJB
standard. Our web site allows developers to download a demonstration version of
our products.
Systems integrators represent an important and growing referral channel for
our direct sales effort. Systems integrators frequently have relationships with
our target customers and often incorporate our PowerTier platform as part of a
much larger enterprise-wide system enhancement. Currently we have relationships
with global and regional systems integrators, including:
- Alta Software
- Andersen Consulting
- Cambridge Technology Partners
- Component Systems
- Computer Sciences Corporation
- Electronic Data Systems
- Genesis Development Corporation
- Unisys
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In international markets, we plan to expand our sales through indirect
channels, such as distributors and original equipment manufacturers. As of March
31, 1999, we were represented by five international distributors, who sell our
products in Europe, Asia and Latin America.
COMPETITION
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. We believe that the principal competitive
factors in our market are:
- performance, including scalability, integrity and availability;
- ability to provide a complete software platform;
- flexibility;
- use of standards-based technology;
- ease of integration with customers' existing enterprise systems;
- quality of support and service;
- security;
- company reputation; and
- price.
Our competitors include both publicly and privately-held enterprises,
including BEA Systems (WebLogic), Gemstone Systems, IBM (WebSphere), Inprise,
Iona Technologies, Oracle (OAS) and Sun Microsystems (NetDynamics). Many
customers may not be willing to purchase our PowerTier platform because they
have already invested heavily in databases and other enterprise software
components offered by these competing companies. Many of these competitors have
preexisting customer relationships, longer operating histories, greater
financial, technical, marketing and other resources, greater name recognition
and larger installed bases of customers than we do. Moreover, there are other
very large and established companies, including Microsoft and Netscape, who
offer alternative solutions and are thus indirect competitors. Further, dozens
of companies have announced their intention to support EJB, and may compete
against us in the future. These competitors and potential competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than we can. See also "Risk
Factors -- Because we compete with Sun Microsystems, who controls the EJB
application server standard, we face the risk that they may develop this
standard to favor their own products" and " -- Microsoft has established a
competing application server standard, which could diminish the market potential
for our products if it gains widespread acceptance."
In addition, in the PowerTier for C++ market, many potential customers
build their own custom application servers, so we effectively compete against
our potential customers' internal information technology departments.
INTELLECTUAL PROPERTY RIGHTS
Our performance may depend on our ability to protect our proprietary rights
to the technologies used in our principal products. If we are not adequately
protected, our
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competitors can use the intellectual property that we have developed to enhance
their products and services, which would harm our business. We rely on a
combination of patents, copyright and trademark laws, trade secrets,
confidentiality provisions and other contractual provisions to protect our
proprietary rights, but these legal means afford only limited protection. As of
April 1999, we had three issued United States patents and one pending United
States patent application with allowable subject matter. Despite any measures
taken to protect our intellectual property, unauthorized parties may attempt to
copy aspects of our products or to obtain and use information that we regard as
proprietary. In addition, the laws of some foreign countries may not protect our
proprietary rights as fully as do the laws of the United States. Thus, the
measures we are taking to protect our proprietary rights in the United States
and abroad may not be adequate. Finally, our competitors may independently
develop similar technologies.
The software industry is characterized by the existence of a large number
of patents and frequent litigation based on allegations of patent infringement
and the violation of other intellectual property rights. As the number of
entrants into our market increases, the possibility of an intellectual property
claim against us grows. For example, we may be inadvertently infringing a patent
of which we are unaware. In addition, because patent applications can take many
years to issue, there may be a patent application now pending of which we are
unaware, which will cause us to be infringing when it issues in the future. To
address such patent infringement claims, we may have to enter into royalty or
licensing agreements on disadvantageous commercial terms. Alternatively, we may
be unable to obtain a necessary license. A successful claim of product
infringement against us, and our failure to license the infringed or similar
technology, would harm our business. In addition, any infringement claims, with
or without merit, would be time-consuming and expensive to litigate or settle
and would divert management attention from administering our core business.
In March 1998, we entered into a license agreement with Sun Microsystems,
pursuant to which we granted Sun Microsystems rights to manufacture and sell, by
itself and not jointly with others, products under a number of our patents and
Sun Microsystems granted us rights to manufacture and sell, by ourselves and not
jointly with others, products under a number of Sun Microsystems' patents. As a
result, Sun Microsystems may develop and sell certain competing products that
would, in the absence of this license agreement, infringe our patents. Under
this agreement, Sun Microsystems made a one-time payment to us. Neither Sun
Microsystems nor we can transfer the license without the consent of the other
party.
EMPLOYEES
As of March 31, 1999, Persistence had 81 full-time employees, including 35
in research and development, 32 in sales and marketing, six in professional
services and eight in general and administrative functions. From time to time,
we also employ independent contractors to support our engineering, marketing,
sales and support and administrative organizations.
FACILITIES
Persistence is headquartered in San Mateo, California, where it leases
approximately 17,000 square feet of office space under a lease expiring in June
30, 1999. We are currently negotiating an extension of this lease. Persistence
also maintains sales offices in California, Georgia, Illinois, New York, Texas
and the United Kingdom and Germany.
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Persistence believes that its existing facilities are adequate to meet its
current and foreseeable requirements or that suitable additional or substitute
space will be available as needed.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the ordinary
course of its business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth specific information regarding our executive
officers and directors as of March 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Christopher T. Keene................. 38 President, Chief Executive Officer and
Director
Alan Cohen........................... 46 Senior Vice President of Sales and
International Operations
Mark Douglas......................... 35 Vice President and Chief Technology Officer
Erik Frieberg........................ 33 Vice President of Corporate Marketing
Barry Goss........................... 52 Vice President of Strategic Marketing
Derek Henninger...................... 36 Vice President of Engineering
Christine Russell.................... 49 Chief Financial Officer and Secretary
Gregory Ennis(1)(2).................. 33 Director
Jack L. Hancock(2)................... 68 Director
William J. Harding(1)................ 51 Director
Larry E. Henninger................... 66 Director
Merritt Lutz......................... 56 Director
Jeffrey T. Webber.................... 46 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
CHRISTOPHER T. KEENE co-founded Persistence and has served as President,
Chief Executive Officer and a director since June 1991. Before founding
Persistence, Mr. Keene was a Manager at McKinsey & Co., a management consulting
firm, from July 1987 to June 1991. Mr. Keene holds a B.S. degree in Mathematical
Sciences with honors from Stanford University and an M.B.A. degree from The
Wharton School at the University of Pennsylvania.
ALAN COHEN joined Persistence as Vice President of Sales in December 1997
and was promoted to Senior Vice President of Sales and International Operations
in December 1998. From May 1996 to December 1997, Mr. Cohen served as Vice
President of Sales at Cygnus Solutions, a developer of open-source software.
Previously, he was Vice President of Sales and Operations at Information
Handling Services, an information technology company, from May 1994 to May 1996.
From 1990 to 1994, Mr. Cohen was Director of Sales and Marketing at
International Business Machines Corporation. Before working at IBM, he was
Director of Marketing at CADAM, Inc., a Lockheed subsidiary. Mr. Cohen holds
B.S. and M.S. degrees in Biology from the University of Connecticut.
MARK DOUGLAS joined Persistence as Vice President and Chief Technology
Officer in April 1998. From March 1997 to March 1998, Mr. Douglas was an
independent consultant. From August 1993 to February 1997, Mr. Douglas served as
President and Chief Executive Officer of CenterView Software, a developer of
software tools, which was acquired by Informix Software, Inc. in February 1997.
From August 1992 to 1993, Mr. Douglas was a management consultant with Ernst &
Young. Previously, Mr. Douglas worked at Oracle Corporation, a leading
relational database management software company, serving most recently as Senior
Director of the Advanced Technology Division and previously as Director of
Product Line Development and Marketing of the Applications Division.
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ERIK FRIEBERG joined Persistence as Director of Marketing in March 1998 and
was promoted to Vice President of Corporate Marketing in October 1998. From
December 1996 to March 1998, Mr. Frieberg was Director of Enterprise Marketing
at KIVA Software, Inc. a manufacturer of application server software, which was
acquired by Netscape Communications Corporation in December 1997. From December
1993 to December 1996, he was Director of Marketing at CenterView Software, a
developer of software tools, which was acquired by Informix Software, Inc. Mr.
Frieberg holds a B.S. degree in Industrial Engineering from Northwestern
University and an M.M.S. degree from the Massachusetts Institute of Technology.
BARRY GOSS joined Persistence in December 1997 as Vice President of
Marketing, an office he held until October 1998, when he was appointed Vice
President of Strategic Marketing. From May 1994 to December 1997, Mr. Goss was
the founder and President of Congruent Concepts, a management consulting firm
serving emerging growth companies. From December 1988 to May 1994, Mr. Goss
served as Director of Marketing for Verity, Inc., a provider of content-based
search engine software. Mr. Goss holds a B.S. degree in Engineering Sciences
from the State University of New York at Stony Brook and an M.S. degree in
Mechanical Engineering and Ph.D. in Applied Mechanics from the University of
Connecticut.
DEREK HENNINGER co-founded Persistence and has served as Vice President of
Engineering since June 1991. Previously, Mr. Henninger worked as a senior
software engineer in the Data Interpretation Division of Metaphor Corporation, a
software and hardware company, from September 1990 to June 1991. Mr. Henninger
holds a B.A. degree in Economics and a B.S. degree in Computer Science and
Mathematics from the University of California at Davis. Mr. Henninger is the son
of Larry Henninger, a member of the board of directors.
CHRISTINE RUSSELL joined Persistence in October 1997 and has served as
Chief Financial Officer and Secretary since December 1997. Previously, she
served as Chief Financial Officer for Cygnus Solutions, an open source platform
software company, from October 1995 to October 1997. From April 1992 to October
1995, Ms. Russell served as Chief Financial Officer of Valence Technology, a
developer of lithium polymer batteries. Previously, she served as Chief
Financial Officer at Covalent Technologies, Inc., a vertical software company,
as Vice President of Finance of Stellar Systems, Inc., a security software and
hardware company, and as Corporate Controller of Shugart Corporation, a
subsidiary of Xerox. She holds a B.A. degree in English Literature and an M.B.A.
degree from Santa Clara University.
GREGORY ENNIS has served as a director since November 1996. Since 1994, Mr.
Ennis has been a Director of Thompson Clive Inc., which is the U.S. subsidiary
of a London-based venture capital firm. From 1992 to 1994, Mr. Ennis was an
Associate of Thompson Clive Inc.. Previously, Mr. Ennis was a project analyst
with Citibank in Frankfurt, Germany. Mr. Ennis holds an A.B. degree in Economics
and Political Science from Stanford University and an M.B.A. degree from The
Anderson School at the University of California at Los Angeles.
JACK L. HANCOCK has served as a director since July 1998. Since December
1993, Mr. Hancock has been a private investor. From 1987 to December 1993, he
held a variety of positions with Pacific Bell, serving most recently as Chief
Information Officer and previously as Executive Vice President of Marketing and
Sales and Executive Vice President of Product and Technical Support. Previously,
Mr. Hancock was Executive Vice President for Information Systems, Strategic
Planning and Human Resources at Wells
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Fargo & Company. Mr. Hancock currently serves as a director of Whittaker
Corporation, a fluid control and fire safety systems company, Union Bank of
California, a financial institution, and MGC Communications Corporation, Inc, an
integrated communications services provider. Mr. Hancock holds a B.A. degree
from West Virginia University and an M.B.A. degree from George Washington
University.
WILLIAM J. HARDING has served as a director since March 1996. Since October
1994, he has been a General Partner of Morgan Stanley Dean Witter Venture
Partners, a venture capital firm. From 1985 to 1994, Dr. Harding served as
General Partner of several venture capital partnerships affiliated with J.H.
Whitney & Co. From 1976 to 1985, he held a variety of technical and business
development positions at Amdahl Corporation, an enterprise computing company.
Dr. Harding is also a director of ScanSoft, Inc., an image management software
company, and several private companies. Dr. Harding holds a B.S. degree in
Engineering Mathematics and an M.S. degree in Systems Engineering from the
University of Arizona and a Ph.D degree in Engineering from Arizona State
University.
LARRY E. HENNINGER has served as a director since February 1994. Since
1981, Mr. Henninger has served as founder and President of Henninger &
Associates, a consulting firm specializing in international and small business
management and finance. Previously, Mr. Henninger was co-founder, Executive Vice
President and Chief Financial Officer of Baron Data Systems, a hardware and
software company. Mr. Henninger holds a B.A. degree in Economics from Stanford
University and an M.B.A. degree from Santa Clara University. Mr. Henninger is
the father of Derek Henninger, one of the co-founders of Persistence.
MERRITT LUTZ has served as a director since July 1997. Since September
1997, Mr. Lutz has served as a senior advisor to Morgan Stanley Dean Witter &
Co., a major financial services institution, with responsibility for strategic
technology investments. Since 1995 he has served as the Chairman of MS
Technology Holdings, Inc. and MSIT Holdings, Inc., both of which are technology
investment arms of Morgan Stanley. In 1994, Mr. Lutz joined Morgan Stanley as
Managing Director of the Application Products Group. Previously, Mr. Lutz was
the President of Candle Corporation, a software company, for four years. Mr.
Lutz also serves as a board member of SPSS Inc., a software company, and
Interlink Electronics, a hardware manufacturer, as well as several private
companies. Mr. Lutz holds B.A. and M.A. degrees from Michigan State University.
JEFFREY T. WEBBER has served as a director since March 1995. Since 1991,
Mr. Webber has been a founding partner of R.B. Webber & Company, a management
consulting firm. Since 1997, Mr. Webber has been a General Partner of The
Entrepreneurs' Fund, L.P., an early stage venture capital firm. From 1987 to
January 1991, he was a partner at Edgar, Dunn & Company, a management consulting
firm. He began his career at McKinsey & Company, Inc. Mr. Webber serves as a
director of Sybase, Inc., an enterprise software company, and Sagent Technology,
Inc., a datamart solutions company, as well as several private companies. Mr.
Webber holds a B.A. degree in American Studies from Yale University.
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BOARD COMPOSITION
Our certificate of incorporation and bylaws currently provide for a board
of directors consisting of seven members. Beginning at the first annual meeting
of stockholders after the annual meeting of stockholders at which we have at
least 800 stockholders, the board of directors will be divided into three
classes, each serving staggered three-year terms: Class I, whose term will
expire at the first annual meeting of stockholders after our first annual
meeting of stockholders at which we have 800 stockholders; Class II, whose term
will expire at the second annual meeting of stockholders after our first annual
meeting of stockholders at which we have 800 stockholders; and Class III, whose
term will expire at the third annual meeting of stockholders after our first
annual meeting of stockholders at which we have 800 stockholders. As a result,
only one class of directors will be elected at each annual meeting of
stockholders of Persistence, with the other classes continuing for the remainder
of their respective terms. Gregory Ennis and William Harding were elected to the
board of directors pursuant to a voting agreement between us and certain
principal stockholders. This voting agreement will terminate upon completion of
this offering. Our officers are appointed by the board of directors and serve at
the discretion of the board of directors.
BOARD COMPENSATION
Our directors do not currently receive compensation for their services as
members of the board of directors. Employee directors are eligible to
participate in our 1997 stock plan and will be eligible to participate in our
1999 employee stock purchase plan. Nonemployee directors are eligible to
participate in our 1997 stock plan and will be eligible to participate in our
1999 directors' stock option plan. See "Stock Plans."
In April 1998, the board of directors granted Mr. Lutz an option to
purchase 35,000 shares of common stock at $0.50 per share. The option becomes
exercisable at the rate of 1/4th of the total number of shares on January 1,
1999 and 1/48th of the total shares per month thereafter. In July 1998, the
Board granted Mr. Lutz a fully-vested option to purchase 3,572 shares of common
stock at $0.50 per share in consideration of consulting services rendered by Mr.
Lutz to us. In July 1998, the board of directors granted Mr. Hancock an option
to purchase 35,000 shares of common stock at $0.50 per share in connection with
his appointment as a director. The option becomes exercisable at the rate of
1/4th of the total number of shares on July 30, 1999 and 1/48th of the total
shares per month thereafter. All such options were granted under the 1997 stock
plan and have not been exercised.
We have a consulting arrangement with Larry E. Henninger, pursuant to which
we paid Mr. Henninger $18,000 in 1998. We currently intend to pay Mr. Henninger
$1,500 per month as a retainer for consulting services. We engage R.B. Webber &
Company, of which Mr. Webber is President, to perform market and business
analyses for us on a project by project basis. Pursuant to this arrangement, we
paid R.B. Webber & Company $18,700 in 1997 and $20,500 in 1998.
BOARD COMMITTEES
The compensation committee currently consists of Gregory Ennis and Jack
Hancock. The functions of the compensation committee are to:
- review and approve the compensation and benefits for our executive
officers and grant stock options under our stock option plans; and
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<PAGE> 53
- make recommendations to the board of directors regarding such matters.
The audit committee consists of Gregory Ennis and William Harding. The
functions of the audit committee are to:
- make recommendations to the board of directors regarding the selection of
independent auditors;
- review the results and scope of the audit and other services provided by
our independent auditors; and
- review and evaluate our audit and control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of the board of directors are
currently Gregory Ennis and Jack Hancock, neither of whom has ever been an
officer or employee of Persistence. Before establishing the compensation
committee in July 1998, the board of directors as a whole performed the
functions delegated to the compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth the compensation received for services
rendered to us during the year ended December 31, 1998 by our Chief Executive
Officer and four other most highly compensated executive officers who earned
more than $100,000 during the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- --------------------------- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C>
Christopher Keene, President and
Chief Executive Officer........ $151,670 $23,630 -- $180
Alan Cohen, Senior Vice President
of Sales and International
Operations..................... 140,000 108,750 -- 180
Barry Goss, Vice President of
Strategic Marketing............ 133,640 62,750 -- 180
Christine Russell, Chief
Financial Officer.............. 140,004 25,980 -- 180
Derek Henninger, Vice President
of Operations.................. 138,337 27,230 -- 180
</TABLE>
- -------------------------
(1) We paid $180 in connection with life insurance premiums for each executive
officer listed in the table during the year ended December 31, 1998.
CHANGE OF CONTROL AGREEMENTS
We have entered into change of control agreements with Alan Cohen, Mark
Douglas, Erik Frieberg, Barry Goss and Christine Russell, which provide that
100% of the stock
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options or restricted stock held by the officer shall immediately vest if he or
she is terminated without cause or resigns for good reason within 12 months
after a change of control transaction.
OPTION GRANTS
We did not grant any stock options to our Chief Executive Officer or four
other most highly compensated executive officers during the year ended December
31, 1998. In February 1999, we granted Christine Russell and Mark Douglas each
an option to purchase 20,000 shares of common stock at $1.65 per share. Each
option becomes exercisable at the rate of 1/4th of the total number of shares on
February 18, 2000 and 1/48th of the total per month thereafter. Both options
were granted under the 1997 Stock Plan and have not been exercised.
AGGREGATE OPTION EXERCISES AND HOLDINGS
No options were held or exercised during the year ended December 31, 1998
by our Chief Executive Officer or our four other most highly compensated
executive officers. In February 1999, we granted Christine Russell and Mark
Douglas the options described above, none of which have been exercised.
STOCK PLANS
1997 Stock Plan. Our 1997 stock plan provides for the grant of incentive
stock options to employees, including employee directors, and of nonstatutory
stock options and stock purchase rights to employees, directors (including
employee directors) and consultants. The purposes of the 1997 stock plan are to
attract and retain the best available personnel, to provide additional
incentives to our employees and consultants and to promote the success of our
business. The 1997 plan was originally adopted by our board of directors in
April 1997 and approved by our stockholders in July 1997. As of March 31, 1999,
pursuant to prior amendments and an ongoing transfer of shares from the shares
returned to the 1994 stock purchase plan, which is described below, an aggregate
of 2,609,652 shares were reserved for issuance under the 1997 Plan. The 1997
plan was amended by our board of directors on April 21, 1999 to increase the
total number of shares reserved for issuance by 3,000,000 shares, and to
incorporate certain other changes, after which amendment a total of 5,609,652
shares of common stock has been reserved for issuance under the 1997 plan. In
addition, the 1997 plan was amended to provide for an automatic annual increase
on the first day of each of our fiscal years beginning in 2001, 2002, 2003, 2004
and 2005 equal to the lesser of 650,000 shares, 3.5% of our outstanding common
stock on the last day of the immediately preceding fiscal year, or such lesser
number of shares as the board of directors determines. This amendment to the
1997 plan will be submitted for approval by our stockholders prior to the
completion of this offering. Unless terminated earlier by the board of
directors, the 1997 Plan will terminate in April 2007.
As of March 31, 1999, options to purchase 1,388,036 shares of common stock
were outstanding under the 1997 plan at a weighted average exercise price of
$0.64 per share, 826,583 shares had been issued upon exercise of outstanding
options or pursuant to restricted stock purchase agreements, and 395,033 shares
remained available for future grant.
The 1997 plan may be administered by the board of directors or a committee
of the board, each known as the administrator. The administrator determines the
terms of options and stock purchase rights granted under the 1997 plan,
including the number of shares subject to the award, the exercise or purchase
price, and the vesting or exercisability of the
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award and any other conditions to which the award is subject. In no event,
however, may an employee receive awards for more than 2,000,000 shares under the
1997 plan in any fiscal year. Incentive stock options granted under the 1997
plan must have an exercise price of at least 100% of the fair market value of
the common stock on the date of grant. Prior to this offering, nonstatutory
stock options and stock purchase rights granted under the 1997 plan were
required to have an exercise or purchase price of at least 85% of the fair
market value of the common stock on the date of grant, and grants to employees
who were not officers must vest at least 20% per year. After the date of this
offering, the exercise price of nonstatutory stock options and the purchase
price of stock purchase rights will no longer be subject to these restrictions,
although nonstatutory stock options and stock purchase rights granted to our
Chief Executive Officer and our four other most highly compensated officers will
generally equal at least 100% of the grant date fair market value. Payment of
the exercise or purchase price may be made in cash or such other consideration
as determined by the administrator.
With respect to options granted under the 1997 plan, the administrator
determines the term of options, which may not exceed 10 years (or 5 years in the
case of an incentive stock option granted to a holder of more than 10% of the
total voting power of all classes of our stock). Generally, an option granted
under the 1997 plan is nontransferable other than by will or the laws of descent
and distribution, and may be exercised during the lifetime of the optionee only
by such optionee. However, the administrator may in its discretion provide for
the limited transferability of nonstatutory stock options granted under the 1997
plan under certain circumstances. Stock issued pursuant to stock purchase rights
granted under the 1997 plan is generally subject to a repurchase right
exercisable by Persistence Software upon the termination of the holder's
employment or consulting relationship with us for any reason (including death or
disability). This repurchase right will lapse in accordance with the terms of
the stock purchase right determined by the administrator at the time of grant.
If we are acquired by another corporation, each outstanding option and
stock purchase right may be assumed or an equivalent award substituted by our
acquirer. However, if the acquirer does not agree to such assumption or
substitution, then unvested shares and options terminate. The administrator has
the authority to amend or terminate the 1997 plan, but no action may be taken
that impairs the rights of any holder of an outstanding option or stock purchase
right without the holder's consent. In addition, we must obtain stockholder
approval of amendments to the plan as required by applicable law.
1994 Stock Purchase Plan. The 1994 stock purchase plan was originally
adopted by our board of directors in July 1994 and approved by our stockholders
in July 1994. It provides for the grant of stock purchase rights to employees
and a total of 640,598 shares of common stock have been reserved for issuance
under the 1994 plan. As of March 31, 1999, 640,598 shares of common stock had
been issued pursuant to restricted stock purchase agreements under the 1994
Plan. No shares remained available for future grant, and we do not intend to
issue any further awards under this plan. Unless sooner terminated by the board
of directors, the 1994 plan will terminate in July 2004.
Stock purchase rights granted under the 1994 plan were required to have a
purchase price at least 85% of the fair market value of the shares as of the
date of the offer. Recipients of stock purchase rights under the 1994 plan
executed a restricted stock purchase agreement granting Persistence an option to
repurchase the shares subject to the award at the recipient's original purchase
price upon termination of such person's employment with us prior to vesting. The
shares generally vest, and our repurchase right lapses, over a four year
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period at the rate of one fourth of the total shares on the annual anniversary
of the vesting commencement date and 1/48th of the total shares on the monthly
anniversary of the vesting commencement date thereafter. Payment of the purchase
price is permitted to be made in cash or such other consideration as determined
by the plan's administrator. Shares returned to the 1994 plan are automatically
transferred to the 1997 plan.
1999 Employee Stock Purchase Plan. Our 1999 employee stock purchase plan
was adopted by the board of directors in April 1999 and will be submitted for
approval by our stockholders prior to completion of this offering. A total of
600,000 shares of common stock has been reserved for issuance under the 1999
purchase plan, none of which have been issued as of the date of this offering.
The number of shares reserved for issuance under the 1999 purchase plan will be
subject to an automatic annual increase on the first day of each of our fiscal
years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of
250,000 shares, 1% of our outstanding common stock on the last day of the
immediately preceding fiscal year, or such lesser number of shares as the board
of directors determines. The 1999 purchase plan becomes effective upon the date
of this offering. Unless terminated earlier by the board of directors, the 1999
purchase plan shall terminate in April 2019.
The 1999 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, will be implemented by a series of overlapping
offering periods of approximately 24 months' duration, with new offering periods
(other than the first offering period) commencing on February 1 and August 1 of
each year. Each offering period will generally consist of four consecutive
purchase periods of six months' duration, at the end of which an automatic
purchase will be made for participants. The initial offering period is expected
to commence on the date of this offering and end on January 31, 2001; the
initial purchase period is expected to begin on the date of this offering and
end on January 31, 2000, with subsequent purchase periods ending on July 31,
2000, January 31, 2001 and July 31, 2001. The 1999 purchase plan will be
administered by the board of directors or by a committee appointed by the board.
Our employees (including officers and employee directors), or employees of any
majority-owned subsidiary designated by the board, are eligible to participate
in the 1999 purchase plan if they are employed by us or any subsidiary in a
position customarily requiring at least 20 hours per week and more than five
months per year. The 1999 purchase plan permits eligible employees to purchase
common stock through payroll deductions, which in any event may not exceed 20%
of an employee's base salary. The purchase price is equal to the lower of 85% of
the fair market value of the common stock at the beginning of each offering
period or at the end of each purchase period. Employees may end their
participation in the 1999 purchase plan at any time during an offering period,
and participation ends automatically on termination of employment. The board may
implement provisions of the 1999 purchase plan that permit stock purchases
through cash or stock contributions.
An employee cannot be granted an option under the 1999 purchase plan if
immediately after the grant such employee would own stock or hold outstanding
options to purchase stock equaling 5% or more of the total voting power or value
of all classes of our stock or stock of our subsidiaries, or if such option
would permit an employee's rights to purchase stock under the 1999 purchase plan
at a rate that exceeds $25,000 of fair market value of such stock for each
calendar year in which the option is outstanding. In addition, no employee may
purchase more than 2,500 shares of common stock under the 1999 purchase plan in
any one purchase period. If the fair market value of the common stock on a
purchase date is less than the fair market value at the beginning of the
offering period, each participant in that offering period shall automatically be
withdrawn from the offering
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<PAGE> 57
period as of the end of the purchase date and re-enrolled in the new twenty-four
month offering period beginning on the first business day following the purchase
date.
If we merge or consolidate with or into another corporation or sell all or
substantially all of our assets, each right to purchase stock under the 1999
purchase plan will be assumed or an equivalent right substituted by the
successor corporation unless the board of directors shortens any ongoing
offering period so that employee's rights to purchase stock under the 1999
purchase plan are exercised prior to the transaction. The board of directors has
the power to amend or terminate the 1999 purchase plan and to change or
terminate offering periods as long as such action does not adversely affect any
outstanding rights to purchase stock thereunder. However, the board of directors
may amend or terminate the 1999 purchase plan or an offering period even if it
would adversely affect outstanding options in order to avoid our incurring
adverse accounting charges.
1999 Directors' Stock Option Plan. The 1999 directors' stock option was
adopted by the board of directors in April 1999 and will be submitted for
approval by our stockholders prior to completion of this offering. It will
become effective upon the date of this offering. A total of 500,000 shares of
common stock has been reserved for issuance under the 1999 directors' plan, all
of which remain available for future grants. The directors' plan provides for
the grant of nonstatutory stock options to our nonemployee directors. The
directors' plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by the
board of directors. To the extent they arise, it is expected that conflicts of
interest will be addressed by abstention of any interested director from both
deliberations and voting regarding matters in which such director has a personal
interest. Unless terminated earlier, the directors' plan will terminate in April
2009.
The directors' plan provides that each person who becomes a nonemployee
director after the completion of this offering will be granted: (1) a
nonstatutory stock option to purchase 20,000 shares of common stock on the date
on which such individual first becomes a member of our board of directors, (2)
an additional nonstatutory stock option to purchase 20,000 shares on the one
year anniversary of his or her election as a director and (3) an additional
nonstatutory stock option to purchase 4,000 shares on the first day of each
fiscal year beginning at least two years after his or her election as a
director. Each nonemployee director who was a member of the board of directors
before the completion of the offering will be granted an option to purchase
4,000 shares of common stock on the first day of each fiscal year beginning on
January 1, 2000.
All options granted under the directors' plan will have a term of ten years
and an exercise price equal to the fair market value of on the date of grant and
will be nontransferable. All options granted under the directors' plan shall
vest in full immediately upon grant of such option. If a nonemployee director
ceases to serve as a director for any reason other than death or disability, he
or she may, but only within 90 days after the date he or she ceases to be a
director, exercise options granted under the directors' plan. If he or she does
not exercise the option within such 90-day period, the option shall terminate.
If a director's service terminates as a result of his or her disability or
death, or if a director dies within three months following termination for any
reason, the director or his or her estate will have 12 months after the date of
termination or death, as applicable, to exercise options that were vested as of
the date of termination.
If we are acquired by another corporation, each option outstanding under
the directors' plan will be assumed or equivalent options substituted by our
acquirer, unless our acquirer does not agree to such assumption or substitution,
in which case the options will
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<PAGE> 58
terminate upon consummation of the transaction to the extent not previously
exercised. In connection with any acquisition, each director holding options
under the directors' plan will have the right to exercise his or her options
immediately before the consummation of the merger. Our board of directors may
amend or terminate the directors' plan as long as such action does not adversely
affect any outstanding option and we obtain stockholder approval for any
amendment to the extent required by applicable law.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation 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; or
- any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses specified in the agreements, including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding arising out of such person's services as a
director or executive officer of Persistence, any subsidiary of Persistence or
any other entity to which the person provides services at our request. In
addition, we maintain directors' and officers' insurance. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
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<PAGE> 59
CERTAIN TRANSACTIONS
In April 1997, we issued Derek Henninger, one of our executive officers,
1,700 shares of common stock at $0.23 per share under the 1994 stock purchase
plan. In December 1997, we issued each of Barry Goss, Alan Cohen and Christine
Russell, each of whom is an executive officer, 260,000 shares of common stock at
$0.23 per share under the 1997 stock plan. All these shares are subject to a
right of repurchase at cost in our favor which lapses at the rate of 1/4th of
the total number of shares on the first anniversary of the vesting commencement
date and 1/48th of the total number of shares per month thereafter.
In April 1998, we granted Mark Douglas and Erik Frieberg, each an executive
officer, options to purchase 130,000 and 75,000 shares of common stock,
respectively, at $0.50 per share. In July 1998, we granted Jack L. Hancock, one
of our directors, an option to purchase 35,000 shares of common stock at $0.50
per share in connection with his appointment as a director. In July 1998, we
granted Mark Douglas an option to purchase 65,000 shares of common stock at
$0.50 per share. In October 1998, we granted Erik Frieberg an option to purchase
55,000 shares of common stock at $0.60 per share. In February 1999, we granted
Christine Russell and Alan Cohen each an option to purchase 20,000 shares of
common stock at $1.65 per share. All these options become exercisable at the
rate of 1/4th of the total number of shares on the first anniversary of the
vesting commencement date and 1/48th of the total number of shares per month
thereafter. All these options were granted under the 1997 stock plan and have
not been exercised.
Larry E. Henninger, who serves on our board of directors, is the father of
Derek P. Henninger, our Vice President of Engineering. We have an unwritten
consulting arrangement with Larry E. Henninger, pursuant to which we paid Mr.
Henninger $18,000 per year during each of 1996, 1997 and 1998. In April 1997, in
connection with such consulting services, we issued Mr. Henninger 7,000 shares
of common stock at $0.23 per share. We currently intend to continue to pay Mr.
Henninger $1,500 per month as a retainer for consulting services.
In April 1998, we granted Mr. Lutz, one of our directors, an option to
purchase 35,000 shares of common stock at $0.50 per share. The option becomes
exercisable at the rate of 1/48th of the total number of shares on January 1,
1999 and 1/48th of the total shares per month thereafter. In July 1998, we
granted Mr. Lutz a fully-vested option to purchase 3,572 shares of common stock
at $0.50 per share as consideration for his rendering of consulting services to
us. In February 1999, we granted Mr. Lutz a fully-vested option to purchase
6,288 shares of common stock at $1.65 per share as consideration for his
rendering of consulting services to us. All the options were granted under the
1997 stock plan and have not been exercised.
We engage R.B. Webber & Company to perform market and business analysis for
us on a project by project basis. Jeffrey Webber, one of our directors, is
President of R.B. Webber. In connection with such services, we paid R.B. Webber
& Company $18,700 in 1997 and $20,500 in 1998. In addition, we have issued Mr.
Webber common stock in connection with consulting services rendered to us by Mr.
Webber. In December 1996, we issued Mr. Webber 29,060 shares of common stock at
$0.23 per share. In January 1997, we issued Mr. Webber 3,300 shares of common
stock at $0.23 per share. All such shares were issued under the 1994 stock
purchase plan.
We entered into change of control agreements with Christine Russell, Alan
Cohen, Barry Goss, Erik Frieberg and Mark Douglas, each an executive officer, on
February 18, 1997, December 31, 1997, January 1, 1998, March 23, 1998 and April
1, 1998,
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<PAGE> 60
respectively. The change of control agreements provide that restricted stock or
stock options granted to these officers under the 1997 stock plan will
immediately vest if they are terminated without cause or resign for good reason
within 12 months after our change of control. This offering will not constitute
a change of control.
The following executive officers have issued full recourse promissory notes
in our favor in order to purchase shares of common stock pursuant to stock
purchase rights granted under the 1997 stock plan:
<TABLE>
<CAPTION>
NAME DATE OF NOTE PRINCIPAL AMOUNT DATE DUE INTEREST RATE
- ---- ------------ ---------------- -------- -------------
<S> <C> <C> <C> <C>
Alan Cohen.............. 12/30/97 $53,820 12/30/01 5.93%
Barry Goss.............. 12/27/97 $53,820 12/27/01 5.93%
Christine Russell....... 12/27/97 $53,820 12/27/01 5.93%
</TABLE>
We have entered into indemnification agreements with our officers and
directors containing provisions that may require us to indemnify our officers
and directors against liabilities that may arise by reason of their status or
service as officers or directors, other than liabilities arising from willful
misconduct of a culpable nature, and to advance their expenses incurred as a
result of any proceeding against them.
In November 1996, we entered into a technology development and license
agreement with Morgan Stanley Dean Witter & Co., pursuant to which Morgan
Stanley Dean Witter paid us a purchase advance of $50,000 and granted us a
source code license to incorporate specific technology into products to be
developed for Morgan Stanley Dean Witter and other commercial use. If we default
under the agreement, Morgan Stanley Dean Witter is entitled to use certain of
our source code to develop products for internal use and to use object code
versions of specified products we have developed under the agreement. MSIT
Holdings, Inc. and Morgan Stanley & Co.'s wholly-owned subsidiaries, Morgan
Stanley Venture Capital Fund II, L.P., Morgan Stanley Venture Investors, L.P.
and Morgan Stanley Venture Capital Fund II, C.V. own shares of our Series B and
Series C preferred stock. MSIT Holdings, Inc. and the managing general partner
of the general partner of the Morgan Stanley Dean Witter Venture Partner
entities are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co.
Merritt Lutz, who is affiliated with MSIT Holdings, Inc., and William Harding,
who is affiliated with the Morgan Stanley Dean Witter Venture Partner entities,
serve as our directors.
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The following table summarizes the shares of preferred stock purchased by
our directors and 5% stockholders and persons and entities associated with them
in private placement transactions. The shares of Series A preferred stock were
sold at $0.59662 per share, the shares of Series B preferred stock were sold at
$2.29 per share, the shares of Series C preferred stock were sold at $4.63 per
share, and the shares of Series D preferred stock were sold at $5.35 per share.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
ENTITIES AFFILIATED WITH DIRECTORS PREFERRED PREFERRED PREFERRED PREFERRED
- ---------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Entities affiliated with Thompson
Clive Investments plc
(Gregory Ennis)................ 2,084,715 218,341 10,799 --
Entities affiliated with Morgan
Stanley Dean Witter Venture
Partners (William J. Harding)... -- 1,528,384 21,598 --
MSIT Holdings, Inc. (Merritt
Lutz).......................... -- 1,484,716 -- --
The Entrepreneurs' Fund, L.P.
(Jeffrey T. Webber)............ 50,000 -- 53,996 28,037
</TABLE>
- -------------------------
This table includes:
- - shares held by Thompson Clive Investments plc. Mr. Ennis is a director of
Thompson Clive Inc., a wholly-owned U.S. subsidiary of Thompson Clive &
Partners Limited, the manager of Thompson Clive Investments plc. Mr. Ennis is
a director of Persistence. He disclaims beneficial ownership of the shares
held by the entity except to the extent of his proportionate interest therein.
- - shares held by Morgan Stanley Venture Capital Fund II, L.P., Morgan Stanley
Venture Investors, L.P. and Morgan Stanley Venture Capital Fund II, C.V. Dr.
Harding is a general partner of Morgan Stanley Venture Partners II, L.P.,
which is the general partner of Morgan Stanley Venture Capital Fund II, L.P.,
Morgan Stanley Venture Investors, L.P. and Morgan Stanley Venture Capital Fund
II, C.V., and a director of Persistence. He disclaims beneficial ownership of
the shares held by these entities except to the extent of his proportionate
interest therein.
- - shares held by MSIT Holdings, Inc. Mr. Lutz is the Chairman of MSIT Holdings,
Inc. and a director of Persistence. He disclaims beneficial ownership of the
shares held by this entity except to the extent of his proportionate interest
therein.
- - shares held by Lighthouse Nineteen Ninety-Nine Fund, LDC and The
Entrepreneurs' Fund, L.P. Mr. Webber is a beneficiary of a trust which
indirectly owns Lighthouse Nineteen Ninety-Nine Fund, LDC, a general partner
of The Entrepreneurs' Fund, L.P., and a director of Persistence. He disclaims
beneficial ownership of the shares held by the entities except to the extent
of his proportionate interest therein.
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of March 31, 1999, as adjusted to
reflect the sale of common stock offered hereby, by:
- each person, or group of affiliated persons, known by us to own
beneficially more than 5% of our outstanding common stock,
- each director,
- our Chief Executive Officer and four other most highly compensated
executive officers, and
- all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
--------------------
NUMBER OF BEFORE AFTER
SHARES OFFERING OFFERING
---------- -------- --------
<S> <C> <C> <C>
Christopher T. Keene........................... 2,790,000 18.06%
Thompson Clive Investments plc(1).............. 2,418,095 15.65
3000 Sand Hill Road
Building 1, Suite 185
Menlo Park, CA 94025
Gregory Ennis(2)............................... 2,418,095 15.65
Entities affiliated with Morgan Stanley Dean
Witter Venture Partners(3)................... 1,549,982 10.03
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
MSIT Holdings, Inc............................. 1,484,716 9.61
1585 Broadway
New York, NY 10036
William J. Harding(4).......................... 1,549,982 10.03
Merritt Lutz(5)................................ 1,506,242 9.74
Derek Henninger................................ 1,301,700 8.43
Alan Cohen(6).................................. 260,000 1.68
Barry Goss..................................... 260,000 1.68
Christine Russell.............................. 260,000 1.68
Larry E. Henninger............................. 242,000 1.57
Jeffrey T. Webber(7)........................... 214,393 1.39
Jack L. Hancock(8)............................. * *
All directors and executive officers as a group
(13 persons)................................. 10,859,495 69.94%
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 52,120 shares held by Thompson Clive Inc. 401(k) fbo Greg Ennis
and 52,120 shares held by Thompson Clive Inc. 401(k) fbo Peter H.
Ziebelman.
(2) Includes 2,365,975 shares held by Thompson Clive Investments plc, 52,120
shares held by Thompson Clive Inc. 401(k) fbo Greg Ennis and 52,120 shares
held by Thompson Clive Inc.
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<PAGE> 63
401(k) fbo Peter H. Ziebelman. Mr. Ennis is a director of Thompson Clive
Inc., a wholly-owned U.S. subsidiary of Thompson Clive & Partners Limited,
the manager of Thompson Clive Investments plc. Mr. Ennis disclaims
beneficial ownership of the shares held by the entities except to the
extent of his proportionate interest therein.
(3) Includes 1,027,381 shares held by Morgan Stanley Venture Capital Fund II,
L.P., 266,642 shares held by Morgan Stanley Venture Investors, L.P. and
255,959 shares held by Morgan Stanley Venture Capital Fund II, C.V.
(4) Includes 1,027,381 shares held by Morgan Stanley Venture Capital Fund II,
L.P., 266,642 shares held by Morgan Stanley Venture Investors, L.P. and
255,959 shares held by Morgan Stanley Venture Capital Fund II, C.V. Dr.
Harding is a general partner of Morgan Stanley Dean Witter Venture Partners
II, L.P., which is the managing general partner of the general partner of
Morgan Stanley Venture Capital Fund II, L.P., Morgan Stanley Venture
Investors, L.P. and Morgan Stanley Venture Capital Fund II, C.V. He
disclaims beneficial ownership of the shares held by the entities except to
the extent of his proportionate interest therein.
(5) Includes 16,024 shares issuable upon exercise of options which will be
exercisable within 60 days of March 31, 1999 and 1,484,716 shares held by
MSIT Holdings, Inc. Mr. Lutz is the Chairman of MSIT Holdings, Inc. He
disclaims beneficial ownership of the shares held by the entity except to
the extent of his proportionate interest therein.
(6) Includes 260,000 shares held by Alan B. Cohen and Vivian L. Cohen, Trustees
of the Alan and Vivian Cohen Trust of 12/2/98. Mr. Cohen is a trustee of
such entity. He disclaims beneficial ownership of the shares except to the
extent of his proportionate interest therein.
(7) Includes 132,360 shares held by Lighthouse Nineteen Ninety-Nine Fund, LDC,
82,033 shares held by The Entrepreneurs' Fund, L.P. and 45,000 shares held
by Healdsburg Consulting Group. Mr. Webber is a beneficiary of a trust that
indirectly owns Lighthouse Nineteen Ninety-Nine Fund, LDC, as well as a
general partner of The Entrepreneurs' Fund, L.P. and President of
Healdsburg Consulting Group. He disclaims beneficial ownership of the
shares held by the entities except to the extent of his proportionate
interest therein.
(8) Mr. Hancock does not beneficially own any shares or options that will be
exercisable within 60 days of March 31, 1999.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially owned by a
person includes shares of common stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of March 31, 1999.
The shares issuable pursuant to these options are deemed outstanding for
computing the percentage ownership of the person holding these options but are
not deemed outstanding for the purposes of computing the percentage ownership of
each other person. The number of shares listed in the table above for all
directors and executive officers as a group includes 57,083 shares that are
currently exercisable within 60 days of March 31, 1999.
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<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
75,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description of our
capital stock is intended to be a summary and does not describe all provisions
of our certificate of incorporation or bylaws or Delaware law applicable to
Persistence. For a more thorough understanding of the terms of our capital
stock, you should refer to our certificate of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
is a part.
COMMON STOCK
As of March 31, 1999, there were 15,447,941 shares of common stock
outstanding, held of record by approximately 108 stockholders, which reflects
the conversion of all outstanding shares of preferred stock into common stock.
In addition, as of March 31, 1999, there were 1,388,036 shares of common stock
subject to outstanding options and 80,556 shares of common stock subject to
outstanding warrants. Upon completion of this offering, there will be
shares of common stock outstanding, assuming no exercise of the
underwriters' overallotment option or additional exercise of outstanding options
under our stock option plan and warrants.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of common stock are
entitled to receive ratably such dividends as may be declared by the board of
directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, the holders of common stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding preferred stock. The common stock has
no preemptive or conversion rights, other subscription rights, or redemption or
sinking fund provisions. All outstanding shares of common stock are fully paid
and non-assessable, and the shares of common stock to be issued upon completion
of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of the offering, all outstanding shares of preferred stock
will be converted into 7,697,885 shares of common stock and automatically
retired. Thereafter, the board of directors will have the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to designate the rights, preferences, privileges
and restrictions of each such series. The issuance of preferred stock could have
the effect of restricting dividends on the common stock, diluting the voting
power of the common stock, impairing the liquidation rights of the common stock
or delaying or preventing our change in control without further action by the
stockholders. We have no present plans to issue any shares of preferred stock.
WARRANTS
As of March 31, 1999 there were warrants outstanding to purchase a total of
55,556 shares of common stock at a price of $0.90 per share, which expire on
December 31, 2001. In addition, there were warrants outstanding to purchase a
total of 25,000 shares of common stock at $0.90 per share, which expire on
February 6, 2001.
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<PAGE> 65
REGISTRATION RIGHTS
The holders of 7,726,434 shares of common stock and warrants to purchase
80,556 shares of common stock (the "registrable securities") are entitled to
have their shares registered by us under the Securities Act under the terms of
an agreement between us and the holders of the registrable securities. Subject
to limitations specified in the agreement, these registration rights include the
following:
- The holders registrable securities may require, on two occasions
beginning six months after the date of this prospectus, that we use our
best efforts to register the registrable securities for public resale,
provided that the aggregate offering price for such registrable
securities is at least $5,000,000. This right is subject to the ability
of the underwriters to limit the number of shares included in the
offering in view of market conditions.
- If we register any common stock, either for our own account or for the
account of other security holders, the holders of registrable securities
are entitled to include their shares of common stock in such
registration. This right is subject to the ability of the underwriters to
limit the number of shares included in the offering in view of market
conditions.
- The holders of at least 1% of the then outstanding registrable securities
may require us to register all or a portion of their registrable
securities on Form S-3 when use of such form becomes available to us,
provided that the proposed aggregate offering price is at least
$1,000,000. The holders of registrable securities may not exercise this
right within six months immediately following the effective date of a
Form S-3 registration previously demanded by the holders of registrable
securities or more than once in any twelve-month period.
We will bear all registration expenses other than underwriting discounts
and commissions, except in the case of registrations on Form S-3 demanded after
one such registration has already been declared effective. All registration
rights terminate on the date five years following the closing of this offering,
or, with respect to each holder of registrable securities, at such time as the
holder owns less than 2% of the voting stock and is entitled to sell all of its
shares in any three month period under Rule 144 of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
AND BYLAWS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make it more difficult for a third party to acquire us or to remove our
incumbent officers and directors. These provisions, summarized below, are
expected to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to acquire control of Persistence to first
negotiate with us. We believe that the benefits of increased protection of our
ability to negotiate with the proponent of an unfriendly or unsolicited
acquisition proposal outweigh the disadvantages of discouraging such proposals
because, among other things, negotiation could result in an improvement of their
terms.
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a business combination with
an interested stockholder for a
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<PAGE> 66
period of three years following the date the person became an interested
stockholder, unless:
- the board of directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders.
A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an interested stockholder is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
Our certificate of incorporation and bylaws do not provide for the right of
stockholders to act by written consent without a meeting or for cumulative
voting in the election of directors. In addition, our certificate of
incorporation permits the board of directors to issue preferred stock with
voting or other rights without any stockholder action. Our certificate of
incorporation provides for the board of directors to be divided into three
classes, with staggered three-year terms, commencing at our first annual meeting
of stockholders following the date on which we have at least 800 stockholders.
As a result, only one class of directors will be elected at each annual meeting
of stockholders. Each of the two other classes of directors will continue to
serve for the remainder of its respective three-year term. These provisions,
which require the vote of stockholders holding at least two thirds of the
outstanding common stock to amend, may have the effect of deterring hostile
takeovers or delaying changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation. The transfer agent's address and telephone number is 1745
Gardena Avenue, Glendale, CA, 91204, (818) 502-1404.
63
<PAGE> 67
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this offering
because of contractual restrictions on resale. Sales of substantial amounts of
our common stock in the public market after the restrictions lapse could
adversely affect the prevailing market price and impair our ability to raise
equity capital in the future.
Upon completion of the offering, we will have outstanding shares
of common stock. Of these shares, the shares sold in the offering,
plus any shares issued upon exercise of the underwriters' overallotment option,
will be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. In general, affiliates include officers, directors or 10%
stockholders.
The remaining 15,447,941 shares outstanding are restricted securities
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the common stock.
Our directors, officers and securityholders have entered into lock-up
agreements in connection with this offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock owned by them for a period of 90 or 180 days after the
date of this prospectus without the prior written consent of BancBoston
Robertson Stephens. Notwithstanding possible earlier eligibility for sale under
the provisions of Rules 144, 144(k)and 701, shares subject to lock-up agreements
will not be salable until such agreements expire or are waived by BancBoston
Robertson Stephens. Taking into account the lock-up agreements, and assuming
BancBoston Robertson Stephens does not release stockholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:
- Beginning on the effective date of this prospectus, only the
shares sold in the offering will be immediately available for sale in the
public market.
- Beginning 90 days after the effective date, approximately 652,358 shares
will be eligible for sale, none of which will be subject to volume,
manner of sale and other limitations under Rule 144. None of these shares
are held by affiliates.
- Beginning 180 days after the effective date, approximately 13,929,582
shares will be eligible for sale, 6,914,909 of which will be subject to
volume, manner of sale and other limitations under Rule 144. All but
3,131,733 of the total 13,929,582 shares are held by affiliates.
- The remaining 866,001 shares will be eligible for sale pursuant to Rule
144 upon the expiration of various one-year holding periods during the
six months following 180 days after the effective date. All but 837,964
of these shares are held by affiliates.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year
64
<PAGE> 68
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding
which will equal approximately shares immediately after the
offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice, and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
anytime during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a written compensatory
plan or contract to resell such shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell such shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date to register shares to be
issued pursuant to our employee benefit plans. As a result, any options or
rights exercised under the 1994 stock purchase plan, the 1997 stock plan, the
1999 employee stock purchase plan, the 1999 directors' stock option plan or any
other benefit plan after the effectiveness of the registration statements will
also be freely tradable in the public market. However, such shares held by
affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144 unless otherwise
resalable under Rule 701. As of March 31, 1999 there were outstanding options
for the purchase of 1,388,036 shares of common stock, of which options to
purchase 271,235 shares were exercisable.
65
<PAGE> 69
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and
SoundView Technology Group, Inc., have severally agreed with Persistence,
subject to the terms and conditions of an underwriting agreement, to purchase
the number of shares of common stock set forth opposite their respective names
below. The underwriters are committed to purchase and pay for all such shares if
any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
BancBoston Robertson Stephens Inc. ..................
U.S. Bancorp Piper Jaffray Inc. .....................
SoundView Technology Group, Inc. ....................
--------
Total......................................
========
</TABLE>
The representatives of the underwriters have advised Persistence that the
underwriters propose to offer the shares of common stock to the public at the
initial public offering price set forth on the cover page of this prospectus and
to certain dealers at such price less a concession of not more than $
per share, of which $ may be reallowed to other dealers. After the
completion of this offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No such reduction
shall change the amount of proceeds to be received by Persistence as set forth
in the cover page of this prospectus.
Over-Allotment Option. Persistence has granted to the underwriters an
option, exercisable during the 30-day period after the date of this prospectus,
to purchase up to additional shares of common stock at the same
price per share as Persistence will receive for the shares that
the underwriters have agreed to purchase. To the extent that the underwriters
exercise such option, each of the underwriters will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares that the number of shares of common stock to be purchased
by it shown in the above table represents as a percentage of the
shares offered hereby. If purchased, such additional shares will be sold by the
underwriters on the same terms as those on which the shares are
being sold.
Indemnification. The underwriting agreement contains covenants of
indemnity among the underwriters and Persistence against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Lock-up Agreement. Each officer and director and securityholder of
Persistence has agreed with the representatives or Persistence for a period of
180 days, and in the case of certain securityholders 90 days, after the
effective date of this prospectus that they will not, subject to certain
exceptions, directly or indirectly offer to sell, contract to sell, or otherwise
sell, dispose of loan, pledge or grant any rights with respect to, any shares of
common stock, or any securities convertible into or exchangeable for shares of
common stock, now owned or hereafter acquired directly by such holders or with
respect to which they have the power of disposition, without the prior written
consent of BancBoston Robertson Stephens Inc., which may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. All of the shares
66
<PAGE> 70
of common stock subject to the lock-up agreements will be eligible for sale in
the public market upon the expiration of the lock-up agreements, subject to the
volume limitations and other conditions of Rule 144.
Future Sales. In addition, Persistence has agreed that during the 180 days
following the effective date of this prospectus, Persistence will not, without
the prior written consent of BancBoston Robertson Stephens Inc., subject to
certain exceptions (including, without limitation, in connection with certain
acquisitions), offer, issue, sell, contract to sell, or otherwise dispose of any
shares of common stock, any options or warrants to purchase any shares of common
stock, or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than (i) Persistence's sales of shares in this
offering, (ii) the issuance of common stock upon the exercise of outstanding
options or warrants or (iii) Persistence's issuance of options or shares under
the 1994 stock purchase plan, 1997 stock plan, 1999 employee stock purchase plan
and 1999 directors' stock option plan.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Determination of Offering Price. Prior to offering, there has been no
public market for the common stock of Persistence. Consequently, the initial
public offering price for the common stock offered hereby has been determined
through negotiations among Persistence and the representatives of the
underwriters. Among the factors considered in such negotiations were prevailing
market conditions, certain financial information of Persistence, market
valuation of other companies that Persistence and the representatives believe to
be comparable to Persistence, estimates of the business potential of Persistence
and the industry in which it competes, an assessment of Persistence's
management, its past and present operation, the prospects for, and timing of,
future revenues of Persistence, the present state of Persistence's development
and other factors deemed relevant.
Share Ownership by Underwriters. Certain persons and entities affiliated
with U.S. Bancorp Piper Jaffray Inc. purchased an aggregate of 53,996 shares of
Persistence's Series C preferred stock from Persistence in August 1998. Such
affiliates are subject to the 180-day lock-up that applies to other
securityholders as described above. U.S. Bancorp Piper Jaffray Inc. and its
affiliates (other than such holders described above) will be permitted to engage
in stabilization, brokerage and ordinary course of business transactions. See
"Shares Eligible for Future Sale."
Stabilization. The representatives have advised that, pursuant to
Regulation M under the Securities Act, certain persons participating in offering
may engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids that may have the effect of
stabilizing or maintaining the market price of the common stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for the purchase of the common stock on behalf
of the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised Persistence that such transitions may be effected
on the
67
<PAGE> 71
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Reserved Shares. The underwriters have reserved for sale, at the initial
public offering price, up to 5% of the common stock offered hereby for certain
individuals designated by Persistence who have expressed an interest in
purchasing such shares of common stock in this offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same basis as other
shares offered hereby described above will be permitted to engage in
stabilization, brokerage and ordinary course transactions.
Pursuant to an agreement among us and certain principal stockholders,
affiliates of Amerindo Investment Advisors L.P. have the right to purchase up to
3% of the shares offered in the offering. To exercise this right, these entities
must state the number of shares they intend to purchase and commit to purchase
such number within five business days after we provide them notice of this
offering.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for
Persistence by Venture Law Group, A Professional Corporation, 2800 Sand Hill
Road, Menlo Park, California 94025. Mark Medearis, a Director of Venture Law
Group, is the Assistant Secretary of Persistence. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo
Alto, California 94303. As of the date of this prospectus, attorneys of Venture
Law Group and an investment partnership controlled by Venture Law Group
beneficially own an aggregate of 6,551 shares of Persistence's common stock.
EXPERTS
The consolidated financial statements of Persistence as of December 31,
1997 and 1998 and for the years ended December 31, 1996, 1997 and 1998 included
in the prospectus and the related financial statement schedule included
elsewhere in the Registration Statement, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports thereon appearing herein
and elsewhere in the Registration Statement and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement and its exhibits and schedule. For further
information with respect to us and our common stock being offered, see the
registration statement and its exhibits and schedule. A copy of the registration
statement and its exhibits and schedule may be inspected without charge at the
public reference facilities maintained by the SEC located at Room 1024, 450
Fifth Street, Washington, D.C. 20549 and at the SEC's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of all or any part of the registration statement may be obtained
from such offices upon the payment of the fees prescribed by the SEC.
Information on the operation of the public
68
<PAGE> 72
reference room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC
maintains a World Wide Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants,
including as, that file electronically with the SEC.
69
<PAGE> 73
PERSISTENCE SOFTWARE, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Consolidated Financial Statements:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets at December 31, 1997, 1998,
March 31, 1999 (unaudited) and Pro forma at March 31,
1999 (unaudited)....................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and three-months ended
March 31, 1998 and 1999 (unaudited).................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998 and three
months ended March 31, 1999 (unaudited)................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and three months ended
March 31, 1998 and 1999 (unaudited).................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Persistence Software, Inc.:
We have audited the accompanying consolidated balance sheets of Persistence
Software, Inc. and subsidiary as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Persistence Software, Inc. and
subsidiary at December 31, 1997 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1998
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
March 2, 1999
(April 21, 1999 as to Note 11)
F-2
<PAGE> 75
PERSISTENCE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ MARCH 31, MARCH 31,
1997 1998 1999 1999
------- -------- ----------- -----------
(NOTE 1)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,610 $ 4,938 $ 7,386
Accounts receivable, net of allowances of $75, $47 and
$47.................................................... 1,876 1,759 2,198
Prepaid expenses and other current assets................. 89 155 164
------- -------- --------
Total current assets................................... 4,575 6,852 9,748
Property and equipment, net................................. 837 723 676
Deposits.................................................... 35 29 31
------- -------- --------
Total assets........................................... $ 5,447 $ 7,604 $ 10,455
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 801 $ 596 $ 519
Accrued compensation and related benefits................. 528 512 513
Other accrued liabilities................................. 64 154 516
Deferred revenues......................................... 1,385 1,798 1,545
Current portion of long-term obligations.................. 193 408 370
------- -------- --------
Total current liabilities.............................. 2,971 3,468 3,463
------- -------- --------
Long-term obligations....................................... 259 650 643
Deferred rent............................................... 160 64 40
Commitments (Note 4)........................................
Stockholders' equity:
Series A convertible preferred stock $0.001 par value;
designated and outstanding -- 2,134,715 shares; pro
forma -- none (liquidation preference of $1,274)....... 1,250 1,250 1,250 --
Series B convertible preferred stock $0.001 par value;
designated and outstanding -- 3,243,192 shares; pro
forma -- none (liquidation preference of $7,427)....... 7,387 7,387 7,387 --
Series C convertible preferred stock $0.001 par value;
designated -- 1,544,277 shares; outstanding -- 1997,
431,965 shares; 1998 and 1999, 1,544,277 shares; pro
forma -- none (liquidation preference of $10,725)...... 1,973 7,080 7,080 --
Series D convertible preferred stock $0.001 par value;
designated -- 775,701 shares; outstanding -- 1997 and
1998, none; 1999, 775,701 shares; pro forma -- none
(liquidation preference of $4,150)..................... -- -- 4,142 --
Common stock, $0.001 par value; authorized -- 41,100,000
shares; outstanding -- 1997, 7,652,741 shares; 1998,
7,634,414 shares; 1999, 7,750,056 shares; pro
forma -- 15,447,941 shares............................. 592 2,854 3,997 23,856
Deferred stock compensation............................... (287) (2,222) (2,705) (2,705)
Notes receivable from stockholders........................ (181) (161) (161) (161)
Accumulated deficit....................................... (8,677) (12,766) (14,681) (14,681)
------- -------- -------- --------
Total stockholders' equity............................. 2,057 3,422 6,309 $ 6,309
------- -------- -------- ========
Total liabilities and stockholders' equity............. $ 5,447 $ 7,604 $ 10,455
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 76
PERSISTENCE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
--------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License........................... $ 2,603 $ 3,546 $ 7,478 $ 1,004 $ 2,116
Service........................... 1,171 1,867 2,682 706 747
------- ------- ------- ------- -------
Total revenues................. 3,774 5,413 10,160 1,710 2,863
------- ------- ------- ------- -------
Costs of revenues:
License........................... 139 342 239 56 42
Service........................... 221 729 1,372 326 580
------- ------- ------- ------- -------
Total cost of revenues......... 360 1,071 1,611 382 622
------- ------- ------- ------- -------
Gross profit........................ 3,414 4,342 8,549 1,328 2,241
Operating expenses:
Sales and marketing............... 3,798 4,712 7,168 1,687 2,015
Research and development.......... 1,976 2,954 4,234 1,038 1,503
General and administrative........ 985 1,362 1,237 311 686
------- ------- ------- ------- -------
Total operating expenses....... 6,759 9,028 12,639 3,036 4,204
------- ------- ------- ------- -------
Loss from operations................ (3,345) (4,686) (4,090) (1,708) (1,963)
Interest income (expense):
Interest income................... 72 85 116 16 63
Interest expense.................. (38) (73) (115) (12) (15)
------- ------- ------- ------- -------
Total interest income
(expense).................... 34 12 1 4 48
------- ------- ------- ------- -------
Net loss............................ $(3,311) $(4,674) $(4,089) $(1,704) $(1,915)
======= ======= ======= ======= =======
Basic and diluted net loss per
share............................. $ (0.54) $ (0.73) $ (0.59) $ (0.25) $ (0.27)
======= ======= ======= ======= =======
Shares used in calculating basic and
diluted net loss per share........ 6,135 6,366 6,879 6,733 7,044
======= ======= ======= ======= =======
Pro forma basic and diluted net loss
per share (Note 1)................ $ (0.31) $ (0.13)
======= =======
Shares used in calculating pro forma
basic and diluted net loss per
share (Note 1).................... 13,183 14,320
======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 77
PERSISTENCE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE DEFERRED COMMON STOCK NOTES
PREFERRED STOCK COMMON STOCK STOCK SUBSCRIBED RECEIVABLE
------------------- ------------------ COMPEN- ---------------- FROM
SHARES AMOUNT SHARES AMOUNT SATION SHARES AMOUNT STOCKHOLDERS
--------- ------- --------- ------ -------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996........ 2,134,715 $ 1,250 6,747,240 $ 48 $ (15)
Sale of Series B preferred
stock.......................... 3,237,992 7,375
Issuance of common stock......... 304,325 59 (23)
Common stock subscribed.......... 32,359 $ 7
Repurchase of common stock....... (281,250) (17) 15
Net loss.........................
--------- ------- --------- ------ ------- --- -----
Balances, December 31, 1996...... 5,372,707 8,625 6,770,315 90 32,359 7 (23)
Sale of Series B preferred
stock.......................... 5,200 12
Sale of Series C preferred
stock.......................... 431,965 1,973
Issuance of common stock......... 1,119,482 257 (32,359) (7) (181)
Repurchase of common stock....... (237,056) (42) 23
Compensatory stock
arrangements................... 287 $ (287)
Net loss.........................
--------- ------- --------- ------ ------- ------- --- -----
Balances, December 31, 1997...... 5,809,872 10,610 7,652,741 592 (287) -- -- (181)
Sale of Series C preferred
stock.......................... 1,112,312 5,107
Issuance of common stock......... 4,754 1
Repurchase of common stock....... (23,081) (5)
Repayment of notes receivable
from stockholders.............. 20
Compensatory stock
arrangements................... 2,266 (2,266)
Amortization of deferred stock
compensation................... 331
Net loss.........................
--------- ------- --------- ------ ------- ------- --- -----
Balances, December 31, 1998...... 6,922,184 15,717 7,634,414 2,854 (2,222) -- -- (161)
Sale of Series D preferred
stock*......................... 775,701 4,142
Issuance of common stock*........ 115,642 156
Compensatory stock
arrangements*.................. 987 (987)
Amortization of deferred stock
compensation*.................. 504
Net loss*........................
--------- ------- --------- ------ ------- ------- --- -----
Balances, March 31, 1999*........ 7,697,885 $19,859 7,750,056 $3,997 $(2,705) -- $-- $(161)
========= ======= ========= ====== ======= ======= === =====
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- -------
<S> <C> <C>
Balances, January 1, 1996........ $ (692) $ 591
Sale of Series B preferred
stock.......................... 7,375
Issuance of common stock......... 36
Common stock subscribed.......... 7
Repurchase of common stock....... (2)
Net loss......................... (3,311) (3,311)
-------- -------
Balances, December 31, 1996...... (4,003) 4,696
Sale of Series B preferred
stock.......................... 12
Sale of Series C preferred
stock.......................... 1,973
Issuance of common stock......... 69
Repurchase of common stock....... (19)
Compensatory stock
arrangements................... --
Net loss......................... (4,674) (4,674)
-------- -------
Balances, December 31, 1997...... (8,677) 2,057
Sale of Series C preferred
stock.......................... 5,107
Issuance of common stock......... 1
Repurchase of common stock....... (5)
Repayment of notes receivable
from stockholders.............. 20
Compensatory stock
arrangements................... --
Amortization of deferred stock
compensation................... 331
Net loss......................... (4,089) (4,089)
-------- -------
Balances, December 31, 1998...... (12,766) 3,422
Sale of Series D preferred
stock*......................... 4,142
Issuance of common stock*........ 156
Compensatory stock
arrangements*.................. --
Amortization of deferred stock
compensation*.................. 504
Net loss*........................ (1,915) (1,915)
-------- -------
Balances, March 31, 1999*........ $(14,681) $ 6,309
======== =======
</TABLE>
- -------------------------
* Unaudited
See notes to consolidated financial statements.
F-5
<PAGE> 78
PERSISTENCE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,311) $(4,674) $(4,089) $(1,704) $(1,915)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 324 505 556 127 141
Amortization of deferred stock compensation............. -- -- 331 25 504
Stock issued in lieu of rent............................ 7 19 -- -- --
Loss on sale of fixed assets............................ 2 -- -- -- --
Gain on forgiveness of capital lease obligations........ (37) -- -- -- --
Changes in assets and liabilities:
Accounts receivable................................... (576) (775) 117 467 (439)
Prepaid expenses and other current assets............. 28 (37) (66) (38) (9)
Accounts payable...................................... (7) 641 (205) (113) (77)
Accrued compensation and related benefits............. 243 104 (16) 530 1
Other accrued liabilities............................. (40) 29 90 (486) 362
Deferred revenues..................................... 217 959 413 26 (253)
Deferred rent......................................... 61 99 (96) (24) (24)
------- ------- ------- ------- -------
Net cash used in operating activities.............. (3,089) (3,130) (2,965) (1,190) (1,709)
------- ------- ------- ------- -------
Cash flows from investing activities:
Property and equipment additions.......................... (53) (555) (442) (152) (94)
Deposits.................................................. -- (34) 6 (1) (2)
Proceeds from sale of fixed assets........................ 44 -- -- -- --
------- ------- ------- ------- -------
Net cash used in investing activities.............. (9) (589) (436) (153) (96)
------- ------- ------- ------- -------
Cash flows from financing activities:
Sale of convertible preferred stock, net.................. 7,375 1,985 5,107 -- 4,142
Sale of common stock...................................... 36 50 1 -- 156
Repurchase of common stock................................ (2) (19) (5) (1) --
Repayment of notes receivable from stockholders........... -- -- 20 19 --
Repayment of capital lease obligations.................... (146) (222) (194) (47) (45)
Borrowing under loan agreement............................ -- -- 800 556 --
------- ------- ------- ------- -------
Net cash provided by financing activities.......... 7,263 1,794 5,729 527 4,253
------- ------- ------- ------- -------
Net increase (decrease) in cash and equivalents............. 4,165 (1,925) 2,328 (816) 2,448
Cash and cash equivalents -- beginning of period............ 370 4,535 2,610 2,610 4,938
------- ------- ------- ------- -------
Cash and cash equivalents -- end of period.................. $ 4,535 $ 2,610 $ 4,938 $ 1,794 $ 7,386
======= ======= ======= ======= =======
Noncash investing and financing activities:
Common stock issued for notes receivable.................. $ 23 $ 181 $ -- $ -- $ --
======= ======= ======= ======= =======
Cancellation of note receivable........................... $ -- $ 23 $ -- $ -- $ --
======= ======= ======= ======= =======
Property and equipment acquired under capital leases...... $ 658 $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Supplemental disclosure of cash flow information -- cash
paid during the period for:
Interest.................................................. $ 35 $ 72 $ 115 $ 12 $ 15
======= ======= ======= ======= =======
Income taxes.............................................. $ 1 $ 1 $ 1 $ 1 $ --
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 79
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business -- Persistence Software, Inc. and subsidiary (the Company),
incorporated in California in June 1991, develops and markets transactional
application server software products that comprise the Internet software
infrastructure for high-volume, high-performance electronic commerce
applications.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary. All
intercompany transactions and balances have been eliminated in consolidation.
Cash Equivalents -- The Company considers all highly liquid debt
instruments purchased with a remaining maturity of three months or less to be
cash equivalents.
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over estimated useful lives of three
years. Leasehold improvements are amortized over the shorter of the lease term
or their useful life.
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed
Of -- The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Software Development Costs -- Costs for the development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, Computer Software To Be Sold,
Leased or Otherwise Marketed. Because the Company believes its current process
for developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.
Notes Receivable from Stockholders -- The notes receivable from
stockholders were issued in exchange for common stock, bear interest at 5.93%
per annum, and are due in December 2001.
Revenue Recognition -- Revenue consists primarily of fees for licenses of
the Company's software products, maintenance and customer support.
License Revenue -- Revenue from software licenses is recognized upon
shipment of the software if collection of the resulting receivable is
probable, an executed agreement has been signed, the fee is fixed or
determinable and vendor-specific objective evidence exists to allocate a
portion of the total fee to any undelivered
F-7
<PAGE> 80
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
elements of the arrangement. Such undelivered elements in these
arrangements typically consist of services.
Service Revenue -- Revenues from nonrecurring engineering services are
generally recognized based upon the attainment of milestones. This method
approximates the percentage of completion method of accounting. Revenue
from customer training, support and consulting services is recognized as
the services are performed. Support revenue is recognized ratably over the
term of the support contract. If support or professional services are
included in an arrangement that includes a license agreement, amounts
related to support or professional services are allocated based on vendor-
specific objective evidence.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, Software Revenue Recognition. This
statement provides guidance on applying generally accepted accounting principles
in recognizing revenue on software transactions and superseded SOP 91-1,
Software Revenue Recognition. SOP 97-2 was effective for transactions entered
into in 1998. The adoption of this standard did not have a material effect on
the Company's financial position or results of operations.
Income Taxes -- Income taxes are provided using an asset and liability
approach which requires recognition of deferred tax liabilities and assets, net
of valuation allowances, for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities and net operating loss and tax credit carryforwards.
Foreign Currency Transactions -- The functional currency of the Company's
foreign subsidiary is the U.S. dollar. Accordingly, all monetary assets and
liabilities are translated at the current exchange rate at the end of the year,
nonmonetary assets and liabilities are translated at historical rates and net
sales and expenses are translated at average exchange rates in effect during the
period. Transaction gains and losses, which are included in other income
(expense) in the accompanying consolidated statements of operations, have not
been significant.
Stock Compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
Accordingly, no accounting recognition is given to employee stock options
granted at fair market value until they are exercised. Upon exercise, the net
proceeds are credited to stockholders' equity.
Net Loss per Common Share -- Basic net loss per common share excludes
dilution and is computed by dividing net loss by the weighted average number of
common shares outstanding for the period (excluding shares subject to
repurchase). Diluted net loss per common share was the same as basic net loss
per common share for all periods presented since the effect of any potentially
dilutive securities is excluded as they are anti-dilutive because of the
Company's net losses.
Pro Forma Net Loss per Common Share -- Pro forma basic and diluted net loss
per common share is computed by dividing net loss by the weighted average number
of common shares outstanding for the period (excluding shares subject to
repurchase) and the weighted average number of common shares resulting from the
conversion of
F-8
<PAGE> 81
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding shares of convertible preferred stock, which will occur upon the
closing of the planned initial public offering.
Unaudited Pro Forma Information -- Upon the closing of the planned initial
public offering, each of the outstanding shares of convertible preferred stock
will convert into one share of common stock. The pro forma balance sheet
presents the Company's balance sheet as if this had occurred at March 31, 1999.
Unaudited Interim Financial Information -- The interim financial
information as of March 31, 1999 and for the three months ended March 31, 1998
and 1999 is unaudited and has been prepared on the same basis as the audited
financial statements. In the opinion of management, such unaudited financial
information includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the interim information.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
Concentration of Credit Risk -- Financial instruments that potentially
expose the Company to concentrations of credit risk consist primarily of trade
receivables. The Company primarily sells its products to companies in the United
States and Europe. The Company does not require collateral or other security to
support accounts receivable. To reduce credit risk, management performs ongoing
credit evaluations of its customers' financial condition. The Company maintains
allowances for potential credit losses.
Financial Instruments -- The Company's financial instruments include cash
and equivalents, notes receivable from stockholders and long-term debt. At
December 31, 1997 and 1998, the fair value of these financial instruments
approximated their financial statement carrying amounts.
Significant 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 disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Certain Significant Risks and Uncertainties -- The Company operates in the
software industry, and accordingly, can be affected by a variety of factors. For
example, management of the Company believes that changes in any of the following
areas could have a significant negative effect on the Company in terms of its
future financial position, results of operations and cash flows: ability to
obtain additional financing; regulatory changes; fundamental changes in the
technology underlying software products; market acceptance of the Company's
products under development; development of sales channels; loss of significant
customers; adverse changes in international market conditions; year 2000
compliance issues; litigation or other claims against the Company; the hiring,
training and retention of key employees; successful and timely completion of
product development efforts; and new product introductions by competitors.
Recently Issued Accounting Standards -- In June 1997, the FASB issued SFAS
No. 130, Reporting Comprehensive Income, which requires an enterprise to report,
by major components and as a single total, the change in its net assets during
the period from
F-9
<PAGE> 82
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
nonowner sources; and SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, which establishes annual and interim reporting
standards for an enterprise's business segments and related disclosures about
its products, services, geographic areas and major customers. The Company had no
comprehensive income items, other than net loss, to report for any of the
periods presented. The Company currently operates in one reportable segment
under SFAS No. 131.
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. This standard requires companies to capitalize
qualifying computer software costs, which are incurred during the application
development stage and amortize them over the software's estimated useful life.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The
Company is currently evaluating the impact of SOP 98-1 on its financial
statements and related disclosures.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement requires companies to record
derivatives on the balance sheet as assets or liabilities measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the Company's
fiscal year ending December 31, 2000. The Company is currently evaluating the
impact of SFAS No. 133 on its financial statements and related disclosures.
Reclassifications -- Certain reclassifications have been made to the 1996
and 1997 financial statement presentations to conform to the 1998 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Equipment............................... $ 1,427 $ 1,718 $ 1,772
Software................................ 424 575 615
Leasehold improvements.................. 60 60 60
------- ------- -------
1,911 2,353 2,447
Accumulated depreciation and
amortization.......................... (1,074) (1,630) (1,771)
------- ------- -------
$ 837 $ 723 $ 676
======= ======= =======
</TABLE>
F-10
<PAGE> 83
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM OBLIGATIONS
Long-term obligations consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1997 1998 1999
----- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Equipment term loan....................... $ -- $ 800 $ 800
Capital lease obligations (see Note 4).... 452 258 213
----- ------ ------
452 1,058 1,013
Less current portion...................... (193) (408) (370)
----- ------ ------
$ 259 $ 650 $ 643
===== ====== ======
</TABLE>
In February 1998, the Company entered into a $2,000,000 line of credit with
a bank. Borrowings under the line bear interest at the bank's base rate (7.75%
at December 31, 1998) and are limited to a percentage of eligible accounts
receivable, as defined. At December 31, 1998, there were no borrowings under the
line.
At December 31, 1998, the Company had outstanding borrowings of $800,000
under a bank promissory note, which bears interest at 7.75%. The Company is
required to make principal payments of $22,222 per month plus interest on the
unpaid principal balance, payable in 36 monthly installments commencing April 1,
1999.
The line of credit requires the Company, among other things, to maintain a
minimum tangible net worth of $500,000 and a quick ratio greater than 1.3 to
1.0. At December 31, 1998, the Company was in compliance with the financial
covenant requirements. Both agreements are collateralized by substantially all
of the Company's assets.
Annual maturities under the term loan are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
------------------ --------------
<S> <C>
1999........................................... $200
2000........................................... 267
2001........................................... 267
2002........................................... 66
----
Total.................................. $800
====
</TABLE>
4. LEASE COMMITMENTS
Equipment with a net book value of $301,000 and $89,000 at December 31,
1997 and 1998, respectively, (net of accumulated amortization of $391,000 and
$603,000) has been leased under capital leases.
The Company leases its principal facility under a noncancelable operating
lease expiring in June 1999. Rent expense was approximately $150,000, $330,000
and $337,000 in 1996, 1997 and 1998, respectively.
F-11
<PAGE> 84
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under the Company's leases at December 31, 1998
are:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1999................................................ $ 193 $218
2000................................................ 66 --
2001................................................ 21 --
----- ----
Total.......................................... 280 $218
====
Amount representing interest........................ (22)
-----
Present value....................................... 258
Current portion..................................... (208)
-----
Long-term portion................................... $ 50
=====
</TABLE>
5. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Terms of the convertible preferred stock are as follows:
- Each share of Series A, Series B and Series C preferred stock is
convertible into one share of common stock (subject to adjustment for
events of dilution). Each share will automatically convert into common
stock upon the completion of a public offering with aggregate proceeds
greater than $12,000,000 and at a price per share of not less than $7.00.
- Each share of Series A, Series B and Series C preferred stock has voting
rights equivalent to the number of shares of common stock into which it
is convertible.
- When declared by the Board of Directors, the holders of Series A
preferred stock are entitled to receive cumulative dividends of
$0.035797, and the holders of Series B and Series C preferred stock are
entitled to receive noncumulative dividends of $0.1374 and $0.2778 per
share, respectively, per annum prior to the payment of any dividends on
common stock. At December 31, 1998, dividends in arrears for Series A
preferred stock were approximately $373,000. However, as of December 31,
1998, no dividends have been declared by the Board of Directors.
- In the event of liquidation, dissolution or winding up of the Company,
Series A, Series B and Series C preferred stockholders shall receive
$0.59662, $2.29, and $6.945 per share, respectively (aggregating
approximately $1,274,000, $7,427,000 and $10,725,000 at December 31,
1998, respectively), plus all accrued but unpaid dividends; any remaining
assets shall be distributed to the common stockholders.
- The preferred stockholders have certain registration rights.
F-12
<PAGE> 85
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMON STOCK
In 1996, the Company entered into an agreement with the lessor of its
principal facility to issue 110,000 shares of the Company's common stock in lieu
of rent payments for the twelve-month period beginning September 1996. At
December 31, 1996, 32,359 shares were subscribed under this agreement. All
110,000 shares were issued in 1997. Rent expense has been recorded on a
straight-line basis.
During 1996 and 1997, the Company issued common stock to directors in their
capacity as consultants (see Note 8).
In February 1999, the Company sold 90,300 shares of common stock to a
significant customer and related party at $1.65 per share. An expense of
$303,000 has been recorded in the three months ended March 31, 1999 for the
difference between the deemed fair value for accounting purposes and the stock
price of $1.65 per share.
DEFERRED STOCK COMPENSATION
In connection with grants of certain stock options and issuance of common
stock in 1997, 1998 and in the three months ended March 31, 1999, the Company
recorded $287,000, $2,266,000 and $987,000, respectively, for the difference
between the estimated fair value and the stock price as determined by the Board
of Directors on the date of grant/issuance. This amount has been presented as a
reduction of stockholders' equity and is being amortized to expense over the
vesting period of the related stock/stock options (generally four years).
Amortization of deferred stock compensation for the year ended December 31, 1998
and three-month period ended March 31, 1999 was $331,000 and $504,000,
respectively.
1994 STOCK PURCHASE PLAN
Under the 1994 Stock Purchase Plan (the Plan), the Company may sell common
stock to employees of the Company at the fair market value as determined by the
Board of Directors. Sales are to be made pursuant to restricted stock purchase
agreements containing provisions established by the Board. During 1996 and 1997,
the Company issued 304,325 and 212,995 shares of common stock, respectively,
under the Plan. No shares were issued under the Plan in 1998. In 1996, the
shares were issued at prices ranging from $0.06 to $0.23 per share, and in 1997
the shares were issued at $0.23 per share. The Company has the right to
repurchase these shares at the original issuance price upon termination of
employment; this right expires ratably over four years. During 1996, 1997 and
1998, the Company repurchased 281,250, 237,056 and 23,081 shares, respectively,
at prices ranging from $0.06 to $0.23 per share. At December 31, 1998, 55,697
shares were subject to repurchase and no shares were available for future grant.
1997 STOCK PLAN
The Company has reserved 2,609,652 shares of common stock for issuance, at
the discretion of the Board of Directors, to officers, directors, employees and
consultants pursuant to its 1997 Stock Plan. At December 31, 1998, 796,487
shares have been issued at $0.23 per share pursuant to restricted stock purchase
agreements, 1,238,072 shares are reserved for exercise of issued and outstanding
options, and 570,339 shares are available for
F-13
<PAGE> 86
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
future grant. The Company has a right to repurchase these shares at original
issuance price upon termination of employment; this right expires ratably over
four years. At December 31, 1998, 574,167 shares were subject to repurchase. No
shares were repurchased in 1997 or 1998.
Options granted under the 1997 Stock Plan generally vest over four years
and expire ten years from the date of grant. Certain options were issued to a
director in his capacity as a consultant in 1998 (See Note 8).
Additional information with respect to options under the 1997 Stock Plan is
as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
--------- ------------
<S> <C> <C>
Outstanding, January 1, 1997................... -- $ --
Granted (weighted average fair value of
$0.08).................................... 424,250 0.23
Canceled..................................... (12,000) 0.23
--------- -----
Outstanding, December 31, 1997 (none
exercisable)................................. 412,250 0.23
Granted (weighted average fair value of
$2.49).................................... 943,572 0.51
Exercised.................................... (4,754) 0.23
Canceled..................................... (112,996) 0.23
--------- -----
Outstanding, December 31, 1998................. 1,238,072 0.46
Granted...................................... 204,288 1.65
Exercised.................................... (25,342) 0.23
Canceled..................................... (28,982) 0.45
--------- -----
Outstanding, March 31, 1999.................... 1,388,036 $0.64
========= =====
</TABLE>
Additional information regarding options outstanding as of December 31,
1998 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- -------------------------
WEIGHTED AVERAGE WEIGHTED
RANGE OF REMAINING WEIGHTED AVERAGE
EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE PRICE
- -------- ----------- ---------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.23................ 300,500 8.7 $0.23 114,016 $0.23
0.50................ 790,072 9.5 0.50 3,572 0.50
0.60................ 98,500 9.8 0.60 -- --
1.00................ 49,000 10.0 1.00 -- --
- --------------------- --------- ---- ----- ------- -----
$0.23-$1.00 1,238,072 9.2 $0.46 117,588 $0.24
===================== ========= ==== ===== ======= =====
</TABLE>
F-14
<PAGE> 87
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 123, Accounting for Stock-Based Compensation, requires the disclosure
of pro forma net loss had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS No. 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The Company's
calculations were made using the minimum value option pricing model with the
following weighted average assumptions: expected life, 24 months following
vesting in 1997 and 1998; risk free interest rate, 6.0% in 1997 and 5.5% in
1998; and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach and forfeitures are recognized as
they occur. If the computed fair values of the 1997 and 1998 awards had been
amortized to expense over the vesting period of the awards, pro forma net loss
(net of amortization of deferred compensation expense already recorded for the
year ended December 31, 1998, as discussed above) would have been approximately
$4.7 million ($0.73 per basic and diluted share) in 1997 and $4.4 million ($0.63
per basic and diluted share) in 1998.
WARRANTS
In February 1996, in connection with a line of credit agreement with a
bank, a warrant was issued to the bank to purchase up to 25,000 shares of common
stock at $0.90 per share. The warrant expires in February 2001. The line of
credit expired in April 1997.
In December 1995, in conjunction with a capital lease agreement (see Note
3), the Company issued a warrant to purchase up to 55,556 shares of common stock
at $0.90 per share. The warrant expires in December 2001.
COMMON STOCK RESERVED
At December 31, 1998, the Company has reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Conversion of preferred stock....................... 6,922,184
Issuances available under 1997 Stock Plan........... 570,339
Exercise of options................................. 1,238,072
Exercise of warrants................................ 80,556
---------
Total.......................................... 8,811,151
=========
</TABLE>
F-15
<PAGE> 88
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net loss (numerator), basic and
diluted....................... $(3,311) $(4,674) $(4,089) $(1,704) $(1,915)
======= ======= ======= ======= =======
Shares (denominator):
Weighted average common shares
outstanding................ 6,818 6,869 7,644 7,651 7,688
Weighted average common shares
outstanding subject to
repurchase................. (683) (503) (765) (918) (644)
------- ------- ------- ------- -------
Shares used in computation,
basic and diluted.......... 6,135 6,366 6,879 6,733 7,044
======= ======= ======= ======= =======
Net loss per share, basic and
diluted....................... $ (0.54) $ (0.73) $ (0.59) $ (0.25) $ (0.27)
======= ======= ======= ======= =======
</TABLE>
For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Convertible preferred
stock................ 5,372,707 5,809,872 6,992,184 5,809,872 7,697,885
Shares of common stock
subject to
repurchase........... 544,914 946,790 629,864 889,438 657,496
Outstanding options.... -- 412,250 1,238,072 412,250 1,388,036
Warrants............... 80,556 80,556 80,556 80,556 80,556
---------- ---------- ---------- ---------- ----------
Total............. 5,998,117 7,249,468 8,940,676 7,192,116 9,823,973
========== ========== ========== ========== ==========
Weighted average
exercise price of
options.............. $ -- $ 0.23 $ 0.46 $ 0.23 $ 0.64
========== ========== ========== ========== ==========
Weighted average
exercise price of
warrants............. $ 0.90 $ 0.90 $ 0.90 $ 0.90 $ 0.90
========== ========== ========== ========== ==========
</TABLE>
F-16
<PAGE> 89
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The Company's deferred income tax assets are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net deferred tax assets:
Net operating loss carryforwards................. $ 2,759 $ 4,113
Accruals deductible in different periods......... 324 941
General business credits......................... 382 890
Depreciation and amortization.................... 39 119
------- -------
3,504 6,063
Valuation allowance.............................. (3,504) (6,063)
------- -------
Total......................................... $ -- $ --
======= =======
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as net operating
loss and tax credit carryforwards. Due to the uncertainty surrounding the
realization of the benefits of its favorable tax attributes in future tax
returns, as of December 31, 1997 and 1998, the Company has fully reserved its
net deferred tax assets of approximately $3,504,000 and $6,063,000,
respectively.
For all years presented, the Company's effective tax rate differs from the
federal statutory tax rate primarily due to changes in the valuation allowance
against net deferred tax assets.
At December 31, 1998, the Company has net operating loss (NOL)
carryforwards of approximately $10,840,000 and $3,606,000 for federal and state
income tax purposes, respectively. The federal NOL carryforwards expire through
2018, while the state NOL carryforwards expire through 2003. The net operating
loss carryforwards available for state tax purposes are substantially less than
for federal tax purposes, primarily because only 50% of state net operating
losses can be utilized to offset future state taxable income.
At December 31, 1998, the Company also has research and development credit
carryforwards of approximately $570,000 and $320,000 available to offset future
federal and state income taxes, respectively. The federal credit carryforward
expires in 2018, while the state credit carryforward has no expiration.
The extent to which the loss and credit carryforwards can be used to offset
future taxable income and tax liabilities, respectively, may be limited,
depending on the extent of ownership changes within any three-year period.
8. RELATED PARTY TRANSACTIONS
During 1996, the Company recognized revenue of $24,000 from a stockholder.
Also during 1996, the Company entered into a technology development and license
agreement
F-17
<PAGE> 90
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with a stockholder. Such stockholder paid the Company a purchase advance of
$50,000 and granted the Company a source code license to incorporate specific
technology into products developed for such stockholder and other commercial
uses.
During 1997, the Company recognized revenue of $300,000 and $250,000 from a
Series B and a Series C preferred stockholder, respectively. At December 31,
1997, the Company had deferred revenue of $750,000 from the same Series C
preferred stockholder.
During 1998, the Company recognized revenue of $168,000 and $1,268,000 from
a Series B and a Series C preferred stockholder, respectively. At December 31,
1998, the Company had deferred revenue of $30,000 and $642,000 with the same
Series B and Series C preferred stockholders, respectively. At December 31,
1998, the Company had accounts receivable of $101,000 from the Series B
preferred stockholder.
During 1996 and 1997, the Company sold 29,060 and 10,300 shares of common
stock, respectively, at a purchase price of $0.23 per share to two directors in
connection with consulting services rendered. In July 1998, the Company granted
a fully vested option to purchase up to 3,572 shares of common stock at $0.50
per share to a director in connection with consulting services rendered.
9. SEGMENT INFORMATION, OPERATIONS BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS
The Company is engaged in the development and marketing of transactional
application server software products and operates in one reportable segment
under SFAS 131.
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------- --------------------------------
1996 1997 1998 1998 1999
-------- --------------------- --------------------- -------- ---------------------
REVENUES REVENUES LONG-LIVED REVENUES LONG-LIVED REVENUES REVENUES LONG-LIVED
(IN THOUSANDS) (1) (1) ASSETS (1) ASSETS (1) (1) ASSETS
- -------------- -------- -------- ---------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States.............. $3,208 $4,774 $832 $ 7,223 $673 $1,320 $2,237 $626
Europe..................... 528 511 5 2,866 50 379 603 50
Rest of the world.......... 38 128 -- 71 -- 11 23 --
------ ------ ---- ------- ---- ------ ------ ----
$3,774 $5,413 $837 $10,160 $723 $1,710 $2,863 $676
====== ====== ==== ======= ==== ====== ====== ====
</TABLE>
- -------------------------
(1) Revenues are broken out geographically by the ship-to location of the
customer.
SIGNIFICANT CUSTOMERS
During 1996, three unrelated customers accounted for 11%, 11% and 10% of
the Company's total revenues, respectively. During 1997, an unrelated customer
accounted for 11% of total revenues. During 1998, one customer (a Series C
preferred stockholder) accounted for 14% of total revenues. Additionally, an
unrelated customer accounted for 17% of total revenues. Subsequent to 1998, an
entity affiliated with this customer purchased Series D preferred stock -- See
Note 11.
At December 31, 1997, two unrelated customers accounted for 25% and 17% of
accounts receivable, respectively. At December 31, 1998, three unrelated
customers each account for 14% of accounts receivable.
F-18
<PAGE> 91
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) tax-deferred savings plan, whereby eligible
employees may contribute a percentage of their eligible compensation (presently
from 1% to 20% up to the maximum allowed under IRS rules). Company contributions
are discretionary; no such Company contributions have been made since inception
of this plan.
11. SUBSEQUENT EVENTS
In February and March 1999, the Company received net proceeds of
approximately $4,142,000 from the sale of 775,701 shares of Series D preferred
stock at $5.35 per share. Also, in February 1999, the Company sold 90,300 shares
of common stock to a significant customer and Series D preferred stockholder at
$1.65 per share. The Series D preferred stockholders are entitled to receive
noncumulative dividends of $0.321 per share per annum when declared by the Board
of Directors prior to the payment of any dividends on common stock. In the event
of liquidation, dissolution or winding up of the Company, Series D preferred
stockholders will receive a liquidation preference of $5.35 per share
(aggregating approximately $4,150,000) plus all accrued and unpaid dividends.
Other significant terms of the Series D preferred stock regarding conversion to
common stock, voting rights and registration rights are similar to those
described in the Note 5.
In April 1999, the Board of Directors approved, subject to stockholder
approval, the following:
- Reincorporation of the Company in the state of Delaware.
- An amendment to the 1997 Stock Plan to increase the number of
authorized shares reserved for issuance by 3,000,000 and to provide
for an automatic annual increase on the first day of each fiscal year
beginning in 2001, 2002, 2003, 2004 and 2005 equal to the lesser of
650,000 shares, 3.5% of the outstanding common stock on the last day
of the immediately preceding fiscal year, or such lesser number as
determined by the Board of Directors. The amendment is effective upon
the closing of the Company's initial public offering.
- The Company's 1999 Employee Stock Purchase Plan (the "ESPP") and the
1999 Directors' Stock Option Plan (the "Directors' Plan"). The Plans
become effective upon the closing of the Company's initial public
offering. Under the ESPP, eligible employees may purchase common stock
through payroll deductions, which may not exceed 20% of any employee's
compensation, nor more than 2,500 shares in any one purchase period. A
total of 600,000 shares of common stock will be reserved for issuance
under the ESPP plus an automatic annual increase on the first day of
each of the fiscal years beginning in 2000, 2001, 2002, 2003 and 2004
equal to the lessor of 250,000 shares or 1% of outstanding common
stock on the last day of the immediately preceding fiscal year. Under
the Directors' Plan, a total of 500,000 shares of common stock has
been reserved for the grant of nonstatutory stock options to
nonemployee directors of the Company. Options granted under the
Director's Plan shall be immediately vested and expire in five years
from the date of grant.
F-19
<PAGE> 92
PERSISTENCE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- An increase of authorized shares of common stock to 75,000,000 shares
and creation of newly undesignated preferred stock totaling 5,000,000
shares, contingent upon the approval of the reincorporation of the
Company in Delaware and the closing of the Company's initial public
offering.
* * * * *
F-20
<PAGE> 93
p. 38:
[GRAPHIC: Depiction of PowerTier for EJB with two businesses communicating to
each other through the firewall by using the PowerSync feature]
GATEFOLD COVER:
[Graphic: Company logo together with Company's mission statement]
Inside Gatefold cover:
[Graphic: Depiction of first generation application server, labeled "traffic
cop," which can only manage access to centralized corporate resources]
Inside front cover:
[Graphic: Depiction of next generation transactional application servers,
labeled "digital emissary," which allows companies to integrate processing
across organizational boundaries]
Back Inside cover:
[Graphic: brief descriptions of four case studies, describing customers' use of
PowerTier]
<PAGE> 94
Persistence Logo
<PAGE> 95
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 Persistence in connection
with the sale of common stock being registered. All amounts are estimates except
the Securities and Exchange Commission registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Securities and Exchange Commission registration fee......... $ 11,509
NASD filing fee............................................. 4,640
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 135,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 250,000
Blue Sky qualification fees and expenses....................
Transfer Agent and Registrar fees...........................
Miscellaneous fees and expenses.............................
Total.............................................
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's board of directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article XIII of Persistence's certificate of
incorporation (Exhibit 3.2 hereto) and Article VI of Persistence's bylaws
(Exhibit 3.4 hereto) provide for indemnification of Persistence's directors,
officers, employees and other agents to the maximum extent permitted by Delaware
Law. In addition, Persistence has entered into indemnification agreements
(Exhibit 10.11 hereto) with certain officers and directors. The underwriting
agreement (Exhibit 1.1) also provides for cross-indemnification among
Persistence and the underwriters with respect to certain matters, including
matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 31, 1996, Persistence has sold and issued the following
securities:
1. On April 14, 1996, we sold 1,000 shares of Series B preferred stock to
one accredited investor for aggregate consideration of $2,290.00.
2. On November 27, 1996, we sold 1,484,716 shares of Series B preferred
stock to one accredited investor for aggregate consideration of $3,399,999.64.
3. On June 10, 1997, we sold 4,000 shares of Series B preferred stock to
one accredited investor for aggregate consideration of $9,160.00.
4. On December 31, 1997, we sold 431,965 shares of Series C preferred
stock to one accredited investor for aggregate consideration of $1,999,997.95.
II-1
<PAGE> 96
5. On August 13, 1998 we sold an aggregate of 1,112,312 shares of Series C
preferred stock to 12 accredited investors for aggregate consideration of
$5,150,004.56.
6. On February 19, 1999, we sold 560,748 shares of Series D preferred
stock to one accredited investor for aggregate consideration of $3,000,001.80.
7. On March 29, 1999, we sold 214,953 shares of Series D preferred stock
to two accredited investors for aggregate consideration of $1,149,998.55.
8. Since March 31, 1996, we have issued stock purchase rights to purchase
an aggregate of 1,234,807 shares of common stock under the 1994 Stock Purchase
Plan and 1997 Stock Plan to our employees, directors and consultants.
9. Since March 31, 1996, we have issued options to purchase an aggregate
of 2,368,597 shares of common stock under the 1997 Stock Plan to our employees,
directors and consultants.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
In addition, the issuances described in Item 9 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. 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 us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of
Persistence.
3.2 Amended and Restated Certificate of Incorporation of
Persistence (as proposed).
3.3 Amended and Restated Bylaws of Persistence.
3.4* Amended and Restated Bylaws of Persistence (as proposed).
4.1* Specimen Stock Certificate.
5.1* Opinion of Venture Law Group regarding the legality of the
common stock being registered.
10.1 Form of Common Stock Purchase Agreement between Persistence
and each of Christopher T. Keene and Derek P. Henninger.
10.2 Fifth Amended and Restated Investor Rights Agreement dated
February 19, 1999 among Persistence and certain investors.
10.3 Fourth Amended and Restated Co-Sale Agreement dated February
19, 1999 among Persistence and certain investors.
10.4 Form of Change of Control Agreement between Persistence and
each of Alan Cohen, Mark Douglas, Erik Frieberg, Barry
Goss and Christine Russell.
10.5 1994 Stock Purchase Plan and Form of Common Stock Purchase
Agreement.
</TABLE>
II-2
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.6 1997 Stock Plan (as amended) and Forms of Stock Option
Agreement and Common Stock Purchase Agreement.
10.7 1999 Employee Stock Purchase Plan and Form of Subscription
Agreement.
10.8 1999 Directors' Stock Option Plan and Form of Option
Agreement.
10.9 Lease dated June 12, 1991 between Persistence and Great
American Bank (as amended).
10.10+ Settlement and License Agreement dated March 23, 1998
between Persistence and Sun Microsystems, Inc.
10.11 Form of Indemnification Agreement between Persistence and
officers and directors.
21.1 List of subsidiaries.
23.1 Independent Auditors' Consent.
23.2* Consent of Attorney (See Exhibit 5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions of this Exhibit.
(b) FINANCIAL STATEMENT SCHEDULES
(1) Schedule II -- Valuation 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 undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act
II-3
<PAGE> 98
shall be deemed to be part of this registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Mateo, State of
California, on April 23, 1999.
PERSISTENCE SOFTWARE, INC.
By: /s/ CHRISTOPHER T. KEENE
-----------------------------------
Christopher T. Keene
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally,
Christopher Keene and Christine Russell and each of them, as his or her
attorney-in-fact, with full power of substitution, for him or her in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and any and all Registration Statements
filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in
connection with or related to the offering contemplated by this Registration
Statement and its amendments, if any, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Registration
Statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, 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/ CHRISTOPHER T. KEENE President, Chief Executive April 23, 1999
- --------------------------------------------- Officer and Director
Christopher T. Keene (Principal Executive
Officer)
/s/ CHRISTINE RUSSELL Chief Financial Officer April 23, 1999
- --------------------------------------------- (Principal Financial and
Christine Russell Accounting Officer)
/s/ GREGORY ENNIS Director April 23, 1999
- ---------------------------------------------
Gregory Ennis
/s/ JACK HANCOCK Director April 23, 1999
- ---------------------------------------------
Jack Hancock
/s/ WILLIAM J. HARDING Director April 23, 1999
- ---------------------------------------------
William J. Harding
</TABLE>
II-5
<PAGE> 100
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LARRY E. HENNINGER Director April 23, 1999
- ---------------------------------------------
Larry E. Henninger
/s/ MERRITT LUTZ Director April 23, 1999
- ---------------------------------------------
Merritt Lutz
/s/ JEFFREY T. WEBBER Director April 23, 1999
- ---------------------------------------------
Jeffrey T. Webber
</TABLE>
II-6
<PAGE> 101
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Stockholders
of Persistence Software, Inc.:
Our audits of the consolidated financial statements of Persistence
Software, Inc. (the Company) for the years ended December 31, 1996, 1997 and
1998 also included the financial statement schedule of the Company, listed in
Item 16(b). The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
March 2, 1999
S-1
<PAGE> 102
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGED TO COST DEDUCTIONS/ BALANCE AT
OF PERIOD AND EXPENSES WRITE-OFFS END OF PERIOD
---------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for doubtful
accounts................... $25,000 $ -- $ -- $25,000
======= ======== ======= =======
Year ended December 31, 1997
Allowance for doubtful
accounts................... $25,000 $131,000 $81,000 $75,000
======= ======== ======= =======
Year ended December 31, 1998
Allowance for doubtful
accounts................... $75,000 $ -- $28,000 $47,000
======= ======== ======= =======
</TABLE>
S-2
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of
Persistence.
3.2 Amended and Restated Certificate of Incorporation of
Persistence (as proposed).
3.3 Amended and Restated Bylaws of Persistence.
3.4* Amended and Restated Bylaws of Persistence (as proposed).
4.1* Specimen Stock Certificate.
5.1* Opinion of Venture Law Group regarding the legality of the
common stock being registered.
10.1 Form of Common Stock Purchase Agreement between Persistence
and each of Christopher T. Keene and Derek P. Henninger.
10.2 Fifth Amended and Restated Investor Rights Agreement dated
February 19, 1999 among Persistence and certain investors.
10.3 Fourth Amended and Restated Co-Sale Agreement dated February
19, 1999 among Persistence and certain investors.
10.4 Form of Change of Control Agreement between Persistence and
each of Alan Cohen, Mark Douglas, Erik Frieberg, Barry Goss
and Christine Russell.
10.5 1994 Stock Purchase Plan (as amended) and Form of Common
Stock Purchase Agreement.
10.6 1997 Stock Plan (as amended) and Forms of Stock Option
Agreement and Common Stock Purchase Agreement.
10.7 1999 Employee Stock Purchase Plan and Form of Subscription
Agreement.
10.8 1999 Directors' Stock Option Plan and Form of Option
Agreement.
10.9 Lease dated June 12, 1991 between Persistence and Great
American Bank (as amended).
10.10+ Settlement and License Agreement dated March 23, 1998
between Persistence and Sun Microsystems, Inc.
10.11 Form of Indemnification Agreement between Persistence and
officers and directors.
21.1 List of subsidiaries.
23.1 Independent Auditors' Consent.
23.2* Consent of Attorney (See Exhibit 5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions of this Exhibit.
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PERSISTENCE SOFTWARE, INC.,
a California corporation
The undersigned Christopher Keene and Christine Russell hereby certify
that:
1. They are the duly elected and acting President and Secretary,
respectively, of Persistence Software, Inc., a California corporation (the
"Corporation").
2. The Articles of Incorporation of the Corporation, as amended or
supplemented to the date of the filing of these Restated Articles of
Incorporation, including amendments set forth herein but not separately filed
(and with the omissions required by Section 910 of the California Corporations
Code), are amended and restated in their entirety as in Appendix I attached
hereto.
3. The amendments and restatements herein set forth have been duly
approved by the Board of Directors of the Corporation.
4. The amendments herein set forth have been duly approved by the
required vote of the shareholders of the Corporation in accordance with Sections
902 and 903 of the California Corporations Code. The total number of outstanding
shares entitled to vote with respect to the foregoing amendments was 7,699,414
shares of Common Stock, par value $.001 per share, 2,134,715 shares of Series A
Preferred Stock, par value $.001 per share, 3,243,192 shares of Series B
Preferred Stock, par value $.001 per share, 1,544,277 shares of Series C
Preferred Stock, par value $.001 per share, and 560,748 shares of Series D
Preferred Stock, par value $.001 per share. The number of shares voting in favor
of the foregoing amendments equaled or exceeded the vote required, such required
vote being a majority of the outstanding shares of Common Stock and Preferred
Stock, voting together, two-thirds (66 2/3%) of the outstanding shares of
Preferred Stock, voting as a separate class, and a majority of the outstanding
shares of Series C Preferred Stock, voting as a separate series.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Executed at San Mateo, California, on March 22, 1999.
/s/ Christopher Keene
-----------------------------------
Christopher Keene, President
/s/ Christine Russell
-----------------------------------
Christine Russell, Secretary
<PAGE> 2
Appendix I
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PERSISTENCE SOFTWARE, INC.
a California corporation
ARTICLE I
NAME
The name of this corporation is Persistence Software, Inc. (the
"Corporation").
ARTICLE II
PURPOSES
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
CAPITAL STOCK
The total number of shares of all classes of stock which the
Corporation is authorized to issue is forty-nine million (49,000,000) shares,
consisting of forty-one million one hundred thousand (41,100,000) shares of
Common Stock, par value $0.001 per share, and seven million nine hundred
thousand (7,900,000) shares of Preferred Stock. The Preferred Stock shall be
issued in four series. The first series of Preferred Stock shall be designated
Series A Preferred Stock and shall consist of two million one hundred
thirty-four thousand seven hundred fifteen (2,134,715) shares, par value $0.001
per share, the second series of Preferred Stock shall be designated Series B
Preferred Stock and shall consist of three million two hundred forty-three
thousand one hundred ninety-two (3,243,192) shares, par value $0.001 per share,
the third series of Preferred Stock shall be designated Series C Preferred Stock
and shall consist of one million five hundred forty-four thousand two hundred
seventy-seven (1,544,277) shares, par value $0.001 per share, and the fourth
series of Preferred Stock shall be designated Series D Preferred Stock and shall
consist of seven hundred seventy-five thousand seven hundred one (775,701)
shares, par value $0.001 per share.
The relative rights, preferences, privileges and restrictions granted
to or imposed on the respective series or classes of capital stock or the
holders thereof are as follows:
Section 1. Dividends. The holders of Series A Preferred Stock shall be
entitled to receive cumulative dividends, prior to the payment of any dividends
on the Common Stock, at the rate of $0.035797 per annum per share of Series A
Preferred Stock then held by them, the holders of Series B Preferred Stock shall
be entitled to receive noncumulative dividends, prior to
<PAGE> 3
the payment of any dividends on the Common Stock, at the rate of $0.1374 per
annum per share of Series B Preferred Stock then held by them, the holders of
Series C Preferred Stock shall be entitled to receive noncumulative dividends,
prior to the payment of any dividends on the Common Stock, at the rate of
$0.2778 per annum per share of Series C Preferred Stock then held by them, and
the holders of Series D Preferred Stock shall be entitled to receive
noncumulative dividends, prior to the payment of any dividends on the Common
Stock, at the rate of $0.321 per annum per share of Series D Preferred Stock
then held by them, out of any funds legally available therefor, when and as
declared by the Board of Directors or upon the event of any liquidation,
dissolution or winding up of the Corporation. No dividends shall be paid to
holders of Common Stock unless all accrued dividends on the Series A Preferred
Stock have been declared and paid and all declared dividends on the Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have been
paid, and unless at the same time dividends equal to the dividends paid per
share of Common Stock are declared and paid to holders of Preferred Stock based
on the number of shares of Common Stock into which each share of Preferred Stock
is then convertible, as adjusted from time to time pursuant to Section 4 hereof.
Dividends, if paid or declared and set apart for payment, must be paid
or declared and set apart for payment in full on the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
contemporaneously, or, if less than full dividends are paid or declared and set
apart for payment on the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, the same percentage of
dividends shall be paid or declared and set apart for payment on each such
series of Preferred Stock, based on the aggregate dividend preference of each
such series.
Section 2. Liquidation Preference.
(a) (i) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the Corporation to
the holders of Common Stock by reason of their ownership thereof, an amount per
share equal to (as such amount shall be adjusted to reflect subdivisions and
combinations of shares and stock dividends), (i) with respect to each
outstanding share of Series A Preferred Stock, $0.59662 (the "Original Series A
Liquidation Price"), together with all accrued but unpaid dividends with respect
to each such share (the "Series A Liquidation Amount"), (ii) with respect to
each outstanding share of Series B Preferred Stock, $2.29 (the "Original Series
B Liquidation Price"), together with all declared but unpaid dividends with
respect to each such share (the "Series B Liquidation Amount"), (iii) with
respect to each outstanding share of Series C Preferred Stock, $4.63 (the
"Original Series C Liquidation Price"), together with all declared but unpaid
dividends with respect to each such share (the "Series C Liquidation Amount"),
and (iv) with respect to each outstanding share of Series D Preferred Stock,
$5.35 (the "Original Series D Liquidation Price"), together with all declared
but unpaid dividends with respect to each such share (the "Series D Liquidation
Amount"). If the assets and funds legally available for distribution among the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall be insufficient to permit the
payment to such
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holders of the full preferential amount, then such assets and funds shall be
distributed ratably among the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock in
proportion to the total preferential liquidation amount which each such holder
is entitled to receive.
(ii) Upon the completion of the distribution required
by Section 2(a)(i) above, the remaining assets of the Corporation available for
distribution to shareholders shall be distributed between the holders of the
Series C Preferred Stock and the Common Stock pro rata based on the number of
shares of Common Stock held by each (assuming conversion of all such shares of
Series C Preferred Stock) until the holders of Series C Preferred Stock shall
have received an aggregate of $6.945 per share of Series C Preferred Stock held
(including amounts paid pursuant to Section 2(a)(i) above) and; thereafter, if
assets remain in the Corporation, the holders of the Common Stock of the
Corporation shall receive all of the remaining assets of the Corporation pro
rata based on the number of shares of Common Stock held by each.
(b) (i) For purposes of this Section 2, a liquidation,
dissolution or winding up of the Corporation shall be deemed to be occasioned
by, and to include, (A) the Corporation's sale of all or substantially all of
its assets or (B) the consolidation or merger of the Corporation with or into
any other corporation or corporations or the effecting by the Corporation of a
transaction or series of related transactions after the Original Issue Date, as
hereinafter defined, in which the shareholders of record of the Company
immediately prior to such transaction or series of related transactions will
hold (by virtue of the voting securities issued as consideration for such
transaction or series of related transactions) less than 50% of the voting
securities of the surviving entity (or parent, if any) immediately after such
transaction or series of related transactions.
(ii) In any of such events, if the consideration
received by the Corporation is other than cash or indebtedness its value will be
deemed to be its fair market value. In the case of securities, fair market value
shall be determined as follows:
(A) Securities not subject to investment or
other similar restrictions on free marketability:
(I) If traded on a securities
exchange, the value shall be deemed to be the average of the closing sale prices
of the securities on such exchange over the 30-day period ending three (3) days
prior to the closing;
(II) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing
sale prices over the 30-day period ending three (3) days prior to the closing;
and
(III) If there is no active public
market, the value shall be the fair market value thereof, as mutually determined
by the Corporation and the holders of not less than a majority of the
then-outstanding shares of Preferred Stock, based on the number of shares of
Common Stock into which each share of Preferred Stock is convertible, as
adjusted from time to time pursuant to Section 4 hereof.
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<PAGE> 5
(B) The method of valuation of securities
subject to investment letter or other restrictions on free marketability shall
be to make an appropriate discount from the market value determined as above in
(A) (I), (II) or (III) to reflect the approximate fair market value thereof, as
mutually determined by the Corporation and the holders of a majority of the
then-outstanding shares of Preferred Stock based on the number of shares of
Common Stock into which each share of Preferred Stock is convertible, as
adjusted from time to time pursuant to Section 4 hereof.
(C) If such holders and the Corporation are
unable to agree as to matters for which their agreement is called for in this
Section 2(b)(ii), the value of such consideration shall be determined by two
investment bankers owning seats on the New York Stock Exchange who have no past,
present or contemplated relationship with the Corporation or the holders of the
then-outstanding shares of Preferred Stock, one of whom shall be selected by the
Corporation's Board of Directors and the other by the holders of a majority of
the then-outstanding shares of Preferred Stock, voting together as a class,
based on the number of shares of Common Stock into which each share of Preferred
Stock is convertible, as adjusted from time to time pursuant to Section 4
hereof. Any such determination of value shall be final and binding on the
Corporation and such holders.
Section 3. Voting Rights.
(a) General. Each holder of shares of Common Stock issued and
outstanding shall have one vote for each such share and each holder of shares of
Preferred Stock issued and outstanding shall have the number of votes equal to
the number of shares of Common Stock into which such shares of Preferred Stock
are convertible at the record date for determination of the shareholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited,
such votes to be counted together with all other shares of stock of the
Corporation having general voting power and not separately as a class.
Fractional votes by the holders of Preferred Stock shall not, however, be
permitted and any fractional voting rights shall (after aggregating all shares
into which shares of Preferred Stock held by each holder could be converted) be
rounded to the nearest whole number. Each holder of shares of Preferred Stock
shall be entitled to receive notice, together with the holders of each share of
Common Stock, of all shareholder meetings even if only the holders of Common
Stock are entitled to vote on the issues addressed at such meeting.
(b) Board of Directors. The authorized number of directors is
set at seven (7) and may be increased or decreased only by an amendment to these
Articles of Incorporation. At all elections of members of the Corporation's
Board of Directors, each holder of shares of the Corporation's stock shall be
entitled to as many votes as shall equal the number of votes which such holder
would be entitled to cast for the election of directors with respect to such
holder's shares of stock multiplied by the number of directors to be elected by
such holder, and such holder may cast all of such votes for a single director or
may distribute them among the number to be voted for, or for any two (2) or more
of them as such holder may see fit.
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Section 4. Conversion. The holders of Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Optional Conversion. Each share of each series of
Preferred Stock shall be convertible at the option of the holder thereof at any
time after the date of issuance of such share, at the office of the Corporation
or any transfer agent for the Preferred Stock, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the
Original Liquidation Price for such series of Preferred Stock by the Conversion
Price at the time in effect for such series of Preferred Stock. The initial
Conversion Price for shares of Series A Preferred Stock shall be the Original
Series A Liquidation Price; the initial Conversion Price for shares of Series B
Preferred Stock shall be the Original Series B Liquidation Price; the initial
Conversion Price for shares of Series C Preferred Stock shall be the Original
Series C Liquidation Price; and the initial Conversion Price for shares of
Series D Preferred Stock shall be the Original Series D Liquidation Price;
provided, however, that the Conversion Price for each such series of Preferred
Stock shall be subject to adjustment as set forth below.
(ii) Automatic Conversion. Each share of each series
of Preferred Stock shall automatically be converted into shares of Common Stock
at the then-effective Conversion Price for such series of Preferred Stock upon
(a) the closing of an underwritten public offering pursuant to an effective
registration statement on Form S-1 (or a successor form) under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Corporation to the public at an aggregate offering price of not
less than Twelve Million Dollars ($12,000,000) and at a public offering price
per share (prior to underwriter commissions and expenses) that is not less than
$7.00 (as adjusted to reflect subdivisions and combinations of shares of Common
Stock and stock dividends paid in shares of Common) or (b) the date specified by
vote or written consent or agreement of: (i) the holders of at least two-thirds
(66 2/3%) of the then outstanding shares of Preferred Stock, voting together as
a single class on an as-converted to Common Stock basis, and (ii) the holders of
at least a majority of the then outstanding shares of Series C Preferred Stock
and Series D Preferred Stock, voting together as a single class on an
as-converted to Common Stock basis. In the event of such a public offering, the
person(s) entitled to receive the Common Stock issuable upon conversion of
Preferred Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of Common Stock, at which time
each series of Preferred Stock shall be converted automatically without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent; provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing such shares of Preferred Stock being converted
are either delivered to the Corporation or its transfer agent, as hereinafter
provided, or the holder notifies the Corporation or any transfer agent, as
hereinafter provided, that such certificates have been lost, stolen or destroyed
and executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection therewith. Upon the
automatic conversion of the Preferred
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<PAGE> 7
Stock, the holders of the Preferred Stock shall surrender the certificates
representing such shares at the office of the Corporation or of any transfer
agent for the Preferred Stock. Thereupon, there shall be issued and delivered to
such holder, promptly at such office and in such holder's name as shown on such
surrendered certificate or certificates, a certificate or certificates for the
number of shares of Common Stock into which the shares of the Preferred Stock
surrendered were convertible on the date on which such automatic conversion
occurred.
(iii) Upon conversion of the Preferred Stock, the
Common Stock so issued shall be duly and validly issued, fully paid and
nonassessable shares of the Corporation.
(b) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the
then-effective Conversion Price for such series of Preferred Stock. Except as
provided in Section 4(a)(ii), before any holder of Preferred Stock shall be
entitled to convert the same into full shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock and shall
give written notice by mail, postage prepaid, to the Corporation at its
principal corporate office, of the election to convert the same. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid and a
check payable to the holder in the amount of any cash payable in lieu of
fractional shares of Common Stock (after aggregating all shares of Common Stock
issuable to such holder of Preferred Stock upon conversion of the number of
shares of Preferred Stock at the time being converted). In addition, if less
than all of the shares represented by such certificates are surrendered for
conversion pursuant to Section 4(a)(i), the Corporation shall issue and deliver
to such holder a new certificate for the balance of the shares of Preferred
Stock not so converted. Except as provided in Section 4(a)(ii), such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of the surrender of the shares of Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offer of securities registered pursuant to the
Securities Act of 1933, the conversion may, at the option of any holder
tendering such Preferred Stock for conversion, be conditioned upon the closing
with the underwriter of the sale of securities pursuant to such offering, in
which event the person(s) entitled to receive Common Stock issuable upon such
conversion of such Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) Adjustment to Conversion Price for Diluting Issues.
(i) Special Definitions. For purposes of this Section
4(c), the following definitions shall apply:
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<PAGE> 8
(1) "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities, except for those issued to officers, directors or
employees of, or consultants to, the Corporation as provided in Section
4(c)(i)(4)(B).
(2) "Original Issue Date" shall mean the
date on which the first share of Series D Preferred Stock is issued.
(3) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock or Preferred Stock)
or other securities convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Section 4(c)(iii),
deemed to be issued) by the Corporation after the Original Issue Date, other
than:
(A) shares of Common Stock issued or
issuable upon conversion of shares of Preferred Stock;
(B) shares of capital stock issued
or issuable to officers, directors or employees of, or consultants to, the
Corporation pursuant to a stock grant, stock option plan, stock purchase plan or
other stock incentive agreement unanimously approved by the Board of Directors;
(C) shares of capital stock or
securities exercisable for or convertible into shares of capital stock issued to
equipment or other lessors or institutional or other lenders or otherwise in
connection with bank or institutional loans, unanimously approved by the Board
of Directors;
(D) shares of capital stock or
securities exercisable for or convertible into shares of capital stock issued as
a dividend or distribution on Preferred Stock;
(E) shares of Common Stock or
Preferred Stock issuable upon exercise of warrants outstanding as of the date of
these Amended and Restated Articles of Incorporation; and
(F) shares of Common Stock issued
pursuant to a transaction described in Section 4(c)(vi) hereof.
(ii) No Adjustment of Conversion Price. No adjustment
in the Conversion Price of a particular series of Preferred Stock shall be made
in respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the Conversion Price in effect on
the date of, and immediately prior to, such issuance, for such series of
Preferred Stock.
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<PAGE> 9
(iii) Deemed Issue of Additional Shares of Common.
(1) Options and Convertible Securities. In
the event the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date; provided, however,
that Additional Shares of Common Stock shall not be deemed to have been issued
with respect to a particular series of Preferred Stock unless the consideration
per share (determined pursuant to Section 4(c)(v) hereof) of such Additional
Shares of Common Stock would be less than the Conversion Price for such series
of Preferred Stock in effect on the date of and immediately prior to such issue,
or such record date, as the case may be; and, provided, further, that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the
Conversion Price for a particular series of Preferred Stock shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
increase or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Conversion Price for a particular
series of Preferred Stock computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease, insofar as it
affects such Conversion Price, but no further change in such Conversion Price
shall be made upon the exercise, conversion or exchange of such Options or
Convertible Securities;
(C) if any such Options or
Convertible Securities shall expire without having been exercised or converted,
the Conversion Price for a particular series of Preferred Stock as adjusted upon
the issuance of such Options or Convertible Securities shall be readjusted to
the Conversion Price which would have been in effect had an adjustment been made
on the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such Options or the conversion of such Convertible Securities, and
such Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise, plus the
consideration, if any, actually received by the Corporation for the granting of
all such Options, whether or not exercised, plus the consideration
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<PAGE> 10
received for issuing or selling the Convertible Securities actually converted
plus the consideration, if any, actually received by the Corporation (other than
by cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities; and
(D) no readjustment pursuant to
clauses (B) or (C) above shall have the effect of increasing the Conversion
Price for a particular series of Preferred Stock to an amount which exceeds the
lower of (i) the Conversion Price for such series of Preferred Stock on the
original adjustment date (immediately prior to the adjustment), or (ii) the
Conversion Price for such series of Preferred Stock that would have resulted
from any actual issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall at any
time after the Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4(c)(iii)), without consideration or for a consideration per share less
than the Conversion Price for a series of Preferred Stock in effect on the date
of and immediately prior to such issue, then and in each such event, the
Conversion Price for such series of Preferred Stock shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction (1) the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price, and (2) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided, however, that, for the
purposes of this Section 4(c)(iv), all shares of Common Stock issuable upon
conversion of outstanding shares of Preferred Stock and shares of Common Stock
issuable upon conversion of outstanding Convertible Securities shall be deemed
to be outstanding; and, further provided, that immediately after any Additional
Shares of Common Stock are deemed issued pursuant to Section 4(c)(iii), such
Additional Shares of Common Stock shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of
this Section 4(c), the consideration received by the Corporation for the
issuance of any Additional Shares of Common Stock shall be computed as follows;
(1) Cash and Property. Such consideration
shall :
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash paid therefor before deducting any
reasonable discounts, commissions or other expenses allowed, paid or incurred by
the Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof;
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(B) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares
of Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, by the proportion
of such consideration so received, computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4(c)(iii)(1),
relating to Options and Convertible Securities, shall be determined by dividing:
(A) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provisions contained therein for a subsequent adjustment
of such consideration) payable to the Corporation upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by
(B) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Adjustments for Dividends, Distributions,
Subdivisions, Combinations or Consolidation of Common Stock.
(1) Stock Dividends, Distributions or
Subdivisions. Notwithstanding any provision to the contrary in Section 4(c)(iv),
in the event the Corporation shall issue Additional Shares of Common Stock
pursuant to a stock dividend, stock distribution or subdivision, the Conversion
Price for each series of Preferred Stock in effect immediately prior to such
stock dividend, stock distribution or subdivision shall concurrently with such
stock dividend, stock distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the
event the outstanding shares of Common Stock shall be combined or consolidated,
by reclassification or otherwise, into a lesser number of shares of Common
Stock, the Conversion Price for each series of Preferred Stock in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
increased.
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(d) No Impairment. The Corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of each series of Preferred Stock against impairment.
(e) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then-outstanding shares of Preferred Stock, in addition to
such other remedies as shall be available to the holders of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for a series of Preferred
Stock pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of such series of Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) all such
adjustments and readjustments, (ii) the Conversion Price for such series of
Preferred Stock at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of such Preferred Stock.
(g) Notices of Record Date. In the event that the Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon the
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus, other than distributions to shareholders in connection with the
repurchase of Common Stock from former employees or consultants upon termination
of service to the Corporation pursuant to plans or arrangements approved by the
Board of Directors of the Corporation; or
(ii) to offer for subscription to all holders of any
class or series of its capital stock any additional shares of stock of any class
or series or any other rights; or
(iii) to effect any reclassification or
recapitalization; or
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(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up; then, in connection with each
such event, the Corporation shall send to the holders of the Preferred Stock:
(1) at least 20 days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to
in (iii) and (iv) above, at least 20 days prior written notice of the date of a
shareholders meeting at which a vote on such matters shall take place (and
specifying the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event and the amount of securities or other property
deliverable upon such event).
Each such written notice shall be given
personally or by first class mail, postage prepaid, addressed to the holders of
Preferred Stock at the address for each such holder as shown on the books of the
Corporation.
Section 5. No Reissuance of Preferred Stock. No share or shares of
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
Section 6. Protective Provisions.
(a) In addition to any other rights provided by law, so long
as at least 500,000 shares of Preferred Stock (as adjusted for stock splits,
reverse stock splits, stock dividends, recapitalizations and the like) are
outstanding, the Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of two-thirds (66 2/3%) of the
outstanding shares of Preferred Stock voting together as a class (based on the
number of shares of Common Stock into which each share of Preferred Stock is
convertible, as adjusted from time to time pursuant to Section 4 hereof):
(i) take any action which alters or changes any of
the rights, privileges or preferences of the Preferred Stock, including without
limitation (A) increasing the aggregate number of authorized shares of Common
Stock, Preferred Stock, or any series of Preferred Stock, other than an increase
incident to Section 4(c)(vi), (B) effecting an exchange, reclassification or
cancellation of all or part of the shares of Preferred Stock, other than in
accordance with Section 4(c)(vi), and (C) effecting an exchange, or creating a
right of exchange, of all or part of the shares of another class into the shares
of Preferred Stock;
(ii) take any action which creates any new class or
series of shares having any right, preference, priority or power superior to or
on a parity with any such right, preference, priority or power of any series of
Preferred Stock;
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(iii) take any action involving (A) the sale by the
Corporation of all or a substantial portion of its assets, or (B) any
reorganization of the Corporation or the consolidation or merger of the
Corporation with or into any other corporation or corporations or other
transaction or series of related transactions in which the shareholders of
record of the Company immediately prior to such transaction or series of related
transactions will hold (by virtue of the voting securities issued as
consideration for such transaction or series of related transactions) less than
50% of the voting securities of the surviving entity (or parent, if any)
immediately after such transaction or series of related transactions.
(iv) amend the Corporation's Articles of
Incorporation;
(v) do any act or thing which would result in
taxation to the holders of Preferred Stock under Section 305 of the Internal
Revenue Act of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereinafter from time to time amended); or
(vi) declare or pay any dividend or other
distribution on Common Stock (other than in shares of Common Stock).
(b) Notwithstanding the provisions of Section 6(a) above, and
in addition to any other rights provided by law, so long as any shares of
Preferred Stock are outstanding, this Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of a majority
of the outstanding shares of a series of Preferred Stock voting together as a
separate class, take any action which alters or changes any of the rights,
privileges or preferences of such series of Preferred Stock so as to affect such
shares adversely and in a manner different than any other series of Preferred
Stock.
Section 7. Inapplicability of Corporations Code Sections 502 and 503.
As authorized by Section 402.5 of the California Corporations Code, the
provisions of Sections 502 and 503 of the California Corporations Code shall not
apply to, and the liquidation and dividend preferences of holders of Series A
Preferred Stock and Series B Preferred Stock provided herein shall not be deemed
to be impaired by, any distributions made by the Corporation in connection with
the repurchase of the Corporation's Common Stock from former employees or
consultants upon termination of their employment or services pursuant to
agreements between the Corporation and such persons providing for the right of
such repurchase and the holders of Preferred Stock shall be deemed to have
consented to such repurchases.
ARTICLE IV
DIRECTORS AND AGENTS
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through by-law
provisions, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, in excess of the
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<PAGE> 15
indemnification otherwise permitted Section 317 of the California Corporations
Code, subject only to the applicable limits on indemnification set forth in
Section 204 of the California Corporations Code with respect to actions for
breach of duty to the Corporation or its shareholders. Any repeal or
modification of this Article IV, or the adoption of any provision of the
Articles of Incorporation inconsistent with this Article IV, shall only be
prospective and shall not adversely affect the rights under this Article IV in
effect at the time of the alleged occurrence of any action or omission to act
giving rise to indemnification.
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PERSISTENCE SOFTWARE, INC.
Christopher T. Keene and Christine Russell hereby certify that:
1. The date of filing the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is __________,
1999.
2. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of Persistence Software, Inc., a Delaware corporation.
3. The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
ARTICLE I
"The name of this corporation is Persistence Software, Inc. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is:
Corporation Trust Company
1209 Orange Street
Wilmington, County of New Castle
Delaware, 19801
The name of the Corporation's registered agent at said address is The
Prentice-Hall Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the Corporation is authorized to issue
is 80,000,000 shares, each with a par value of
<PAGE> 2
$0.001 per share. 75,000,000 of such shares shall be Common Stock, and 5,000,000
of such shares shall be Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
"Listing Event" as used in this Amended and Restated Certificate of
Incorporation shall mean the first annual meeting of stockholders following such
time as the Corporation meets the criteria set forth in subdivisions (1), (2) or
(3) of Section 2115(c) the California Corporations Code as of the record date of
such meeting.
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, its directors and its stockholders or any class
thereof, as the case may be, it is further provided that, effective upon the
occurrence of the Listing Event:
(i) The number of directors which shall constitute the entire
Board of Directors, and the number of directors in each class, shall be fixed
exclusively by one or more resolutions adopted from time to time by the Board of
Directors. The Board of Directors shall be divided into three classes,
designated as Class I, Class II and Class III, respectively. Directors shall be
assigned to each class in accordance with a resolution or resolutions adopted by
the Board of Directors. Until changed by a resolution of the Board of Directors,
Class I shall consist of [THREE] directors, each of whom shall be designated by
the Board of Directors; Class II shall consist of two directors, each of whom
shall be designated by the Board of Directors; and Class III shall consist of
two directors, each of whom shall be designated by the Board of Directors.
Upon the occurrence of the Listing Event, the terms
of office of the Class I directors shall expire, and Class I directors shall be
elected for a full term of three years. At the first annual meeting of
stockholders following the Listing Event, the term of office of the Class II
directors shall expire, and Class II directors shall be elected for a full term
of three years. At the
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<PAGE> 3
second annual meeting of stockholders following the Listing Event, the term of
office of the Class III directors shall expire, and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal, or other causes shall be
filled by either (i) the affirmative vote of the holders of a majority of the
voting power of the then-outstanding shares of voting stock of the corporation
entitled to vote generally in the election of directors (the "Voting Stock")
voting together as a single class; or (ii) by the affirmative vote of a majority
of the remaining directors then in office, even though less than a quorum of the
Board of Directors. Newly created directorships resulting from any increase in
the number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
In addition to the requirements of law and any other
provisions hereof (and notwithstanding the fact that approval by a lesser vote
may be permitted by law or any other provision hereof), the affirmative vote of
the holders of at least 66 2/3 percent of the voting power of the then
outstanding shares of stock of all classes and all series of the Corporation
entitled to vote generally on the election of directors, voting together as a
single class, shall be required to amend, alter, repeal, or adopt any provision
inconsistent with, this Section (i) of this Article VI.
(ii) There shall be no right with respect to shares of stock
of the Corporation to cumulate votes in the election of directors.
(iii) Any director, or the entire Board of Directors, may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of at least a majority of the voting power of the then-outstanding
shares of the Voting Stock, voting together as a single class; or (ii) without
cause by the affirmative vote of the holders of at least 66-2/3% of the voting
power of the then-outstanding shares of the Voting Stock.
ARTICLE VII
No action shall be taken by the stockholders of the Corporation other
than at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Corporation's bylaws.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
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<PAGE> 4
ARTICLE IX
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal Bylaws of the Corporation.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XI
The Corporation shall have perpetual existence.
ARTICLE XII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director. If
the General Corporation Law of Delaware is hereafter amended to authorize, with
the approval of a corporation's stockholders, further reductions in the
liability of the Corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this
Article XII shall not adversely affect any right or protection of a director of
the Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIII
(A) To the fullest extent permitted by applicable law, the Corporation
is also authorized to provide indemnification of (and advancement of expenses
to) such agents (and any other persons to which Delaware law permits the
Corporation to provide indemnification) though bylaw provisions, agreements with
such agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the Delaware General Corporation Law, subject only to limits
created by applicable Delaware law (statutory or non-statutory), with respect to
actions for breach of duty to a corporation, its stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of
this Article XIII shall not adversely affect any right or protection of a
director, officer, agent or other person
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<PAGE> 5
existing at the time of, or increase the liability of any director of the
Corporation with respect to any acts or omissions of such director, officer or
agent occurring prior to such repeal or modification."
* * *
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<PAGE> 6
The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at San Mateo, California, on ____________________, 1999.
----------------------------------------
Christopher T. Keene
Chief Executive Officer
----------------------------------------
Christine Russell
Secretary
<PAGE> 1
Exhibit 3.3
BYLAWS
OF
FULCRUM INNOVATIONS, INC.
<PAGE> 2
BYLAWS OF
FULCRUM INNOVATIONS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES ............................................................................. 1
1.1 PRINCIPAL OFFICE ........................................................................... 1
1.2 OTHER OFFICES .............................................................................. 1
ARTICLE II - MEETINGS OF SHAREHOLDERS ..................................................................... 1
2.1 PLACE OF MEETINGS .......................................................................... 1
2.2 ANNUAL MEETING ............................................................................. 1
2.3 SPECIAL MEETING ............................................................................ 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS ........................................................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................................................ 3
2.6 QUORUM ..................................................................................... 4
2.7 ADJOURNED MEETING; NOTICE .................................................................. 4
2.8 VOTING ..................................................................................... 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT .......................................... 5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING .................................... 6
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS ................................ 7
2.12 PROXIES .................................................................................... 8
2.13 INSPECTORS OF ELECTION ..................................................................... 8
ARTICLE III - DIRECTORS ................................................................................... 9
3.1 POWERS ..................................................................................... 9
3.2 NUMBER OF DIRECTORS ........................................................................ 9
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS ................................................... 10
3.4 RESIGNATION AND VACANCIES .................................................................. 10
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ................................................... 11
3.6 REGULAR MEETINGS ........................................................................... 11
3.7 SPECIAL MEETINGS; NOTICE ................................................................... 11
3.8 QUORUM ..................................................................................... 12
3.9 WAIVER OF NOTICE ........................................................................... 12
3.10 ADJOURNMENT ................................................................................ 12
3.11 NOTICE OF ADJOURNMENT ...................................................................... 12
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING .......................................... 13
3.13 FEES AND COMPENSATION OF DIRECTORS ......................................................... 13
3.14 APPROVAL OF LOANS TO OFFICERS............................................................... 13
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE IV - COMMITTEES ................................................................................... 13
4.1 COMMITTEES OF DIRECTORS .................................................................... 13
4.2 MEETINGS AND ACTION OF COMMITTEES .......................................................... 14
ARTICLE V - OFFICERS . .................................................................................... 15
5.1 OFFICERS ................................................................................... 15
5.2 ELECTION OF OFFICERS ....................................................................... 15
5.3 SUBORDINATE OFFICERS ....................................................................... 15
5.4 REMOVAL AND RESIGNATION OF OFFICERS ........................................................ 15
5.5 VACANCIES IN OFFICES ....................................................................... 16
5.6 CHAIRMAN OF THE BOARD ...................................................................... 16
5.7 PRESIDENT................................................................................... 16
5.8 VICE PRESIDENTS ............................................................................ 16
5.9 SECRETARY .................................................................................. 17
5.10 CHIEF FINANCIAL OFFICER .................................................................... 17
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS .......................... 18
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS .................................................. 18
6.2 INDEMNIFICATION OF OTHERS .................................................................. 18
6.3 PAYMENT OF EXPENSES IN ADVANCE ............................................................. 18
6.4 INDEMNITY NOT EXCLUSIVE .................................................................... 19
6.5 INSURANCE INDEMNIFICATION .................................................................. 19
6.6 CONFLICTS .................................................................................. 19
ARTICLE VII - RECORDS AND REPORTS ......................................................................... 20
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER................................................ 20
7.2 MAINTENANCE AND INSPECTION OF BYLAWS........................................................ 20
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS ...................................... 21
7.4 INSPECTION BY DIRECTORS .................................................................... 21
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER ...................................................... 21
7.6 FINANCIAL STATEMENTS........................................................................ 22
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.............................................. 22
ARTICLE VIII - GENERAL MATTERS ............................................................................ 23
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING ...................................... 23
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS................................................... 23
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED........................................... 23
8.4 CERTIFICATES FOR SHARES .................................................................... 24
8.5 LOST CERTIFICATES .......................................................................... 24
8.6 CONSTRUCTION; DEFINITIONS .................................................................. 24
ARTICLE IX - AMENDMENTS ................................................................................... 25
9.1 AMENDMENT BY SHAREHOLDERS .................................................................. 25
9.2 AMENDMENT BY DIRECTORS ..................................................................... 25
</TABLE>
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<PAGE> 5
BYLAWS
OF
FULCRUM INNOVATIONS, INC.
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The board of directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the board of directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the 3rd Tuesday
of May in each year at 10:00 a.m. However, if such day falls on a legal holiday,
then the meeting shall be held at the same time and place on the next succeeding
full business day. At the meeting, directors shall be elected, and any other
proper business may be transacted.
<PAGE> 6
2.3 SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
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<PAGE> 7
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
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<PAGE> 8
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting is
fixed or if the adjournment is for more than forty-five (45) days from the date
set for the original meeting, then notice of the adjourned meeting shall be
given. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to
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<PAGE> 9
one vote on each matter submitted to a vote of the shareholders. Any shareholder
entitled to vote on any matter may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or, except when the matter
is the election of directors, may vote them against the proposal; but, if the
shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares which the shareholder is entitled
to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit. The
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected; votes against any candidate and
votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of shareholders, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second
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<PAGE> 10
paragraph of Section 2.4 of these bylaws, the waiver of notice or consent or
approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or
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transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the Code, (ii) indemnification of a corporate
"agent," pursuant to Section 317 of the Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of the Code, the notice shall be given at least
ten (10) days before the consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held; and
(b) the record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article
VIII of these bylaws.
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2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
writing to the corporation stating that the proxy is revoked or by executing a
subsequent proxy and presenting it to the meeting or by voting in person at the
meeting, or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless otherwise provided in the
proxy. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of
the Code.
2.13 INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more shareholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any shareholder or
a shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
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(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of directors of the corporation shall be seven(7) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
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No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony,(iii) if the authorized number of directors is increased, or (iv) if
the shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal,
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if by written consent, shall require the consent of the holders of a majority of
the outstanding shares entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
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3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
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3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve
* This section is effective only if it has been approved by the
shareholders in accordance with Sections 315(b) and 152 of the Code.
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at the pleasure of the board. The board may designate one (1) or more directors
as alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any committee, to the extent provided in the resolution of the board, shall have
all the authority of the board, except with respect to:
(a) the approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in
any committee;
(c) the fixing of compensation of the directors for serving on
the board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of
new bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined by
the board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government
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of any committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it
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effective. Any resignation is without prejudice to the rights, if any, of the
corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
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5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Article VI, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of
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Directors shall be paid by the corporation in advance of the final disposition
of such action or proceeding upon receipt of an undertaking by or on behalf of
the indemnified party to repay such amount if it shall ultimately be determined
that the indemnified party is not entitled to be indemnified as authorized in
this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against or incurred by such
person in such capacity or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify him against such
liability under the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
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ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person
or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
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corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of
the fiscal year, (ii) an income statement, (iii) a statement of changes in
financial position for the fiscal year, and (iv) any
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report of independent accountants or, if there is no such report, the
certificate of an authorized officer of the corporation that the statements were
prepared without audit from the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
thereafter, a copy of a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to
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vote, represent, and exercise on behalf of this corporation all rights incident
to any and all shares of any other corporation or corporations standing in the
name of this corporation. The authority herein granted may be exercised either
by such person directly or by any other person authorized to do so by proxy or
power of attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
If the board of directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or
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confined to specific instances. Unless so authorized or ratified by the board of
directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of
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this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
FULCRUM INNOVATIONS, INC.
Adoption by Incorporator
The undersigned person appointed in the Articles of Incorporation to
act as the Incorporator of Fulcrum Innovations, Inc. hereby adopts the foregoing
bylaws, comprising twenty-five (25) pages, as the Bylaws of the corporation.
Executed this 6th day of June 1991.
/s/ Christopher T. Keene
-------------------------------
Christopher T. Keene,
Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of Fulcrum Innovations, Inc. and that the
foregoing Bylaws, comprising twenty-five (25) pages, were adopted as the Bylaws
of the corporation on June 6, 1991, by the person appointed in the Articles of
Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 6th day of June 1991.
/s/ Mark A. Medearis
-------------------------------
Mark A. Medearis,
Secretary
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Exhibit 10.1
FULCRUM INNOVATIONS, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement ("Agreement") is made June 14, 1991
(the "Effective Date"), by and between FULCRUM INNOVATIONS, INC., a California
corporation (the "Company"), and [Founder] ("Purchaser").
1. Sale of Stock.
Subject to the terms and conditions hereof, on the Closing Date the
Company will issue and sell to Purchaser, and Purchaser agrees to purchase from
the Company, shares of the Company's Common Stock (the "Shares") at a
purchase price of $.001 per Share for a total purchase price of . The
term "Shares" refers to the purchased Shares and all securities received in
replacement of Shares or as stock dividends or splits, all securities received
in replacement of the Shares in a recapitalization, merger, reorganization,
exchange or the like, and all new, substituted or additional securities or
other properties to which Purchaser is entitled by reason of Purchaser's
ownership of the Shares.
2. Closing.
The closing of the purchase and sale of the Shares hereunder (the
"Closing") shall be held at the principal office of the Company simultaneously
with the execution of this Agreement by the parties or on such other date as
they agree (the "Closing Date"). At the Closing, the Company will deliver to
Purchaser a certificate representing the Shares to be purchased by the Purchaser
(which shall be issued in Purchaser's name) against payment of the purchase
price therefor in cash.
3. Limitations on Transfer.
In addition to any other limitation on transfer created by applicable
securities laws, Purchaser shall not assign, encumber or dispose of any
interest in the Shares while the Shares are subject to the Company's repurchase
option, except as provided in Section 3(h) below. After any Shares have been
released from such repurchase option, Purchaser shall not assign, encumber or
dispose of any interest in such Shares except in compliance with Sections 3(b)
and 3(c) below and applicable securities laws:
(a) Repurchase Option. In the event of the voluntary or involuntary
termination of employment of Purchaser with the Company for any reason, with or
without cause (including death or disability), the Company shall, upon the
date of such termination,
<PAGE> 2
have an irrevocable, exclusive option for a period of sixty (60) days from such
date to repurchase all or any portion of the Shares held by Purchaser as of such
date which have not yet been released from the Company's repurchase option at
the original purchase price per Share specified in Section 1. The option shall
be exercised by the Company by written notice to Purchaser or Purchaser's
executor and, at the Company's option, (i) by delivery to the Purchaser or
Purchaser's executor with such Notice of a check in the amount of the purchase
price for the Shares being purchased, or (ii) in the event the Purchaser is
indebted to the Company, by cancellation by the Company of an amount of such
indebtedness equal to the purchase price for the Shares being repurchased, or
(iii) by a combination of (i) and (ii) so that the combined payment and
cancellation of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals such purchase price. Upon delivery of such notice and
payment of the purchase price in any of the ways described above, the Company
shall become the legal and beneficial owner of the Shares being repurchased and
all rights and interest therein or related thereto, and the Company shall have
the right to transfer to its own name the number of Shares being repurchased by
the Company, without further action by Purchaser. One hundred percent (100%) of
the Shares purchased by Purchaser shall initially be subject to the Company's
repurchase option as set forth above. Thereafter, the Shares held by Purchaser
shall be released from the Company's repurchase option under this Section 3(a)
as follows (provided in each case that Purchaser's employment has not been
terminated prior to the date of any such release): 1/4th of the original number
of Shares shall be released from the repurchase option one year from the
Effective Date, and then 1/48th of the original number of Shares shall be
released from the repurchase option at the end of each calendar month
thereafter. Fractional shares shall be rounded to the nearest whole share.
(b) Right of First Refusal. In the event, at any time after the date of
this Agreement, the Purchaser or Purchaser's transferee desires to sell or
transfer in any manner the Shares as to which the option provided in Section
3(a) above is not applicable or has not been exercised, Purchaser shall first
offer such Shares for sale to the Company at the same price, and upon the same
terms (or terms as similar as reasonably possible) upon which Purchaser is
proposing or is to dispose of said Shares. Said right of first refusal shall be
provided to the Company for a period of thirty (30) days following receipt by
the Company of written notice by the Purchaser of the terms and conditions of
said proposed sale or transfer and the name, address and phone number of each
proposed buyer or transferee. If the Company desires to exercise such right of
first refusal, it shall notify Purchaser in writing within such thirty (30) day
period. In the event the Shares are not disposed of on such terms within thirty
(30) days following lapse of the period of the right of first refusal provided
to the Company or if the Purchaser proposes to change the price or other terms
to
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make them more favorable to the buyer, they shall once again be subject to the
right of first refusal herein provided.
(c) Involuntary Transfer. In the event, at any time after the date of this
Agreement, of any transfer by operation of law or other involuntary transfer
(including death or divorce) of all or a portion of the Shares by the record
holder thereof, the Company shall have an option to purchase all of the Shares
transferred. Upon such a transfer, the person acquiring the Shares shall
promptly notify the Secretary of the Company of such transfer. The right to
purchase such Shares shall be provided to the Company for a period of thirty
(30) days following receipt by the Company of written notice by the person
acquiring the Shares.
(d) Price for Involuntary Transfer. With respect to any stock to be
transferred pursuant to Section 3(c), the price per Share shall be a price set
by the Board of Directors of the Company that will reflect the current value of
the stock in terms of present earnings and future prospects of the Company. The
Company shall notify Purchaser or Purchaser's executor of the price so
determined within thirty (30) days after receipt by it of written notice of the
transfer or proposed transfer of Shares. If the transferor disputes the price as
set by the Board of Directors by notice to the Company within ten (10) days
after being informed of the price, the price of the Shares shall be determined
by an independent financial appraiser selected by the Board of Directors. The
Board of Directors shall select the appraiser within thirty (30) days after
receipt of notice that the Purchaser is disputing the price set by the Board of
Directors. If the Board is not notified of any such dispute within such ten (10)
day period, the decision of the Board of Directors as to the purchase price
shall be final. Any time required to resolve a dispute shall be added to the
thirty (30) day period in which the Company may exercise its right to purchase.
(e) Assignment. The right of Company to purchase any part of the Shares may
be assigned in whole or in part to any shareholder or shareholders of the
Company or other persons or organizations.
(f) Restrictions Binding on Transferees. All transferees of Shares or any
interest therein will receive and hold such Shares or interest subject to the
provisions of this Agreement, including, insofar as applicable, the Company's
option to repurchase under Section 3 and the Company's rights under Section 2.
Any sale or transfer of the Company's Shares shall be void unless the provisions
of this Agreement are met.
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<PAGE> 4
(g) Termination of Refusal Right; Public Offering Lockup. The right of
first refusal granted the Company by paragraph 3(b) above shall terminate at
such time as a public market exists for the Company's capital stock (or any
other stock issued to purchasers in exchange for the Shares purchased under this
Agreement). For the purpose of this Agreement, a "Public Market" shall be deemed
to exist if (i) such stock is listed on a national securities exchange (as that
term is used in the Securities Exchange Act of 1934) or (ii) such stock is
traded on the over-the-counter market and prices are published daily on the
business days in a recognized financial journal. Notwithstanding the foregoing,
Purchaser and Purchaser's transferees will not, without the prior written
consent of the Company, offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of any of the Shares for a period of ninety (90)
days following the effectiveness of a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
the Company's initial public offering of securities.
Upon termination of the right of first refusal imposed by this
Agreement and the expiration or exercise of the Company's repurchase option
described in Section 3(a) above, a new certificate or certificates representing
the Shares not repurchased shall be issued, on request, without the legend
referred to in Section 6(c) herein and delivered to Purchaser.
(h) Exempt Transfers. The restrictions on transfer of this Section 3
shall not apply to a transfer to Purchaser's ancestors or descendants or spouse
or to a trustee for their benefit, provided that such transferee shall agree in
writing to take such Shares subject to all the terms of this Agreement,
including restrictions on further transfer.
4. Escrow.
For purposes of facilitating the enforcement of the provisions of
Section 3 above, Purchaser agrees, immediately upon receipt of the
certificate(s) for his Shares, to deliver such certificate(s) with a stock power
executed by Purchaser and by Purchaser's spouse (if required for transfer), in
blank, to the Secretary of the Company or its designee, to hold said
certificate(s) and stock power(s) in escrow and to take all such actions and to
effectuate all such transfers and/or releases as are in accordance with the
terms hereof. Purchaser hereby acknowledges that the Secretary of the Company
(or its designee) is so appointed as the escrow holder with the foregoing
authorities as a material inducement to make this Agreement and that said
appointment is coupled with an interest and is accordingly irrevocable.
Purchaser agrees that said escrow holder shall not be liable to any party hereof
(or to any other party) for any actions or omissions unless
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<PAGE> 5
such escrow holder is grossly negligent relative thereto. The escrow holder may
rely upon any letter, notice or other document executed by any signature
purported to be genuine and may resign at any time. The Secretary of the Company
shall act as the escrow holder with respect to such Shares.
5. Investment Representations.
In connection with the purchase of the Shares, Purchaser represents to the
Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Purchaser is
purchasing these securities for investment for his own account only and not with
a view to, or for resale in connection with any "distribution" thereof within
the meaning of the Securities Act of 1933; as amended (the "Securities Act").
(b) Purchaser understands that the securities have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the securities must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the securities. Purchaser understands that the certificate evidencing
the securities will be imprinted with a legend which prohibits the transfer of
the securities unless they are registered or such registration is not required
in the opinion of counsel for the Company.
(d) Purchaser is aware of the provisions of Rule 144, promulgated under the
Securities Act, which in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly from the issuer thereof (or from an
affiliate of such issuer), in a non-public offering subject to the satisfaction
of certain conditions, including, among other things: (i) the availability, in
certain cases, of certain public information about the Company; (ii) the resale
occurring not less than two years after the party has purchased and paid for the
securities to be sold; and (iii) in the case of an affiliate, or a non-affiliate
who has held the restricted securities for less than three years, the sale being
made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is
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<PAGE> 6
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three-month period not exceeding the specified limitations
stated therein.
(e) Purchaser further understands that at the time Purchaser wishes to sell
the securities there may be no public market upon which to make such a sale, and
that, even if such a public market then exists the Company may not be satisfying
the current public information requirements of Rule 144, and that, in such
event, Purchaser would be precluded from selling the securities under Rule 144
even if the two-year minimum holding period had been satisfied.
(f) Purchaser further understands that in the event all of the requirements
of Rule 144 are not satisfied, registration under the Securities Act, compliance
with Regulation A or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
6. Legends.
The certificate or certificates representing the Shares shall bear the
following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY
IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY."
(C) ANY LEGEND REQUIRED TO BE PLACED THEREON BY THE CALIFORNIA
COMMISSION OF CORPORATIONS.
7. Miscellaneous.
(a) This Agreement may be amended only by written agreement between the
Company and Purchaser.
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(b) Any notice, demand or request required or permitted to be given under
this Agreement shall be in writing and shall be deemed sufficient when
delivered personally or sent by telegram or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed, if to the Company, at its principal place of business,
attention the President, and if to Purchaser, at Purchaser's address as shown
on the stock records of the Company.
(c) The rights and benefits of this Agreement shall inure to the benefit
of, and be enforceable by the Company's successors and assigns. The rights and
obligations of Purchaser under this Agreement, may only be assigned with the
prior written consent of the Company.
(d) Both parties agree to execute any additional documents necessary to
carry out the purposes of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
FULCRUM INNOVATIONS, INC.
By:
---------------------------
Title: President
-------------------------
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND
AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT
WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT
INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
PURCHASER'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER
---------------------------------
[Founder]
Address:
-----------------------
-----------------------
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ATTACHMENT A
CONSENT OF SPOUSE
I, /S/ ______________________, spouse of __________________, have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be irrevocably bound by the Agreement and further
agree that any community property or other such interest shall be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
/s/
-------------------------------
Spouse of Purchaser
<PAGE> 1
EXHIBIT 10.2
FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the
"Agreement") is made and entered into as of February 19, 1999 by and among
PERSISTENCE SOFTWARE, INC., a California corporation (the "Company") and those
purchasers of its Preferred Stock and other parties listed on the Schedule of
Investors attached as Exhibit A hereto (each an "Investor" and collectively, the
"Investors," except as provided below in Section 1.1(a) below).
R E C I T A L S
A. In connection with the closing of a Series A Preferred and Common
Stock Purchase Agreement dated February 14, 1994 (the "Stock Purchase
Agreement"), the Company and the purchasers of the Series A Preferred Stock and
Common Stock purchased thereunder entered into an Investor Rights Agreement
dated as of February 14, 1994 (the "1994 Investor Rights Agreement") providing
certain rights to registration of the Company's securities under the Securities
Act and certain additional rights.
B. In connection with an equipment lease between the Company and
Venture Lending & Leasing, Inc. ("Venture Lending"), the Company issued a
Warrant (the "Venture Lending Warrant") to Venture Lending to acquire 55,556
shares of the Company's Common Stock (the "Venture Lending Warrant Shares") and
entered into a First Amendment to the 1994 Investor Rights Agreement dated as of
December 28, 1995, to grant certain registration rights to Venture Lending with
respect to the Venture Lending Warrant Shares.
C. In connection with a line of credit between the Company and General
Bank, the Company issued a Warrant (the "General Bank Warrant") to General Bank
to acquire 25,000 shares of the Company's Common Stock (the "General Bank
Warrant Shares") and entered into a Second Amendment to the 1994 Investor Rights
Agreement dated February 6, 1996 to grant certain registration rights to General
Bank with respect to the General Bank Warrant Shares.
D. In connection with the closing of a Series B Preferred Stock
Purchase Agreement between the Company and certain of the Investors on March 12,
1996 (the "First Series B Stock Purchase Agreement"), pursuant to which certain
of the Investors purchased 1,753,276 shares of Series B Preferred Stock (the
"First Series B Shares") from the Company, certain of the Investors and the
Company entered into a First Amended and Restated Investor Rights Agreement
dated March 8, 1996 (the "First Amended and Restated Investor Rights Agreement")
to amend and restate the 1994 Investor Rights Agreement in its entirety.
E. In connection with the closing of a Series B Preferred Stock
Purchase Agreement between the Company and certain of the Investors on November
27, 1996 (the "Second Series B Stock Purchase Agreement"), pursuant to which
certain of the Investors purchased an aggregate of 1,484,716 shares of Series B
Preferred Stock from the Company, (the "Second Series B Shares," and, together
with the First Series B Shares, the "Series B Shares"), certain of the
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Investors and the Company entered into a Second Amended and Restated Investor
Rights Agreement, dated November 27, 1996 (the "Second Amended and Restated
Investor Rights Agreement") to amend and restate the First Amended and Restated
Investor Rights Agreement in its entirety. The Second Amended and Restated
Rights Agreement was subsequently amended on June 13, 1997.
F. In connection with the closing of a Series C Preferred Stock
Purchase Agreement between the Company and certain of the Investors dated
December 31, 1997 (the "First Series C Stock Purchase Agreement"), pursuant to
which certain of the Investors purchased an aggregate of 431,965 shares of
Series C Preferred Stock (the "First Series C Shares") from the Company, certain
of the Investors and the Company entered into a Third Amended and Restated
Investor Rights Agreement, dated December 31, 1997, as amended (the "Third
Amended and Restated Investor Rights Agreement") to amend and restate the Second
Amended and Restated Investor Rights Agreement in its entirety.
G. In connection with the closing of a Series C Preferred Stock
Purchase Agreement between the Company and certain of the Investors dated August
4, 1998 (the "Second Series C Stock Purchase Agreement"), pursuant to which
certain of the Investors purchased an aggregate of 1,155,508 shares of Series C
Preferred Stock (the "Second Series C Shares" and, together with the First
Series C Shares, the "Series C Shares") from the Company, certain of the
Investors and the Company entered into a Fourth Amended and Restated Investor
Rights Agreement, dated August 13, 1998, as amended (the "Fourth Amended and
Restated Investor Rights Agreement") to amend and restate the Third Amended and
Restated Investor Rights Agreement in its entirety.
H. In connection with the closing of a Series D Preferred Stock
Purchase Agreement between the Company and the Purchasers (as defined therein)
dated February 19, 1999 (the "Series D Stock Purchase Agreement"), pursuant to
which the Purchasers are purchasing an aggregate of up to 747,664 shares of
Series D Preferred Stock (the "Series D Shares") from the Company and with the
requisite consent of the Company and the Investors holding more than two-thirds
of the Registrable Securities (as defined in the Fourth Amended and Restated
Investor Rights Agreement), such Investors and the Company desire to amend and
restate the Fourth Amended and Restated Investor Rights Agreement in its
entirety so that the Purchasers of the Series D Shares pursuant to the Series D
Stock Purchase Agreement shall become Investors hereunder and shall have the
same registration rights as the other Investors.
I. The Investors desire to waive the right of first refusal set forth
in Article II of the Fourth Amended and Restated Investor Rights Agreement with
respect to issuance of the Series D Shares issued pursuant to the Series D Stock
Purchase Agreement.
NOW, THEREFORE, in consideration of these premises and the mutual
covenants, terms and conditions contained herein, the parties hereto hereby
agree follows:
ARTICLE I
REGISTRATION RIGHTS
Section 1.1 Definitions. As used in this Article I:
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(a) The term "Holder" means any Investor and any other holder
of outstanding Registrable Securities who acquired such Registrable Securities
in accordance with Section 1.11 hereof. The term "Investors" includes Venture
Lending and General Bank for purposes of Sections 1.1, 1.2, 1.5, 1.6, 1.7, 1.8,
1.9, 1.10, 1.11, 1.12, 1.13, 1.14 and Articles IV and V of this Agreement;
provided, however, that Venture Lending and General Bank and their respective
transferees shall not be deemed to be "Holders" for purposes of Sections 1.3 or
1.4 of this Agreement or "Investors" for purposes of Articles II and Article III
of this Agreement.
(b) The term "Initiating Holders" means any Holder or Holders
of not less than 10% of the Registrable Securities then outstanding and any
other securities then convertible into Registrable Securities, and which have
not been sold to the public.
(c) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
by the Securities and Exchange Commission ("SEC") of the effectiveness of such
registration statement.
(d) The term "Registrable Securities" means: (i) the Common
Shares (as defined in the Stock Purchase Agreement); (ii) the shares of the
Company's Common Stock issued or issuable upon conversion of the Series A
Shares, Series B Shares, Series C Shares and Series D Shares; (iii) the Warrant
Shares; (iv) the Common Stock issued to Intel Corporation ("Intel") pursuant to
a Common Stock Purchase Agreement of approximately even date herewith and (v)
the shares of the Company's Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right, or other security that is issued
as) a dividend or other distribution with respect to, or in exchange or in
replacement of, any of the securities referred to in clauses (i), (ii), (iii)
and (iv) above. In the event of any recapitalization by the Company, whether by
stock split, reverse stock split, stock dividend or the like, the number of
shares of Registrable Securities used throughout this Agreement for various
purposes shall be proportionately increased or decreased.
(e) The term "Securities Act" means the Securities Act of
1933, as amended.
(f) The term "Securities Exchange Act" means the Securities
Exchange Act of 1934, as amended.
(g) The term "Warrants" means the Venture Lending Warrant and
the General Bank Warrant.
(h) The term "Warrant Shares" means the shares of Common Stock
issued or issuable upon exercise of the Warrants.
Section 1.2 "Piggy-back" Registration.
(a) Registration Rights. If at any time or from time to time
the Company shall determine to register any of its securities for its own
account, other than a registration on Form S-l or S-8 (or other form) relating
solely to employee stock option or purchase plans, a
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registration on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration on any other form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company shall:
(i) promptly give to each Holder written notice
thereof (which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(ii) except as set forth in Section 1.2(b), include
in such registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests by any Holder made within
twenty-five (25) days after mailing or personal delivery of such written notice
by the Company.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.2(a)(i). In such event, the right of any Holder to
registration pursuant to this Section 1.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such person's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.2, if the
underwriter reasonably determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriter may exclude from such
registration and underwriting some or all of the Registrable Securities which
would otherwise be underwritten pursuant to this Agreement; provided, however,
that, except in connection with the Company's initial public offering of
securities, the underwriter may not limit the number of Registrable Securities
to be included in the registration and underwriting to less than forty percent
(40%) of the total securities included therein (based on aggregate market
values). The Company shall so advise all holders of the Company's securities
requesting registration of any such limitation, and the number of shares of
securities, including Registrable Securities, that are entitled to be included
in the registration and underwriting shall be allocated in the following manner:
shares, other than Registrable Securities, requested to be included in such
registration by shareholders shall be excluded, and if a limitation on the
number of shares is still required, the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by each such Holder at the
time of filing the registration statement; securities to be registered by the
Company for its own account shall be excluded only if a limit on the number of
shares is still required after exclusion of Registrable Securities held by each
such Holder. With respect to any "selling Holder" that is selling securities
hereunder and which is a partnership, corporation or trust, in the event of any
underwriter cutback, the partners, retired partners, stockholders and trustee
(if the selling Holder is a trust) of such "selling Holder," or the estates and
family members of any such partners, retired partners, stockholders and
trustees, and
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any trusts for the benefit of any of the foregoing persons shall be deemed to be
a single "selling Holder," and any pro rata allocation with respect to such
"selling Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling Holder," as defined in this sentence. No securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in registration.
If any Holder disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. Any securities so withdrawn shall also be withdrawn from
registration. If by the withdrawal of such securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities in the same proportion used in determining the underwriter limitation
in this Section 1.2(b).
Section 1.3 Demand Registration.
(a) Request for Registration. In case the Company shall
receive from Initiating Holders a written request that the Company effect any
registration with respect to all or a part of the Registrable Securities (other
than a registration on Form S-3 or any related form of registration statement,
such a request being provided for under Section 1.4 below), the Company shall:
(i) promptly (but in any event within ten (10) days
after such written request) give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its diligent best
efforts to effect all such registrations, qualifications and compliances
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable blue
sky or other securities laws of other states and appropriate compliance with
exemptive regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Initiating
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within thirty (30) days after mailing for personal delivery of such
written notice by the Company; provided that the Company shall not be obligated
to take any action to effect any such registration, qualification or Compliance
pursuant to this Section 1.3:
(A) Prior to the earlier of: (i) August 13,
2001 or (ii) six (6) months after the effective date of the first registration
statement for a public offering of securities of the Company (other than a
registration statement relating solely to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or to an
SEC Rule 145 transaction);
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(B) In any jurisdiction in which the Company
would be required to qualify as a dealer in securities under the securities or
blue sky laws of such jurisdiction or in which the Company would be required to
execute a general consent to service of process in effecting such registration,
qualification or compliance;
(C) If, after the Company gives the notice
specified in Section 1.3(a)(i), the Holders propose to sell a number of
Registrable Securities having an aggregate proposed offering price of less than
$5,000,000; or
(D) After the Company has effected two (2)
such registrations pursuant to this Section 1.3(a), such registrations have been
ordered or declared effective and such registrations have been kept effective
for the periods required under Section 1.6 below.
Subject to the foregoing clauses (A) through
(D), the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable, but in any
event within 90 days after receipt of the request or requests of the Initiating
Holders; provided, however, that if the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company and its stockholders for such registration statement to be filed at
the date filing would be required and it is therefore essential to defer the
filing of such registration statement, the Company shall have an additional
period of not more than 90 days within which to file such registration
statement; and further provided, that the Company shall not be required to cause
a registration statement requested pursuant to this Section 1.3 to become
effective less than 60 days before or prior to 90 days following the effective
date of a registration statement pertaining to an underwritten public offering
of securities initiated by the Company for its own account (other than a
registration on Form S-4 relating solely to an SEC Rule 145 transaction or a
registration relating solely to employee benefit plans).
(b) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 1.3(a), and the Company shall include such information in
the written notice referred to in Section 1.3(a)(i). In such event, the right of
any Holder to registration pursuant to Section 1.3 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting. The Company (together with
all Holders proposing to distribute their securities through such underwriting)
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a
majority-in-interest of the Initiating Holders and reasonably satisfactory to
the Company. Notwithstanding any other provision of this Section 1.3, if the
underwriter advises the Initiating Holders and the Company in writing that
marketing factors require a limitation of the number of shares to be
underwritten, the Initiating Holders shall so advise all Holders of Registrable
Securities that would otherwise be registered and underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective
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amounts of Registrable Securities held by such Holders at the time of filing the
registration statement. In such event, no Registrable Securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration.
If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company, the underwriter and the Initiating Holders. The Registrable Securities
so withdrawn shall also be withdrawn from the registration. If by the withdrawal
of such Registrable Securities a greater number of Registrable Securities held
by other Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion used in
determining the underwriter limitation in this Section 1.3(b).
If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account (or for the account of other shareholders) in such registration if the
underwriter so agrees and if the number of Registrable Securities that would
otherwise have been included in such registration and underwriting will not
thereby be limited.
Section 1.4 Form S-3 Registration. Following the initial offering of
the Company's securities to the general public, the Company will use its best
efforts to qualify for the registration of its securities on Form S-3 (or any
comparable or successor form which allows inclusion or incorporation of
substantial information by reference to other documents filed with the SEC) and,
to that end, the Company shall register (whether or not required by law to do
so) its Common Stock under the Securities Exchange Act in accordance with the
provisions of the Securities Exchange Act within twelve (12) months following
the effective date of the first registration of any securities of the Company on
Forms S-1 or S-2 (or any comparable or successor form or forms). After the
Company has qualified for the use of Form S-3, the Holders shall have the right
to request an unlimited number of registrations of Registrable Securities on
Form S-3 (or such comparable or successor forms). Such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares by such
Holder or Holders). If the Company receives such a written request from the
Holders of not less than one percent (1%) of the Registrable Securities
outstanding from time to time, the Company shall:
(a) promptly give written notice of the proposed registration
and any related qualification or compliance to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request given within ten
(10) business days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification, or
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compliance pursuant to this Section 1.4 (i) if the Holders, together with
holders of any other securities of the Company entitled to inclusion in such
registration, if any, propose to sell Registrable Securities and such other
securities, if any, having an aggregate proposed offering price of less than
$1,000,000; (ii) in any jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such registration,
qualification or compliance and in which it has not already filed such a
consent; (iii) if the Company shall furnish to the Holders a President's
certificate of the type described in Section 1.3(a) above, in which case the
Company's obligation to effect such registration shall be deferred as provided
in that Section; or (iv) if such registration would exceed the limitation that
the Holders may not demand more than one (1) registration on Form S-3 at the
Company's expense during any twelve-month period and may not in any event demand
any registration on Form S-3 (whether or not at the Company's expense) within
six (6) months after the effective date of another registration effected under
this Section 1.4. Registrations effected pursuant to this Section 1.4 shall not
be counted as piggy-back registrations or demand registrations under Sections
1.2 or 1.3, respectively.
Section 1.5 Expenses of Registration. All expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Article I, including without limitation, all registration, filing and
qualification fees (including blue sky fees and expenses), printing expenses,
accounting fees, escrow fees, the fees and disbursements of counsel for the
Company with respect to such registration, the reasonable fees and disbursements
of one counsel for the Holders participating in such registration, and expenses
of any special audits incidental to or required by such registration, shall be
borne by the Company; provided, however, that the Company shall bear such
expenses with respect to only one (1) registration on Form S-3 during any
twelve-month period; and further provided, that the following expenses shall be
borne by the Holders and any other participating security holders of the
Company, pro rata according to their securities so registered:
(a) Withdrawn Demands. If a registration proceeding begun
pursuant to Section 1.3 is withdrawn by the Initiating Holders, the reasonable
expenses of such registration proceeding shall be borne by the Holders, pro
rata, according to the number of shares of Registrable Securities requested to
be registered by Holders who requested to participate in such registration;
provided, however, that if such request is withdrawn after the Holders have
learned of a material adverse change in the condition, business or prospects of
the Company from that known to the Holders at the time of their request, of
which the Company had knowledge at the time of the request, such withdrawn
request shall not be counted as a request for purposes of Section 1.3 or
considered a withdrawn demand for purposes of this Section 1.5(a);
(b) Attorneys Fees. All fees and disbursements of counsel for
the Holders, other than those specifically required herein to be borne by the
Company; and
(c) Underwriters' Fees. Underwriters' fees, discounts and
commissions relating to Registrable Securities and securities of any other
participating security holders being sold in such registration.
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Section 1.6 Registration Procedures. In the case of each registration,
qualification or compliance required to be effected by the Company pursuant to
this Article I, the Company shall, upon written request, inform any Holder
participating therein as to the status of each registration, qualification and
compliance. At its expense the Company shall as expeditiously as possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its diligent best efforts to
cause such registration statement to become effective and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration, qualification or compliance pursuant to Section 1.2, 1.3
or 1.4 effective for a period of 90 days or until the Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish such number of prospectuses and other documents
incident thereto as a Holder participating in such registration from time to
time may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions in which it has not
already done so.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
Section 1.7 Indemnification.
(a) To the extent permitted by law, the Company shall
indemnify each Holder, each of its respective officers and directors, and each
person controlling such person, with respect to which registration,
qualification or compliance has been effected pursuant to this Article I, and
each underwriter, if any, and each person who controls any underwriter, against
all
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claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on (i) any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or (ii) any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, or (iii) any violation by
the Company of any rule or regulation promulgated under the Securities Act or
any state securities law applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such person, each of its
officers and directors, and each person controlling such person, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action; provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by an
instrument duly executed by any such person or underwriter and stated to be
specifically for use therein, and except that the foregoing indemnity agreement
is subject to the condition that, insofar as it relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in the preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the SEC pursuant to Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
underwriter, or any Indemnified Party (as defined below) if there is no
underwriter, if a copy of the Final Prospectus was not furnished to the person
or entity asserting the claim, loss, damage or liability at or prior to the time
such furnishing is required by the Securities Act; and provided, further, that
the indemnity agreement contained in this Section 1.7(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage or liability if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld.
(b) To the extent permitted by law, each Holder shall, if
securities held by or issuable to such person are included in the securities as
to which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors and officers who sign such
registration statement, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
within the meaning of the Securities Act and each other such Holder, each
officer and director and each person controlling each such underwriter, or other
Holder against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or (ii) any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, and will reimburse the Company,
and such other Holders, such directors, officers, persons or underwriters for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
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registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein and provided that in no event shall the liability
of any Holder pursuant to this Section 1.7(b) exceed the amount of the net
proceeds received by such person from the sale of his securities in such
liability resulted from such Holder's willful misconduct.
(c) Each party entitled to indemnification under this Section
1.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein within a reasonable amount of time, if such
failure is prejudicial to the Indemnifying Party's ability to defend such
action, shall relieve the Indemnifying Party of its obligations under this
Article I, but not of any obligation arising apart from this Article I. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. If any
such Indemnified Party shall have reasonably concluded that there may be one or
more legal defenses available to such Indemnified Party which are different from
or additional to those available to the Indemnifying Party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 1.7, the Indemnifying Party
shall not have the right to assume the defense of such action on behalf of such
Indemnified Party and such Indemnifying Party shall reimburse such Indemnified
Party and any person controlling such Indemnified Party for that portion of the
fees and expenses of any counsel retained by the Indemnified Party which are
reasonably related to the matters covered by the indemnity agreement provided in
this Section 1.7.
Section 1.8 Information by Holder. Each Holder whose securities are
included in any registration shall furnish in writing to the Company such
information regarding such person and the distribution proposed by such person
as the Company may request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this Article
I. The Company's obligations under this Article I are conditioned upon
compliance by such persons with the provisions of this Section 1.8.
Section 1.9 Sale Without Registration. At the time of any transfer of
any Shares or Registrable Securities which shall not be registered under the
Securities Act, the Company may require, as a condition of allowing such
transfer, that the holder or transferee furnish to the Company: (a) such
information as is reasonably necessary in order to establish that such transfer
may be made without registration under the Securities Act; and (b) at the
expense of the holder
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or transferee, an opinion of counsel, satisfactory in form and substance to the
Company, to the effect that such transfer may be made without registration under
such Act; provided that nothing contained in this Section 1.9 shall relieve the
Company from complying with any request for registration, qualification or
compliance made pursuant to the other provisions of this Article I.
Section 1.10 Rule 144 Reporting. With a view to making available to the
Investors the benefits of certain rules and regulations of the SEC which may
permit the sale of their securities to the public without registration, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after 90 days after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as an Investor owns any Shares (or Registrable
Securities), to furnish to such Investor forthwith upon request at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public, a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144, and of the Securities Act and the Securities
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company with the
SEC as an Investor may reasonably request in availing itself of any rule or
regulation of the SEC permitting the sale of any such securities without
registration.
Section 1.11 Transfer of Registration Rights. The rights to cause the
Company to register securities granted by the Company under Sections 1.2, 1.3
and 1.4 may only be assigned by an Investor to a transferee or assignee of not
less than 100,000 Series A Shares, Series B Shares, Series C Shares, Series D
Shares or Registrable Securities (as adjusted for stock splits and the like);
provided that such transfer may otherwise be effected in accordance with
applicable securities laws and provided further that the Company is given
written notice at the time of or within a reasonable time after such transfer,
stating the name and address of such transferee or assignee and identifying the
securities with respect to which such registration rights are being assigned.
The share limitations set forth above shall not apply to transfers by any
Investor to such Investor's Affiliated Parties, as defined below, but shall
apply to further transfers to non-Affiliated Parties.
Section 1.12 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement so long as not less than fifty percent (50%) of
the Series A Shares, Series B Shares, Series C Shares and Series D Shares
(and/or Registrable Securities into which they are converted and as adjusted for
stock splits, combinations and the like) are outstanding and held by Holders,
the Company shall not, without the prior written consent, which consent shall
not be unreasonably withheld, of the Holders of Series A Shares, Series B
Shares, Series C Shares and Series D Shares (and/or Registrable Securities into
which they are converted and as adjusted for
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stock splits, combinations and the like) having more than fifty percent (50%) of
the voting power of such securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder: (a) to include such securities in any registration
filed under Section 1.2, 1.3 or 1.4 hereof unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of such securities will
not reduce the amount of Registrable Securities of the Holders which are
included in such registration; or (b) to demand that the Company register any
securities of the Company.
Section 1.13 Stand-Off Agreement. Each Holder agrees in connection with
any registration of the Company's securities, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters; provided, however, that (a) such
agreement shall be applicable only to the first such registration statement of
the Company which covers Common Stock (or other securities) to be sold on its
behalf to the public in an underwritten offering; and (b) all officers and
directors of the Company and all other holders of securities to be included in
such registration statement enter into similar agreements. In order to enforce
the foregoing covenant, the Company may impose stop-transfer instructions with
respect to the Registrable Securities of each Holder (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
Section 1.14 Termination of Rights. The rights of any particular Holder
to cause the Company to register securities under Sections 1.2, 1.3 and 1.4
shall terminate with respect to such Holder on the earlier of (i) five years
following a bona fide public offering of shares of Common Stock registered under
the Securities Act (provided that the aggregate offering price, net of
underwriting discounts and commissions, exceeds $12,000,000 and the per share
offering price is at least $7.00) or (ii) at such time as one (1) year after the
end of the first three month period in which such Holder is able to dispose of
all of his or its Registrable Securities in one three month period pursuant to
the provisions of Rule 144 (or similar successor rule), provided that such
Holder holds Registrable Securities constituting less than two percent (2%) of
the outstanding voting stock of the Company.
ARTICLE II
RIGHTS OF FIRST REFUSAL
Section 2.1 "New Securities". For purposes of this Article II, the term
"New Securities" shall mean shares of Common Stock, Preferred Stock or any other
class of capital stock of the Company issued after the date hereof, whether or
not now authorized, securities of any type that are convertible into shares of
such capital stock, and options, warrants or rights to acquire shares of such
capital stock; provided, however, that the term "New Securities" does not
include (i) securities issuable pursuant to the Series D Stock Purchase
Agreement; (ii) securities
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issuable upon conversion of the shares of Preferred Stock outstanding as of the
date hereof, or issuable upon the conversion of Series D Shares, or issuable
upon exercise of the Warrants, or upon the conversion of any other convertible
securities or the exercise of any other options, warrants or similar rights the
Company may have issued or may hereafter issue in compliance with the provisions
of this Section 2.1; (iii) other than as set forth in Section 3.9, securities
offered to the public pursuant to a registration statement filed under the
Securities Act, which term shall include any successor federal statute; (iv)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of all or substantially all of the assets, or other
reorganization whereby the Company owns not less than fifty-one percent (51%) of
the voting power of such corporation; (v) shares of capital stock or securities
exercisable for or convertible into shares of capital stock issued (a) to
lessors, and (b) to banks, commercial lenders, other financial institutions or
lenders in connection with the borrowing of money by the Company; (vi) shares of
capital stock or securities exercisable for or convertible into capital stock
issued or issuable at any time to existing or future employees, directors,
officers or consultants of the Company, pursuant to the Company's 1994 Stock
Purchase Plan, the 1997 Stock Plan or any other employee stock offering, plan,
or arrangement unanimously approved by the Board of Directors; (vii) shares of
Common Stock or Preferred Stock issued in connection with any stock split, stock
dividend, or recapitalization by the Company; and (viii) shares or options or
warrants to purchase shares of Common Stock or Preferred Stock in connection
with transactions involving the acquisition of licenses or other rights, assets
or technology from third parties or equipment purchase or lease transactions
approved by not less than a two-thirds vote of the entire Board of Directors.
Section 2.2 Grant of Rights of First Refusal. Subject to the terms
specified in this Article II, the Company hereby grants to the Investors the
right of first refusal to purchase pro rata any issue of New Securities which
the Company hereafter may from time to time propose to issue and sell. The "pro
rata" share of each Investor is the ratio of (a) the number of shares of Common
Stock then held by such Investor or issued or issuable to such Investor upon the
conversion of the Series A Shares, Series B Shares, Series C Shares and Series D
Shares and upon the conversion of any other securities convertible into Common
Stock then held by such Investor plus the shares of Common Stock indicated on
Exhibit A to be treated as held by such Investor for purposes of this Section
2.2, divided by (b) the sum of the total number of shares of Common Stock then
outstanding plus the total number of shares of Common Stock issuable upon
conversion of all the Series A Shares, Series B Shares, Series C Shares and
Series D Shares and other outstanding securities convertible into Preferred
Stock or Common Stock.
Section 2.3 Procedure.
(a) In the event the Company proposes to undertake an issuance
of New Securities, it shall give the Investors written notice of its intention,
describing the type of New Securities, the price and material terms upon which
the Company proposes to issue the same. Each Investor shall have twenty-five
(25) days from the date of receipt of any such notice to agree to purchase up to
its pro rata share of such New Securities for the price and upon the terms
specified in the Company's notice by giving written notice to the Company to
such effect and stating therein the quantity of New Securities to be purchased.
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<PAGE> 15
(b) Each Investor shall have a right of overallotment such
that if any Investor fails to exercise its right hereunder to purchase its full
pro rata portion of New Securities, the Company shall promptly give written
notice of such fact to each of the other Investors who have properly exercised
their right to purchase their full pro rata portions thereof, whereupon each
such fully participating Investor shall have ten (10) business days from the
date of receipt of any such notice to agree to purchase up to its pro rata share
of the nonpurchasing investor's unexercised portion by giving written notice to
the Company to such effect and stating therein the quantity of such
nonpurchasing Investor's unexercised portion to be so purchased.
(c) In the event that the Investors fail to exercise in full
their rights of first refusal within such twenty-five (25) plus ten (10) day
period, the Company shall have one hundred fifty (150) days thereafter to sell
or enter into an agreement (pursuant to which the sale of all New Securities
covered thereby shall be closed, if at all, within sixty (60) days from the date
of such agreement) to sell the New Securities, with respect to which such rights
of first refusal were not exercised, at the price and upon terms no more
favorable to the Investor than the terms specified in the Company's notice to
the Investors. In the event the Company has not sold the New Securities within
such 150-day period (or entered into an agreement to sell the New Securities
within such 150-day period and actually sold them in accordance with such
agreement within sixty (60) days from the date of such agreement), the Company
shall not thereafter issue or sell any New Securities without first offering a
portion to the investors in accordance with this Article II.
Section 2.4 Termination of Rights. The preemptive rights granted under
Section 2.2 above shall expire upon the first of the following to occur:
(a) The closing of an underwritten public offering pursuant to
an effective registration statement on Form S-1 (or a successor form) under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company to the public at an aggregate offering price of
not less than Twelve Million Dollars ($12,000,000) and at a public offering
price per share (prior to underwriter commissions and expenses) that is not less
than $7.00 (as adjusted to reflect subdivisions and combinations of shares of
Common Stock and stock dividends paid in shares of Common Stock (a "Qualified
Initial Public Offering");
(b) the consummation of an acquisition of the Company pursuant
to which a Public Market exists for the Company's capital stock (or other stock
issued in exchange therefore). For the purpose of this Agreement, a "Public
Market" shall be deemed to exist if (i) such stock is listed on a national
securities exchange (as that term is used in the Securities Exchange Act of
1934, as amended) or (ii) such stock is traded on the over-the-counter market
and prices are published daily on business days in a recognized financial
journal; or
(c) with respect to an individual Investor, when such Investor
no longer holds at least 50% of the Series A Shares, Series B Shares, Series C
Shares or Series D Shares (or the Common Stock issued upon conversion thereof)
purchased by such Investor, respectively.
Section 2.5 Assignment. The rights granted by the Company under this
Article II may only be assigned by an Investor to a transferee or assignee of
not less than 100,000 of the
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Series A Shares, Series B Shares, Series C Shares, Series D Shares or
Registrable Securities (as adjusted for stock splits and the like); provided
that such transfer may otherwise be effected in accordance with applicable
securities laws and provided further that the Company is given written notice at
the time of or within a reasonable time after such transfer, stating the name
and address of such transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The share
limitations set forth above shall not apply to transfers by any Investor to such
Investor's Affiliated Parties, as defined below, but shall apply to further
transfers to non-Affiliated Parties.
Section 2.6 Waiver of Right of First Refusal. The Investors hereby
waive the right of first refusal (including but not limited to any notice
provisions) set forth in Article II of the Fourth Amended and Restated Investor
Rights Agreement with respect to issuance of the Series D Shares issued pursuant
to the Series D Stock Purchase Agreement, as may be amended.
ARTICLE III
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
Section 3.1 Financial Information. The Company shall furnish the
following reports to each Investor so long as such Investor owns not less than
ten percent (10%) of the Series A Shares, Series B Shares, Series C Shares and
Series D Shares (and/or shares of Common Stock issued upon conversion thereof)
purchased by such Investor.
(a) Annual Financial Statements. As soon as practicable after
the end of each fiscal year, and in any event within ninety (90) days
thereafter, consolidated balance sheets of the Company and its subsidiaries, if
any, as at the end of such fiscal year, and consolidated statements of income
and of shareholders equity and consolidated statements of cashflows of the
Company and its subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and, at least once every second year,
certified by nationally recognized independent public accountants selected by
the Company.
(b) Monthly Financial Statements. As soon as practicable after
the end of each calendar month, and in any event within thirty (30) days
thereafter, consolidated balance sheets of the Company and its subsidiaries, if
any, consolidated statements of income and of shareholder equity and
consolidated statements of cash flows of the Company and its subsidiaries, if
any, for such period and for the current fiscal year to date, prepared on a
basis substantially consistent with the principles by which the Company's
year-end financial statements are prepared, except that they are subject to
year-end adjustments and will not contain all footnotes required under GAAP, in
reasonable detail.
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(c) Annual Operating Plan. As soon as available, but not later
than thirty (30) days after the end of each fiscal year of the Company, a copy
of the Company's annual operating plan for the forthcoming fiscal year,
including a projected balance sheet and statement of operations prepared on a
monthly basis, and any material amendments to such projections as approved from
time to time during such fiscal year by the Board of Directors.
(d) Other Information. Such other information relating to the
financial condition, business, prospects or corporate affairs of the Company as
such Investor may from time to time reasonably request; provided, however, that
the Company shall not be obligated to provide information which it reasonably
considers to constitute a trade secret or to contain similarly confidential
information. Exchanges of confidential information between the Company and Intel
Corporation shall be governed by the terms of the Corporate Non-Disclosure
Agreement No. 83942, dated as of _____, between the Company and Intel and any
Confidential Information Transmittal Records provided in connection therewith
(the "Intel Nondisclosure Agreement").
Section 3.2 Inspection. For so long as an Investor is entitled to
receive reports under Section 3.1, the Company shall permit such Investor, at
such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by such Investor upon reasonable notice to the Company; provided,
however, that the Company shall not be obligated pursuant to this Section 3.2 to
provide access to any information which it reasonably considers to constitute a
trade secret or to contain similarly confidential information. Exchanges of
confidential information between the Company and Intel shall be governed by the
terms of the Intel Nondisclosure Agreement.
Section 3.3 Series A Board Representation. For so long as the Investors
holding Series A Shares shall own Series A Shares sold and issued to them under
the Stock Purchase Agreement (and/or shares of Common Stock into which such
Series A Shares are convertible, and as adjusted for stock splits, combinations
and the like), the Company shall use its reasonable best efforts to cause one
(1) person designated by the majority-in-interest (in terms of the total number
of shares of such Common Stock issued or issuable upon conversion of such
Shares) of such Investors then holding Series A Shares (and/or such Common
Stock) to be elected to the Company's Board of Directors.
Section 3.4 Series B Board Representation. For so long as the Investors
holding Series B Shares shall own Series B Shares sold and issued to them under
the Series B Stock Purchase Agreement (and/or shares of Common Stock into which
such Series B Shares are convertible, as adjusted for stock splits, combinations
and the like), the Company shall use its reasonable best efforts to cause one
(1) person designated by the majority-in-interest (in terms of the total number
of shares of such Common Stock issued or issuable upon conversion of such
Shares) of such Investors then holding Series B Shares (and/or such Common
Stock) to be elected to the Company's Board of Directors.
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Section 3.5 Outside Directors. For so long as there are any shares of
Preferred Stock outstanding, the Company shall use its reasonable best efforts
to cause at least a majority of the members of the Company's Board of Directors
(including the persons designated by the Investors pursuant to the preceding
Sections 3.3 and 3.4) to be "outside directors" (meaning they are not officers
or employees of the Company).
Section 3.6 Insurance. The Company shall keep its assets and those of
its subsidiaries which are of an insurable character insured by financially
sound and reputable insurers against loss and damage by fire, extended coverage,
explosion and other risks customarily insured against by companies in the
Company's line of business, to the extent and in the manner customary for
companies in similar businesses similarly situated.
Section 3.7 Proprietary Information and Employee Confidentiality
Agreements. The Company shall require each technical and management employee and
consultant of the Company to enter into a proprietary information and employee
confidentiality agreement in substantially the form of the Employee Agreement
attached as Exhibit F to the Series D Stock Purchase Agreement, or such other
form as may be approved by the Board of Directors.
Section 3.8 Future Stock Issuances. The Company shall not issue any of
its capital stock, or grant an option to purchase any of its capital stock,
unless such issuance or grant is approved by the Company's Board of Directors by
not less than a two-thirds' majority.
Section 3.9 Right to Purchase Shares in Public Offering. In connection
with an initial public offering of the Company's shares of Common Stock pursuant
to a registration statement under the Act, each Holder that owns (together with
its Affiliated Parties) not less than 755,940 shares of Series C Shares (each a
"Major Investor"), shall, to the extent permitted by and in accordance with
applicable laws and regulations, have the right to purchase shares offered to
the public by the Company in such public offering (the "Proposed Offering") as
follows:
(a) The Company shall give the Major Investors notice of its
intention to effect the Proposed Offering, which notice shall include the
proposed price range in which the Company intends to offer the securities sold
to the public;
(b) Each Major Investor shall, within five (5) business days
after the delivery of such notice by the Company in accordance with Section
3.9(a) hereof, notify the Company and the managing underwriter of such Major
Investor's election to purchase its Allocation (defined below) of the shares to
be offered in the Proposed Offering by the Company (excluding shares sold
pursuant to the underwriters' over-allotment option) within the range specified
by the Company, and of the maximum price (the "Ceiling Price"), if any, above
which range such Major Investor will purchase its Allocation. Failure to so
notify the Company and the managing underwriter within the five (5) business day
period specified in this Section 3.9(b) shall constitute a complete and
irrevocable waiver of the rights granted to a Major Investor under this Section
3.9. Other than as specified in Section 3.9(a) and as may otherwise be required
by applicable law or by this Agreement, the Company shall have no obligation to
provide notices to a Major Investor with respect to the Proposed Offering.
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(c) Any election made by a Major Investor pursuant to Section
3.9(b) constitutes a binding obligation to purchase such Major Investor's
Allocation at a price up to and including the Ceiling Price, subject only to the
occurrence of a Material Adverse Change (defined below), which occurrence shall
permit such Major Investor, by written notice delivered to the Company and the
managing underwriter no later than one (1) business day before the effectiveness
of the final registration statement covering the Proposed Offering, to revoke
its election to purchase its Allocation in the Proposed Offering. If the price
at which the Company's securities are ultimately sold to the public in the
Proposed Offering exceeds a Major Investor's Ceiling Price, such Major Investor
shall have no obligation to purchase its Allocation and the Company and the
managing underwriter may conclusively presume that such Major Investor does not
wish to purchase its Allocation.
(d) If a Major Investor elects to purchase securities in the
Proposed Offering, the managing underwriter will deliver the preliminary and
final prospectuses for such offering to such Major Investor in accordance with
applicable law;
(e) If a Major Investor elects to purchase its Allocation in
the Proposed Offering, it shall do so on the terms of such Proposed Offering and
for a price per share which shall be equal to the price to the public set forth
in the final prospectus delivered to such Major Investor pursuant to Section
3.9(d);
(f) For the purposes of this Section 3.9, a Major Investor's
"Allocation" shall be determined by dividing (A) the total number of shares of
Common Stock owned by such Major Investor (assuming conversion of all
outstanding shares of Series C Preferred Stock) by (B) the total number of
shares of Common Stock issued and outstanding (calculated on a fully-diluted,
fully-converted basis assuming exercise or conversion of all options, warrants
and other convertible securities then outstanding); provided, however, that such
Allocation shall in no event exceed 3% of the shares to be offered by the
Company in the Proposed Offering (excluding shares sold pursuant to the
underwriters' over-allotment option).
(g) A "Material Adverse Change" shall mean a change in the
Company's business, assets (including intangible assets), liabilities, financial
condition or results of operations since the date of the notification given by
the Company pursuant to Section 3.9(a) which has had or is likely to have a
material adverse effect upon the Company.
(h) Each Major Investor hereby agrees that during the ninety
(90) day period following the effective date of the registration statement of
the Company filed under the Act in connection with the Proposed Offering, it
shall not sell, offer to sell, or otherwise transfer or dispose of the shares of
the Company acquired though exercise of the rights granted to such Major
Investor pursuant to this Section 3.9. To enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the shares held by
each Major Investor (and the shares of every other person subject to the
foregoing restriction) until the end of such period. Each Major Investor agrees
to execute the form of such market stand-off agreement as may be reasonably
requested by the underwriters.
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(i) Notwithstanding Section 6.3 to the contrary, any term of
this Section 3.9 may be amended and the observance of any term of this Section
3.9 may only be waived with the written consent of the Company and the holders
of a majority of the Registrable Securities issued or issuable on the conversion
of the Series C Shares.
Section 3.10 Termination of Covenants. The covenants set forth in this
Article III, Section 4.3 and Article V, to the extent not previously terminated,
shall terminate on the earlier to occur of: (i) the closing date of a Qualified
Initial Public Offering (provided however that Section 3.9(h) shall survive
until 90 days after the closing thereof), (ii) the date on which the Company
first becomes subject to the periodic reporting requirements of Section 12(g) or
15(d) of the Securities Exchange Act, or (iii) the consummation date of an
acquisition of the Company pursuant to which a Public Market exists for the
Company's capital stock (or other stock issued in exchange therefore).
ARTICLE IV
AFFIRMATIVE COVENANTS OF THE INVESTORS
Each Investor hereby severally covenants and agrees as follows:
Section 4.1 Confidentiality of Information; Securities Laws. Subject to
Section 5.3, each Investor, except Intel, agrees not to disclose to third
parties or use for purposes other than the evaluation, monitoring and
preservation of such Investor's investment in the Company, except to the extent
required by law or otherwise consented to in writing by the Company, any
information obtained by such Investor from the Company contemplated by this
Agreement, which may be proprietary to the Company or otherwise confidential and
which has not been made available to the public or to any other third party on a
non-confidential basis. Exchanges of confidential information between the
Company and Intel shall be governed by the Intel Nondisclosure Agreement. Each
Investor further acknowledges and understands that any information so obtained
(whether or not of a proprietary nature) may be considered "inside" non-public
information. Except as contemplated by this Agreement, each Investor agrees that
it will not utilize such information in connection with the purchase and/or sale
of the Company's securities, except in compliance with applicable state and
federal securities laws.
Section 4.2 Requests to Waive Accrued Dividends. In connection with the
Company's first registered offering of the sale of the Company's securities to
the public, if the underwriter of such offering reasonably determines that the
offering cannot be made due to the amount of accrued dividends to which the
holders of the Series A Shares are entitled pursuant to the Company's Restated
Articles of Incorporation, the holders of the Series A Shares shall meet with
officers of the Company to consider in good faith any request by the Company
that such Investors waive their right to receive such dividends.
Section 4.3 Voting and other Covenants.
(a) Agreement to Vote. Each Investor (and its permitted
assigns) hereby agrees to vote all shares of the Company's Common Stock and
Preferred Stock now or hereafter owned by it, whether beneficially or otherwise
at any regular or special meeting of shareholders
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of the Company, or, in lieu of any such meeting, to give its written consent, as
provided in this Section 4.3.
(b) Series A Board Representation. For so long as the
Investors holding Series A Shares shall own Series A Shares sold and issued to
them under the Stock Purchase Agreement (and/or shares of Common Stock into
which such Series A Shares are convertible, and as adjusted for stock splits,
combinations and the like), then the Investors (and their permitted assigns)
shall vote or act with respect to all shares of the Company's Common Stock and
Preferred Stock held by the Investors, as needed, to elect to the board of
directors of the Company a designee of Thompson Clive Investment Plc (the
"Thompson Clive Director").
(c) Series B Board Representation. For so long as the
Investors holding Series B Shares shall own Series B Shares sold and issued to
them (and/or shares of Common Stock into which such Series B Shares are
convertible, and as adjusted for stock splits, combinations and the like), then
the Investors (and their permitted assigns) shall vote or act with respect to
all shares of the Company's Common Stock and Preferred Stock held by the
Investors, as needed, to elect to the board of directors of the Company a
designee of Morgan Stanley Venture Capital Fund (the "Morgan Stanley Director").
(d) Vacancy. In the event of any termination, removal or
resignation of the Thompson Clive Director or the Morgan Stanley Director, the
Investors (and their permitted assigns) shall take all actions necessary and
appropriate to cause such vacancy to be filled in the manner by which such
director was elected pursuant to the terms of this Section 4.3.
(e) Successors in Interest. The provisions of this Section 4.3
shall be binding upon the successors in interest of any of the shares of the
Company's Common Stock or Preferred Stock held by the Investors. The Company
shall not permit the transfer of any shares of Common Stock or Preferred Stock
on its books or issue a new certificate representing any such shares unless and
until the person to whom such security is transferred shall have executed a
written agreement pursuant to which such person becomes subject to the
provisions of this Section 4.3 and agrees to be bound by all the provisions
hereof.
(f) Legend. Each certificate representing any of the Company's
shares of Common Stock or Preferred Stock held by an Investor shall be endorsed
by the Company with a legend reading as follows:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT
CONTAINED IN AN INVESTOR RIGHTS AGREEMENT (A COPY OF WHICH MAY
BE OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST
IN SUCH SHARES, THE PERSON ACCEPTING SUCH INTEREST SHALL BE
DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF SAID VOTING AGREEMENT.
(g) Pooling Transaction Voting. MSIT Holdings, Inc., Morgan
Stanley Venture Investors, L.P., and Morgan Stanley Venture Capital Fund II,
C.V. agree that for so long
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as they hold any shares of capital stock of the Company, they will vote their
shares with respect to any acquisition or merger transaction that is accounted
for on a pooling of interests basis in a manner consistent with the vote of
Morgan Stanley Venture Capital Fund II, L.P. on such matter.
ARTICLE V
CONFIDENTIALITY
Section 5.1. Disclosure of Terms. The terms and conditions of this
Agreement, the Series D Stock Purchase Agreement, the Fourth Amended and
Restated Co-Sale Agreement among the Company and certain investors dated
concurrently herewith, the Common Stock Purchase Agreement between the Company
and Intel dated concurrently herewith, the Supplemental Agreement between the
Company and Intel dated concurrently herewith (the "Supplemental Agreement") and
the Tuning Lab Agreement between the Company and Intel dated concurrently
herewith, (collectively, the "Agreements"), including their existence, shall be
considered confidential information and shall not be disclosed by any party
hereto to any third party except in accordance with the provisions set forth
below.
Section 5.2 Press Releases, Etc. Within sixty (60) days of the Closing,
the Company may issue a press release disclosing that Intel has invested in the
Company; provided that the release does not disclose any of the terms of the
Agreements and the final form of the press release is approved in advance in
writing by the Intel. Intel's name and the fact that Intel is an investor in the
Company can be included in a reusable press release boilerplate statement in the
form attached hereto as Exhibit B, which may be used on an ongoing basis
regarding disclosure of such investment. No other announcements regarding Intel
in a press release, conference, advertisement, announcement, professional or
trade publication, mass marketing materials or otherwise to the general public
may be made without Intel's prior written consent.
Section 5.3 Permitted Disclosures. Notwithstanding the foregoing, (i)
any party may disclose any of the terms of the Agreements to its current or bona
fide prospective investors, employees, investment bankers, lenders, accountants
and attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations; (ii) any party may disclose (other than
in a press release or other public announcement described in subsection (b))
solely the fact that the Investors are investors in the Company to any third
parties without the requirement for the consent of any other party or
nondisclosure obligations; and (iii) Intel may disclose its investment in the
Company and the terms of the Agreements to third parties or to the public at its
sole discretion and, if it does so, the other parties hereto shall have the
right to disclose to third parties any such information disclosed in a press
release or other public announcement by Intel.
Section 5.4 Legally Compelled Disclosure. In the event that any party
is requested or becomes legally compelled (including without limitation,
pursuant to securities laws and regulations) to disclose the existence of any of
the Agreements or any of the terms thereof in contravention of the provisions of
this Article V, such party (the "Disclosing Party") shall provide the other
parties (the "Non-Disclosing Parties") with prompt written notice of that fact
so that the appropriate party may seek (with the cooperation and reasonable
efforts of the other parties) a protective order, confidential treatment or
other appropriate remedy. In such event, the
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<PAGE> 23
Disclosing Party shall furnish only that portion of the information which is
legally required and shall exercise reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded such information to the
extent reasonably requested by any Non-Disclosing Party.
Section 5.5 Other Information. The provisions of this Agreement shall
be in addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by any of the parties hereto with respect to
the transactions contemplated hereby. Additional disclosures and exchange of
confidential information between the Company and Intel (including without
limitation, any exchanges of information with any Intel board observer) shall be
governed by the terms of the Intel Nondisclosure Agreement.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of California without application of
principles of conflicts of law.
Section 6.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
Section 6.3 Entire Agreement; Amendment.
(a) This Agreement and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement among the
parties with regard to the subjects hereof and thereof. Any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
more than two-thirds (2/3rds) of the voting power of the securities entitled to
the rights being amended or waived, based on the number of shares of Common
Stock into which the Series A Shares, Series B Shares, Series C Shares and/or
Series D Shares, as applicable, are convertible and for which the Warrants are
exercisable, provided, however, that in the event an amendment or waiver of a
provision contained in other than Sections 3.3, 3.4, 3.5, 4.2 or 4.3 of this
Agreement adversely affects the rights and/or obligations of any holder of
Preferred Stock under this Agreement in a different manner than the other
holders of Preferred Stock (it being understood that, without limiting the
foregoing, different Investors shall not be affected differently because of
proportional differences that arise out of differences in the original issue
price for the Preferred Stock held by such Investor or the number of shares of
Preferred Stock held by such Investor) such amendment or waiver shall also
require the written consent of such adversely affected Investor, and provided
further that any amendment or waiver of Article 5 shall require the written
consent of Intel.
(b) Any amendment or waiver effected in accordance with this
Section shall be binding upon each Investor holding any securities of the
Company at the time outstanding (including securities into which such securities
are convertible), each future holder of all such securities, and the Company.
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<PAGE> 24
Section 6.4 Notices and Other Communications. Every notice or other
communication required or contemplated by this Agreement by either party shall
be delivered either by (i) personal delivery, (ii) postage prepaid return
receipt requested registered or certified mail or the equivalent of registered
or certified mail under the laws of the country where mailed, (iii) nationally
recognized overnight courier, such as Federal Express or UPS, or (iv) facsimile
with a confirmation copy sent simultaneously by postage prepaid, return receipt
requested, registered or certified mail, in each case addressed to the Company
at the following address:
To the Company: Persistence Software, Inc.
1720 S. Amphlett Blvd., Suite 300
San Mateo, California 94402
Attn.: Christine Russell, Secretary
Facsimile: (650) 341-8432
With a copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, California 94025
Attn: Mark A. Medearis
Facsimile: (650) 233-8386
and addressed to any Investor at the address set forth for such Investor in
Exhibit A to this Agreement, or at such other address as the intended recipient
previously shall have designated by written notice to the other party. Notice by
registered or certified mail shall be effective on the date it is officially
recorded as delivered to the intended recipient by return receipt or equivalent,
and in the absence of such record of delivery, the effective date shall be
presumed to have been the third (3rd) business day after it was deposited in the
mail. All notices and other communications required or contemplated by this
Agreement delivered in person or sent by courier shall be deemed to have been
delivered to and received by the addressee and shall be effective on the date of
personal delivery; notices delivered by facsimile with simultaneous confirmation
copy by registered or certified mail shall be deemed delivered to and received
by the addressee and effective on the date sent. Notice not given in writing
shall be effective only if acknowledged in writing by a duly authorized
representative of the party to whom it was given.
Section 6.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Series A Shares, Series B
Shares, Series C Shares, Series D Shares or Common Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right, power
or remedy of such holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies either under
this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
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<PAGE> 25
Section 6.6 Separability of Agreements; Severability of this Agreement.
Unless otherwise expressly provided herein, the rights of the Investors
hereunder are several rights, not rights jointly held with any of the other
Investors. Any invalidity, illegality or limitation on the enforceability of any
part of this Agreement with respect to any Investor, whether arising by reason
of the law of the Investor's domicile or otherwise, shall in no way affect or
impair the validity, legality or enforceability of this Agreement with respect
to any other Investor. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 6.7 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
Section 6.8 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. Execution and delivery of this Agreement by
exchange of facsimile copies bearing the facsimile signature of a party hereto
shall constitute a valid and binding execution and delivery of this Agreement by
such party. Such facsimile copies shall constitute enforceable original
documents.
Section 6.9 Gender. The use of the neuter gender herein shall be deemed
to include the masculine and feminine gender, if the context so requires.
Section 6.10 Attorneys' Fees. If any action or proceeding shall be
commenced to enforce this Agreement or any right arising in connection with this
Agreement, the prevailing party in such action or proceeding shall be entitled
to recover from the other party, the reasonable attorneys' fees, costs and
expenses incurred by such prevailing party in connection with such action or
proceeding.
Section 6.11 Affiliated Parties. For purposes of this Agreement, the
term "Affiliated Parties" shall include controlling shareholders of a corporate
Investor, controlling partners of a partnership Investor, trustees of an
Investor that is a trust, managing members of an Investor that is a limited
liability company, or a majority-owned subsidiary or an affiliated corporation
or partnership of the Investor where such affiliation is through
majority-ownership, provided, however that any such Affiliated Parties shall not
be in a business that competes with the Company, and provided further that any
and all transferees must agree in writing to be bound by the terms of this
Agreement as if it were an Investor hereunder. Series A Shares, Series B Shares,
Series C Shares and Series D Shares (and/or Common Stock issuable upon
conversion of such shares) held by Affiliated Parties shall be deemed to be held
by a single Investor. Affiliated Parties shall designate one member to receive
the information or exercise the rights to which the group is entitled under
Article III. The Amerindo Purchasers (as defined in the Second Series C Stock
Purchase Agreement) shall be deemed Affiliated Parties of each other.
-25-
<PAGE> 26
Section 6.12 Further Assurances. The parties hereto shall each perform
such acts, execute and deliver such instruments and documents, and do all such
other things as may be reasonably necessary to accomplish the transactions
contemplated in this Agreement.
Section 6.13 Specific Performance. It is recognized and agreed by all
parties that certain of the rights which are subject to this Agreement are
unique and are of such a nature as to be inherently difficult or impossible to
value monetarily. It is thus agreed that, in the event of a breach of this
Agreement by any party, an action at law or damages or other remedies at law
would be inadequate to protect the unique rights and interests of the parties
hereto. Therefore each party agrees that in the event of any controversy
concerning the subject matter of this Agreement, the terms of this Agreement
shall be enforceable in a court of equity by a decree of specific performance.
Such a remedy shall, however, be cumulative and not exclusive, and shall be in
addition to any other remedy which the parties may have.
The remainder of this page is intentionally blank.
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<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Fifth Amended and
Restated Investor Rights Agreement as of the date first above written.
COMPANY:
PERSISTENCE SOFTWARE, INC.
a California corporation
By: /s/ Christopher Keene
--------------------------
Name: Christopher Keene
--------------------------
Title: President and CEO
--------------------------
INVESTORS:
CISCO SYSTEMS, INC.
By: /s/ David A. Rogan
Name: David A. Rogan
--------------------------------
Title: Vice President, Treasurer
--------------------------------
MORGAN STANLEY VENTURE INVESTORS, L.P.
By: Morgan Stanley Venture Partners II, L.P.
its General Partner
By: Morgan Stanley Venture Capital II, Inc.
Managing General Partner
By: /s/ William J. Harding
Name: William J. Harding
--------------------------------
Title: Vice President
--------------------------------
SIGNATURE PAGE FOR PERSISTENCE SOFTWARE, INC.
FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 28
MORGAN STANLEY VENTURE CAPITAL FUND II, L.P.
By: Morgan Stanley Venture Partners II, L.P.
its General Partner
By: Morgan Stanley Venture Capital II, Inc.
Managing General Partner
By: /s/ William J. Harding
Name: William J. Harding
------------------------------------
Title: Vice President
------------------------------------
MORGAN STANLEY VENTURE CAPITAL FUND II, C.V.
By: Morgan Stanley Venture Partners II, L.P.
its Investment General Partner
By: Morgan Stanley Venture Capital II, Inc.
Managing General Partner
By: /s/ William J. Harding
Name: William J. Harding
------------------------------------
Title: Vice President
------------------------------------
MSIT HOLDINGS, INC.
By: /s/ Merritt Lutz
Name: Merritt Lutz
------------------------------------
Title: Senior Advisor
------------------------------------
THOMPSON CLIVE INVESTMENTS PLC,
a United Kingdom Public Limited Company
By: /s/ C. Fitzherbert/ /s/ S.A. Thompson
Name: C. Fitzherbert/S.A. Thompson
-------------------------------------
Title: Authorized Signatory/
Company Secretary
-------------------------------------
SIGNATURE PAGE FOR PERSISTENCE SOFTWARE, INC.
FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 29
THOMPSON CLIVE INC.
401(K) FBO Greg Ennis
By: /s/ Michelle Stecklein
Name: Michelle Stecklein
-----------------------------
Title: Trustee
-----------------------------
THOMPSON CLIVE INC.
401(K) FBO Peter H. Ziebelman
By: /s/ Greg Ennis
Name: Greg Ennis
-----------------------------
Title: Trustee
-----------------------------
VENTURE LENDING & LEASING, INC.
By:
Name:___________________________
Title:__________________________
GENERAL BANK
By:
Name:___________________________
Title:__________________________
SIGNATURE PAGE FOR PERSISTENCE SOFTWARE, INC.
FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 30
NEXUS CAPITAL PARTNERS I, L.P.
By: /s/ Will Weathersby
Name: Will Weathersby
___________________________
Title: General Partner
__________________________
PIPER JAFFRAY INC.
By: /s/ Buzz Benson
Name: Buzz Benson
___________________________
Title: Managing Director
__________________________
THE ENTREPRENEURS' FUND, L.P.
By: BW Management, LLC, its general partner
By: /s/ Jeffrey T. Webber
Name: Jeffrey T. Webber
___________________________
Title: Managing Director
__________________________
LITTON MASTER TRUST
By: Amerindo Investment Advisors, Inc.
By: /s/ Alberto W. Vilar
Name: Alberto W. Vilar
___________________________
Title: Attorney-in-fact
__________________________
SIGNATURE PAGE FOR PERSISTENCE SOFTWARE, INC.
FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 31
ATGF II, A Panamanian Corporation
By: Amerindo Investment Advisors, Inc.
By: /s/ Alberto W. Vilar
_____________________________
Alberto W. Vilar, Director
/s/ James Stableford
___________________________________
JAMES STABLEFORD
/s/ Marc Weiss
___________________________________
MARC WEISS
RALPH H. CECHETTINI 1995 TRUST
By: /s/ Ralph Cechettini
Name: Ralph Cechettini
___________________________
Title:__________________________
INTEL CORPORATION
By: /s/ Arvind Sodhani
Name: Arvind Sodhani
___________________________
Title: Vice President and Treasurer
__________________________
SIGNATURE PAGE FOR PERSISTENCE SOFTWARE, INC.
FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 32
REUTERS HOLDINGS SWITZERLAND SA
By: [Illegible]
Name: [Illegible]
___________________________
Title:__________________________
SIGNATURE PAGE FOR PERSISTENCE SOFTWARE, INC.
FIFTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE> 33
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Common Series A Series B Series C Series D Warrant
Name Shares Shares Shares Shares Shares Shares
- ---- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
ATGF II 574,915
Litton Master Trust 161,987
James Stableford 5,000
Marc Weiss 3,239
Ralph H. Cechettini 1995 Trust 10,799
c/o Amerindo Investment Advisors
399 Park Avenue, 22nd Floor
New York, NY 10022
Nexus Capital Partners I, L.P. 215,983
1 Market Street
Steuart Tower, Suite 2400
San Francisco, CA 94105
Piper Jaffray, Inc. 53,996
222 South 9th Street
Minneapolis, MN 55402
The Entrepreneurs' Fund, L.P. 53,996 28,037
1717 Embarcadero Road, Suite 2000
Palo Alto, CA 94303
Cisco Systems, Inc. 431,965
170 W. Tasman Drive
San Jose, CA 95134-1706
MSIT Holdings, Inc. 1,484,716
750 Seventh Avenue, 12th Floor
New York, NY 10019
Attn: Scot Six
Morgan Stanley Venture Capital Fund II, L.P. 1,013,065 14,316
Morgan Stanley Venture Investors, L.P. 262,927 3,715
Morgan Stanley Venture Capital Fund II, C.V. 252,392 3,567
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Attn: William J. Harding
Thompson Clive Investments Plc 2,084,715 218,341 10,799
Thompson Clive Inc. 401(K) FBO Greg Ennis 52,120*
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
Common Series A Series B Series C Series D Warrant
Name Shares Shares Shares Shares Shares Shares
- ---- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Thompson Clive Inc. 401(K) FBO Peter H. 52,120*
Ziebelman
3000 Sand Hill Road
Building I, Suite 185
Menlo Park, CA 94025
Venture Lending and Leasing 55,556
General Bank 25,000
Intel Corporation 560,748
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: Treasurer
Fax Number: (408) 765-6038
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: General Counsel
Fax Number: (408) 765-1859
Reuters Holdings Switzerland SA 186,916
------- --------- --------- --------- ------- ------
TOTALS 104,240 2,084,715 3,231,441 1,544,277 775,701 80,556
</TABLE>
* Shares designated with an asterisk are shown only for purposes of inclusion in
the calculations of an Investor's "pro rata" share for purposes of Article II of
the Fifth Amended and Restated Investor Rights Agreement.
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<PAGE> 1
EXHIBIT 10.3
FOURTH AMENDED AND RESTATED CO-SALE AGREEMENT
THIS FOURTH AMENDED AND RESTATED CO-SALE AGREEMENT (the "Agreement") is
made and entered into as of February 19, 1999 by and among Christopher T. Keene,
Derek P. Henninger and Richard H. Jensen (together, the "Founders"), Persistence
Software, Inc., a California corporation (the "Company"), and the Investors
listed on Exhibit A attached hereto (the "Investors").
WHEREAS, certain of the Investors (the "Series B Investors") acquired
shares of the Company's Series B Preferred Stock on March 12, 1996 and in
connection therewith entered into a Co-Sale Agreement dated March 12, 1996,
which was amended and restated on November 27, 1996 to include additional
purchasers of Series B Preferred Stock as of that date (the "November 1996
Co-Sale Agreement");
WHEREAS, certain of the Investors (the "First Series C Investors")
acquired shares of the Company's Series C Preferred Stock on December 31, 1997
and in connection therewith entered into a Second Amended and Restated Co-Sale
Agreement dated December 31, 1997 (the "December 1997 Co-Sale Agreement");
WHEREAS, certain of the Investors (the "Second Series C Investors,"
and, together with the First Series C Investors, the "Series C Investors")
acquired shares of the Company's Series C Preferred Stock on August 13, 1998 and
in connection therewith entered into a Third Amended and Restated Co-Sale
Agreement dated August 13, 1998 (the "August 1998 Co-Sale Agreement");
WHEREAS, certain Investors (the "Series D Investors") have an interest
in acquiring from the Company shares of its Series D Preferred Stock pursuant to
a Series D Preferred Stock Purchase Agreement dated February 19, 1999 (the
"Series D Purchase Agreement");
WHEREAS, the Founders, the Series B Investors, the Series C Investors
and the Company wish to provide a further inducement to the Series D Investors
to purchase shares of the Company's Series D Preferred Stock by offering to the
Series D Investors the opportunity to participate, upon the terms and conditions
set forth in this Agreement, in subsequent sales by the Founders of shares of
the Company's Common Stock; and
WHEREAS, the parties hereto desire to amend and restate the August 1998
Co-Sale Agreement in its entirety hereby.
IT IS HEREBY AGREED AS FOLLOWS:
1. SALES BY THE FOUNDERS
1.1 Notice of Sales. Should any Founder propose to accept one or more
bona fide offers (collectively, the "Purchase Offer") from any persons to
purchase shares of the Company's
<PAGE> 2
Common Stock (the "Shares") from him (other than as set forth in Section 1.5
hereof), he shall promptly deliver a notice (the "Notice") to the Company and
each Investor stating the terms and conditions of such Purchase Offer.
1.2 Participation Right. If the Company chooses not to exercise its
right of first refusal contained in Section 3(b) of those common stock purchase
agreements dated June 14, 1991 between such Founder and Fulcrum Innovations,
Inc., the Company's predecessor in interest, each Investor shall have the right,
exercisable upon written notice to such Founder within ten (10) business days
after receipt of the Notice, to participate in such Founder's sale of Shares
pursuant to the specified terms and conditions of such Purchase Offer. To the
extent an Investor exercises such right of participation in accordance with the
terms and conditions set forth below, the number of Shares which such Founder
may sell pursuant to such Purchase Offer shall be correspondingly reduced. The
right of participation of each Investor shall be subject to the following terms
and conditions:
(a) Calculation of Shares. Treating all Preferred Stock as if it
had been converted into Common Stock for the purposes of this Section 1.2(a)
only, each Investor may sell all or any part of that number of shares of Common
Stock of the Company equal to the product obtained by multiplying (i) the
aggregate number of shares of Common Stock covered by the Purchase Offer by (ii)
a fraction, the numerator of which is the number of shares of Common Stock of
the Company (including Common Stock issuable upon conversion of Preferred Stock)
at the time owned by such Investor and the denominator of which is the combined
number of shares of Common Stock of the Company (including Common Stock issuable
upon conversion of Preferred Stock) at the time owned by such Founder, including
shares transferred to Permitted Transferees (as hereinafter defined) in
accordance herewith, and the Investors.
(b) Delivery of Certificates. Each Investor may effect its
participation in the sale by delivering to such Founder for transfer to the
purchase offeror one or more certificates, properly endorsed for transfer, which
represent the number of shares of Common Stock, or Preferred Stock or Common
Stock issued upon conversion thereof, which such Investor elects to sell
pursuant to this Section 1.2.
1.3 Transfer. The stock certificate or certificates which the Investor
delivers to the Founder pursuant to Section 1.2 shall be delivered by such
Founder to the purchase offeror in consummation of the sale pursuant to the
terms and conditions specified in the Notice, and such Founder shall promptly
thereafter remit to such Investor that portion of the sale proceeds to which
such Investor is entitled by reason of its participation in such sale.
1.4 No Adverse Effect. The exercise or non-exercise of the rights of
the Investors hereunder to participate in one or more sales of Shares made by a
Founder shall not adversely affect their rights to participate in subsequent
sales of Common Stock by a Founder pursuant to Section 1.2 hereof.
-2-
<PAGE> 3
1.5 Permitted Transactions. The participation rights of the Investors
shall not pertain or apply to:
(a) Any transaction or series of transactions by a Founder
involving the sale or transfer of not more than five percent (5%) of a Founder's
aggregate stockholding in the Company, which holding shall be calculated on an
as-converted basis;
(b) Any pledge of Company's Common Stock made by a Founder pursuant
to a bona fide loan transaction which creates a mere security interest;
(c) Any repurchase of Common Stock by the Company;
(d) Any bona fide gift; or
(e) Any transfer to a Founder's ancestors, descendants or spouse or
to a trustee for their benefit.
provided, that (i) such Founder shall inform the Investors of such pledge,
transfer or gift prior to effecting it and (ii) the pledgee, transferee or donee
(collectively, the "Permitted Transferees") shall furnish the Investors with a
written agreement to be bound by and comply with all provisions of this
Agreement applicable to such Founder.
2. TRANSFER OF STOCK. Any attempt to transfer shares of the Company in violation
of Section 1 hereof shall be void and the Company agrees it will not effect such
a transfer nor will it treat any alleged transferee as the holder of such shares
without the written consent of the Investors.
3. LEGENDED CERTIFICATES
3.1 Each certificate representing shares of the Common Stock of the
Company now or hereafter owned by the Founders or hereafter issued to any
Permitted Transferee pursuant to Section 1.5 shall be endorsed with the
following legend:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
CO-SALE AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE CORPORATION
AND CERTAIN HOLDERS OF COMMON AND PREFERRED STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION.
3.2 The Section 3.1 legend shall be removed upon termination of this
Agreement in accordance with the provisions of Section 4.1.
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<PAGE> 4
4. MISCELLANEOUS PROVISIONS
4.1 Termination. This Agreement shall terminate upon the earliest to
occur of any one of the following events:
(a) The liquidation, dissolution or indefinite cessation of the
business operations of the Company;
(b) The execution by the Company of a general assignment for the
benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company; or
(c) The consummation of the Company's initial public offering of
securities or the consummation of an acquisition of the Company pursuant to
which a Public Market exists for the Company's capital stock (or other stock
issued in exchange therefore). For the purpose of this Agreement, a "Public
Market" shall be deemed to exist if (i) such stock is listed on a national
securities exchange (as that term is used in the Securities Exchange Act of
1934, as amended) or (ii) such stock is traded on the over-the-counter market
and prices are published daily on business days in a recognized financial
journal.
4.2 Notices. Any notice required or permitted to be given to a party
pursuant to the provisions of this Agreement shall be in writing and shall be
effective upon personal delivery or upon deposit in the U.S. certified or
registered mail, postage prepaid and properly addressed to the party to be
notified as set forth on the Company's books and records or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties hereto.
4.3 Successors and Assigns. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
The participation rights of the Investors hereunder are only assignable to an
assignee or transferee of not less than 100,000 shares of Common Stock and/or
Preferred Stock (as adjusted for any stock splits, reverse stock splits, stock
dividends, recapitalizations and the like); provided that such limitation shall
not apply to transfers by an Investor to controlling shareholders, controlling
partners, retired controlling partners or trustees of the Investor (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire the Common Stock, or Preferred Stock or Common Stock issued
upon conversion thereof, by gift, will or intestate succession), provided that
such transferee shall not be in a business that competes with the Company and
provided that all such transferees or assignees agree in writing to appoint a
single representative as their attorney in fact for the purpose of receiving any
notices and exercising their rights under this Agreement (such affiliated
transferees of an Investor shall be referred to as "Affiliated Parties"). The
shares of stock of the Company held by Affiliated Parties of an Investor shall
be aggregated with the shares of such Investor for the purposes of this
Agreement.
4.4 Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity,
-4-
<PAGE> 5
illegality or unenforceability shall not affect any other provisions of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
4.5 Modifications and Amendments. This Agreement may be modified or
amended only with the written consent of the Company, each Founder and a
two-thirds (2/3rds) interest of the Investors (based on the number of shares of
Common Stock held by the Investors, assuming conversion of all Preferred Stock
held by the Investors), provided, however, that in the event an amendment or
waiver adversely affects the rights and/or obligations of any holder of
Preferred Stock under this Agreement in a different manner than the other
holders of Preferred Stock (it being understood that, without limiting the
foregoing, different Investors shall not be affected differently because of
proportional differences that arise out of differences in the original issue
price for the Preferred Stock held by such Investor or the number of shares of
Preferred Stock held by such Investor) such amendment or waiver shall also
require the written consent of such adversely affected Investor, and provided
further that any amendment or waiver of Section 4.10 shall require the written
consent of Intel Corporation ("Intel"). Any waiver by a party of its rights
hereunder shall be effective only if evidenced by a written instrument executed
by a duly authorized representative of such party. In no event shall such waiver
of any rights hereunder constitute the waiver of such rights in any future
instance unless the waiver so specifies in writing.
4.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
4.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.8 Best Efforts. The Company agrees to use its best efforts to enforce
the terms of this Agreement, to inform the Investors of any breach hereof and to
assist the Investors in the exercise of their rights and performance of their
obligations hereunder.
4.9 Legal Fees. In the event of any action at law, suit in equity or
arbitration proceeding in relation to this Agreement or any shares or other
securities of the Company transferred hereunder, the prevailing party, or
parties, shall be paid by the other party or parties a reasonable sum for
attorneys' fees and expenses of such prevailing party or parties.
4.10 Confidentiality. The Founders agree to be bound by the
confidentiality and nondisclosure provisions of Article 5 of the Fifth Amended
and Restated Investor Rights Agreement by and among the Company and the
Investors listed thereto, dated as of the date hereof.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Fourth Amended and
Restated Co-Sale Agreement as of the date first above written.
COMPANY:
PERSISTENCE SOFTWARE, INC.
By: /s/ Christopher Keene
---------------------------
Name: Christopher Keene
-------------------
Title: President
-------------------
FOUNDERS:
/s/ Christopher T. Keene
------------------------------
Christopher T. Keene
/s/ Derek P. Henninger
------------------------------
Derek P. Henninger
/s/ Richard H. Jensen
------------------------------
Richard H. Jensen
INVESTORS:
MSIT HOLDINGS, INC.
By: /s/ Merritt Lutz
-------------------------
Name: Merritt Lutz
--------------------
Title: Senior Advisor
--------------------
SIGNATURE PAGE TO PERSISTENCE SOFTWARE, INC. FOURTH AMENDED AND
RESTATED CO-SALE AGREEMENT
<PAGE> 7
MORGAN STANLEY VENTURE
INVESTORS, L.P.
By: Morgan Stanley Venture Partners II,
L.P. its General Partner
By: Morgan Stanley Venture Capital II, Inc.
Managing General Partner
By: /s/ William J. Harding
----------------------------------------
Name: William J. Harding
----------------------------------
Title: Vice President
-----------------------------------
MORGAN STANLEY VENTURE CAPITAL FUND II, C.V.
By: Morgan Stanley Venture Partners II,
L.P. its General Partner
By: Morgan Stanley Venture Capital II, Inc.
Managing General Partner
By: /s/ William J. Harding
-----------------------------------------
Name: William J. Harding
----------------------------------
Title: Vice President
----------------------------------
MORGAN STANLEY VENTURE CAPITAL FUND II, C.V.
By: Morgan Stanley Venture Partners II,
L.P. its General Partner
By: Morgan Stanley Venture Capital II, Inc.
Managing General Partner
By: /s/ William J. Harding
-----------------------------------------
Name: William J. Harding
----------------------------------
Title: Vice President
----------------------------------
SIGNATURE PAGE TO PERSISTENCE SOFTWARE, INC. FOURTH AMENDED AND
RESTATED CO-SALE AGREEMENT
<PAGE> 8
THOMPSON CLIVE INVESTMENTS PLC,
a United Kingdom Public Limited Company
By: /s/ C. Fitzherbect / /s/ S. A. Thompson
-----------------------------------------
Name: C. Fitzherbect / S. A. Thompson
------------------------------------
Title: Authorized Signatory /
Company Secretary
------------------------------------
CISCO SYSTEMS, INC.
By: /s/ David A. Rogan
-----------------------------------------
Name: David A. Rogan
------------------------------------
Title: Vice President, Treasurer
------------------------------------
NEXUS CAPITAL PARTNERS I, L.P.
By: /s/ Will Weathersby
-----------------------------------------
Name: Will Weathersby
------------------------------------
Title: General Partner
------------------------------------
PIPER JAFFRAY INC.
By: /s/ Buzz Benson
-----------------------------------------
Name: Buzz Benson
------------------------------------
Title: Managing Director
THE ENTREPRENEURS' FUND, L.P.
By: BW Management, LLC, its general partner
By: /s/ Jeffrey T. Webber
-----------------------------------------
Name: Jeffrey T. Webber
------------------------------------
Title: Managing Director
SIGNATURE PAGE TO PERSISTENCE SOFTWARE, INC. FOURTH AMENDED AND
RESTATED CO-SALE AGREEMENT
<PAGE> 9
LITTON MASTER TRUST
By: Amerindo Investment Advisors, Inc.
By: /s/ Alberto W. Vilar
-----------------------------------------
Name: Alberto W. Vilar
------------------------------------
Title: Attorney-in-Fact
-----------------------------------
ATGF II, A Panamanian Corporation
By: Amerindo Investment Advisors, Inc.
By: /s/ Alberto W. Vilar
-----------------------------------------
Alberto W. Vilar, Director
/s/ James Stableford
-----------------------------------------
James Stableford
/s/ Marc Weiss
-----------------------------------------
Marc Weiss
RALPH H. CECHETTINI 1995 TRUST
By: /s/ Ralph Cechettini
-----------------------------------------
Name: Ralph Cechettini
------------------------------------
Title:
-----------------------------------
INTEL CORPORATION
By: /s/ Arvind Sodhani
-----------------------------------------
Name: Arvind Sodhani
---------------------------------------
Title: Vice President and Treasurer
--------------------------------------
SIGNATURE PAGE TO PERSISTENCE SOFTWARE, INC. FOURTH AMENDED AND
RESTATED CO-SALE AGREEMENT
<PAGE> 10
REUTERS HOLDINGS SWITZERLAND SA
By: [illegible]
-----------------------------------------
Name: [illegible]
---------------------------------------
Title:
--------------------------------------
SIGNATURE PAGE TO PERSISTENCE SOFTWARE, INC. FOURTH AMENDED AND
RESTATED CO-SALE AGREEMENT
<PAGE> 11
EXHIBIT A
INVESTORS
SERIES B INVESTORS:
MSIT Holdings, Inc.
750 Seventh Avenue, 12 Floor
New York, NY 10019
Attn: Scot Six
Morgan Stanley Venture Capital Fund II, L.P.
Morgan Stanley Venture Investors, L.P.
Morgan Stanley Venture Capital Fund II, C.V.
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Attn: William Harding
Thompson Clive Investments PLC
3000 Sand Hill Road
Building 1, Suite 185
Menlo Park, CA 94025
SERIES C INVESTORS:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95144
ATGF II
Litton Master Trust
James Stableford
Marc Weiss
Ralph H. Cechettini 1995 Trust
c/o Amerindo Investment Advisors, Inc.
399 Park Avenue, 22nd Floor
New York, NY 10022
Nexus Capital Partners I, L.P.
1 Market Street
Steuart Tower, Suite 2400
San Francisco, CA 94105
<PAGE> 12
SERIES C INVESTORS (continued):
Piper Jaffray Inc.
222 South 9th Street
Minneapolis, MN 55402
The Entrepreneurs' Fund, L.P.
1717 Embarcadero Road, Suite 200
Palo Alto, CA 94303
Morgan Stanley Venture Capital Fund II, L.P.
Morgan Stanley Venture Investors, L.P.
Morgan Stanley Venture Capital Fund II, C.V.
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Attn: William Harding
Thompson Clive Investments PLC
3000 Sand Hill Road
Building 1, Suite 185
Menlo Park, CA 94025
SERIES D INVESTORS:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: Treasurer
Fax Number: (408) 765-6038
With copies to:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: General Counsel
Fax Number: (408) 765-1859
The Entrepreneurs' Fund, L.P.
1717 Embarcadero Road, Suite 200
Palo Alto, CA 94303
-2-
<PAGE> 13
Reuters Holdings Switzerland SA
-3-
<PAGE> 1
Exhibit 10.4
PERSISTENCE SOFTWARE, INC.
1720 S. AMPHLETT BLVD.
THIRD FLOOR
SAN MATEO, CA 94402
PRIVILEGED AND CONFIDENTIAL
October 27, 1997
[Name]
[Address]
Dear [Name],
Persistence Software, Inc. (the "Company") considers it essential to the
best interests of its shareholders, in appropriate circumstances, to foster the
continuous employment of key management personnel. In this connection, the Board
of Directors of the Company (the "Board") recognizes that, as is the case with
many corporations today, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the Company and in
consideration of your agreements set forth in subparagraph 2(e) hereof, the
Company agrees that you shall receive the severance benefits set forth in this
letter agreement ("Agreement") in the event your employment with the Company
terminates within twelve (12) months subsequent to a "Change in Control" of the
Company (as defined in subparagraph 2(c) hereof) under the circumstances
described below.
1. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until the earliest of (a) the fourth anniversary of the
date of this Agreement (b) termination of your employment with the Company other
than after a Change in Control, or (c) written agreement between you and the
Company to terminate the Agreement.
2. Definitions. As used in this Agreement:
(a) "Board" shall mean the Board of Directors of the Company.
<PAGE> 2
(b) "Cause" shall mean grounds for termination of your employment by the
Company as set forth in Paragraph 4 hereof which, as herein provided, shall not
result in any compensation upon termination as provided in Paragraph 3 hereof.
(c) "Change of Control" shall mean an acquisition of all or substantially
all of the assets of the Company or the acquisition of the Company by merger or
pursuant to a registered tender or exchange offer or combination of the Company
with another corporation, resulting in less than a majority of the outstanding
voting shares of the surviving corporation being held, immediately after such
acquisition or combination, by the holders of the voting shares of the Company
outstanding immediately prior to such acquisition or combination.
(d) "Good Reason" shall mean grounds for termination by you of your
employment by the Company based upon prior constructive termination by the
Company as provided in Paragraph 5 hereof.
(e) "Potential Change in Control of the Company" shall be deemed to have
occurred if (i) the Company enters into an agreement or letter of intent, the
consummation of which would result in the occurrence of a Change in Control of
the Company, (ii) any person (including the company) publicly announces an
intention to take or consider taking actions which if consummated would
constitute a Change in Control of the Company; (iii) any person, other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 9.5% or more of the combined voting power
of the Company's then outstanding securities, increases his beneficial ownership
of such securities by 5 percentage points or more over the percentage so owned
by such person on the date hereof; or (iv) the Board adopts a resolution to the
effect that for the purposes of this Agreement, a Potential Change in Control of
the Company has occurred. You agree that, subject to the terms and conditions of
this Agreement, in the event of a Potential Change in Control of the Company,
you will remain in the employ of the Company (or the subsidiary thereof by which
you are employed at the date such Potential Change in Control occurs) until the
earliest of (x) a date which is six months after the occurrence of such
Potential Change in Control of the Company, or (y) the occurrence of a Change in
Control of the Company.
3. Compensation Upon Termination of Employment Following a Change in
Control. Subject to Sections 6 and 7 below, if your employment with the Company
is terminated within 12 (twelve) months after a Change of Control,
(a) The Company agrees that vesting of restricted stock previously sold or
options previously issued to you under the Company's 1997 Stock Plan (including
any stock or options issued in exchange for such stock as a result of a Change
in Control), whether vested or unvested, shall be immediately accelerated upon
such termination, to the extent of forty-eight (48) additional months of
vesting.
(b) Anything contained in subparagraph (a) above to the contrary
notwithstanding, the Company shall have no obligation to accelerate vesting
under this Agreement in the event of termination prior to a Change in Control or
if, after a Change in Control, it terminates
-2-
<PAGE> 3
your employment for "Cause," or if your employment terminates due to death,
retirement or resignation other than for "Good Reason." Furthermore, if it is
determined by the Company's Board of Directors, upon receipt of a written
opinion of the Company's independent public accountants that acceleration of
vesting would preclude accounting for the acquisition of the Company as a
pooling of interests, and the Board otherwise desires to approve a proposed
acquisition of the Company by an acquiring company which requires as a condition
to closing of the acquisition, that the acquisition be accounted for as a
pooling of interests, then the Company shall not be obligated to accelerate your
vesting under this Paragraph 3.
4. Termination for Cause. Termination of your employment with the Company
shall be regarded as termination for Cause only upon:
(a) your willful and continued failure to substantially perform your
duties with the Company (other than such failure resulting from your incapacity
due to physical or mental illness) after there is delivered to you by the
President and CEO a written demand for substantial performance which sets forth
in detail the specific respects in which it believes you have not substantially
performed your duties;
(b) your willfully engaging in gross misconduct which is materially and
demonstrably injurious to the Company;
(c) your committing a felony or an act of fraud against the Company or its
affiliates; or
(d) your breaching materially the terms of your employee confidentiality
and proprietary information agreement with the Company.
No act, or failure to act, by you shall be considered "willful" if done, or
omitted to be done, by you in good faith and in your reasonable belief that
your act or omission was in the best interest of the Company and/or required by
applicable law.
5. Termination for Good Reason. Your employment with the Company may be
regarded as having been constructively terminated by the Company and you may
therefore terminate your employment for Good Reason and thereupon become
entitled to compensation pursuant to Paragraph 3 above, if, after a Change in
Control, one or more of the following events shall occur (unless such event(s)
applies generally to a person solely in his capacity as a member of the Board):
(i) without your express written consent, the assignment to you of any
duties or the significant reduction of your duties, either of which is
inconsistent with your position with the Company (or the duties and
responsibilities of such position) immediately prior to a Change in Control,
and/or your removal from and failure to re-elect you to any such position, it
being understood and agreed that your assignment of the position of CFO
reporting to the CEO of a business unit, division or subsidiary or CFO reporting
to the CEO of the Company or a company into which the Company is merged in a
Change of Control or otherwise acquiring assets or voting shares of the Company
in connection with a Change of Control, or a parent of such a
-3-
<PAGE> 4
company, shall not constitute a significant reduction of your duties or
assignment of duties inconsistent with your position and shall not constitute
grounds for you to terminate your employment of Good Reason;
(ii) without your express written consent, the substantial reduction,
without good business reasons, of the facilities and perquisites (including
office space and location) available to you immediately prior to a Change in
Control;
(iii) a reduction by the Company in your salary or in any bonus
compensation formula applicable to you as in effect immediately prior to a
Change in Control, or the failure by the Company to increase such base salary
each year following a Change in Control by an amount which equals at least
three-fourths (3/4), on a percentage basis, of the average annual percentage
increase in base salary for all officers of the Company (and any successor of
the Company) during the prior two full calendar years;
(iv) a material reduction by the Company in the kind or level of
employee benefits to which you were entitled prior to a Change in Control with
the result that your overall benefits package is significantly reduced after the
Change in Control; or the taking of any action by the Company which would
materially and adversely affect your participation in any plan, program or
policy generally applicable to executives or employees of the Company or any
successor of the Company (including but not limited to paid vacation days), or
deprive you in a material and substantial way of any fringe benefits enjoyed by
you prior to a Change in Control;
(v) the Company's requiring you to be based anywhere other than your
present location (except for required travel on the Company's business to an
extent substantially consistent with your present business travel obligations)
or a location more than 50 miles from your then present location, without your
consent;
(vi) any purported termination of your employment by the Company which
is not affected for Cause, or any purported termination for which the grounds
relied upon are not valid; or
(vii) the failure of the Company to obtain the assumption of this
Agreement by any successor as contemplated in Paragraph 10 hereof.
6. Disputes. To dispute a termination for Good Reason by you, the Company
must give you written notice of such dispute within 30 working days after your
effective date of termination. To dispute a termination by the Company or any
failure to make payments claimed to be due hereunder, you must give written
notice of such a dispute to the Company within 30 days after the date on which a
payment claimed by you to be due hereunder was due to be made, as the case may
be.
7. No Mitigation. No payment or benefit to which you are entitled pursuant
to Paragraph 3 hereof shall be reduced by reason of compensation or other income
you receive for services rendered after your termination of employment with the
Company.
-4-
<PAGE> 5
8. COMPANY'S SUCCESSORS. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, to expressly
assume and agree to perform the obligations under this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. As used in this Paragraph, "Company" includes
any successor to its business or assets as aforesaid which executes and delivers
this Agreement or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
9. NOTICE. Notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five (5) days after deposit with postal authorities
transmitted by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth on
the first or last page of this Agreement, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
10. AMENDMENT OR WAIVER. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing by you and the Company. No waiver of either party at any
time of the breach of, or lack of compliance with, any conditions or provisions
of this Agreement shall be deemed a waiver of other provisions or conditions
hereof.
11. SOLE AGREEMENT. This Agreement represents the entire agreement
between you and the Company with respect to the matters set forth herein. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter of this Agreement will be made by either party
which are not set forth expressly herein.
12. EMPLOYEE'S SUCCESSORS. This Agreement shall inure to the benefit of
and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amounts are still payable to you hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of the Agreement to your devisee, legatee or other designee or, if there
be no such designees, to your estate.
13. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
14. APPLICABLE LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
-5-
<PAGE> 6
If the foregoing conforms with our understanding, please indicate your
agreement to the terms hereof by signing where indicted below and returning
one copy of this Agreement to the undersigned.
IN WITNESS WHEREOF, this Agreement is executed effective as of the date
set forth above.
Very truly yours,
PERSISTENCE SOFTWARE, INC.
By:
------------------------
Name:
-----------------------
Title:
---------------------
Accepted and Agreed to as of the Date First Set Forth Above:
[Name]
- ----------------------------
(Signature)
[Address]
-6-
<PAGE> 1
EXHIBIT 10.5
PERSISTENCE SOFTWARE, INC.
1994 Stock Purchase Plan
(As Adopted by the Board of Directors on July 28, 1994,
and most recently amended on December 10, 1997)
1. PURPOSE OF THE PLAN.
The purpose of the Plan is to provide the Board of Directors of Persistence
Software, Inc. (the "Company") with the authority and flexibility to authorize
the sale of Common Stock, from time to time, to Employees on favorable terms so
as to attract and retain the best available key personnel for positions of
substantial responsibility, and to promote the success of the Company's
business.
2. Definitions.
As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee (as defined below) or the Board of
Directors of the Company if no Committee is then designated.
(b) "Committee" shall have the meaning as specified in Section 4(a) of the
Plan.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Persistence Software, Inc., a California
corporation.
(e) "Employee" means any person, including officers, directors, and
independent consultants, employed by or performing services for the
Company, its Parent or any Subsidiary.
(f) "Plan" means this 1994 Stock Purchase Plan.
(g) "Share" shall mean a share of Common Stock.
(h) "Stock Purchase Agreement" shall mean an agreement in the form approved
by the Board to purchase Common Stock of the Company pursuant to the Plan.
(i) "Subsidiary" shall mean a corporation of which not less than 50% of the
voting shares are held by the Company or a Subsidiary, whether or not such
corporation now exists or is hereafter organized or acquired by the Company
or a Subsidiary.
(j) "Parent" shall mean a corporation holding not less than 50% of the
voting shares of the Company, or a Parent, whether or not such corporation
exists or is hereafter organized or hereafter acquires the Company or a
Parent.
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 9 of the Plan, the maximum aggregate number
of Shares which may be sold under the Plan is 1,298,250 shares of Common Stock.
The Shares may be authorized, but unissued, or reacquired Common Stock.
If Shares are repurchased by the Company pursuant to a Stock Purchase Agreement,
such Shares, unless the Plan shall have been terminated, shall become available
for reissuance under the Plan; provided, however, that on and after December 10,
1997, such Shares shall not become available for reissuance under the Plan and
shall instead be transferred to the Company's 1997 Stock Plan for issuance
thereunder in accordance with its terms.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by the Board, unless it
appoints a Committee as described below.
The Board may appoint a Committee consisting of not less than three (3)
members of the Board to administer the Plan on behalf of the Board, subject
to such terms and conditions as the
<PAGE> 2
Board may prescribe. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board.
Members of the Board or Committee who are eligible to purchase Shares
under the Plan may vote on matters affecting the administration of the Plan,
except that no such member shall act upon the granting or the sale of Shares
under the Plan to himself, but any member may be counted in determining the
existence of a quorum at any meeting of the Board or Committee during which
action is taken with respect to the granting or the sale of Shares to him.
(b) Powers of the Board. Subject to the provisions of the Plan, the Board
shall have the authority in its discretion (i) to interpret the Plan; (ii)
to determine the Employees to whom and the time or times at which Shares
shall be sold; (iii) to prescribe, amend and rescind rules and regulations
relating to the Plan; (iv) to determine the terms and provisions of the
grant or sale of Shares under the Plan and of each Stock Purchase Agreement
(which need not be identical); (v) with the consent of the holder, to
modify or amend such holders' Stock Purchase Agreement; (vi) to authorize
any person to execute on behalf of the Company any instrument required to
effect the Plan; and (vii) to make other determinations deemed necessary or
advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on Employees.
5. ELIGIBILITY.
Stock Purchase Agreements may be entered into only with Employees. An Employee
who owns stock possessing more than 10% of the total combined voting power or
value of all classes of stock of the Company or Parent or Subsidiary shall not
be eligible to purchase Shares under the Plan.
The Employee receiving Shares shall have no rights with respect to continuation
of employment nor with respect to continuation of any particular Company
business or policy or product.
6. TERM OF PLAN.
The Plan shall become effective upon adoption by the Board; provided that the
Plan shall also be approved by the shareholders of the Company as provided in
Section 12 hereof. The Plan shall continue in effect for a term of ten (10)
years from such date of Board adoption unless sooner terminated under Section 9
of the Plan.
7. CONSIDERATION AND TERMS OF PAYMENT.
(a) The price of Shares to be purchased, the terms of payment, and
consideration to be paid for the Shares, shall be determined by the Board
in accordance with the California Corporations Code, provided that such
price shall not be less than the fair market value of such Shares at such
time.
(b) Payment for the Shares may be in installments or at one time, and
provision may be made for aiding any Employee in paying for the Shares by
promissory notes or otherwise (Sections 408 and 409 of the California
Corporations Code).
(c) In addition, the Company may lend money to, or guarantee any obligation
of or otherwise assist any Employee in acquiring Shares under the Plan
whenever the Board determines that such loan or guaranty may reasonably be
expected to benefit the Company. Such loan or guaranty or other assistance
may be with or without interest and may be secured or unsecured in such
manner as the Board shall approve.
-2-
<PAGE> 3
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
Subject to any required action by shareholders of the Company, the number of
shares of Common Stock in the Plan shall be proportionately adjusted if any
recapitalization, reclassification, stock dividend, split-up or consolidation of
shares of Common Stock is effected.
9. NON-TRANSFERABILITY.
No right to purchase shares under the Plan may be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Employee, only by the Employee.
10. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination.
The Board may amend, suspend or terminate the Plan from time to time in
such respects as the Board may deem advisable except that, without approval of
the holders of a majority of outstanding shares of Common Stock, no such
revision or amendment shall increase the number of Shares subject to the Plan or
change the designation of the class of Employees eligible to purchase Shares.
(b) Effect of Amendment or Termination.
Any such amendment or termination of the Plan shall not affect Shares
already subject to Stock Purchase Agreements, except as provided in said Stock
Purchase Agreements.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
Shares shall not be issued under this Plan unless the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including without
limitation, the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, state securities laws and the requirements
of any stock exchange upon which Shares may then be listed.
12. RESERVATION OF SHARES.
The Company, during the term of the Plan, will at all times reserve and keep
available, such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.
13. SHAREHOLDER APPROVAL.
Sections 7(b) and 7(c) of the Plan shall be subject to approval by
holders of a majority of the outstanding shares of Common Stock of the Company
as provided in Section 315(b) of the Corporations Code. Continuance of the Plan
shall be subject to approval by the shareholders of the Company within twelve
(12) months before or after the date the Plan is adopted.
14. Information to Employees.
The Company shall provide to each Employee who acquired Shares pursuant to the
Plan, during the period such Employee owns such Shares, copies of financial
statements of the Company at least annually. The Company shall not be required
to provide such information to key employees whose duties in connection with the
Company assure their access to equivalent information.
15. GOVERNING LAW.
The Plan shall be governed by the laws of the State of
California.
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<PAGE> 4
PERSISTENCE SOFTWARE, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of
_____________________, 199___ by and between ((CompanyName)), a California
corporation (the "Company"), and ((PurchaserName)) ("Purchaser").
1. SALE OF STOCK. Subject to the terms and conditions of this
Agreement, on the Purchase Date (as defined below) the Company will issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company,
((NumberOfShares)) shares of the Company's Common Stock (the "Shares") at a
purchase price of ((PricePerShare)) per Share for a total purchase price of
$((TotalPrice)). The term "Shares" refers to the purchased Shares and all
securities received in replacement of or in connection with the Shares pursuant
to stock dividends or splits, all securities received in replacement of the
Shares in a recapitalization, merger, reorganization, exchange or the like, and
all new, substituted or additional securities or other properties to which
Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. PURCHASE. The purchase and sale of the Shares under this Agreement
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties, or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by delivery of a promissory
note in the form attached as Exhibit A to this Agreement and a Pledge and
Security Agreement in the form attached as Exhibit B to this Agreement in
addition to a cash payment of $((AdditionalPayment)).
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from the Repurchase Option, Purchaser shall
not assign, encumber or dispose of any interest in such Shares except in
compliance with the provisions below and applicable securities laws.
(a) REPURCHASE OPTION.
(i) In the event of the voluntary or involuntary
termination of Purchaser's employment or consulting relationship with the
Company for any reason (including death or disability), with or without cause,
the Company shall upon the date of such termination (the "Termination Date")
have an irrevocable, exclusive option (the "Repurchase Option") for a period of
60 days from such date to repurchase all or any portion of the Shares held by
Purchaser as of the Termination Date which have not yet been released from the
Company's Repurchase Option at the original purchase price per Share specified
in Section 1 (adjusted for any stock splits, stock dividends and the like);
provided, however, that the Repurchase Option shall continue for a period of up
to one year from the Termination Date to the extent that the Company reasonably
determines that such an extension of time is necessary to prevent the repurchase
of
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<PAGE> 5
Purchaser's Shares from causing other capital stock of the Company to not
qualify as "small business stock" under Section 1202 of the Internal Revenue
Code of 1986, as amended.
(ii) The Repurchase Option shall be exercised by the
Company by written notice to Purchaser or Purchaser's executor and, at the
Company's option, (A) by delivery to Purchaser or Purchaser's executor with such
notice of a check in the amount of the purchase price for the Shares being
purchased, or (B) in the event Purchaser is indebted to the Company, by
cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Shares being repurchased, or (C) by a combination of (A)
and (B) so that the combined payment and cancellation of indebtedness equals
such purchase price. Upon delivery of such notice and payment of the purchase
price in any of the ways described above, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interest
therein or related thereto, and the Company shall have the right to transfer to
its own name the number of Shares being repurchased by the Company, without
further action by Purchaser.
(iii) One hundred percent (100%) of the Shares shall
initially be subject to the Repurchase Option. 1/((CliffDenominator)) of the
Shares shall be released from the Repurchase Option on the date that is
((CliffPeriod)) after the Vesting Commencement Date (as set forth on the
signature page of this Agreement), and 1/((StraightDenomntor)) of the total
number of Shares shall be released from the Repurchase Option at the end of each
month thereafter, until all Shares are released from the Repurchase Option
(provided in each case that Purchaser's employment or consulting relationship
with the Company has not been terminated prior to the date of any such release).
Fractional shares shall be rounded to the nearest whole share.
(b) RIGHT OF FIRST REFUSAL. Before any Shares held by
Purchaser or any transferee of Purchaser (either being sometimes referred to
herein as the "Holder") may be sold or otherwise transferred (including transfer
by gift or operation of law), the Company or its assignee(s) shall have a right
of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3(b) (the "Right of First Refusal").
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the
Shares shall deliver to the Company a written notice (the "Notice") stating: (A)
the Holder's bona fide intention to sell or otherwise transfer such Shares; (B)
the name of each proposed purchaser or other transferee ("Proposed Transferee");
(C) the number of Shares to be transferred to each Proposed Transferee; and (D)
the terms and conditions of each proposed sale or transfer. The Holder shall
offer the Shares at the same price (the "Offered Price") and upon the same terms
(or terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time
within thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.
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<PAGE> 6
(iii) PURCHASE PRICE. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 3(b) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
3(b), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 3 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything
to the contrary contained in this Section 3(b) notwithstanding, the transfer of
any or all of the Shares during Purchaser's lifetime or on Purchaser's death by
will or intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(c) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY
TRANSFER. In the event, at any time after the date of this Agreement, of any
transfer by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer to Immediate Family as set forth in Section
3(b)(vi) above) of all or a portion of the Shares by the record holder thereof,
the Company shall have an option to purchase all of the Shares transferred at
the greater of the purchase price paid by Purchaser pursuant to this Agreement
or the fair market value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares
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<PAGE> 7
shall promptly notify the Secretary of the Company of such transfer. The right
to purchase such Shares shall be provided to the Company for a period of thirty
(30) days following receipt by the Company of written notice by the person
acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to
any stock to be transferred pursuant to Section 3(c)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will reflect
the current value of the stock in terms of present earnings and future prospects
of the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within thirty (30) days after receipt by it of written
notice of the transfer or proposed transfer of Shares. However, if the Purchaser
does not agree with the valuation as determined by the Board of Directors of the
Company, the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(d) ASSIGNMENT. The right of the Company to purchase any part
of the Shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the parent or a 100%
owned subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and fair
market value, if the original purchase price is less than the fair market value
of the Shares subject to the assignment.
(e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement, including, insofar as applicable,
the Repurchase Option. Any sale or transfer of the Company's Shares shall be
void unless the provisions of this Agreement are met.
(f) TERMINATION OF RIGHTS. The right of first refusal granted
the Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
described in Section 3(b) and the expiration or exercise of the Repurchase
Option, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 6(a)(ii) below and delivered to Purchaser.
4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit C executed by
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all
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<PAGE> 8
such transfers and/or releases as are in accordance with the terms of this
Agreement. Purchaser hereby acknowledges that the Secretary of the Company, or
the Secretary's designee, is so appointed as the escrow holder with the
foregoing authorities as a material inducement to make this Agreement and that
said appointment is coupled with an interest and is accordingly irrevocable.
Purchaser agrees that said escrow holder shall not be liable to any party hereof
(or to any other party). The escrow holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine and may resign
at any time. Purchaser agrees that if the Secretary of the Company, or the
Secretary's designee, resigns as escrow holder for any or no reason, the Board
of Directors of the Company shall have the power to appoint a successor to serve
as escrow holder pursuant to the terms of this Agreement.
5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted any tax consultants
Purchaser deems advisable in connection the purchase or disposition of the
Shares and that Purchaser is not relying on the Company for any tax advice.
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
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<PAGE> 9
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL IN A FORM
SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH
THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH
IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(iii) Any legend required to be placed thereon by
the California Commissioner of Corporations.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
8. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
the Internal Revenue Service within
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<PAGE> 10
30 days from the date of purchase. Even if the fair market value of the Shares
at the time of the execution of this Agreement equals the amount paid for the
Shares, the election must be made to avoid income under Section 83(a) in the
future. Purchaser understands that failure to file such an election in a timely
manner may result in adverse tax consequences for Purchaser. Purchaser further
understands that an additional copy of such election form should be filed with
his or her federal income tax return for the calendar year in which the date of
this Agreement falls. Purchaser acknowledges that the foregoing is only a
summary of the effect of United States federal income taxation with respect to
purchase of the Shares hereunder, and does not purport to be complete. Purchaser
further acknowledges that the Company has directed Purchaser to seek independent
advice regarding the applicable provisions of the Code, the income tax laws of
any municipality, state or foreign country in which Purchaser may reside, and
the tax consequences of Purchaser's death.
Purchaser agrees that he will execute and deliver to the
Company with this executed Agreement a copy of the Acknowledgment and Statement
of Decision Regarding Section 83(b) Election (the "Acknowledgment"), attached
hereto as Exhibit D. Purchaser further agrees that Purchaser will execute and
submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as
Exhibit E, if Purchaser has indicated in the Acknowledgment his or her decision
to make such an election.
9. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith.
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<PAGE> 11
In the event that the parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded from
this Agreement, (ii) the balance of the Agreement shall be interpreted as if
such provision were so excluded and (iii) the balance of the Agreement shall be
enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[SIGNATURE PAGE AS FOLLOWS]
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<PAGE> 12
The parties have executed this Agreement as of the date first set forth
above.
((COMPANYNAME))
By: ________________________________________
Title: _____________________________________
Address:
((CompanyAddress1))
((CompanyAddress2))
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
((PURCHASERNAME))
____________________________________
(Signature)
Address: _____________________________
(((PurchaserAddress1))
((PurchaserAddress2))
___________________________
Vesting Commencement
Date: ((VestingStartDate))
I, _______________, spouse of ((PurchaserName)), have read and hereby approve
the foregoing Agreement. In consideration of the Company's granting my spouse
the right to purchase the Shares as set forth in the Agreement, I hereby agree
to be irrevocably bound by the Agreement and further agree that any community
property or other such interest shall be similarly bound by the Agreement. I
hereby appoint my spouse as my attorney-in-fact with respect to any amendment or
exercise of any rights under the Agreement.
_____________________________________
Spouse of ((SpouseName))
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<PAGE> 13
EXHIBIT A
PROMISSORY NOTE
$((TotalPrice1))
((CompanyCity)), California
_______________, 199__
For value received, the undersigned promises to pay ((CompanyName)), a
California corporation (the "Company"), at its principal office the principal
sum of $((TotalPrice1)) with interest from the date hereof at a rate of
((InterestRate))% per annum, compounded semiannually, on the unpaid balance of
such principal sum. Such principal and interest shall be due and payable on
((NoteDueDate)).
If the undersigned's employment or consulting relationship with the
Company is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States
of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain
shares of Common Stock of the Company and is subject to the terms of a Pledge
and Security Agreement between the undersigned and the Company of even date
herewith.
____________________________
((PurchaserName))
<PAGE> 14
EXHIBIT B
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "Agreement") is entered into
this _____ day of __________, 199___ by and between ((CompanyName)), a
California corporation (the "Company") and ((PurchaserName)) ("Purchaser").
RECITALS
In connection with Purchaser's purchase of certain shares of the
Company's Common Stock (the "Shares") pursuant to a Common Stock Purchase
Agreement dated _________________, 199___ between Purchaser and the Company,
Purchaser is delivering a promissory note of even date herewith (the "Note") in
full or partial payment of the exercise price for the Shares. The company
requires that the Note be secured by a pledge of the Shares on the terms set
forth below.
AGREEMENT
In consideration of the Company's acceptance of the Note as full or
partial payment of the exercise price of the Shares, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or
her designee (hereinafter referred to as the "Pledge Holder"), all certificates
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as and when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension
or modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding
<PAGE> 15
period set forth in Rule 144(d) promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the establishment
of a public market for the Shares of the Company, the securities laws affecting
sale of the Shares make a public sale of the Shares commercially unreasonable.
The parties further agree that the repurchasing of such Shares by the Company,
or by any person to whom the Company may have assigned its rights under this
Agreement, is commercially reasonable if made at a price determined by the Board
of Directors in its discretion, fairly exercised, representing what would be the
fair market value of the Shares reduced by any limitation on transferability,
whether due to the size of the block of shares or the restrictions of applicable
securities laws.
6. In the event of default in payment when due of any indebtedness
under the Note, the Company may elect then, or at any time thereafter, to
exercise all rights available to a secured party under the California Commercial
Code including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy
any remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE> 16
The parties have executed this Pledge and Security Agreement as of the date
first set forth above.
COMPANY:
((COMPANYNAME))
By: ______________________________
Name: ____________________________
(print)
Title: ___________________________
Address:
((CompanyAddress1))
((CompanyAddress2))
PURCHASER:
((PURCHASERNAME))
_________________________________
(Signature)
Address: ________________________
________________________
((PurchaserAddress1))
((PurchaserAddress2))
-3-
<PAGE> 17
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge and
Security Agreement between the undersigned ("Purchaser") and ((CompanyName))
(the "Company") dated _____________ (the "Agreement"), Purchaser hereby sells,
assigns and transfers unto the Company _______________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. _____, and hereby
irrevocably appoints _______________________ to transfer said stock on the books
of the Company with full power of substitution in the premises. THIS ASSIGNMENT
MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT.
Dated: ____________
Signature:
__________________________________
((PurchaserName))
__________________________________
Spouse of ((PurchaserName)) (if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to perfect the security interest of the Company
pursuant to the Agreement.
<PAGE> 18
EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("Purchaser") and ((CompanyName)) (the
"Company") dated _______________ (the "Agreement"), Purchaser hereby sells,
assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. ______, and does
hereby irrevocably constitute and appoint _____________________________ to
transfer said stock on the books of the Company with full power of substitution
in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT
AND THE EXHIBITS THERETO.
Dated: ______________________
Signature:
__________________________________
((PurchaserName))
__________________________________
Spouse of ((PurchaserName)) (if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
<PAGE> 19
EXHIBIT D
ACKNOWLEDGMENT AND STATEMENT OF DECISION
REGARDING SECTION 83(b) ELECTION
The undersigned has entered a stock purchase agreement with
((CompanyName)), a California corporation (the "Company"), pursuant to which the
undersigned is purchasing ((NumberOfShares)) shares of Common Stock of the
Company (the "Shares"). In connection with the purchase of the Shares, the
undersigned hereby represents as follows:
1._______The undersigned has carefully reviewed the stock purchase
agreement pursuant to which the undersigned is purchasing the Shares.
2._______The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor, __________________________,
whose business address is _____________________________,
regarding the federal, state and local tax consequences of
purchasing the Shares, and particularly regarding the
advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and
pursuant to the corresponding provisions, if any, of
applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3._______The undersigned hereby states that the undersigned has decided
[check as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the
Code, and is submitting to the Company, together with the
undersigned's executed Common Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
4._______Neither the Company nor any subsidiary or representative of
the Company has made any warranty or representation to the undersigned with
respect to the tax consequences of the undersigned's purchase of the Shares or
of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date: _________________________ ________________________________
((PurchaserName))
Date: _________________________ ________________________________
Spouse of ((PurchaserName))
<PAGE> 20
EXHIBIT E
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of
the Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME OF TAXPAYER: ((PurchaserName))
NAME OF SPOUSE: _______________________________
ADDRESS: _________________________________________
_____________________________((PurchaserAddress1))
((PurchaserAddress2))
IDENTIFICATION NO. OF TAXPAYER: _________________________((TaxpayerID))
IDENTIFICATION NO. OF SPOUSE: ___________________________ ((SpouseID))
TAXABLE YEAR: ((TaxYearfor83B))
2. The property with respect to which the election is made is described as
follows:
((NumberOfShares)) shares of the Common Stock ((ParValue)) par value,
of ((CompanyName)), a California corporation (the "Company").
3. The date on which the property was transferred is: ((TransferDate))
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is:
$((TotalPrice)).
6. The amount (if any) paid for such property: $((TotalPrice))
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ______________________ ________________________________
Taxpayer
Dated: ______________________ ________________________________
<PAGE> 21
Spouse of Taxpayer
<PAGE> 22
RECEIPT
((CompanyName)) hereby acknowledges receipt of a promissory note in the
amount of $((TotalPrice)) given by ((PurchaserName)) and cash payment in the
amount of $((AdditionalPayment)) as consideration for Certificate No.
((CertificateNumber)) for ((NumberOfShares)) shares of Common Stock of
((CompanyName)).
Dated: ________________
((CompanyName))
By:_____________________________________
Title:__________________________________
<PAGE> 23
RECEIPT AND CONSENT
The undersigned hereby acknowledges receipt of a photocopy of
Certificate No. ((CertificateNumber)) for ((NumberOfShares)) shares of Common
Stock of ((CompanyName)) (the "Company").
The undersigned further acknowledges that the Secretary of the Company,
or his or her designee, is acting as escrow holder pursuant to the Common Stock
Purchase Agreement Purchaser has previously entered into with the Company. As
escrow holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated: _________________________
_________________________________
((PurchaserName))
<PAGE> 1
EXHIBIT 10.6
PERSISTENCE SOFTWARE, INC.
1997 STOCK OPTION PLAN
(Amended December 11, 1997)
(Amended April 30, 1998)
(Amended January 3, 1999)
(Amended April 21, 1999)
1. PURPOSES OF THE PLAN. The purposes of this 1997 Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonstatutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "AFFILIATE" means an entity other than a Subsidiary (as
defined below) in which the Company owns a significant interest, directly or
indirectly, as determined in the discretion of the Committee, or which, together
with the Company, is under common control of a third person or entity.
(c) "APPLICABLE LAWS" means the legal requirements relating to
the administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any Stock Exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time; provided, however, that to the
extent permitted under such laws, rules, regulations and requirements, the
rights of any participant under the Plan shall be determined in accordance with
the law of the State of California, without giving effect to principles of
conflict of law.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CHANGE OF CONTROL" means a sale of all or substantially
all of the Company's assets, or any merger or consolidation of the Company with
or into another corporation other than a merger or consolidation in which the
holders of more than 50% of the shares of capital stock of the Company
outstanding immediately prior to such transaction continue to hold (either by
the voting securities remaining outstanding or by their being converted into
voting securities of the surviving entity) more than 50% of the total voting
power
<PAGE> 2
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(f) "CODE" means the Internal Revenue Code of 1986, as
amended.
(g) "COMMITTEE" means one or more committees or subcommittees
of the Board appointed by the Board to administer the Plan in accordance with
Section 4 below.
(h) "COMMON STOCK" means the Common Stock of the Company.
(i) "COMPANY" means Persistence Software, Inc., a California
corporation.
(j) "CONSULTANT" means any person, including an advisor, who
renders services to the Company or any Parent, Subsidiary or Affiliate and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
(k) "CONTINUOUS SERVICE" means the absence of any interruption
or termination of service as an Employee or Consultant to the Company or a
Parent, Subsidiary or Affiliate. Continuous Service shall not be considered
interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other
leave of absence approved by the Administrator, provided that such leave is for
a period of not more than 90 days, unless reemployment upon the expiration of
such leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the case of
transfers between locations of the Company or between the Company, its
Parent(s), Subsidiaries, Affiliates or their respective successors. Unless
otherwise determined by the Administrator or the Company, a change in status
from an Employee to a Consultant or from a Consultant to an Employee will not
constitute a termination of Continuous Service Status.
(l) "CORPORATE TRANSACTION" means a sale of all or
substantially all of the Company's assets, or a merger, consolidation or other
capital reorganization of the Company with or into another corporation.
(m) "DIRECTOR" means a member of the Board.
(n) "EMPLOYEE" means any person (including, if appropriate,
any Named Executive, Officer or Director) employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. The payment by the Company of a
director's fee to a Director shall not be sufficient to constitute "employment"
of such Director by the Company.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(p) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market
<PAGE> 3
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such system or exchange on the date of
determination (or if no trading or bids occurred on the date of determination,
on the last trading day prior to the date of determination), as reported in The
Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System
(but not on the National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
for the date of determination (or if no bids occurred on the date of
determination, on the last trading day prior to the date of determination); or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(q) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Option Agreement.
(r) "LISTED SECURITY" means any security of the Company that
is listed or approved for listing on a national securities exchange or
designated or approved for designation as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc.
(s) "NAMED EXECUTIVE" means any individual who, on the last
day of the Company's fiscal year, is the chief executive officer of the Company
(or is acting in such capacity) or among the four most highly compensated
officers of the Company (other than the chief executive officer). Such officer
status shall be determined pursuant to the executive compensation disclosure
rules under the Exchange Act.
(t) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(u) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16(a) of the Exchange Act and the rules and
regulations promulgated thereunder.
(v) "OPTION" means a stock option granted pursuant to the
Plan.
(w) "OPTION AGREEMENT" means a written document, the form(s)
of which shall be approved from time to time by the Administrator, reflecting
the terms of an Option granted under the Plan and includes any documents
attached to or incorporated into such Option Agreement, including, but not
limited to, a notice of stock option grant and a form of exercise notice.
<PAGE> 4
(x) "OPTION EXCHANGE PROGRAM" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(y) "OPTIONED STOCK" means the Common Stock subject to an
Option.
(z) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(aa) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(bb) "PARTICIPANT" means any holder of one or more Options or
Stock Purchase Rights, or the Shares issuable or issued upon exercise of such
awards, under the Plan.
(cc) "PLAN" means this 1997 Stock Plan.
(dd) "REPORTING PERSON" means an Officer, Director or greater
than 10% shareholder of the Company within the meaning of Rule 16a-2 of the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 of the
Exchange Act.
(ee) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(ff) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
document, the form(s) of which shall be approved from time to time by the
Administrator, reflecting the terms of a Stock Purchase Right granted under the
Plan and includes any documents attached to such agreement.
(gg) "RULE 16b-3" means Rule 16b-3 promulgated under the
Exchange Act, as amended from time to time, or any successor provision.
(hh) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 15 of the Plan.
(ii) "STOCK EXCHANGE" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time.
(jj) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 below.
(kk) "SUBSIDIARY" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
(ll) "TEN PERCENT HOLDER" means a person who owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary.
<PAGE> 5
3. STOCK SUBJECT TO THE PLAN. The maximum aggregate number of
shares that may be sold under the Plan (as amended effective April 21, 1999) is
5,609,652 Shares of Common Stock, plus a maximum of [______] additional Shares
that may be transferred to the Plan from the Company's 1994 Stock Purchase Plan
upon return to the 1994 Stock Purchase Plan pursuant to an amendment to the Plan
dated December 10, 1997, plus an annual increase on the first day of each of the
Company's fiscal years beginning in 2001, 2002, 2003, 2004 and 2005 equal to the
lesser of (i) 650,000 Shares, (ii) three and one-half percent (3.5%) of the
Shares outstanding on the last day of the immediately preceding fiscal year, or
(iii) such lesser number of Shares as is determined by the Board. The Shares may
be authorized, but unissued, or reacquired Common Stock. The number of Shares
subject to the Plan set forth in this Section 3 are subject to adjustment in
accordance with the provisions of Section 15 of the Plan.
If an Option expires or becomes unexercisable for any reason without
having been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
has been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock that are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise or purchase shall be treated as not
issued and shall continue to be available under the Plan. Notwithstanding any
other provision of the Plan, Shares issued under the Plan and later repurchased
by the Company pursuant to any repurchase right that the Company may have shall
not be available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) GENERAL. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may be
administered by different administrative bodies with respect to different
classes of Participants and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Options or Stock Purchase Rights to Employees and Consultants (other than
Consultants who are Directors).
(b) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS AND NAMED
EXECUTIVES. With respect to Options granted to Reporting Persons and Named
Executives, the Plan may (but need not) be administered so as to permit grants
of Options to Reporting Persons to qualify for the exemption set forth in Rule
16b-3 and to permit grants of Options to Named Executives to qualify as
performance-based compensation under Section 162(m) of the Code, and otherwise
so as to satisfy the Applicable Laws.
(c) COMMITTEE COMPOSITION. If a Committee has been appointed
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of any Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies (however caused) and remove all members of
a Committee and thereafter directly administer the Plan, all to the extent
permitted by the
<PAGE> 6
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(p) of the Plan;
(ii) to select the Employees and Consultants to whom
Options and Stock Purchase Rights or any combination thereof may from time to
time be granted;
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to
be covered by each such award granted;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder, which
terms and conditions include but are not limited to the exercise or purchase
price, the time or times when Options or Stock Purchase Rights may be exercised
(which may be based on performance criteria), any vesting acceleration or waiver
of forfeiture restrictions, and any restriction or limitation regarding any
Option, Optioned Stock, Stock Purchase Right or Restricted Stock, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was granted
and to make any other amendments or adjustments to any Option that the
Administrator determines, in its discretion and under the authority granted to
it under the Plan, to be necessary or advisable, provided however that no
amendment or adjustment to an Option that would materially and adversely affect
the rights of any Optionee shall be made without the prior written consent of
the Optionee;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and
awards granted under the Plan; and
<PAGE> 7
(xii) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options or Stock Purchase Rights
to Participants who are foreign nationals or employed outside of the United
States in order to recognize differences in local law, tax policies or customs.
(e) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Participants.
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees, provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An Employee
or Consultant who has been granted an Option or Stock Option Right may, if he or
she is otherwise eligible, be granted additional Options or Stock Purchase
Rights.
(b) TYPE OF OPTION. Each Option shall be designated in the
Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of Shares with respect to which Options are
exercisable for the first time by an Optionee during any calendar year (under
all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such
excess Options shall be treated as Nonstatutory Stock Options. For purposes of
this Section 5(b), Incentive Stock Options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares shall
be determined as of the date of grant of such Option. In the event any Option
designated as an Incentive Stock Option fails to meet the requirements set forth
in this Plan for an Incentive Stock Option or as required to qualify as an
incentive stock option within the meaning of Code Section 422, such Option shall
not be void but instead shall be deemed a Nonstatutory Stock Option.
(c) NO EMPLOYMENT RIGHTS. The Plan shall not confer upon any
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its
adoption by the Board. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 16 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term
stated in the Option Agreement; provided however that the term shall be no more
than ten (10) years from the date of grant thereof or such shorter term as may
be provided in the Option Agreement and provided further that, in the case of an
Incentive Stock Option granted to a person who at the time of such grant is a
Ten Percent Holder, the term of such Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement.
<PAGE> 8
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as
provided in Section 13 below, the maximum number of Shares which may be subject
to Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 2,000,000.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator and set forth in the Option Agreement, but shall
be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who at the time of grant is
a Ten Percent Holder, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant; or
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted prior to the date, if any, on which the
Common Stock becomes a Listed Security to a person who is at the time of grant
is a Ten Percent Holder, the per Share exercise price shall be no less than 110%
of the Fair Market Value per Share on the date of grant if required by the
Applicable Laws and, if not so required, shall be such price as is determined by
the Administrator;
(B) granted to a person who, at the time of the grant
of such Option, is a Named Executive of the Company, the per share Exercise
Price shall be no less than 100% of the Fair Market Value on the date of grant
if such Option is intended to qualify as performance-based compensation under
Section 162(m) of the Code; or
(C) granted prior to the date, if any, on which the
Common Stock becomes a Listed Security to any person other than a Named
Executive or a Ten Percent Holder, the per Share exercise price shall be no less
than 85% of the Fair Market Value per Share on the date of grant if required by
Applicable Law and, if not so required, shall be such price as is determined by
the Administrator.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant to
a Corporate Transaction.
(b) PERMISSIBLE CONSIDERATION. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Administrator (and, in the case of an
Incentive Stock Option, shall be determined at the time of grant) and may
consist entirely of (1) cash; (2) check; (3) delivery of Optionee's
<PAGE> 9
promissory note with such recourse, interest, security and redemption provisions
as the Administrator determines to be appropriate; (4) cancellation of
indebtedness; (5) surrender of other Shares that (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender (or such other period as may be
required to avoid a charge to the Company's earnings) or were not acquired,
directly or indirectly, from the Company, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which the Option is exercised; (6) authorization by the Optionee for the Company
to retain from the total number of Shares as to which the Option is exercised
that number of Shares having a Fair Market Value on the date of exercise equal
to the exercise price for the total number of Shares as to which the Option is
exercised; (7) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect exercise of the Option and prompt delivery to the
Company of the sale or loan proceeds required to pay the exercise price and any
applicable withholding taxes; (8) any combination of the foregoing methods of
payment; or (9) such other consideration and method of payment for the issuance
of Shares to the extent permitted under the Applicable Laws. In making its
determination as to the type of consideration to accept, the Administrator shall
consider whether acceptance of such consideration may be reasonably expected to
benefit the Company and the Administrator may refuse to accept a particular form
of consideration at the time of any Option exercise if, in its sole discretion,
acceptance of such form of consideration is not in the best interests of the
Company at such time.
10. EXERCISE OF OPTION.
(a) VESTING. Any Option granted hereunder shall be exercisable
at such times and under such conditions as determined by the Administrator,
consistent with the terms of the Plan, and reflected in the Option Agreement,
including vesting requirements and/or performance criteria with respect to the
Company and/or the Optionee; provided however that, if required by the
Applicable Laws, any Option granted prior to the date, if any, upon which the
Common Stock becomes a Listed Security shall become exercisable at a rate of at
least 20% per year over five years from the date the Option is granted. In the
event that any of the Shares issued upon exercise of an Option (which exercise
occurs prior to the date, if any, upon which the Common Stock becomes a Listed
Security) should be subject to a right of repurchase in the Company's favor,
such repurchase right shall, if required by the Applicable Laws, lapse at the
rate of at least 20% per year over five years from the date the Option is
granted. Notwithstanding the above, in the case of an Option granted to an
officer (including but not limited to Officers), Director or Consultant, the
Option may become exercisable, or a repurchase right, if any, in favor of the
Company shall lapse, at any time or during any period established by the
Administrator. The Administrator shall have the discretion to determine whether
and to what extent the vesting of Options shall be tolled during any unpaid
leave of absence; provided however that in the absence of such determination,
vesting of Options shall be tolled during any such leave.
(b) PROCEDURE FOR EXERCISE. An Option may not be exercised for
a fraction of a Share. An Option shall be deemed exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to
<PAGE> 10
which the Option is exercised. Full payment may, as authorized by the
Administrator, consist of any consideration and method of payment allowable
under Section 9(b) of the Plan. Exercise of an Option in any manner shall result
in a decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(c) RIGHTS AS A SHAREHOLDER. Until the issuance (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a dividend
or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 15 of the Plan.
(d) TERMINATION OF CONTINUOUS SERVICE. In the event of
termination of an Optionee's Continuous Service, such Optionee's right to
exercise the Option shall cease and the Option shall forthwith become void and
cease to have effect, except as set forth specifically in the Option Agreement.
Notwithstanding the foregoing, if required by the Applicable Laws. any Option
granted prior to the date, if any, upon which the Common Stock becomes a Listed
Security shall be exercisable by the Optionee for a period of time following the
termination of the Optionee's Continuous Service as follows:
(i) In the event of termination of Continuous Service for
reasons other than the Optionee's disability or death, the Option shall be
exercisable by the Optionee following such termination for a period of not less
than thirty (30) days, as is determined by the Administrator (with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option), after the date of such termination of Continuous Service
(but in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement), to the extent that the Optionee was entitled
to exercise it at the date of such termination. If an Option Agreement provides
that an Incentive Stock Option may be exercised more than three (3) months after
the termination of the Optionee's Continuous Service, to the extent that such
Optionee fails to exercise such Option within three (3) months of the date of
such termination, such Option thereafter shall be treated as a Nonstatutory
Stock Option. To the extent that the Optionee was not entitled to exercise the
Option at the date of such termination, or if the Optionee does not exercise the
Option to the extent so entitled within the time specified above, the Option
shall terminate and the Optioned Stock underlying the unexercised portion of the
Option shall revert to the Plan.
(ii) In the event of termination of Continuous Service as
a result of Optionee's disability, such Optionee may, but only within six (6)
months (or such longer period of time as is determined by the Administrator,
with such determination in the case of an Incentive Stock Option made at the
time of grant of the Option) from the date of such termination (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent he or she was entitled to
<PAGE> 11
exercise it at the date of such termination. To the extent that the Optionee was
not entitled to exercise the Option at the date of termination, or if the
Optionee does not exercise the Option to the extent so entitled within the time
specified herein, the Option shall terminate and the Optioned Stock underlying
the unexercised portion of the Option shall revert to the Plan.
(iii) In the event of the death of an Optionee prior to
termination of his or her Continuous Service, the Option may be exercised at any
time within six (6) months (or such longer period of time as is determined by
the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) following the date of
death (but in no event later than the expiration date of the term of such Option
as set forth in the Option Agreement) by such Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent of the right to exercise that had accrued at the date of
death or, if earlier, the date of termination of the Optionee's Continuous
Service. To the extent that the Optionee was not entitled to exercise the Option
at the date of death or termination, as the case may be, or if the Optionee does
not exercise such Option to the extent so entitled within the time specified
above, the Option shall terminate and the Optioned Stock underlying the
unexercised portion of the Option shall revert to the Plan.
(e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have
full power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Service
from the periods set forth in Sections 10(b), 10(c) and 10(d) above or in the
Option Agreement to such greater time as the Board shall deem appropriate,
provided that in no event shall such Option be exercisable later than the date
of expiration of the term of such Option as set forth in the Option Agreement.
(f) BUY-OUT PROVISIONS. The Administrator may at any time
offer to buy out for a payment in cash or Shares an Option previously granted
under the Plan based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the consideration to be paid, and the time within which such person
must accept such offer, which shall in no event exceed 30 days from the date
upon which the Administrator made the determination to grant the Stock Purchase
Right. In the case of a Stock Purchase Right granted prior to the date, if any,
on which the Common Stock becomes a Listed Security and if required by the
Applicable Laws at such time, the purchase price of Shares subject to such Stock
Purchase Rights shall not be less than 85% of the Fair Market Value of the
Shares as of the date of the offer, or, in the case of a Ten Percent Holder, the
price shall not be less than 100% of the Fair Market Value of the Shares as of
the date of the offer. The offer to purchase Shares subject to
<PAGE> 12
Stock Purchase Rights shall be accepted by execution of a Restricted Stock
Purchase Agreement in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company an
irrevocable, exclusive option (the "Repurchase Option") exercisable upon the
termination of the purchaser's Continuous Service. The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original purchase price paid by the purchaser and may be paid by cash, check or
cancellation of any indebtedness of the purchaser to the Company, at the
Company's option. The Repurchase Option shall lapse at such rate as the
Administrator may determine; provided however that with respect to a Stock
Purchase Right granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to a purchaser who is not an officer (including an
Officer), Director or Consultant of the Company or of any Parent or Subsidiary
of the Company, such Repurchase Option shall lapse at a minimum rate of 20% of
the Shares subject to the Stock Purchase Right if required by the Applicable
Laws.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 15
of the Plan.
12. TAXES.
(a) As a condition of the exercise of an Option or Stock
Purchase Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if
any, upon which the Common Stock becomes a Listed Security. In the case of
Participant other than an Employee (or in the case of an Employee where the next
payroll payment is not sufficient to satisfy such tax
<PAGE> 13
obligations, with respect to any remaining tax obligations), in the absence of
any other arrangement and to the extent permitted under the Applicable Laws, the
Participant shall be deemed to have elected to have the Company withhold from
the Shares to be issued upon exercise of the Option or Stock Purchase Right that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) equal to the amount required to be withheld. For
purposes of this Section 12, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Laws (the "Tax Date").
(d) At the discretion of the Administrator, a Participant may
satisfy his or her tax withholding obligations arising in connection with an
Option by one or some combination of the following methods: (i) by cash payment;
(ii) by payroll deduction out of the Optionee's current compensation; or (iii)
if permitted by the Administrator, in its discretion, a Participant may satisfy
his or her tax withholding obligations upon exercise of an Option or Stock
Purchase Right by surrendering to the Company Shares that (A) in the case of
Shares previously acquired from the Company, have been owned by the Participant
for more than six (6) months on the date of surrender, and (B) have a Fair
Market Value determined as of the applicable Tax Date equal to the amount
required to be withheld.
(e) Any election or deemed election by a Participant to have
Shares withheld to satisfy tax withholding obligations under Section 12(c) or
(d) above shall be irrevocable as to the particular Shares as to which the
election is made and shall be subject to the consent or disapproval of the
Administrator. Any election by a Participant under Section 12(d) above must be
made on or prior to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made
by a Participant and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Participant
shall receive the full number of Shares with respect to which the Option or
Stock Purchase Right is exercised but such Participant shall be unconditionally
obligated to tender back to the Company the proper number of Shares on the Tax
Date.
13. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS.
Options and Stock Purchase Rights may not be transferred or disposed of in any
manner other than by will or by the laws of descent or distribution or pursuant
to a domestic relations order (as defined by the Code or the rules thereunder);
provided that, after the date, if any, upon which the Common Stock becomes a
Listed Security, the Administrator may in its discretion grant transferable
Nonstatutory Stock Options pursuant to Option Agreements specifying (i) the
manner in which such Nonstatutory Stock Options are transferable and (ii) that
any such transfer shall be subject to the Applicable Laws. The designation of a
beneficiary by an Optionee will not constitute a transfer. An Option or Stock
Purchase Right may be exercised, during the lifetime of the holder of Option or
Stock Purchase Right, only by such holder or a transferee permitted by this
Section 13.
<PAGE> 14
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date
of grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option or
Stock Purchase Right, or such later date as is determined by the Administrator;
provided however that in the case of an Incentive Stock Option, the grant date
shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, CORPORATE
TRANSACTIONS AND CERTAIN OTHER TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, the number of Shares set
forth in Sections 3 and 8 above, and the number of shares of Common Stock that
have been authorized for issuance under the Plan but as to which no Options or
Stock Purchase Rights have yet been granted or that have been returned to the
Plan upon cancellation or expiration of an Option or Stock Purchase Right, as
well as the price per Share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock (including any change
in the number of Shares of Common Stock effected in connection with a change of
domicile of the Company), or any other increase or decrease in the number of
issued Shares of Common Stock effected without receipt of consideration by the
Company; provided however that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares of Common Stock subject to an Option or Stock Purchase
Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not previously been exercised, each outstanding Option or Stock Purchase
Right shall terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Administrator.
(c) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of
a Corporate Transaction, including a Change of Control, each outstanding Option
and Stock Purchase Right shall be assumed or an equivalent option or right shall
be substituted by the successor corporation or a Parent or Subsidiary of such
successor corporation (such entity, the "Successor Corporation"), unless the
Successor Corporation does not agree to such assumption
<PAGE> 15
or substitution, in which case such Options and Stock Purchase Rights shall
terminate upon consummation of the transaction; provided, however that in the
event of a Change of Control, each optionee shall have the right to exercise his
or her Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable, immediately prior to the consummation
of the transaction. In the event of a Corporate Transaction, all conditions and
restrictions with respect to Restricted Stock shall lapse, except to the extent
such conditions and restrictions are assigned to the Successor Corporation;
provided, however that in the event of a Change of Control, all restrictions
with respect to Restricted stock shall lapse.
For purposes of this Section 15(c), an Option or a Stock
Purchase Right shall be considered assumed, without limitation, if, at the time
of issuance of the stock or other consideration upon a Corporate Transaction or
a Change of Control, as the case may be, each holder of an Option or Stock
Purchase Right would be entitled to receive upon exercise of the Option or Stock
Purchase Right the same number and kind of shares of stock or the same amount of
property, cash or securities as such holder would have been entitled to receive
upon the occurrence of the transaction if the holder had been, immediately prior
to such transaction, the holder of the number of Shares of Common Stock covered
by the Option or the Stock Purchase Right at such time (after giving effect to
any adjustments in the number of Shares covered by the Option or Stock Purchase
Right as provided for in this Section 15); provided however that if the
consideration received in the transaction is not solely common stock of the
Successor Corporation, the Administrator may, with the consent of the Successor
Corporation, provide for the consideration to be received upon exercise of the
Option or Stock Purchase Right to be solely common stock of the Successor
Corporation equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's shareholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
16. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend, discontinue or terminate the Plan. To the extent
necessary and desirable to comply with the Applicable Laws, the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such
as degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Except as provided in
Section 15, no amendment, suspension or termination of the Plan shall materially
and adversely affect Options already granted and such Options shall remain in
full force and effect as if the Plan had not been amended, suspended or
terminated, unless mutually agreed otherwise between the Optionee and the
Company, which agreement must be in writing and signed by such Optionee and the
Company. Except as provided in Section 15, no amendment, suspension or
termination of the Plan shall materially and adversely affect Stock Purchase
Rights already granted, or the
<PAGE> 16
holder of Restricted Stock acquired pursuant to a Stock Purchase Right, unless
mutually agreed otherwise between the holder of the Stock Purchase Right and the
Company, which agreement must be in writing and signed by such holder and the
Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the Applicable Laws, with such compliance determined
by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by Applicable Laws.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
20. SHAREHOLDER APPROVAL. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the shareholders of the
Company within twelve (12) months before or after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
21. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. Prior to the
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information.
<PAGE> 17
PERSISTENCE SOFTWARE, INC.
1997 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
[Forms for Use Pre-IPO]
<<Optionee>>
You have been granted an option to purchase Common Stock "Common Stock"
of Persistence Software, Inc. (the "Company") as follows:
Board Approval Date: <<BoardApprovalDate>>
Date of Grant (Later of Board
Approval Date or Commencement
of Employment/Consulting): <<GrantDate>>
Vesting Commencement Date: <<VestingCommenceDate>>
Exercise Price per Share: $<<ExercisePrice>>
Total Number of Shares Granted: <<NoofShares>>
Total Exercise Price: $<<TotalExercisePrice>>
Type of Option: <<ISO>> Incentive Stock Option
<<NSO>> Nonstatutory Stock Option
Term/Expiration Date: <<ExpirDate>>
Vesting Schedule: This Option may be exercised, in
whole or in part, in accordance
with the following schedule: 1/4th
of the Shares subject to the Option
shall vest on the 12th month
anniversary of the Vesting
Commencement Date and 1/48th of the
total number of Shares subject to
the Option shall vest on the
monthly anniversary date of the
Vesting Commencement Date
thereafter.
Termination Period: Option may be exercised for 90 days
after termination of employment or
consulting relationship except as
set out in Sections 6 and 7 of the
Stock Option Agreement (but in no
event later than the Expiration
Date).
<PAGE> 18
By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and governed
by the terms and conditions of the 1997 Stock Plan and the Stock Option
Agreement, both of which are attached and made a part of this document.
<<OPTIONEE>>: PERSISTENCE SOFTWARE, INC.
By:
Signature
Print Name Print Name and Title
Address (if different from above): Address:
1720 South Amphlett Blvd., Suite 300
San Mateo, CA 94402
-2-
<PAGE> 19
PERSISTENCE SOFTWARE, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Persistence Software, Inc., a California
corporation (the "Company"), hereby grants to <<Optionee>> ("Optionee"), an
option (the "Option") to purchase a total number of shares of Common Stock (the
"Shares") set forth in the Notice of Stock Option Grant, at the exercise price
per share set forth in the Notice of Stock Option Grant (the "Exercise Price")
subject to the terms, definitions and provisions of the Persistence Software,
Inc. 1997 Stock Plan (the "Plan") adopted by the Company, which is incorporated
herein by reference. Unless otherwise defined herein, the terms defined in the
Plan shall have the same defined meanings in this Option.
If designated an Incentive Stock Option, this Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code.
2. EXERCISE OF OPTION. This Option shall be exercisable during its Term
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) RIGHT TO EXERCISE.
(i) This Option may not be exercised for a fraction
of a share.
(ii) In the event of Optionee's death, disability or
other termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after
the date of expiration of the Term of this Option as set forth in the Notice of
Stock Option Grant.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
<PAGE> 20
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of applicable law and the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other shares of Common Stock of the Company
which (i) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by Optionee for more than six (6) months on the date of
surrender, and (ii) have a fair market value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are
registered under the Securities Act, delivery of a properly executed exercise
notice together with irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
required to pay the exercise price.
4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
Date"), exercise this Option during the Termination Period set forth in the
Notice of Stock Option Grant. To the extent that Optionee was not entitled to
exercise this Option at such Termination Date, or if Optionee does not exercise
this Option within the Termination Period, the Option shall terminate.
6. DISABILITY OF OPTIONEE.
(a) Notwithstanding the provisions of Section 5 above, in the
event of termination of Continuous Status as an Employee or Consultant as a
result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), exercise this Option to the
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<PAGE> 21
extent Optionee was entitled to exercise it as of such Termination Date. To the
extent that Optionee was not entitled to exercise the Option as of the
Termination Date, or if Optionee does not exercise such Option (to the extent so
entitled) within the time specified in this Section 6(a), the Option shall
terminate.
(b) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's consulting relationship or Continuous Status
as an Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six (6) months from the Termination Date (but in no event later than
the Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date; provided, however, that if this is an Incentive Stock Option and Optionee
fails to exercise this Incentive Stock Option within three (3) months from the
Termination Date, this Option will cease to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) and Optionee will be treated for federal
income tax purposes as having received ordinary income at the time of such
exercise in an amount generally measured by the difference between the Exercise
Price for the Shares and the fair market value of the Shares on the date of
exercise. To the extent that Optionee was not entitled to exercise the Option at
the Termination Date, or if Optionee does not exercise such Option to the extent
so entitled within the time specified in this Section 6(b), the Option shall
terminate.
7. DEATH OF OPTIONEE. In the event of the death of Optionee (a) during
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within thirty (30) days after Optionee's Termination
Date, the Option may be exercised at any time within six (6) months following
the date of death (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the Termination Date.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. TERM OF OPTION. This Option may be exercised only within the Term
set forth in the Notice of Stock Option Grant, subject to the limitations set
forth in Section 7 of the Plan.
10. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option of certain of the federal tax consequences of exercise of this
Option and disposition of the Shares under the laws in effect as of the Date of
Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS
ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
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<PAGE> 22
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option
qualifies as an Incentive Stock Option, there will be no regular federal income
tax liability upon the exercise of the Option, although the excess, if any, of
the fair market value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does
not qualify as an Incentive Stock Option, there may be a regular federal (and
state) income tax liability upon the exercise of the Option. Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the fair market value of the Shares on
the date of exercise over the Exercise Price. If Optionee is an employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. In the case of an Incentive Stock Option, if Shares
transferred pursuant to the Option are held for at least one year after exercise
and are disposed of at least two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term capital
gain for federal income tax purposes. If Shares purchased under an Incentive
Stock Option are disposed of within such one-year period or within two years
after the Date of Grant, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the fair market
value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK
OPTION SHARES. If the Option granted to Optionee herein is an Incentive Stock
Option, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the Incentive Stock Option on or before the later of (i)
the date two years after the Date of Grant, or (ii) the date one year after the
date of exercise, Optionee shall immediately notify the Company in writing of
such disposition. Optionee acknowledges and agrees that he or she may be subject
to income tax withholding by the Company on the compensation income recognized
by Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. WITHHOLDING TAX OBLIGATIONS. Optionee understands that, upon
exercising a Nonstatutory Stock Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the Exercise Price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If Optionee is
an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally,
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<PAGE> 23
Optionee may at some point be required to satisfy tax withholding obligations
with respect to the disqualifying disposition of an Incentive Stock Option.
Optionee shall satisfy his or her tax withholding obligation arising upon the
exercise of this Option by one or some combination of the following methods: (a)
by cash payment, (b) out of Optionee's current compensation, (c) if permitted by
the Administrator, in its discretion, by surrendering to the Company Shares
which (i) in the case of Shares previously acquired from the Company, have been
owned by Optionee for more than six months on the date of surrender, and (ii)
have a fair market value on the date of surrender equal to or greater than
Optionee's marginal tax rate times the ordinary income recognized, or (d) by
electing to have the Company withhold from the Shares to be issued upon exercise
of the Option that number of Shares having a fair market value equal to the
amount required to be withheld. For this purpose, the fair market value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined (the "Tax Date").
If Optionee is subject to Section 16 of the Exchange Act (an
"Insider"), any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(c) all elections shall be subject to the consent or
disapproval of the Administrator.
12. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.
[Signature Page Follows]
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<PAGE> 24
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
document.
Persistence Software, Inc.
By:
________________________
[name]
[title]
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE
ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING
RELATIONSHIP BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
<<Optionee>>
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<PAGE> 25
EXHIBIT A
PERSISTENCE SOFTWARE, INC.
1997 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement ("Agreement") is made as of ______________, by and
between Persistence Software, Inc., a California corporation (the "Company"),
and <<Optionee>> ("Purchaser"). To the extent any capitalized terms used in this
Agreement are not defined, they shall have the meaning ascribed to them in the
1997 Stock Plan.
1. EXERCISE OF OPTION. Subject to the terms and conditions hereof,
Purchaser hereby elects to exercise his or her option to purchase ______________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
the Company's 1997 Stock Plan (the "Plan") and the Stock Option Agreement dated
_______________, (the "Option Agreement"). The purchase price for the Shares
shall be $<<ExercisePrice>> per Share for a total purchase price of
$_________________. The term "Shares" refers to the purchased Shares and all
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares
under this Agreement shall occur at the principal office of the Company
simultaneously with the execution and delivery of this Agreement in accordance
with the provisions of Section 2(b) of the Option Agreement. On such date, the
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the exercise price therefor by Purchaser by (a) check made payable to
the Company, (b) cancellation of indebtedness of the Company to Purchaser, (c)
delivery of shares of the Common Stock of the Company in accordance with Section
3 of the Option Agreement, or (d) by a combination of the foregoing.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) RIGHT OF FIRST REFUSAL. Before any Shares held by
Purchaser or any transferee of Purchaser (either being sometimes referred to
herein as the "Holder") may be sold or otherwise transferred (including transfer
by gift or operation of law), the Company or its assignee(s) shall have a right
of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3(a) (the "Right of First Refusal").
<PAGE> 26
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the
Shares shall deliver to the Company a written notice (the "Notice") stating: (i)
the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the terms and conditions of each proposed sale or transfer. The Holder
shall offer the Shares at the same price (the "Offered Price") and upon the same
terms (or terms as similar as reasonably possible) to the Company or its
assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time
within thirty (30) days after receipt of the Notice, the Company and/or its
assignee(s) may, by giving written notice to the Holder, elect to purchase all,
but not less than all, of the Shares proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("Purchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 3(a) shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in
good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be
made, at the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Notice and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section 3 shall continue to apply
to the Shares in the hands of such Proposed Transferee. If the Shares described
in the Notice are not transferred to the Proposed Transferee within such period,
or if the Holder proposes to change the price or other terms to make them more
favorable to the Proposed Transferee, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything
to the contrary contained in this Section 3(a) notwithstanding, the transfer of
any or all of the Shares during Purchaser's lifetime or on Purchaser's death by
will or intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
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<PAGE> 27
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY
TRANSFER. In the event, at any time after the date of this Agreement, of any
transfer by operation of law or other involuntary transfer (including death or
divorce, but excluding a transfer to Immediate Family as set forth in Section
3(a)(vi) above) of all or a portion of the Shares by the record holder thereof,
the Company shall have an option to purchase all of the Shares transferred at
the greater of the purchase price paid by Purchaser pursuant to this Agreement
or the fair market value of the Shares on the date of transfer. Upon such a
transfer, the person acquiring the Shares shall promptly notify the Secretary of
the Company of such transfer. The right to purchase such Shares shall be
provided to the Company for a period of thirty (30) days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to
any stock to be transferred pursuant to Section 3(b)(i), the price per Share
shall be a price set by the Board of Directors of the Company that will reflect
the current value of the stock in terms of present earnings and future prospects
of the Company. The Company shall notify Purchaser or his or her executor of the
price so determined within thirty (30) days after receipt by it of written
notice of the transfer or proposed transfer of Shares. However, if the Purchaser
does not agree with the valuation as determined by the Board of Directors of the
Company, the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) ASSIGNMENT. The right of the Company to purchase any part
of the Shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations; provided,
however, that an assignee, other than a corporation that is the parent or a 100%
owned subsidiary of the Company, must pay the Company, upon assignment of such
right, cash equal to the difference between the original purchase price and fair
market value, if the original purchase price is less than the fair market value
of the Shares subject to the assignment.
(d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement. Any sale or transfer of the
Company's Shares shall be void unless the provisions of this Agreement are
satisfied.
(e) TERMINATION OF RIGHTS. The right of first refusal granted
the Company by Section 3(a) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(b) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act. Upon
termination of the right of first refusal described in Section
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<PAGE> 28
3(a) above, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 6(a)(ii) herein and delivered to Purchaser.
4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities.
Purchaser is purchasing these securities for investment for his or her own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the securities. Purchaser understands that the
certificate(s) evidencing the securities will be imprinted with a legend which
prohibits the transfer of the securities unless they are registered or such
registration is not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and
701, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly, from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of issuance of
the securities, such issuance will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
securities exempt under Rule 701 may be resold by the Purchaser ninety (90) days
thereafter, subject to the satisfaction of certain of the conditions specified
by Rule 144, including, among other things: (1) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, and the amount of securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
if applicable. Notwithstanding this paragraph (d), Purchaser acknowledges and
agrees to the restrictions set forth in paragraph (f) hereof.
In the event that the Company does not qualify under Rule 701 at the
time of purchase, then the securities may be resold by the Purchaser in certain
limited circumstances subject to the provisions of Rule 144, which requires,
among other things: (1) the availability of certain public information about the
Company; (2) the resale occurring not less than two
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<PAGE> 29
years after the party has purchased, and made full payment of (within the
meaning of Rule 144), the securities to be sold; and, in the case of an
affiliate, or of a non-affiliate who has held the securities less than three
years, (3) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of securities
being sold during any three month period not exceeding the specified limitations
stated therein, if applicable.
(e) Purchaser further understands that at the time he or she
wishes to sell the securities there may be no public market upon which to make
such a sale, and that, even if such a public market then exists, the Company may
not be satisfying the current public information requirements of Rule 144 or
701, and that, in such event, Purchaser would be precluded from selling the
securities under Rule 144 or 701 even if the two-year minimum holding period had
been satisfied.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
(g) Purchaser understands that Purchaser may suffer adverse
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted any tax consultants
Purchaser deems advisable in connection with the purchase or disposition of the
Shares and that Purchaser is not relying on the Company for any tax advice.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legends (as well as any legends required by
applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL FOR
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<PAGE> 30
THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH
THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH
IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
7. MARKET STAND-OFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless
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<PAGE> 31
in writing signed by the parties to this Agreement. The failure by either party
to enforce any rights under this Agreement shall not be construed as a waiver of
any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(i) such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or forty-eight (48) hours after being
deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
THE SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION
THEREFOR PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES
IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
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<PAGE> 32
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
PERSISTENCE SOFTWARE, INC.
By:
[name]
[title]
1720 South Amphlett Blvd.
Suite 300
San Mateo, CA 94402
PURCHASER:
<<Optionee>>
(Signature)
(Print Name)
Address:
I, ______________________, spouse of <<Optionee>>, have read and hereby approve
the foregoing Agreement. In consideration of the Company's granting my spouse
the right to purchase the Shares as set forth in the Agreement, I hereby agree
to be irrevocably bound by the Agreement and further agree that any community
property or other such interest shall hereby by similarly bound by the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any
amendment or exercise of any rights under the Agreement.
Spouse of <<Optionee>>
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<PAGE> 33
RECEIPT
The undersigned hereby acknowledges receipt of Certificate No. _____
for __________ shares of Common Stock of Persistence Software, Inc. (the
"Company").
Dated:
<<Optionee>>
<PAGE> 34
RECEIPT
Persistence Software, Inc. (the "Company") hereby acknowledges receipt
of a check in the amount of $<<TotalExercisePrice>> given by <<Optionee>> as
consideration for Certificate No. _________ for <<NoofShares>> shares of Common
Stock of Persistence Software, Inc.
Dated:
Persistence Software, Inc.
By:
[name]
[title]
<PAGE> 35
PERSISTENCE SOFTWARE, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of
____________, 199_ by and between Persistence Software, Inc. a California
corporation (the "Company"), and ________________ ("Purchaser").
1. SALE OF STOCK. Subject to the terms and conditions of this
Agreement, on the Purchase Date (as defined below) the Company will issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company, ________
shares of the Company's Common Stock (the "Shares") at a purchase price of
$_____ per Share for a total purchase price of $______. The term "Shares" refers
to the purchased Shares and all securities received in replacement of or in
connection with the Shares pursuant to stock dividends or splits, all securities
received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. PURCHASE. The purchase and sale of the Shares under this Agreement
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement by the parties, or on such other date as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by Purchaser by [delivery of a check made
payable to the Company] [delivery of a promissory note in the form attached as
Exhibit A to this Agreement and a Pledge and Security Agreement in the form
attached as Exhibit B to this Agreement] [surrender of _____ Shares of Common
Stock owned by Purchaser for at least six months plus delivery of a check made
payable to the Company in the amount of $___] [description of other combination
of acceptable consideration].
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from the Repurchase Option, Purchaser shall
not assign, encumber or dispose of any interest in such Shares except in
compliance with the provisions below and applicable securities laws.
(a) REPURCHASE OPTION.
(i) In the event of the voluntary or involuntary termination of
Purchaser's employment or consulting relationship with the Company for any
reason (including death or disability), with or without cause, the Company shall
upon the date of such termination (the "Termination Date") have an irrevocable,
exclusive option (the "Repurchase Option") for a period of 60 days from such
date to repurchase all or any portion of the Shares held by Purchaser as of the
Termination Date which have not yet been released from the Company's Repurchase
Option at the original purchase price per Share specified in Section 1 (adjusted
for any stock
<PAGE> 36
splits, stock dividends and the like); provided, however, that the Repurchase
Option shall continue for a period of up to one year from the Termination Date
to the extent that the Company reasonably determines that such an extension of
time is necessary to prevent the repurchase of Purchaser's Shares from causing
other capital stock of the Company to not qualify as "small business stock"
under Section 1202 of the Internal Revenue Code of 1986, as amended.
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase price in any of the
ways described above, the Company shall become the legal and beneficial owner of
the Shares being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) __________ percent (___%) of the Shares shall initially be
subject to the Repurchase Option. The Shares shall be released from the
Repurchase Option in accordance with the following Vesting Schedule: [Example:
___ of the total number of Shares shall be released from the Repurchase Option
on the ___-month anniversary of the Vesting Commencement Date (as set forth on
the signature page of this Agreement), and an additional ___ of the total number
of Shares shall be released from the Repurchase Option at the end of each month
thereafter, until all Shares are released from the Repurchase Option] (provided
in each case that Purchaser's Continuous Service has not been terminated prior
to the date of any such release). Fractional shares shall be rounded to the
nearest whole share.
(b) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(b) (the "Right of First Refusal").
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (A) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (B) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (C) the
number of Shares to be transferred to each Proposed Transferee; and (D) the
terms and conditions of each proposed sale or transfer. The Holder shall offer
the Shares at the same price (the "Offered Price") and upon the same terms (or
terms as similar as reasonably possible) to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice
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<PAGE> 37
to the Holder, elect to purchase all, but not less than all, of the Shares
proposed to be transferred to any one or more of the Proposed Transferees, at
the purchase price determined in accordance with subsection (iii) below.
(iii) PURCHASE PRICE. The purchase price ("Purchase Price") for
the Shares purchased by the Company or its assignee(s) under this Section 3(b)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be made, at
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section 3(b), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section 3(b) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family or a trust for the benefit of
Purchaser's Immediate Family shall be exempt from the provisions of this Section
3(b). "Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(c) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including death or divorce, but
excluding a transfer to Immediate Family as set forth in Section 3(b)(vi) above)
of all or a portion of the Shares by the record
-3-
<PAGE> 38
holder thereof, the Company shall have an option to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the fair market value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of thirty (30) days following
receipt by the Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock
to be transferred pursuant to Section 3(c)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within thirty (30) days after receipt by it of written notice of
the transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(d) ASSIGNMENT. The right of the Company to purchase any part of the
Shares may be assigned in whole or in part to any shareholder or shareholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(e) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Repurchase Option. Any sale or transfer of the Company's Shares shall be void
unless the provisions of this Agreement are met.
(f) TERMINATION OF RIGHTS. The right of first refusal granted the
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"). Upon termination of the right of first refusal
described in Section 3(b) and the expiration or exercise of the Repurchase
Option, a new certificate or certificates representing the Shares not
repurchased shall be issued, on request, without the legend referred to in
Section 6(a)(ii) below and delivered to Purchaser.
4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit C
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<PAGE> 39
executed by Purchaser and by Purchaser's spouse (if required for transfer), in
blank, to the Secretary of the Company, or the Secretary's designee, to hold
such certificate(s) and Assignment Separate from Certificate in escrow and to
take all such actions and to effectuate all such transfers and/or releases as
are in accordance with the terms of this Agreement. Purchaser hereby
acknowledges that the Secretary of the Company, or the Secretary's designee, is
so appointed as the escrow holder with the foregoing authorities as a material
inducement to make this Agreement and that said appointment is coupled with an
interest and is accordingly irrevocable. Purchaser agrees that said escrow
holder shall not be liable to any party hereof (or to any other party). The
escrow holder may rely upon any letter, notice or other document executed by any
signature purported to be genuine and may resign at any time. Purchaser agrees
that if the Secretary of the Company, or the Secretary's designee, resigns as
escrow holder for any or no reason, the Board of Directors of the Company shall
have the power to appoint a successor to serve as escrow holder pursuant to the
terms of this Agreement.
5. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and qualified by
state authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
-5-
<PAGE> 40
6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the Shares
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(iii) Any legend required to be placed thereon by the California
Commissioner of Corporations.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
8. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference
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<PAGE> 41
between the amount paid for the Shares and the fair market value of the Shares
as of the date any restrictions on the Shares lapse. In this context,
"restriction" means the right of the Company to buy back the Shares pursuant to
the Repurchase Option set forth in Section 3(a) of this Agreement. Purchaser
understands that Purchaser may elect to be taxed at the time the Shares are
purchased, rather than when and as the Repurchase Option expires, by filing an
election under Section 83(b) (an "83(b) Election") of the Code with the Internal
Revenue Service within 30 days from the date of purchase. Even if the fair
market value of the Shares at the time of the execution of this Agreement equals
the amount paid for the Shares, the election must be made to avoid income under
Section 83(a) in the future. Purchaser understands that failure to file such an
election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Shares hereunder, and does not
purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company
with this executed Agreement a copy of the Acknowledgment and Statement of
Decision Regarding Section 83(b) Election (the "Acknowledgment"), attached
hereto as Exhibit D. Purchaser further agrees that Purchaser will execute and
submit with the Acknowledgment a copy of the 83(b) Election, attached hereto as
Exhibit E, if Purchaser has indicated in the Acknowledgment his or her decision
to make such an election.
9. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters and to execute an agreement reflecting the
foregoing as may be requested by the underwriters at the time of the public
offering.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
forth the entire agreement and understanding of the parties relating to the
subject matter herein and
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<PAGE> 42
merges all prior discussions between them. No modification of or amendment to
this Agreement, nor any waiver of any rights under this Agreement, shall be
effective unless in writing signed by the parties to this Agreement. The failure
by either party to enforce any rights under this Agreement shall not be
construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or forty-eight (48) hours after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[SIGNATURE PAGE FOLLOWS]
-8-
<PAGE> 43
The parties have executed this Agreement as of the date first set forth
above.
PERSISTENCE SOFTWARE, INC.
By: _______________________________
Title: ____________________________
Address:
1720 South Amphlett Blvd.
Suite 300
San Mateo, CA 94402
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
[PURCHASER'S NAME]
____________________________________
(Signature)
Address:
___________________________
___________________________
Vesting Commencement
Date: _______________
I, spouse of [___________, Purchaser], have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
irrevocably bound by the Agreement and further agree that any community property
or other such interest shall be similarly bound by the Agreement. I hereby
appoint my spouse as my attorney-in-fact with respect to any amendment or
exercise of any rights under the Agreement.
_____________________________
Spouse of ________, Purchaser
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<PAGE> 44
EXHIBIT A
PROMISSORY NOTE
$__________ ___________, California
_________________, 199_
For value received, the undersigned promises to pay Persistence
Software, Inc. a California corporation (the "Company"), at its principal office
the principal sum of $_________ with interest from the date hereof at a rate of
_____% per annum, compounded semiannually, on the unpaid balance of such
principal sum. Such principal and interest shall be due and payable on , 200_.
If the undersigned's employment or consulting relationship with the
Company is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States
of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
INTEREST OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The makers and endorsers have severally waived presentment for payment, protest,
notice of protest, and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain
shares of Common Stock of the Company and is subject to the terms of a Pledge
and Security Agreement between the undersigned and the Company of even date
herewith.
_____________________________
[name of Purchaser]
<PAGE> 45
EXHIBIT B
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "Agreement") is entered into
this _____ day of _________, 199_ by and between Persistence Software, Inc. a
California corporation (the "Company") and ________________ ("Purchaser").
RECITALS
In connection with Purchaser's purchase of certain shares of the
Company's Common Stock (the "Shares") pursuant to a Common Stock Purchase
Agreement dated _______________, 199_ between Purchaser and the Company,
Purchaser is delivering a promissory note of even date herewith (the "Note") in
full or partial payment of the exercise price for the Shares. The company
requires that the Note be secured by a pledge of the Shares on the terms set
forth below.
AGREEMENT
In consideration of the Company's acceptance of the Note as full or
partial payment of the exercise price of the Shares, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or
her designee (hereinafter referred to as the "Pledge Holder"), all certificates
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as and when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension
or modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of commencing the
holding
<PAGE> 46
period set forth in Rule 144(d) promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the establishment
of a public market for the Shares of the Company, the securities laws affecting
sale of the Shares make a public sale of the Shares commercially unreasonable.
The parties further agree that the repurchasing of such Shares by the Company,
or by any person to whom the Company may have assigned its rights under this
Agreement, is commercially reasonable if made at a price determined by the Board
of Directors in its discretion, fairly exercised, representing what would be the
fair market value of the Shares reduced by any limitation on transferability,
whether due to the size of the block of shares or the restrictions of applicable
securities laws.
6. In the event of default in payment when due of any indebtedness
under the Note, the Company may elect then, or at any time thereafter, to
exercise all rights available to a secured party under the California Commercial
Code including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy any
remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement; provided, however,
that Pledge Holder shall nevertheless retain the Shares as escrow agent if at
the time of full payment by Purchaser said Shares are still subject to a
Repurchase Option in favor of the Company.
-2-
<PAGE> 47
The parties have executed this Pledge and Security Agreement as of the
date first set forth above.
COMPANY:
PERSISTENCE SOFTWARE, INC.
By:_______________________________________
Name:_____________________________________
(print)
Title:____________________________________
Address:
1720 South Amphlett Blvd.
Suite 300
San Mateo, CA 94402
PURCHASER:
[NAME OF PURCHASER]
__________________________________________
(Signature)
Address:
__________________________________________
__________________________________________
-3-
<PAGE> 48
ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Pledge and
Security Agreement between the undersigned ("Purchaser") and Persistence
Software, Inc. (the "Company") dated _____________ (the "Agreement"), Purchaser
hereby sells, assigns and transfers unto the Company
_______________________________ (________) shares of the Common Stock of the
Company standing in Purchaser's name on the Company's books and represented by
Certificate No. _____, and hereby irrevocably appoints _______________________
to transfer said stock on the books of the Company with full power of
substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY
THE AGREEMENT.
Dated: ____________
Signature:
_______________________________________
[name of Purchaser]
_______________________________________
Spouse of ________, Purchaser (if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to perfect the security interest of the Company
pursuant to the Agreement.
<PAGE> 49
EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("Purchaser") and Persistence Software, Inc.
(the "Company") dated _______________ (the "Agreement"), Purchaser hereby sells,
assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. ______, and does
hereby irrevocably constitute and appoint _____________________________ to
transfer said stock on the books of the Company with full power of substitution
in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT
AND THE EXHIBITS THERETO.
Dated: ______________________
Signature:
_______________________________________
[name of Purchaser]
_______________________________________
Spouse of _________, Purchaser (if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
<PAGE> 50
EXHIBIT D
ACKNOWLEDGMENT AND STATEMENT OF DECISION
REGARDING SECTION 83(B) ELECTION
The undersigned has entered a stock purchase agreement with Persistence
Software, Inc. a California corporation (the "Company"), pursuant to which the
undersigned is purchasing _________ shares of Common Stock of the Company (the
"Shares"). In connection with the purchase of the Shares, the undersigned hereby
represents as follows:
1. The undersigned has carefully reviewed the stock purchase agreement
pursuant to which the undersigned is purchasing the Shares.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor, __________________________,
whose business address is _____________________________,
regarding the federal, state and local tax consequences of
purchasing the Shares, and particularly regarding the
advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and
pursuant to the corresponding provisions, if any, of
applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided
[check as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the Code,
and is submitting to the Company, together with the
undersigned's executed Common Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986;" or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
4. Neither the Company nor any subsidiary or representative of the
Company has made any warranty or representation to the undersigned with respect
to the tax consequences of the undersigned's purchase of the Shares or of the
making or failure to make an election pursuant to Section 83(b) of the Code or
the corresponding provisions, if any, of applicable state law.
Date:_________________________________ _____________________________________
[name of Purchaser]
Date:_________________________________ _____________________________________
Spouse of ___________, Purchaser
<PAGE> 51
EXHIBIT E
ELECTION UNDER SECTION 83(B)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of
the Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME OF TAXPAYER: __________________
NAME OF SPOUSE: _____________________
ADDRESS:_____________________________
_____________________________
IDENTIFICATION NO. OF TAXPAYER:_________________________
IDENTIFICATION NO. OF SPOUSE:___________________________
TAXABLE YEAR: 199_
2. The property with respect to which the election is made is described as
follows:
_________ shares of the Common Stock $0.001 par value, of Persistence
Software, Inc. a California corporation (the "Company").
3. The date on which the property was transferred is: _______________,
199_.
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is: $_________.
6. The amount (if any) paid for such property: $_______________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: _____________________________ ________________________________________
Taxpayer
Dated: _____________________________ ________________________________________
Spouse of Taxpayer
<PAGE> 52
RECEIPT
hereby acknowledges receipt of a promissory note in the amount of $__________
given by [name of Purchaser] and cash payment in the amount of $__________ as
consideration for Certificate No. __ for shares of Common Stock of Persistence
Software, Inc.
Dated: ________________
Persistence Software, Inc.
By:_________________________________________
Title:______________________________________
<PAGE> 53
NORMAL.DOT________
RECEIPT AND CONSENT
The undersigned hereby acknowledges receipt of a photocopy of
Certificate No. __ for _________ shares of Common Stock of Persistence Software,
Inc. (the "Company").
The undersigned further acknowledges that the Secretary of the Company,
or his or her designee, is acting as escrow holder pursuant to the Common Stock
Purchase Agreement Purchaser has previously entered into with the Company. As
escrow holder, the Secretary of the Company, or his or her designee, holds the
original of the aforementioned certificate issued in the undersigned's name.
Dated: _________________________
______________________________________
[name of Purchaser]
<PAGE> 54
PERSISTENCE SOFTWARE, INC.
1997 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
[Forms for Use Post-IPO]
<<Optionee>>
<<OptioneeAddress1>>
<<OptioneeAddress2>>
You have been granted an option to purchase Common Stock of Persistence
Software, Inc. (the "Company") as follows:
<TABLE>
<S> <C>
Board Approval Date: <<BoardApprovDate>>
Date of Grant (Later of Board
Approval Date or Commence-
ment of Employment/Consulting): <<GrantDate>>
Exercise Price per Share: $<<ExercisePrice>>
Total Number of Shares Granted: <<NoofShares>>
Total Exercise Price: $<<TotalExercisePrice>>
Type of Option: <<NoSharesISO>> Incentive Stock Option
<<NoSharesNSO>> Nonstatutory Stock Option
Term/Expiration Date: <<Term/ExpirDate>>
Vesting Commencement Date: <<VestingCommenceDate>>
Vesting Schedule: This Option may be exercised, in whole or in part, in accordance with the
following schedule: <<Vesting>>
</TABLE>
<PAGE> 55
<TABLE>
<S> <C>
Termination Period: Option may be
exercised for 30 days after
termination of employment or
consulting relationship
except as set out in Sections
6 and 7 of the Stock Option
Agreement (but in no event
later than the Expiration
Date).
Transferability: [Not Transferable.] [Transferable as follows: ]
</TABLE>
By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and governed
by the terms and conditions of the 1997 Stock Plan and the Stock Option
Agreement, both of which are attached and made a part of this document.
<<OPTIONEE>>: PERSISTENCE SOFTWARE, INc.
By:
Signature
Print Name Print Name and Title
Address (if different from above): Address:
1720 South Amphlett Blvd., Suite 300
San Mateo, CA 94402
<PAGE> 56
PERSISTENCE SOFTWARE, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Persistence Software, Inc., a Delaware corporation
(the "Company"), hereby grants to <<Optionee>> ("Optionee"), an option (the
"Option") to purchase a total number of shares of Common Stock (the "Shares")
set forth in the Notice of Stock Option Grant, at the exercise price per share
set forth in the Notice of Stock Option Grant (the "Exercise Price") subject to
the terms, definitions and provisions of the Persistence Software, Inc. Stock
Option Plan (the "Plan") adopted by the Company, which is incorporated herein by
reference. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement. In the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Option Agreement, the terms and conditions of the Plan shall
prevail.
To the extent designated an Incentive Stock Option in the
Notice of Stock Option Grant, this Option is intended to qualify as an Incentive
Stock Option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and, to the extent not so designated, this Option is
intended to be a Nonstatutory Stock Option. Notwithstanding the foregoing, if
designated as an Incentive Stock Option, in the event that the Shares subject to
this Option (and all other Incentive Stock Options granted to Optionee by the
Company or any Parent or Subsidiary) that first become exercisable in any
calendar year have an aggregate fair market value (determined for each Share as
of the date of grant of the option covering such Share) in excess of $100,000,
the Shares in excess of $100,000 shall be treated as subject to a Nonstatutory
Stock Option, in accordance with Section 5(b) of the Plan.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its
Term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and the applicable provisions of the Plan and this Stock Option
Agreement. In the event of Optionee's death, disability or the termination of
Optionee's Continuous Service, the exercisability of the Option is governed by
the applicable provisions of the Plan and this Stock Option Agreement. This
Option may not be exercised for a fraction of a Share.
(b) METHOD OF EXERCISE.
(i) This Option shall be exercisable in whole or in
part as to Shares which have vested under the Vesting Schedule indicated on the
Notice of Stock Option Grant by execution and delivery to the Company a written
notice of exercise in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as to the holder's
<PAGE> 57
investment intent with respect to such Shares of Common Stock as may be required
by the Company pursuant to the provisions of the Plan. Such written notice of
exercise shall be signed by Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice of exercise
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed written notice of exercise, accompanied by
such aggregate Exercise Price.
(ii) As a condition to the exercise of this Option,
Optionee agrees to make adequate provision for
federal, state or other tax withholding obligations, if any, which arise upon
the exercise of the Option or disposition of Shares, whether by withholding,
direct payment to the Company, or otherwise, as set forth in Section 11 of this
Agreement.
(iii) No Shares will be issued pursuant to the
exercise of an Option unless such issuance and such exercise shall comply with
all relevant provisions of applicable law and the requirements of any stock
exchange upon which the Shares may then be listed. Assuming such compliance, for
income tax purposes the Shares shall be considered transferred to Optionee on
the date on which the Option is exercised with respect to such Shares.
3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of Optionee:
(a) cash;
(b) check;
(c) surrender of other Shares of Common Stock of the Company
that (i) in the case of Shares acquired upon exercise of an Option, have either
been owned by Optionee for more than six (6) months on the date of surrender (or
such other period as may be required to avoid a charge to the Company's
earnings) or were not acquired, directly or indirectly, from the Company, and
(ii) have a fair market value on the date of surrender equal to the Exercise
Price of the Shares as to which the Option is being exercised; or
(d) if there is a public market for the Shares and they are
registered under the Securities Act of 1933, as amended, delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds required to
pay the exercise price.
4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the stockholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
-2-
<PAGE> 58
5. TERMINATION OF CONTINUOUS SERVICE. In the event of termination of
Optionee's Continuous Service, Optionee may, to the extent otherwise so entitled
at the date of such termination (the "Termination Date"), exercise this Option
during the Termination Period set forth in the Notice of Stock Option Grant. To
the extent that Optionee was not entitled to exercise this Option at such
Termination Date, or if Optionee does not exercise this Option within the
Termination Period, the Option shall terminate.
6. DISABILITY OF OPTIONEE.
(a) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's Continuous Service as a result of Optionee's
total and permanent disability (as defined in Section 22(e)(3) of the Code),
Optionee may, but only within twelve (12) months from the Termination Date (but
in no event later than the Expiration Date set forth in the Notice of Stock
Option Grant), exercise this Option to the extent Optionee was entitled to
exercise it as of such Termination Date. To the extent that Optionee was not
entitled to exercise the Option as of the Termination Date, or if Optionee does
not exercise such Option (to the extent so entitled) within the time specified
in this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the
event of termination of Optionee's Continuous Service as a result of disability
not constituting a total and permanent disability (as set forth in Section
22(e)(3) of the Code), Optionee may, but only within six (6) months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), exercise the Option to the extent Optionee
was entitled to exercise it as of such Termination Date; provided, however, that
if this is an Incentive Stock Option and Optionee fails to exercise this
Incentive Stock Option within three (3) months from the Termination Date, this
Option will cease to qualify as an Incentive Stock Option (as defined in Section
422 of the Code) and Optionee will be treated for federal income tax purposes as
having received ordinary income at the time of such exercise in an amount
generally measured by the difference between the Exercise Price for the Shares
and the fair market value of the Shares on the date of exercise. To the extent
that Optionee was not entitled to exercise the Option at the Termination Date,
or if Optionee does not exercise such Option to the extent so entitled within
the time specified in this Section 6(b), the Option shall terminate.
7. DEATH OF OPTIONEE. In the event of the death of Optionee (a) during
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Service since the date of grant of the Option, or (b)
within thirty (30) days after Optionee's Termination Date, the Option may be
exercised at any time within six (6) months following the date of death (but in
no event later than the Expiration Date set forth in the Notice of Stock Option
Grant), by Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the Termination Date.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a
-3-
<PAGE> 59
domestic relations order (as defined by the Code or rules thereunder), except as
set forth in the Notice of Stock Option Grant and subject to Applicable Laws.
This Option may be exercised during the lifetime of Optionee only by him or her
or by a transferee permitted by this Section 8. The terms of this Option shall
be binding upon the executors, administrators, heirs, successors and assigns of
Optionee.
9. TERM OF OPTION. This Option may be exercised only within the Term
set forth in the Notice of Stock Option Grant, subject to the limitations set
forth in Section 7 of the Plan.
10. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the
brief summary set forth below of certain of the federal tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option
qualifies as an Incentive Stock Option, there will be no regular federal income
tax liability upon the exercise of the Option, although the excess, if any, of
the fair market value of the Shares on the date of exercise over the Exercise
Price will be treated as an item of alternative minimum taxable income for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does
not qualify as an Incentive Stock Option, Optionee may incur regular federal
(and state) income tax liability upon the exercise of the Option. Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the fair market value of the Shares
on the date of exercise over the Exercise Price. If Optionee is an employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock
Option, if Shares are held for more than 12 months, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. In the case of an Incentive Stock Option, if Shares
transferred pursuant to the Option are held for more than one year after
exercise and more than two years after the Date of Grant, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If Shares purchased under an Incentive Stock Option are
disposed of within either of such two holding periods, then any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the difference between the Exercise Price and the
lesser of (i) the fair market value of the Shares on the date of exercise, or
(ii) the sales proceeds of the Shares.
-4-
<PAGE> 60
(d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK
OPTION SHARES. If the Option granted to Optionee herein is an Incentive Stock
Option, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the Incentive Stock Option on or before the later of (i)
the date two years after the Date of Grant, or (ii) the date one year after the
date of exercise, Optionee shall notify the Company in writing within thirty
(30) days after the date of any such disposition. Optionee acknowledges and
agrees that he or she may be subject to income tax withholding by the Company on
the compensation income recognized by Optionee from the early disposition by
payment in cash or out of the current earnings paid to Optionee.
11. WITHHOLDING TAX OBLIGATIONS. Optionee acknowledges and agrees that
the delivery of any Shares under the Plan is conditioned on satisfaction by the
Optionee of applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of an Option. Such
withholding obligations shall be satisfied in accordance with the provisions of
Section 12 of the Plan.
12. MARKET STANDOFF AGREEMENT. In connection with the initial public
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Optionee hereby agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters and to execute an agreement reflecting
the foregoing as may be requested by the underwriters at the time of the public
offering.
[Signature Page Follows]
-5-
<PAGE> 61
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
document.
PERSISTENCE SOFTWARE, INC.
By:
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING
RELATIONSHIP BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated:
<<Optionee>>
-6-
<PAGE> 62
EXHIBIT A
PERSISTENCE SOFTWARE, INC.
1997 STOCK PLAN
NOTICE OF EXERCISE
To: PERSISTENCE SOFTWARE, INC.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
This is official notice that the undersigned ("Optionee") intends to
exercise Optionee's option to purchase shares of PERSISTENCE
SOFTWARE, INC. Common Stock, under and pursuant to the Persistence Software,
Inc. 1997 Stock Plan and the Stock Option Agreement dated , as
follows:
Date of Grant (or Grant Number):
Type of Option (ISO or NSO):
Date of Purchase:
Number of Shares:
Purchase Price:
Method of Payment of
Purchase Price:
Social Security No.:
The shares should be issued as follows:
Name:
Address:
Signed:
Date:
<PAGE> 63
PERSISTENCE SOFTWARE, INC.
1997 STOCK PLAN
COMMON STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (the "Agreement") is made as
of __________________, 19__, by and between Persistence Software, Inc., a
Delaware corporation (the "Company"), and ____________________ ("Purchaser")
pursuant to the Company's 1997 Stock Plan.
1. SALE OF STOCK. Subject to the terms and conditions of this
Agreement, on the Purchase Date (as defined below) the Company will issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company,
_______________ shares of the Company's Common Stock (the "Shares") at a
purchase price of $_____ per Share for a total purchase price of
$_________________. The term "Shares" refers to the purchased Shares and all
securities received in replacement of or in connection with the Shares pursuant
to stock dividends or splits, all securities received in replacement of the
Shares in a recapitalization, merger, reorganization, exchange or the like, and
all new, substituted or additional securities or other properties to which
Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. PURCHASE. The purchase and sale of the Shares under this Agreement
shall occur at the principal office of the Company, in accordance with Section
11 of the Plan, simultaneously with the execution of this Agreement by the
parties or on such other date as the Company and Purchaser shall agree (the
"Purchase Date"). On the Purchase Date, the Company will deliver to Purchaser a
certificate representing the Shares to be purchased by Purchaser (which shall be
issued in Purchaser's name) against payment of the purchase price therefor by
Purchaser by check made payable to the Company.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below). After any Shares have
been released from the Repurchase Option, Purchaser shall not assign, encumber
or dispose of any interest in such Shares except in compliance with the
provisions below and applicable securities laws.
(a) REPURCHASE OPTION.
(i) In the event of the voluntary or involuntary
termination of Purchaser's Continuous Service for any reason (including death or
disability), with or without cause, the Company shall upon the date of such
termination (the "Termination Date") have an irrevocable, exclusive option (the
"Repurchase Option") for a period of 60 days from such date to repurchase all or
any portion of the Shares held by Purchaser as of the Termination Date which
have not yet been released from the Company's Repurchase Option at the original
purchase price per Share specified in Section 1 (adjusted for any stock splits,
stock dividends and the like).
<PAGE> 64
(ii) The Repurchase Option shall be exercised by the
Company by written notice to Purchaser or Purchaser's executor and, at the
Company's option, (A) by delivery to Purchaser or Purchaser's executor with such
notice of a check in the amount of the purchase price for the Shares being
purchased, or (B) in the event Purchaser is indebted to the Company, by
cancellation by the Company of an amount of such indebtedness equal to the
purchase price for the Shares being repurchased, or (C) by a combination of (A)
and (B) so that the combined payment and cancellation of indebtedness equals
such purchase price. Upon delivery of such notice and payment of the purchase
price in any of the ways described above, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and interest
therein or related thereto, and the Company shall have the right to transfer to
its own name the number of Shares being repurchased by the Company, without
further action by Purchaser.
(iii) _______ percent (___%) of the Shares shall
initially be subject to the Repurchase Option. The Shares shall be released from
the Repurchase Option in accordance with the following Vesting Schedule:
[Example:): __ of the total number of Shares shall be released from the
Repurchase Option on the __-month anniversary of the Vesting Commencement Date
(as set forth on the signature page of this Agreement), and an additional __ of
the total number of Shares shall be released from the Repurchase Option each
month thereafter, until all Shares are released from the Repurchase Option]
(provided in each case that Purchaser's Continuous Service has not been
terminated prior to the date of any such release). Fractional shares shall be
rounded to the nearest whole share.
(b) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of
Shares or any interest therein will receive and hold such Shares or interest
subject to the provisions of this Agreement, including insofar as applicable the
Company's Repurchase Option. Any sale or transfer of the Shares shall be void
unless the provisions of this Agreement are satisfied.
(c) TERMINATION OF RIGHTS. Upon the expiration or exercise of
the Repurchase Option, a new certificate or certificates representing the Shares
not repurchased shall be issued, on request, without the legend referred to in
Section 5(a) below and delivered to Purchaser.
4. ESCROW OF UNVESTED SHARES. For purposes of facilitating the
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit A executed by
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or
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<PAGE> 65
to any other party). The escrow holder may rely upon any letter, notice or other
document executed by any signature purported to be genuine and may resign at any
time. Purchaser agrees that if the Secretary of the Company, or the Secretary's
designee, resigns as escrow holder for any or no reason, the Board of Directors
of the Company shall have the power to appoint a successor to serve as escrow
holder pursuant to the terms of this Agreement.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the
Shares shall bear the following legend (as well as any legends required by
applicable state and federal corporate and securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH
THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH
IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
the Internal Revenue Service within 30 days from the date of purchase. Even if
the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an
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<PAGE> 66
election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that an additional copy of such
election form should be filed with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Shares hereunder, and does not
purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, the tax consequences of
Purchaser's death and the decision as to whether or not to file an 83(b)
Election in connection with the acquisition of the Shares.
Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
Exhibit B. Purchaser further agrees that Purchaser will execute and submit with
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit C,
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
8. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(i) such provision shall be excluded from this Agreement, (ii) the balance of
this Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of this Agreement shall be enforceable in accordance with its
terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or fax or 48
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<PAGE> 67
hours after being deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, and addressed to the party to be notified at such party's
address or fax number as set forth below or as subsequently modified by written
notice.
(f) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
[Signature Page Follows]
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<PAGE> 68
The parties have executed this Agreement as of the date first set forth
above.
PERSISTENCE SOFTWARE, INC.
By:
Title:
Address:
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
[PURCHASER NAME]
(Signature)
Address:
Vesting Commencement
Date:
I, , spouse of [Purchaser], have read and hereby
approve the foregoing Agreement. In consideration of the Company's granting my
spouse the right to purchase the Shares as set forth in the Agreement, I hereby
agree to be irrevocably bound by the Agreement and further agree that any
community property or similar interest that I may have in the Shares shall be
similarly bound by the Agreement. I hereby appoint my spouse as my
attorney-in-fact with respect to any amendment or exercise of any rights under
the Agreement.
Spouse of [Purchaser]
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<PAGE> 69
EXHIBIT C
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Common Stock Purchase
Agreement between the undersigned ("Purchaser") and Persistence Software, Inc.
(the "Company") dated _______________ (the "Agreement"), Purchaser hereby sells,
assigns and transfers unto the Company _________________________________
(________) shares of the Common Stock of the Company standing in Purchaser's
name on the Company's books and represented by Certificate No. _____, and does
hereby irrevocably constitute and appoint ______________________ to transfer
said stock on the books of the Company with full power of substitution in the
premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND
THE EXHIBITS THERETO.
Dated: ______________________
Signature:
_____________________________________
[Purchaser]
_____________________________________
Spouse of [Purchaser] (if applicable)
Instruction: Please do not fill in any blanks other than the signature line. The
purpose of this assignment is to enable the Company to exercise its repurchase
option set forth in the Agreement without requiring additional signatures on the
part of Purchaser.
<PAGE> 70
RECEIPT
Persistence Software, Inc. hereby acknowledges receipt of a check in
the amount of $__________ given by [______________, Purchaser] as consideration
for Certificate No. ___________ for ____________ shares of Common Stock of
Persistence Software, Inc.
Dated: ________________
Persistence Software, Inc.
By:_________________________________________
Title:______________________________________
<PAGE> 71
RECEIPT AND CONSENT
The undersigned hereby acknowledges receipt of a photocopy of
Certificate No. ______ for _____________ shares of Common Stock of Persistence
Software, Inc. (the "Company").
The undersigned further acknowledges that the Secretary of the Company,
or his or her designee, is acting as escrow holder pursuant to the Restricted
Stock Purchase Agreement Purchaser has previously entered into with the Company.
As escrow holder, the Secretary of the Company, or his or her designee, holds
the original of the aforementioned certificate issued in the undersigned's name.
Dated: _________________________
___________________________
[Purchaser]
<PAGE> 72
EXHIBIT B
ACKNOWLEDGMENT AND STATEMENT OF DECISION
REGARDING SECTION 83(b) ELECTION
The undersigned has entered a stock purchase agreement with Persistence
Software, Inc., a Delaware corporation (the "Company"), pursuant to which the
undersigned is purchasing ______________ shares of Common Stock of the Company
(the "Shares"). In connection with the purchase of the Shares, the undersigned
hereby represents as follows:
1. The undersigned has carefully reviewed the stock purchase
agreement pursuant to which the undersigned is purchasing the Shares.
2. The undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has been fully advised by, the
undersigned's own tax advisor, __________________________,
whose business address is _____________________________,
regarding the federal, state and local tax consequences of
purchasing the Shares, and particularly regarding the
advisability of making elections pursuant to Section 83(b) of
the Internal Revenue Code of 1986, as amended (the "Code") and
pursuant to the corresponding provisions, if any, of
applicable state law; or
(b) ____ has knowingly chosen not to consult such a tax advisor.
3. The undersigned hereby states that the undersigned has decided
[check as applicable]:
(a) ____ to make an election pursuant to Section 83(b) of the
Code, and is submitting to the Company, together with the
undersigned's executed Common Stock Purchase Agreement, an
executed form entitled "Election Under Section 83(b) of the
Internal Revenue Code of 1986"; or
(b) ____ not to make an election pursuant to Section 83(b) of the Code.
<PAGE> 73
4._______Neither the Company nor any subsidiary or representative of
the Company has made any warranty or representation to the undersigned with
respect to the tax consequences of the undersigned's purchase of the Shares or
of the making or failure to make an election pursuant to Section 83(b) of the
Code or the corresponding provisions, if any, of applicable state law.
Date: __________________ _________________________________
[Purchaser]
Date: __________________ _________________________________
Spouse of [Purchaser]
<PAGE> 74
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of
the Internal Revenue Code, to include in taxpayer's gross income for the current
taxable year, the amount of any compensation taxable to taxpayer in connection
with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME OF TAXPAYER: [Purchaser]
NAME OF SPOUSE:
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER:
IDENTIFICATION NO. OF SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows:
______________ shares of the Common Stock $0.001 par value, of Persistence
Software, Inc., a Delaware corporation (the "Company").
3. The date on which the property was transferred is: __________________
4. The property is subject to the following restrictions:
Repurchase option at cost in favor of the Company upon termination of
taxpayer's employment or consulting relationship.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never lapse,
of such property is: $_____________.
6. The amount (if any) paid for such property: $______________
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ______________________ ________________________________
Taxpayer
Dated: ______________________ ________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.7
PERSISTENCE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Persistence Software,
Inc. 1999 Employee Stock Purchase Plan.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Persistence Software, Inc., a Delaware
corporation.
(e) "Compensation" means all regular straight time gross
earnings and commissions, and shall not include payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses and other
compensation.
(f) "Continuous Status as an Employee" means the absence of
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of (i) sick leave;
(ii) military leave; (iii) any other leave of absence approved by the Company,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute or unless provided otherwise pursuant to Company policy adopted from
time to time.
(g) "Contributions" means all amounts credited to the account
of a participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or
substantially all of the Company's assets, or a merger, consolidation or other
capital reorganization of the Company with or into another corporation.
(i) "Designated Subsidiary" means any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan; provided, however, that the Board shall
only have the discretion to designate a Subsidiary if the issuance of options to
such Subsidiary's Employees pursuant to the Plan would not cause the Company to
incur adverse accounting charges.
<PAGE> 2
(j) "Employee" means any person, including an Officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or a Designated Subsidiary.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" means, as of any date, the value of
Common Stock determined by the Board in its discretion based on the closing
sales price of the Common Stock for such date (or, in the event that the Common
Stock is not traded on such date, on the immediately preceding Trading Day), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) National Market or, if such price is not reported, the mean of the bid
and asked prices per share of the Common Stock as reported by Nasdaq or, in the
event the Common Stock is listed on a stock exchange, the Fair Market Value per
share shall be the closing sales price on such exchange on such date (or, in the
event that the Common Stock is not traded on such date, on the immediately
preceding Trading Day), as reported in The Wall Street Journal. For purposes of
the Offering Date of the first Offering Period under the Plan, the Fair Market
Value of a share of the Common Stock of the Company shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission pursuant to Rule 424 under the Securities Act of 1933, as amended,
for the initial public offering of the Company's Common Stock (the "Registration
Statement").
(m) "Offering Date" means the first Trading Day of each
Offering Period of the Plan.
(n) "Offering Period" means a period of approximately
twenty-four (24) months and not exceeding twenty-seven (27) months, except for
the first Offering Period as set forth in Section 4(a). The duration and timing
of the Offering Periods may be changed pursuant to Section 4 of the Plan.
(o) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p) "Plan" means this Persistence Software, Inc. 1999 Employee
Stock Purchase Plan.
(q) "Purchase Date" means the last Trading Day of each
Purchase Period.
(r) "Purchase Period" means a period of approximately six (6)
months within an Offering Period, except for the first Purchase Period as set
forth in Section 4(b). The duration and timing of the Purchase Periods may be
changed pursuant to Section 4 of the Plan.
(s) "Purchase Price" means with respect to a Purchase Period
an amount equal to 85% of the Fair Market Value (as defined in Section 2(l)
above) of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the
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<PAGE> 3
event (i) there is any increase in the number of Shares available for issuance
under the Plan (including without limitation an automatic increase pursuant to
Section 14(a) below or as a result of a stockholder-approved amendment to the
Plan), and (ii) all or a portion of such additional Shares are to be issued with
respect to one or more Offering Periods that are underway at the time of such
increase ("Additional Shares"), and (iii) the Fair Market Value of a Share of
Common Stock on the date of such increase is higher than the Fair Market Value
on the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to such Additional Shares shall be 85% of the Fair
Market Value of a Share of Common Stock on the date of such increase or the Fair
Market Value of a Share of Common Stock on the Purchase Date, whichever is
lower.
(t) "Share" means a share of Common Stock, as adjusted in
accordance with Section 20 of the Plan.
(u) "Subsidiary" means a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(v) "Trading Day" means a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any person who is an Employee as of the Offering Date of a
given Offering Period shall be eligible to participate in such Offering Period
under the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided, however, that eligible
Employees may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of any
Subsidiary, or (ii) to the extent such option would permit his or her rights to
purchase stock under all employee stock purchase plans (described in Section 423
of the Code) of the Company and its Subsidiaries to accrue at a rate which
exceeds twenty-five thousand dollars ($25,000) of Fair Market Value (as defined
in Section 2(l) above) of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
(a) OFFERING PERIODS. The Plan shall be implemented by a
series of Offering Periods generally of twenty-four (24) months duration and not
exceeding twenty-seven (27) months duration, with new Offering Periods
commencing on or about February 1 and August 1
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<PAGE> 4
of each year, or at such other time or times as may be determined by the Board
of Directors. Offering Periods shall commence on a continuing and overlapping
basis until terminated in accordance with Section 21 hereof. Notwithstanding the
foregoing, the first Offering Period under the Plan shall commence on the
beginning of the effective date of the Registration Statement on Form S-1 for
the initial public offering of the Company's Common (the "IPO Date") and
continue until the last Trading Day on or before January 31, 2001. The Board of
Directors of the Company shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected.
(b) PURCHASE PERIODS. Each Offering Period shall generally
consist of four (4) Purchase Periods of approximately six (6) months duration,
the first commencing on the Offering Date and ending on the July 31 or January
31 next following, and each other Purchase Period in such Offering Period
commencing on the day after the last day of the preceding Purchase Period and
ending on the July 31 or January 31 next following; provided, however, that the
first Purchase Period shall commence on the IPO Date and shall end on January
31, 2000. The Board of Directors of the Company shall have the power to change
the duration and/or frequency of Purchase Periods with respect to future
purchases without stockholder approval if such change is announced at least five
(5) days prior to the otherwise scheduled beginning of the first Purchase Period
to be affected.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period.
(b) The subscription agreement shall set forth the Employee's
participation election, either in the form of a designation of the percentage of
the Employee's Compensation the Employee elects to have deducted from his or her
pay on each pay day during the Offering Period and credited to his or her
account under the Plan to be used to purchase shares on the Purchase Date for
each of the relevant Purchase Periods, which percentage shall be not less than
one percent (1%) and not more than twenty percent (20%), or, if permitted by the
Board, in the form of a designation of the number of whole shares the Employee
elects to purchase at the end of each Purchase Period with respect to the
Offering Period, up to such maximum number of shares as the Board may establish
from time to time before an Offering Date.
(c) A participant's subscription shall be effective for each
successive Offering Period in which he or she is eligible to participate, unless
the participant withdraws in accordance with Section 11(a).
(d) In addition to the limits on an Employee's participation
in the Plan set forth herein, the Board may establish limits on the number of
shares an Employee may elect to
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<PAGE> 5
purchase with respect to any Offering Period if such limit is announced at least
fifteen (15) days prior to the scheduled beginning of the first Offering Period
to be affected.
6. GRANT OF OPTION. On the Offering Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Purchase Date a number of Shares of the Company's
Common Stock determined by dividing such Employee's Contributions accumulated
prior to such Purchase Date and retained in the participant's account as of the
Purchase Date by the applicable Purchase Price, provided, however, that the
maximum number of Shares an Employee may purchase during each Purchase Period
shall be 2,500 Shares (subject to adjustment pursuant to Section 20 below), and
provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 9(b).
7. METHOD OF PAYMENT OF CONTRIBUTIONS.
(a) PAYROLL DEDUCTIONS.
(i) If an Employee's participation election is in the
form of an election to contribute a percentage of his or her Compensation
through payroll deductions, or if an Employee otherwise elects to make
contributions to the Plan through payroll deductions of a specified percentage
of his or her Compensation as permitted by the Board with respect to an
Employee's participation election in the form of an election to purchase a
designated number of shares at the end of each Purchase Period, such payroll
deductions shall commence on the first payroll following the Offering Date and
shall end on the last payroll paid in the Offering Period to which such
subscription agreement and payroll deduction authorization is applicable, unless
sooner terminated by the participant as provided in Section 11. All payroll
deductions made by a participant shall be credited to his or her account under
the Plan.
(ii) A participant may discontinue his or her
participation in the Plan as provided in Section 11, or to the extent permitted
by the Board in its discretion, may increase or decrease the rate of his or her
payroll deductions during the Offering Period by completing and filing with the
Company a new subscription agreement authorizing a change in payroll deduction
rate. The change in rate shall be effective as of the beginning of the next
calendar month commencing ten (10) or more business days after the date the new
subscription is filed.
(iii) Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein,
a participant's payroll deductions may be decreased by the Company to zero
percent (0%) at any time during a Purchase Period. Payroll deductions shall
re-commence at the rate provided in such participant's subscription agreement at
the beginning of the first Purchase Period which is scheduled to end in the
following calendar year, unless terminated by the participant as provided in
Section 11.
(b) CASH OR STOCK CONTRIBUTIONS. To the extent permitted by
the Board, a participant may make contributions to the Plan for purchase of
shares in cash or by tendering Company stock or by election to receive shares
representing the difference between the Purchase Price and the Fair Market Value
of the shares, less applicable withholding. Any such cash or stock contribution,
or any election to receive net shares, must be received by the Company in
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<PAGE> 6
accordance with procedures and at such times as established by the Board, and a
participant's failure to make such contributions or such an election within the
time required, to the extent the aggregate Purchase Price of the number of
shares the participant has an option to purchase on the Purchase Date exceeds
payroll deduction contributions made by the participant as of the Purchase Date,
shall be deemed a withdrawal from the Offering Period with respect to shares
subject to the option not purchased on the applicable Purchase Date and with
respect to all other Purchase Periods in such Offering Period.
8. WITHHOLDING TAX OBLIGATIONS. At the time the option is exercised, in
whole or in part, or at the time some or all of the Company's Common Stock
issued under the Plan is disposed of, the participant must make adequate
provision for payment to the Company of the Company's federal, state or other
tax withholding obligations, if any, which arise upon the exercise of the option
or the disposition of the Common Stock. At any time, the Company may, but shall
not be obligated to, withhold from the participant's compensation the amount
necessary for the Company to meet applicable withholding obligations, including
any withholding required to make available to the Company any tax deductions or
benefits attributable to the sale or early disposition of Common Stock by the
participant.
9. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided
in Section 11, his or her option for the purchase of Shares will be exercised
automatically on each Purchase Date of an Offering Period, and the maximum
number of full Shares subject to the option will be purchased at the applicable
Purchase Price with the accumulated Contributions in his or her account. The
Shares purchased upon exercise of an option hereunder shall be deemed to be
transferred to the participant on the Purchase Date. During his or her lifetime,
a participant's option to purchase Shares hereunder is exercisable only by him
or her.
(b) If the Board determines that, on a given Purchase Date,
the number of Shares with respect to which options are to be exercised may
exceed (i) the number of Shares of Common Stock that were available for sale
under the Plan on the Offering Date of the applicable Offering Period (after
deduction of all Shares for which options have been exercised or are then
outstanding), or (ii) the number of shares available for sale under the Plan on
such Purchase Date (after deduction of all Shares for which options have been
exercised or are then outstanding), the Board may, in its sole discretion,
provide that the Shares of Common Stock available for purchase on such Offering
Date or Purchase Date, as applicable, shall be allocated pro rata, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Purchase Date and (x) continue all Offering Periods then in
effect or (y) pursuant to Section 21 below, terminate any or all Offering
Periods then in effect. The Board may direct that the Shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding
sentence be allocated pro rata, notwithstanding any authorization of additional
Shares for issuance under the Plan by the Company's stockholders subsequent to
such Offering Date.
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<PAGE> 7
(c) Any cash remaining to the credit of a participant's
account under the Plan after a purchase by him or her of Shares at the
termination of each Purchase Period which is insufficient to purchase a full
Share shall be carried over to the next Purchase Period if the Employee
continues to participate in the Plan, or if the Employee does not continue to
participate, shall be returned to the participant. Any other amounts left over
in a participant's account after a Purchase Date shall be returned to the
participant.
10. RIGHTS AS STOCKHOLDER; DELIVERY OF CERTIFICATE.
(a) The participant shall have no interest or voting right in
Shares covered by his or her option until such option has been exercised.
(b) Shares to be delivered to a participant under the Plan
will be registered in the name of the participant or in the name of the
participant and his or her spouse.
(c) As promptly as practicable after each Purchase Date of
each Offering Period, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the Shares purchased
upon exercise of his or her option.
11. VOLUNTARY WITHDRAWAL.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current Offering Period will be automatically terminated, and no
further Contributions for the purchase of Shares will be made during and with
respect to such Offering Period.
(b) A participant's voluntary withdrawal from the Plan with
respect to an Offering Period will not have any effect upon his or her
eligibility to participate in a succeeding Offering Period or in any similar
plan which may hereafter be adopted by the Company.
12. AUTOMATIC WITHDRAWAL.
(a) REDUCTION OF HOURS. In the event an Employee fails to
remain in Continuous Status as an Employee of the Company for at least twenty
(20) hours per week during the Offering Period in which the employee is a
participant, he or she will be deemed to have elected to withdraw from the Plan
and the Contributions credited to his or her account will be returned to him or
her and his or her option terminated.
(b) TERMINATION OF EMPLOYMENT. Upon termination of the
participant's Continuous Status as an Employee prior to the Purchase Date of an
Offering Period (other than on account of death), he or she will be
automatically withdrawn from the Plan effective as of the date of such
termination of his or her Continuous Status as an Employee, the Contributions
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<PAGE> 8
credited to his or her account will be returned to him or her, and his or her
option will be automatically terminated.
(c) DEATH OF PARTICIPANT. Upon the death of a participant
prior to the Purchase Date of an Offering Period, he or she will be
automatically withdrawn from the Plan, the Contributions credited to his or her
account will be returned to the person or persons entitled thereto under Section
16, and his or her option will be automatically terminated.
(d) REDUCTION IN FAIR MARKET VALUE. To the extent permitted by
any applicable laws, regulations or stock exchange rules, if the Fair Market
Value of the Shares on a Purchase Date of an Offering Period (other than the
final Purchase Date of such Offering Period) is less than the Fair Market Value
of the Shares on the Offering Date for such Offering Period, then every
participant shall automatically (i) be withdrawn from such Offering Period at
the close of such Purchase Date and after the acquisition of Shares for such
Purchase Period, and (ii) be enrolled in the first Offering Period commencing
subsequent to such Purchase Date. All payroll deductions accumulated in a
participant's account as of such withdrawal date shall be returned to the
participant.
13. INTEREST. No interest shall accrue on the Contributions of a
participant in the Plan.
14. STOCK. The maximum number of Shares which shall be made available
for sale under the Plan shall be 600,000 Shares, plus an annual increase on the
first day of each of the Company's fiscal years beginning in 2000, 2001, 2002,
2003 and 2004, equal to the lesser of (A) 250,000 Shares, (B) 1% of the Shares
outstanding on the last day of the immediately preceding fiscal year, or (C)
such lesser number of Shares as is determined by the Board, subject to
adjustment upon changes in capitalization of the Company as provided in Section
20.
15. ADMINISTRATION. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and binding upon
all parties.
16. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any Shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of a Purchase Period but prior to delivery to him or her
of such Shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the
Purchase Date of an Offering Period. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective. Such designation of beneficiary may be changed
by the
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<PAGE> 9
participant (with the consent of his or her spouse, if any) at any time
by written notice effective upon receipt by the Company of such notice.
(b) In the absence of a beneficiary validly designated in
accordance with Section 16(a) who is living at the time of such participant's
death, upon the death of the participant the Company shall deliver such Shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
17. TRANSFERABILITY. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way by the participant (other than by will, the laws of
descent and distribution, or as provided in Section 16). Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 11.
18. USE OF FUNDS. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.
19. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
Contributions, the per Share Purchase Price, the number of Shares purchased and
the remaining cash balance, if any.
20. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each option under
the Plan which has not yet been exercised and the number of Shares which have
been authorized for issuance under the Plan but have not yet been placed under
option (collectively, the "Reserves"), as well as the maximum number of shares
of Common Stock which may be purchased by a participant in a Purchase Period,
the number of shares of Common Stock set forth in Section 14 above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company, which such increase or decrease occurs after the effective date of
this Plan; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as
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<PAGE> 10
expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to an option.
(b) CORPORATE TRANSACTIONS. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, to shorten any
Purchase Period and Offering Period then in progress by setting a new Purchase
Date (the "New Purchase Date"), as of which date any Purchase Period and
Offering Period then in progress will terminate. If the Board shortens the
Purchase Period and Offering Period then in progress in lieu of assumption or
substitution in the event of a Corporate Transaction, the Board will notify each
participant in writing, at least ten (10) days prior to the New Purchase Date,
that the Purchase Date for his or her option has been changed to the New
Purchase Date and that his or her option will be exercised automatically on the
New Purchase Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 11. For purposes of this Section 20(b),
an option granted under the Plan shall be deemed to be assumed, without
limitation, if, at the time of issuance of the stock or other consideration upon
a Corporate Transaction, each holder of an option under the Plan would be
entitled to receive upon exercise of the option the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the Corporate
Transaction if the holder had been, immediately prior to the Corporate
Transaction , the holder of the number of Shares of Common Stock covered by the
option at such time (after giving effect to any adjustments in the number of
Shares covered by the option as provided in Section 20(a)); provided however
that if the consideration received in the transaction is not solely common stock
of the successor corporation or its parent (as defined in Section 424(e) of the
Code), the Board may, with the consent of the successor corporation, provide for
the consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in Fair Market Value to
the per Share consideration received by holders of Common Stock in the Corporate
Transaction.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per Share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of Shares of its outstanding Common
Stock, and in the event of the Company's being consolidated with or merged into
any other corporation.
21. AMENDMENT AND TERMINATION.
(a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 20, no such amendment or
termination of the Plan may
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<PAGE> 11
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the stockholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 20 and this Section 21, no amendment to the
Plan shall make any change in any option previously granted which adversely
affects the rights of any participant. In addition, to the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law or regulation) or Rule 16b-3 under the Exchange Act, the
Company shall obtain stockholder approval in such a manner and to such a degree
as so required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been adversely affected, the
Board (or its committee) shall be entitled to change the Offering Periods and
Purchase Periods, limit the frequency and/or number of changes in the amount
withheld from a participant's Compensation during an Offering Period, establish
the exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, establish such other limitations or procedures as the Board (or
its committee) determines in its sole discretion advisable which are consistent
with the Plan.
22. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
23. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
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<PAGE> 12
24. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon
the IPO Date. It shall continue in effect for a term of twenty (20) years unless
sooner terminated under Section 21.
25. ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
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<PAGE> 13
PERSISTENCE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
Persistence Software, Inc. 1999 Employee Stock Purchase Plan (the "Plan")
commencing with the Offering Period ______________, ____ to _______________,
____, and subscribe to purchase shares of the Company's Common Stock in
accordance with this Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on each
Purchase Date of an Offering Period unless I otherwise withdraw from the
Offering Period prior to a Purchase Date by giving written notice to the Company
for such purpose.
4. I understand that I may decrease the rate of my Contributions on one
occasion only during any Offering Period, and that I may increase the rate of my
Contributions on one occasion only during any Offering Period, by completing and
filing a new Subscription Agreement with such decrease or increase, as the case
may be, taking effect as of the beginning of the calendar month following the
date of filing of the new Subscription Agreement, if filed at least ten (10)
business days prior to the beginning of such month. I also understand that I may
change the rate of deductions for future Offering Periods by filing a new
Subscription Agreement, and any such change will be effective as of the
beginning of the next Offering Period in which I am eligible to participate
commencing after the new Subscription Agreement is filed.
5. I understand that I may discontinue my participation in an Offering
Period at any time prior to a Purchase Date as provided in Section 11 of the
Plan, and that if I do so I will not be permitted to renew participation in such
Offering Period.
<PAGE> 14
I UNDERSTAND THAT UNLESS I DISCONTINUE MY PARTICIPATION IN AN OFFERING
PERIOD AS PROVIDED IN SECTION 11 OF THE PLAN OR CHANGE THE RATE OF DEDUCTIONS BY
FILING A NEW SUBSCRIPTION AGREEMENT, MY ELECTION MADE UNDER THIS SUBSCRIPTION
AGREEMENT WILL CONTINUE TO BE EFFECTIVE FOR EACH SUCCESSIVE OFFERING PERIOD
COMMENCING AFTER THE TERMINATION OF AN OFFERING PERIOD IN WHICH I HAVE
PARTICIPATED.
6. I have received a copy of the Company's most recent description of
the Plan and a copy of the complete "Persistence Software, Inc. 1999 Employee
Stock Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
7. Shares purchased for me under the Plan should be issued in the
name(s) of (name of employee or employee and spouse only):
------------------------------------
------------------------------------
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) -------------------------------------
(First) (Middle) (Last)
- -------------------- -------------------------------------
(Relationship) (Address)
-------------------------------------
Summary of Tax Treatment on Sale of Shares
The following information regarding the federal tax treatment on sale
of shares acquired under the Plan is only a summary and is subject to change,
and is not intended to represent or provide tax advice to the participant, his
or her spouse or beneficiaries. You should consult a tax advisor concerning the
tax implications of the purchase and sale of stock under the Plan.
If any shares received pursuant to the Plan are sold or otherwise
disposed of within two (2) years after the first day of the Offering Period
during which I purchased such shares or within one (1) year after the Purchase
Date, the excess of the fair market value of the shares on the Purchase Date
over the price paid for the shares on such Purchase Date will be treated for
federal income tax purposes as ordinary compensation income at the time of such
disposition, regardless of the amount received on sale or other disposition of
the shares, even if such amount is less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
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<PAGE> 15
If any shares received pursuant to the Plan are sold or otherwise
disposed of at any time after expiration of the 2-year and 1-year holding
periods, the lesser of 15% of the fair market value of the shares on the
Offering Date or the excess of the fair market value of the shares at the time
of such sale or disposition over the price paid for the shares on the Purchase
Date will be treated for federal income tax purposes as ordinary compensation
income. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
9. I hereby agree to notify the Company in writing within 30 days after
the date of any disposition of shares within two (2) years after the first day
of the Offering Period during which I purchased such shares or within one (1)
year after the Purchase Date, and I will make adequate provision for federal,
state or other tax withholding obligations, if any, which arise upon the
disposition of the Common Stock. The Company may, but will not be obligated to,
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE:
SOCIAL SECURITY #:
DATE:
SPOUSE'S SIGNATURE (necessary if beneficiary is not spouse):
(Signature)
(Print name)
<PAGE> 16
PERSISTENCE SOFTWARE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my
participation in the Persistence Software, Inc. 1999 Employee Stock Purchase
Plan (the "Plan") for the Offering Period commencing ____________. This
withdrawal covers all Contributions credited to my account and is effective on
the date designated below.
I understand that all Contributions credited to my account will be paid
to me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me with respect to the Offering Period from which I have hereby
withdrawn.
I further understand and agree that I will be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement prior to the commencement of such Offering Period in
accordance with procedures established by the Company.
Dated:___________________ ___________________________________
Signature of Employee
___________________________________
Social Security Number
<PAGE> 1
EXHIBIT 10.8
PERSISTENCE SOFTWARE, INC.
1999 DIRECTORS' STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CHANGE OF CONTROL" means a sale of all or substantially
all of the Company's assets, or any merger or consolidation of the Company with
or into another corporation other than a merger or consolidation in which the
holders of more than 50% of the shares of capital stock of the Company
outstanding immediately prior to such transaction continue to hold (either by
the voting securities remaining outstanding or by their being converted into
voting securities of the surviving entity) more than 50% of the total voting
power represented by the voting securities of the Company, or such surviving
entity, outstanding immediately after such transaction.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended.
(d) "COMMON STOCK" means the Common Stock of the Company.
(e) "COMPANY" means Persistence Software, Inc., a Delaware
corporation.
(f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
interruption or termination of service as a Director.
(g) "CORPORATE TRANSACTION" means a dissolution or liquidation
of the Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another corporation.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including any officer or
Director, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
DIRECTOR
<PAGE> 2
(k) "OPTION" means a stock option granted pursuant to the
Plan. All options shall be nonstatutory stock options (i.e., options that are
not intended to qualify as incentive stock options under Section 422 of the
Code).
(l) "OPTIONED STOCK" means the Common Stock subject to an
Option.
(m) "OPTIONEE" means an Outside Director who receives an
Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an
Employee.
(o) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 1999 Directors' Stock Option Plan.
(q) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 500,000 Shares of Common Stock (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan has been terminated, become available for future
grant under the Plan. In addition, any Shares of Common Stock that are retained
by the Company upon exercise of an Option in order to satisfy the exercise price
for such Option, or any withholding taxes due with respect to such exercise,
shall be treated as not issued and shall continue to be available under the
Plan. If Shares that were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) ADMINISTRATOR. Except as otherwise required herein, the
Plan shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder
shall be automatic and nondiscretionary and shall be made strictly in accordance
with the following provisions:
DIRECTOR -2-
<PAGE> 3
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each person who becomes an Outside Director
after the effective date of this Plan (a "New Outside Director") shall
automatically be granted an Option to purchase 20,000 Shares (the "First
Option") on the date on which such person first becomes an Outside Director,
whether through election by the stockholders of the Company or appointment by
the Board to fill a vacancy.
(iii) Each New Outside Director shall automatically
be granted an Option to purchase 20,000 Shares (the "Second Option") on the
first anniversary of the date such New Outside Director first became an Outside
Director, provided his or her Continuous Status as a Director has not terminated
on such date.
(iv) Each New Outside Director shall thereafter
automatically be granted an Option to purchase 4,000 Shares (a "Subsequent
Option") on the first day of each fiscal year beginning at least two years after
the date on which such person first became an Outside Director, provided his or
her Continuous Status as a Director has not terminated on such date.
(v) Each Outside Director who was an Outside
Director prior to the effective date of this Plan shall automatically be granted
an Option to purchase 4,000 Shares on the first day of each fiscal year
beginning on and after January 1, 2000, provided his or her Continuous Status as
a Director has not terminated on such date.
(vi) Notwithstanding the preceding provisions
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional Shares become available for grant under the Plan
through action of the stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
(vii) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, any grant of an Option made before the Company has
obtained stockholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such stockholder approval of the Plan in
accordance with Section 16 hereof.
(c) TERMS OF THE OPTIONS. The terms of each Option granted
hereunder shall be as follows:
(i) each Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Section 8 below;
DIRECTOR -3-
<PAGE> 4
(ii) the exercise price per Share shall be 100% of
the fair market value per Share on the date of grant of each Option, determined
in accordance with Section 8 hereof;
(iii) each Option shall have a term of ten (10)
years from the date of grant thereof unless an Option terminates sooner pursuant
to Section 8 below; and
(iv) each Option shall be exercisable in its entirety
immediately upon grant.
(d) POWERS OF THE BOARD. Subject to the provisions and
restrictions of the Plan, the Board shall have the authority, in its discretion:
(i) to determine, upon review of relevant information and in accordance with
Section 7(b) of the Plan, the fair market value of the Common Stock; (ii) to
determine the exercise price per Share of Options to be granted, which exercise
price shall be determined in accordance with Section 7 of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(e) EFFECT OF BOARD'S DECISION. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
(f) SUSPENSION OR TERMINATION OF OPTION. If the Chief
Executive Officer or his or her designee reasonably believes that an Optionee
has committed an act of misconduct, such officer may suspend the Optionee's
right to exercise any option pending a determination by the Board (excluding the
Outside Director accused of such misconduct). If the Board (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any Option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such misconduct)
shall act fairly and shall give the Optionee an opportunity to appear and
present evidence on Optionee's behalf at a hearing before the Board or a
committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in
DIRECTOR -4-
<PAGE> 5
any way with any rights which the Director or the Company may have to terminate
his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on the
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 12 of the Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be 100% of the fair
market value per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be
determined by the Board; provided however that in the event the Common Stock is
traded on the Nasdaq National Market or listed on a stock exchange, the fair
market value per Share shall be the closing sales price on such system or
exchange on the date of grant of the Option (or, in the event that the Common
Stock is not traded on such date, on the immediately preceding trading date), as
reported in The Wall Street Journal, or if there is a public market for the
Common Stock but the Common Stock is not traded on the Nasdaq National Market or
listed on a stock exchange, the fair market value per Share shall be the mean of
the bid and asked prices of the Common Stock in the over-the-counter market on
the date of grant, as reported in The Wall Street Journal (or, if not so
reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation ("Nasdaq") System).
(c) FORM OF CONSIDERATION. The consideration to be paid for
the Shares to be issued upon exercise of an Option shall consist entirely of
cash, check, other Shares of Common Stock having a fair market value on the date
of surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) above; provided however that no Options shall be exercisable prior
to stockholder approval of the Plan in accordance with Section 16 below has been
obtained.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the
DIRECTOR -5-
<PAGE> 6
Option is exercised has been received by the Company. Full payment may consist
of any consideration and method of payment allowable under Section 7(c) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the number
of Shares so acquired shall be issued to the Optionee as soon as practicable
after exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an
Outside Director ceases to serve as a Director, he or she may, but only within
ninety (90) days after the date he or she ceases to be a Director of the
Company, exercise his or her Option to the extent that he or she was entitled to
exercise it at the date of such termination. Notwithstanding the foregoing, in
no event may the Option be exercised after its term set forth in Section 4(c)
has expired. To the extent that such Outside Director was not entitled to
exercise an Option at the date of such termination, or does not exercise such
Option (to the extent he or she was entitled to exercise) within the time
specified above, the Option shall terminate and the Shares underlying the
unexercised portion of the Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 8(b)
above, in the event a Director is unable to continue his or her service as a
Director with the Company as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Code), he or she may, but only
within twelve (12) months from the date of such termination, exercise his or her
Option to the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 4(c) has expired. To the extent
that he or she was not entitled to exercise the Option at the date of
termination, or if he or she does not exercise such Option (to the extent he or
she was entitled to exercise) within the time specified above, the Option shall
terminate and the Shares underlying the unexercised portion of the Option shall
revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee: (A) during the term of the Option who is, at the time of his or her
death, a Director of the Company and who shall have been in Continuous Status as
a Director since the date of grant of the Option, or (B) three (3) months after
the termination of Continuous Status as a Director, the Option may be exercised,
at any time within twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or the date of termination, as applicable.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 4(c) has expired. To the extent that an Optionee was
not entitled to exercise the Option at the date of death or termination or if he
or she does not
DIRECTOR -6-
<PAGE> 7
exercise such Option (to the extent he or she was entitled to exercise) within
the time specified above, the Option shall terminate and the Shares underlying
the unexercised portion of the Option shall revert to the Plan.
9. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, the number of Shares of Common Stock set forth in
Sections 4(b) above, and the number of Shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of
a Corporate Transaction, each outstanding Option shall be assumed or an
equivalent option shall be substituted by the successor corporation or a Parent
or Subsidiary of such successor corporation, unless the successor corporation
does not agree to assume the outstanding Options or to substitute equivalent
options, in which case the Options shall terminate upon the consummation of the
transaction; provided however that without regard to whether options are assumed
substituted or terminated, each optionee shall have the right to exercise all of
his or her options to purchase Shares, immediately prior to the consummation of
the transaction, as to all Shares underlying his or her Options.
For purposes of this Section 10(b), an Option shall be
considered assumed, without limitation, if, at the time of issuance of the stock
or other consideration upon such Corporate Transaction or Change of Control,
each Optionee would be entitled to receive upon
DIRECTOR -7-
<PAGE> 8
exercise of an Option the same number and kind of shares of stock or the same
amount of property, cash or securities as the Optionee would have been entitled
to receive upon the occurrence of such transaction if the Optionee had been,
immediately prior to such transaction, the holder of the number of Shares of
Common Stock covered by the Option at such time (after giving effect to any
adjustments in the number of Shares covered by the Option as provided for in
this Section 10); provided however that if such consideration received in the
transaction was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the Option to be
solely common stock of the successor corporation or its Parent equal to the Fair
Market Value of the per Share consideration received by holders of Common Stock
in the transaction.
(c) CERTAIN DISTRIBUTIONS. In the event of any distribution to
the Company's stockholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
11. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
12. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided that, to the extent necessary and desirable to comply with
Rule 16b-3 under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain approval of the stockholders of the Company to Plan
amendments to the extent and in the manner required by such law or regulation.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
13. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the legal requirements relating to the administration
of stock option plans under applicable U.S. state corporate laws, U.S. federal
and applicable state securities laws, the Code, any stock exchange or Nasdaq
rules or regulations to which the Company may be subject and the applicable laws
of any other country or jurisdiction
DIRECTOR -8-
<PAGE> 9
where Options are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time (the "Applicable Laws"). Such
compliance shall be determined by the Company in consultation with its legal
counsel.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. STOCKHOLDER APPROVAL. If required by the Applicable Laws,
continuance of the Plan shall be subject to approval by the stockholders of the
Company. Such stockholder approval shall be obtained in the manner and to the
degree required under the Applicable Laws.
DIRECTOR -9-
<PAGE> 10
PERSISTENCE SOFTWARE, INC.
1999 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
<<Optionee>>
<<OptioneeAddress1>>
<<OptioneeAddress2>>
You have been granted an option to purchase Common Stock of Persistence
Software, Inc. (the "Company") as follows:
Date of Grant <<GrantDate>>
Exercise Price per Share <<ExercisePrice>>
Total Number of Shares Granted <<SharesGranted>>
Total Exercise Price <<TotalExercisePrice>>
Expiration Date <<ExpirDate>>
Vesting Schedule This Option may be exercised, in
whole or in part, at any time after
the Date of Grant and prior to the
earlier of the Expiration Date or
the end of the Termination Period.
Termination Period This Option may be exercised for 90
days after termination of
Optionee's Continuous Status as a
Director, or such longer period as
may be applicable upon death or
Disability of Optionee as provided
in the Plan, but in no event later
than the Expiration Date as
provided above.
DIRECTOR
<PAGE> 11
By your signature and the signature of the Company's representative
below, you and the Company agree that this option is granted under and governed
by the terms and conditions of the 1999 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.
OPTIONEE: PERSISTENCE SOFTWARE, INC.
By:
Signature
Title:
Print Name
DIRECTOR -2-
<PAGE> 12
PERSISTENCE SOFTWARE, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
1. GRANT OF OPTION. The Board of Directors of the Company hereby grants
to the Optionee named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the "Optionee"), an option (the "Option") to purchase a number
of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "Exercise
Price"'), subject to the terms and conditions of the 1999 Directors' Stock
Option Plan (the "Plan"), which is incorporated herein by reference.
(Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Plan.) In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Nonstatutory Stock Option
Agreement, the terms and conditions of the Plan shall prevail.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and the applicable provisions of the Plan and this Nonstatutory
Stock Option Agreement. In the event of Optionee's death, disability or other
termination of Optionee's employment or consulting relationship, the
exercisability of the Option is governed by the applicable provisions of the
Plan and this Nonstatutory Stock Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery
of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The Exercise Notice shall be accompanied by
payment of the aggregate Exercise Price as to all Exercised Shares. This Option
shall be deemed to be exercised upon receipt by the Company of such fully
executed Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with all relevant provisions
of law and the requirements of any stock exchange or quotation service upon
which the Shares are then listed. Assuming such compliance, for income tax
purposes the Exercised Shares shall be considered transferred to the Optionee on
the date the Option is exercised with respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
DIRECTOR
<PAGE> 13
(b) check;
(c) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. SUSPENSION OR TERMINATION OF OPTION.
(a) MISCONDUCT. If the Chief Executive Officer or his or her
designee reasonably believes that an Optionee has committed an act of
misconduct, such officer may suspend the Optionee's right to exercise any option
pending a determination by the Board (excluding the Outside Director accused of
such misconduct). If the Board (excluding the Outside Director accused of such
misconduct) determines an Optionee has committed an act of embezzlement, fraud,
dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary
duty or deliberate disregard of the Company rules resulting in loss, damage or
injury to the Company, or if an Optionee makes an unauthorized disclosure of any
Company trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor his or her
estate shall be entitled to exercise any Option whatsoever. In making such
determination, the Board of Directors (excluding the Outside Director accused of
such misconduct) shall act fairly and shall give the Optionee an opportunity to
appear and present evidence on Optionee's behalf at a hearing before the Board
or a committee of the Board.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an
Outside Director ceases to serve as a Director, he or she may, but only within
ninety (90) days after the date he or she ceases to be a Director of the
Company, exercise his or her Option to the extent that he or she was entitled to
exercise it at the date of such termination. Notwithstanding the foregoing, in
no event may the Option be exercised after its Expiration Date set forth in the
Notice of Stock Option Grant. To the extent that such Outside Director was not
entitled to exercise an Option at the date of such termination, or does not
exercise such Option (to the extent he or she was entitled to exercise) within
the time specified above, the Option shall terminate and the Shares underlying
the unexercised portion of the Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 4(b)
above, in the event a Director is unable to continue his or her service as a
Director with the Company as a result of his or her total and permanent
disability (as defined in Section 22(e)(3) of the Code), he or she may, but only
within twelve (12) months from the date of such termination, exercise his or her
Option to the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its Expiration Date
DIRECTOR -2-
<PAGE> 14
set forth in the Notice of Stock Option Grant. To the extent that he or she was
not entitled to exercise the Option at the date of termination, or if he or she
does not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee:
(i) During the term of the Option who is, at the time
of his or her death, a Director of the Company and who shall have been in
Continuous Status as a Director since the date of grant of the Option, the
Option may be exercised, at any time within twelve (12) months following the
date of death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as Director for six (6) months after the date of
death. Notwithstanding the foregoing, in no event may the Option be exercised
after its Expiration Date set forth in the Notice of Stock Option Grant.
(ii) Within three (3) months after the termination of
Continuous Status as a Director, the Option may be exercised, at any time within
twelve (12) months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination. Notwithstanding the foregoing, in no event may the option be
exercised after its Expiration Date set forth in the Notice of Stock Option
Grant.
To the extent that an Optionee was not entitled to exercise
the Option at the date of death or termination, as provided in Section 4(d)(i)
or (ii) above, or if he or she does not exercise such Option (to the extent he
or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the Option
shall revert to the Plan.
5. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 9 of the Plan. The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
6. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Stock Option Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Nonstatutory Stock
Option Agreement.
6. TAX CONSEQUENCES. Set forth below is a brief summary of certain
federal tax consequences relating to this Option under the law in effect as of
the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
DIRECTOR -3-
<PAGE> 15
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION. Since this Option does not qualify
as an incentive stock option under Section 422 of the Code, the Optionee may
incur regular federal (and state) income tax liability upon exercise. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Exercised Shares on the date of exercise over their aggregate Exercise
Price.
(b) DISPOSITION OF SHARES. If the Optionee holds the Option
Shares for more than one year, gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes. The
long-term capital gain will be taxed for federal income tax and purposes at a
maximum rate of 20% if the Shares are held more than one year after exercise.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Nonstatutory Stock Option
Agreement. Optionee has reviewed the Plan and this Nonstatutory Stock Option
Agreement in their entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Nonstatutory Stock Option Agreement and fully
understands all provisions of the Plan and Nonstatutory Stock Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Nonstatutory Stock Option Agreement.
PERSISTENCE SOFTWARE, INC.
By:
<<Optionee>>
Title:
DIRECTOR -4-
<PAGE> 16
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
In consideration of the Company's granting his or her spouse the right to
purchase Shares as set forth in the Plan and this Nonstatutory Stock Option
Agreement, the undersigned hereby agrees to be irrevocably bound by the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement and
further agrees that any community property interest shall be similarly bound.
The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for
the undersigned with respect to any amendment or exercise of rights under the
Plan or this Nonstatutory Stock Option Agreement.
------------------
Spouse of Optionee
DIRECTOR
<PAGE> 17
EXHIBIT A
NOTICE OF EXERCISE
To: Persistence Software, Inc.
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
This is official notice that the undersigned ("Optionee") intends to
exercise Optionee's option to purchase __________ shares of Persistence
Software, Inc. Common Stock, under and pursuant to the Company's 1999 Directors'
Stock Option Plan and the Nonstatutory Stock Option Agreement dated
_______________, as follows:
Grant Number:
Date of Purchase:
Number of Shares:
Purchase Price:
Method of Payment of
Purchase Price:
Social Security No.:
The shares should be issued as follows:
Name:
Address:
Signed:
Date:
DIRECTOR
<PAGE> 1
Exhibit 10.9
LEASE AGREEMENT
THIS Lease is made and entered into at San Mateo, California, this 12th
day of June, 1991, by and between GREAT AMERICAN BANK, A Federal Savings Bank,
hereinafter referred to as "Lessor" and FULCRUM INNOVATIONS, INC., hereinafter
referred to as "Lessee," without regard to number or gender.
1. Leased Premises:
A. Premises: In consideration of the rents herein provided, and on the
terms, provisions and covenants hereof, Lessor hereby leases, lots and demises
to Lessee the following described premises (referred to in this lease as the
"leased premises") more particularly described in Exhibit "A," attached hereto,
located at 1650 South Amphlett Boulevard, Suite 100 in the City of San Mateo,
County of San Mateo, California (referred to in this lease as "the Building").
B. Parking: Throughout the term hereof, Lessee shall have the right to
use for its employees Available parking spaces in the parking areas in
and about the Building, or in the event the Building is located in a larger
Office Complex (the land, buildings, common areas and parking areas of which
shall be referred to collectively in this lease as the "Office Complex"), then
in and about such Office Complex on the terms and conditions as may be
established by Lessor from time to time during the term of this lease. Lessor
shall have the right, but shall not be under any obligation, to designate where
such parking spaces shall be located. The parking area(s) referred to herein
shall be used on a non-exclusive basis with other tenants of the Building, or
where applicable, other tenants of the Office Complex. Parking for Lessee's
invitees shall be available in said parking area(s) on a non-exclusive,
first-come, first-serve basis with invitees of other tenants of this Building,
or where applicable, other tenants of the Office Complex upon such conditions
as Lessor may from time to time establish during the term hereof.
2. Term: Subject to and upon the conditions set forth herein, the term of
this lease shall commence on the 1st day of July, 1991, and shall end on the
31st day of July, 1992, unless sooner terminated as hereinafter provided.
Taking of possession by Lessee shall be conclusively deemed to establish that
the leased premises have been accepted and that the leased premises are in good
and satisfactory condition as of the date possession was so taken by Lessee.
3. Possession: If Lessor, for any reason whatsoever, cannot deliver
possession of the leased premises to Lessee at the commencement of the term
hereof, this lease shall not be void or voidable, nor shall Lessor be liable to
Lessee for any loss or damage resulting therefrom, nor shall the expiration
date of the above term be in any way extended, but in that event, all rent
shall be abated during the period between the commencement of the term as
provided for in Paragraph 2 hereinabove and the time when Lessor delivers
possession. In the event that Lessor shall permit Lessee to occupy the leased
premises prior to the commencement date of the term, such occupancy shall be
subject to all the provisions of this lease. Such early possession shall not
advance the termination date hereinabove provided.
4. Lease Year: A lease year shall be considered to begin on the first day
of the first full calendar month following commencement of the term hereof, or
if the term shall commence on the first day of the month, on such date and on
each subsequent anniversary date of the beginning of the first lease year.
5. Rent:
A. Base Rent: Lessee agrees to pay a base rental for the leased
premises during the lease term in the amount of Eighteen Thousand Five Hundred
Forty Dollars and No/100 ($18,540.00), payable in monthly installments of
$1,545.00, without deduction, offset, prior notice or demand, in advance on the
first day of the month to Lessor at the address shown in Paragraph 30 below.
Such base rental shall be subject to annual adjustment as hereinafter provided
in Paragraph 6 below. The first monthly installment shall be due and payable on
or before the first day of each calendar month during the term hereof. If the
commencement date of the term hereof is not the first day of a month, a
prorated monthly installment shall be paid for the fractional month during
which the lease commences and/or terminates. In addition to any rental payable
hereunder, Lessee shall pay to Lessor his prorated share of real property
taxes as set forth in Paragraph 8 below, and any adjustments to the base rental
as set forth in Paragraph 6 below.
B. Prepaid Rent: Concurrently with Lessee's execution of this lease,
Lessee shall pay to Lessor the sum of $1,545.00 to be applied against rent for
the first month of the lease term.
C. Late Charges: Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent or other sums due hereunder will cause Lessor to incur costs
not contemplated by this lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, loss of
discounts offered by vendors for prompt payment of bills, processing and
accounting charges, and late charges which may be imposed upon Lessor by terms
of any ground lease (wherein the Lessor has leased the land on which the
Building is situated) or mortgage or trust deed covering the leased premises
and the Building. Accordingly, if any installment of rent or any sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
days after said amount is due, then Lessee shall pay to Lessor a late charge
equal to the maximum amount permitted by law (or in the absence of any
governing law, ten percent (10%) of such overdue amount), plus any attorneys'
fees incurred by Lessor by reason of Lessee's failure to pay rent and/or other
charges when due hereunder. The parties hereby agree that such late charges
represent a fair and reasonable estimate of the cost that Lessor will incur by
reason of the late payment by Lessee. Acceptance of such late charges by the
Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder.
<PAGE> 2
7. Security Deposit: Concurrently with Lessee's execution of this lease,
Lessee shall deposit with Lessor $1,545.00 to be held by Lessor as a security
deposit for the faithful performance of all the terms, covenants, and conditions
of this lease to be kept and performed by Lessee during the term hereof. If
Lessee defaults with respect to any provisions of this lease, including but not
limited to provisions relating to the payment of rent, operating cost increases,
and other monetary sums due herewith, Lessor may use, apply or retain all or any
part of the security deposit for the payment of rent or any other amount which
Lessor may spend or become obligated to spend by reason of Lessee's default or
to compensate Lessor for any other loss or damage which Lessor may suffer by
reason of Lessee's default. If any portion of said security deposit is so used
or applied, Lessee shall within ten (10) days after written demand therefor,
deposit cash with Lessor in an amount sufficient to restore the security deposit
to its original amount. Lessee's failure to do so shall be a material breach of
this lease. Lessor shall not be required to keep this security deposit separate
from its general funds and Lessee shall not be entitled to interest thereon.
Lessor's obligations with respect to the security deposit are those of a debtor
and not a trustee. If Lessee shall fully and faithfully perform every provision
of this lease to be kept by it, the security deposit or any balance thereof
shall be returned to Lessee (or, at Lessor's demand, to the last assignee of
Lessee's interest hereunder) within the following time periods after expiration
or earlier termination of the lease term: (a) when Lessor has no claims against
the security deposit or where the claim is only for defaults by Lessee in the
payment of rent, then the security deposit or the balance thereof, if any, shall
be returned no later than two (2) weeks after the date Lessor receives
possession of the leased premises, or (b) where Lessor's claim against the
security deposit includes amounts reasonably necessary to repair or clean the
leased premises, then the remaining balance thereof, if any, shall be returned
on or before thirty (30) days from the date Lessor receives possession of the
leased premises. In the event of a termination of Lessor's interest in this
lease, Lessor shall transfer said deposit to Lessor's successor in interest,
whereupon Lessee agrees to release Lessor from all liability for the return of
such deposit or the accounting thereof. In no event shall said security deposit
be applied to the rent due for the last month of the lease term except as
required by law.
8. Taxes:
A. Personal Property Taxes: Lessee shall pay prior to delinquency all taxes
assessed against and levied upon trade fixtures, furnishings, equipment and all
other personal property of Lessee contained in the leased premises or elsewhere.
When possible, Lessee shall cause said trade fixtures, furnishings, equipment
and all other personal property to be assessed and billed separately from the
real or personal property of Lessor.
<PAGE> 3
9. LESSOR SERVICES: Lessor will pay for the electricity, gas and water
utilized in operating any and all facilities serving the leased premises, and,
in addition, Lessor will furnish Lessee, while occupying the leased premises:
A. Hot and cold water at those points of supply provided for general
use of other tenants in the Building, central heating and air conditioning,
during normal business hours on business days, and at such temperatures and in
such amounts as are considered by Lessor to be standard, janitor service on a
five (5) day week basis, electric current, routine maintenance and electric
lighting service for all public areas and special service areas, including
elevators, of the Building in the manner and to the extent deemed by the Lessor
to be standard. Failure by Lessor to any extent to furnish these defined
services, or any cessation thereof, resulting from causes beyond the control of
Lessor, shall not render Lessor liable in any respect for damages to either
person or property, nor shall such event be construed as an eviction of Lessee,
nor work an abatement of rent, or relieve Lessee from fulfillment of any
covenant or agreement hereof. Should any of the equipment or machinery break
down, or for any cause cease to function properly, Lessor shall use reasonable
diligence to repair the same promptly, but Lessee shall have no claim for rebate
of rent or damages on account of any interruptions in service occasioned thereby
or resulting therefrom so long as Lessee shall have reasonable access to and use
of the leased premises.
B. Adequate electrical facilities to furnish power for typewriters,
voice writers, calculating machines and other machines of similar low electrical
consumption; provided, however, that Lessee shall bear any utility costs
occasioned by electro-data processing machines, including air conditioning costs
therefor and similar machines of high electrical consumption.
10. QUIET ENJOYMENT: Lessor warrants that it has full right to execute and
to perform this lease and to grant the estate demised herein and that Lessee,
upon payment of the rents herein required, and performing the terms, conditions,
covenants and agreements herein contained, shall peaceably and quietly have,
hold and enjoy the leased premises during the full term of this lease and any
extension or renewal thereof.
11. REPAIRS AND MAINTENANCE: Except as provided in paragraph 9 above,
Lessee shall, at all times during the term hereof at its sole cost and expense,
keep the premises and every part thereof in good condition and repair, except
damage thereto by fire, earthquake, act of God or the elements, Lessee hereby
waiving the right to make repairs at Lessor's expense under any law, statute or
ordinance with respect thereto now or hereafter in effect. Unless otherwise
expressly provided herein, Lessor shall not be required to make any improvements
or repairs of any kind or character on the leased premises during the term of
this lease. Lessee shall, at its own cost and expense, repair or replace any
damage or injury to the leased premises, or any part thereof, caused by Lessee
or Lessee's agents, employees, invitees, licensees or visitors; provided,
however, if Lessee fails to make such repairs or replacements promptly, Lessor
may, at its option, make such repairs or replacements, and lessee shall
reimburse the cost thereof to Lessor on demand, together with interest at the
maximum annual rate permitted by law from the date of such work.
Lessee shall not commit or allow any waste or damage to be
committed on any portion of the leased premises.
12. ASSIGNMENT, SUBLEASE, MORTGAGE, CHANGE IN CORPORATE OWNERSHIP, RIGHT
OF FIRST REFUSAL: Lessee shall not, and shall not have the power to, transfer,
assign, sublet, enter into license or concession agreements, change ownership,
mortgage or hypothecate this lease or the Lessee's interest in and to the leased
premises without first procuring the written consent of the Lessor. Any
attempted or purported transfer, assignment, subletting, license or concession
agreement, change of ownership, mortgage or hypothecation without the Lessor's
written consent shall be void and confer no rights upon any third person.
Without in any way limiting Lessor's right to refuse to give such consent for
any other reason or reasons, Lessor reserves the right to refuse to give such
consent if, in Lessor's reasonable business judgment, the quality of the
Building's operation or tenant mix is or may be in any way adversely affected
during the term of the lease and/or the financial worth of the proposed new
tenant is less that of the Lessee executing this lease or of Lessee and Lessee's
guarantor as the case may be. As a condition for granting its consent to any
subletting, Lessor may require that Lessee pay to Lessor, as additional rent,
all rents or other economic consideration received by Lessee from its Sublessees
in excess of the rents payable by Lessee to Lessor hereunder. Nothing herein
contained shall relieve Lessee or any guarantor from its covenants and
obligations for the term of this lease. Lessee agrees to reimburse Lessor for
Lessor's reasonable attorney's fees incurred in conjunction with the processing
and documentation of any such requested transfer, assignment, subletting,
license or concession agreement, change of ownership, mortgage or hypothecation
of this lease or Lessee's interest in and to the leased premises.
Each transfer, assignment, subletting, license, concession agreement,
mortgage or hypothecation to which there has been consent shall be by an
instrument in writing in form satisfactory to Lessor, and shall be executed by
the transferor, assignor, sublessor, licensor, concessionaire or mortgagee in
each instance, as the case may be; and each transferee, assignee, sublessee,
licensee, concessionaire or mortgagee shall agree in writing for the benefit of
the Lessor herein to assume, to be bound by, and to perform the terms, covenants
and conditions of this lease to be done, kept and performed by the Lessee,
including the payment of all amounts due or to become due under this lease
directly to the Lessor. One executed copy of such written instrument shall be
delivered to the Lessor. Failure to first obtain in writing Lessor's consent or
failure to comply with the provisions of this Paragraph shall operate to prevent
any such transfer, assignment, subletting, license, concession agreement or
hypothecation from becoming effective. No Assignee or Sublessee shall have a
right further to assign or sublet or a right to exercise any option hereunder to
extend the term of this lease.
If the Lessee hereunder is a corporation which is not deemed a public
corporation, or is an unincorporated association or partnership, the transfer,
assignment or hypothecation of any stock or interest in such corporation,
association or partnership in the aggregate in excess of twenty-five percent
(25%) shall be deemed an assignment within the meaning of provisions of this
Paragraph 12.
Notwithstanding anything to the contrary contained herein, if at any
time during the term of this lease Lessee shall receive a bona fide offer from
any third party seeking an assignment, sublet or other transfer of Lessee's
interest in this lease. Lessee shall serve on Lessor a written notice of the
terms of such offer from such third party and of Lessee's intention to accept
the same. Lessor shall have the right for a period of thirty (30) days from the
date of delivery of such notice to assume said assignment, sublease or other
such transfer of Lessee's interest in this lease on the same terms and
conditions specified in the notice. In the event that Lessor shall not within
said thirty (30) day period elect to assume said assignment, sublease or other
such transfer of Lessee's interest in this lease, then Lessee may, subject to
obtaining Lessor's prior written approval in accordance with this Paragraph 12,
assign, sublet or transfer Lessee's interest in this lease on the same terms and
conditions and to the third party specified in the notice; provided that if
Lessee does not assign, sublet or otherwise transfer Lessee's interest in this
lease to said third party within sixty (60) days of the date of the delivery of
Lessee's notice to Lessor, any further transaction shall be deemed to be a new
determination by Lessee to assign, sublet or otherwise transfer Lessee's
interest in this lease and the provisions of this paragraph shall apply.
13. ALTERATIONS AND IMPROVEMENTS: Lessee shall not make or allow to be
made any alterations or physical additions in or to the leased premises without
first obtaining the written consent of Lessor. Any and all such alterations,
physical additions or improvements to the leased premises shall be surrendered
to Lessor upon the termination of this lease, by lapse of time or otherwise and
shall become Lessor's property without compensation, allowance or credit to
Lessee; provided, however, this clause shall not apply to moveable equipment,
trade fixtures or furniture of Lessee, which may be removed by Lessee at the end
of the term of the lease if Lessee is not then in default. If prior to such
termination or within ten (10) days thereafter, Lessor so directs by notice,
Lessee shall promptly remove the installations, additions, hardware, non-trade
fixtures and improvements placed in the leased premises by Lessee and designated
in the notice, failing which Lessor may store or remove the same for Lessee's
account and Lessee shall pay the costs of such removal and storage and of any
necessary restoration of the leased premises.
14. USE: Lessee shall use and occupy the leased premises for business
offices and for no other purpose. Lessee shall not occupy or use, or permit any
portion of the leased premises to be occupied or used for any business or
purpose which is unlawful, or extra-hazardous, or permit anything to be done
which would in any way increase the rate of fire insurance coverage in said
leased premises and/or the contents of the Building, and in the event that, by
reason of such acts of Lessee, there shall be any increase in the insurance
rates of the building or contents above normal rates, or cancellation of the
insurance, Lessee agrees to pay to Lessor, as additional rental, an amount equal
to all such increases.
15. COMPLIANCE WITH LAWS AND RULES OF BUILDING: Lessee shall comply with
all laws, ordinances, orders, rules and regulations (state, federal, municipal
and other, agencies or bodies having any jurisdiction thereof) relating to the
use, condition or occupancy of the leased premises. Lessee will comply with the
rules of the Building adopted by Lessor which are set forth on a schedule
attached hereto and made a part hereof as fully as though set forth herein.
Lessor shall have the right if necessary to change such rules and regulations or
to amend them in any reasonable manner for reasons including, without
limitation, maintaining the safety, care and cleanliness of the lease premises,
energy conservation, compliance with any and all regulatory orders, and the
preservation of good order therein, all of which changes and amendments will be
sent by Lessor to Lessee in writing and shall be thereafter carried out and
observed by Lessee.
<PAGE> 4
16. Lessor's Right of Entry: Lessee shall permit Lessor or its agents or
representatives to enter (illegible) upon any part of the (illegible) at all
reasonable hours upon reasonable prior notice (except in the case of
emergencies), to inspect (illegible) clean or make repairs, alterations
(illegible) thereto, as Lessor may deem necessary or desirable, or for the
purpose of determining Lessee's use thereof or whether an act of default under
this lease has occurred. Lessee shall not be entitled to any abatement or
reduction of rent or to any damages for any injury or inconvenience to or
interference with Lessee's business, any loss of occupancy or quiet enjoyment of
the leased premises by reason of any such repairs, (illegible) or additions
reasonably required to be made by Lessor hereunder.
17. Nuisance: Lessee shall conduct its business and control its agents,
employees, invitees and visitors in such a manner as not to create any nuisance
or interfere with, annoy, or disturb any other tenant or Lessor in its
management of the Building.
18. Condemnation: Should the whole or any part of the leased premises be
condemned and taken by any competent authority for any public or quasi-public
use or purpose, all awards payable on account of such condemnation and taking
shall be payable to Lessor, and Lessee hereby waives all interest in or claim to
said awards, or any part thereof. If the whole of the leased premises shall be
so condemned and taken, then this lease shall terminate. If a part only of the
leased premises is condemned and taken and the remaining portion thereof is not
suitable for the purposes for which Lessee had leased said premises, Lessee
shall have the right to terminate this lease. If by such condemnation and taking
part only of the leased premises is taken, and the remaining part thereof is
suitable for the purposes for which Lessee has leased said premises, this lease
shall continue, but the rental shall be reduced in an amount proportionate to
the value of the portion taken as it related to the total value of the leased
premises.
19. Destruction: If, during the term, the leased premises or the Building
and other improvements in which the leased premises are located are totally or
partially destroyed from any cause, rendering the leased premises totally or
partially inaccessible or unusable, Lessor shall restore the leased premises or
the Building and other improvements in which the leased premises are located to
substantially the same condition as they were in immediately before destruction,
if the restoration can be made under the existing laws and can be completed
within 90 working days after the date of the destruction. Such destruction shall
not terminate this lease. The provisions of Section 1933, subparagraph 4, of the
Civil Code of California are hereby waived by Lessee.
If the restoration cannot be made in the time stated in this paragraph,
then within 21 working days after the parties determine that the restoration
cannot be made in the time stated in this paragraph, Lessee can terminate this
lease immediately by giving notice to Lessor. If Lessee fails to terminate this
lease and if restoration is permitted under the existing laws, Lessor, at its
election, can either terminate this lease or restore the leased premises or the
Building and other improvements in which the leased premises are located within
a reasonable time and this lease shall continue in full force and effect. If the
existing laws do not permit the restoration, either party can terminate this
lease immediately by giving notice to the other party.
In the event of restoration as herein provided, Lessee shall be entitled to
a proportionate reduction of the rent while such restoration is being made, such
proportionate reduction to be based upon the extent to which the making of such
restoration shall materially interfere with the business carried on by the
Lessee in the leased premises. If the damage is due to the fault or neglect of
Lessee or its employees, there shall be no abatement of rent.
Notwithstanding anything to the contrary contained in this paragraph,
Lessor shall not have any obligation whatsoever to repair, reconstruct or
restore the leased premises when the damage resulting from any casualty covered
under this paragraph occurs during the last twelve (12) months of the term of
this lease or any extension thereof.
Lessor shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railings, floor covering, partitions, or any other property
installed in the leased premises by Lessee.
20. Insurance: From and after the date that Lessee enters into possession
of the leased premises as permitted by the terms hereof and throughout the term
of this lease, Lessee shall at its sole cost and expense provide and keep in
full force and effect the following insurance:
A. General liability insurance in standard form insuring Lessee and
Lessor as insureds against any liability whatsoever, occasioned by accident or
disaster on, in or about the leased premises with limits of not less than
$500,000 for one person in one accident and $1,000,000 with respect to one
occurrence.
B. Property damage insurance in an amount not less than $100,000.
C. Fire and extended coverage insurance in all risk form insuring the
interest of the Lessee in the Lessee's improvements in the leased premises and
its interest in its office furniture, equipment and supplies. Lessee hereby
waives any rights of action against Lessor, including rights of subrogation, for
loss or damage covered by such insurance.
Insurance required hereunder shall be in companies rated A+, AAA or
better in "Best's Insurance Guide." In addition, the insurance required
hereunder shall be primary insurance and shall provide that the insurer shall be
liable for the full amount of the loss up to and including the total amount of
liability set forth above without the right of contribution from any other
insurance coverage of Lessor.
All premiums on all policies referred to in this section shall be paid
by Lessee. Duplicate originals or certificates of such policies shall be
delivered to Lessor and any others named pursuant to this section, immediately
upon receipt thereof from the insurance company or companies, but in no event
later than the commencement date of this lease. Duplicate originals or
certificates of renewal policies or new policies replacing any policies expiring
during the term hereof shall be delivered to Lessor at least twenty (20) days
before the date of expiration of the old or replaced policies, together with
proof satisfactory to Lessor that the full premiums have been paid by Lessee on
the new policies. Premiums on policies shall not be financed in any manner
whereby the lender, on default or otherwise, shall have the right or privilege
of surrendering or cancelling the policy. Each insurance policy required
hereunder shall by its terms provide that it shall not be modified without the
prior consent of Lessor and shall not be cancelled unless ten (10) days notice
thereof is given by the insurer to Lessor.
On default by Lessee in obtaining any insurance required hereunder or
delivering any policies or paying the premiums or other charges thereon as
aforesaid, it shall be the privilege, though not the obligation, of Lessor to
effect fully such insurance and likewise to pay any premiums or charges thereon.
All sums so paid by Lessor and all costs and expenses incurred by Lessor in
connection therewith, together with interest thereon at the maximum annual rate
permitted under Section 1(2) of Article XV of the California Constitution, from
the respective dates of Lessor's making of each such payment, shall constitute
additional rent payable by Lessee under this lease and shall be paid by Lessee
to Lessor on demand, and Lessor shall not be limited in the proof of any damages
which Lessor may claim against Lessee arising out of or by reason of Lessee's
failure to provide and keep in force insurance as aforesaid, to the amount of
the insurance premium or premiums not paid or incurred by Lessee and which would
have been payable.
21. Surrender of Leased Premises: Lessee shall, at least ninety (90) days
before the last day of the term hereof, give to Lessor a written notice of
intention to surrender the leased premises on that date, but nothing contained
herein shall be construed as an extension of the term hereof or as consent of
Lessor to any holding over by Lessee.
At the end of the term or any renewal thereof or other sooner
termination of this lease, Lessee will peaceably deliver up to the Lessor
possession of the leased premises, together with all improvements or additions
upon or belonging to the same, by whomsoever made, in the same condition as
received, or first installed, ordinary wear and tear and damage by fire,
earthquake, act of God or the elements alone excepted. Lessee may, upon the
termination of this lease, remove, at Lessee's sole cost, all trade fixtures
installed by Lessee, title to which shall be in Lessee until such termination,
repairing any damage to the leased premises caused by such removal. Any of
Lessee's personal property and trade fixtures not removed by Lessee at the end
of the term or other sooner termination of this lease shall be deemed abandoned
by the Lessee if Lessor so elects, and Lessor shall remove, store and dispose of
such personal property and trade fixtures in accordance with law. Lessee shall
be liable to Lessor for Lessor's costs incurred in removing, storing and
disposing of Lessee's abandoned personal property and trade fixtures. Lessee
shall indemnify Lessor against any loss or liability resulting from delay by
Lessee in so surrendering the leased premises, including without limitation, any
claims made by any succeeding lessee founded on such delay.
The voluntary or other surrender of this lease by Lessee, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Lessor, terminate all or any existing subleases or subtenancies, or may, at the
option of Lessor, operate as an assignment to it of any or all such subleases or
subtenancies.
22. Holding Over: Lessee hereby acknowledges that any holding over after
the expiration of the lease term by Lessee will cause Lessor to incur damages
not contemplated by this lease, the exact amount of which will be extremely
difficult to ascertain. Such damages include, but are not limited to, loss of
rental income and claims for damages from a future tenant to whom the Lessor is
obligated to deliver possession during the holdover period and costs incurred in
locating prospective new tenants. Accordingly, in the event of holding over by
Lessee, Lessee shall pay Lessor as rental for the period of such holdover an
amount equal to one hundred fifty percent (150%) of the rent which would have
been payable by Lessee had such holdover period been a part of the original term
of this lease.
<PAGE> 5
23. Default Lessor's Remedies:
A. Default: The occurrence of any of the following shall constitute a
material breach of this lease by Lessee:
(i) Any failure by Lessee to pay rent or any other monetary sum required
to be paid hereunder (where such failure continues for three (3) days after
written notice thereof from Lessor to Lessee).
(ii) The abandonment or vacation of the leased premises by Lessee.
(iii) The failure by Lessee to observe and perform any other provision
of this lease to be observed or performed by Lessee, where such failure
continues for twenty (20) days after written notice thereof by Lessor to Lessee.
Provided, however, that if the nature of such default is such that it cannot
reasonably be cured within such twenty (20) day period, Lessee shall not be
deemed to be in default if Lessee shall within such period commence such cure
and thereafter diligently prosecute the same to completion.
B. Remedies: In the event of any such material default or breach by Lessee,
Lessor may at any time thereafter without limiting Lessor in the exercise of any
right or remedy at law or in equity which lessor may have by reason of such
default or breach:
(i) Maintain this lease in full force and effect and recover the rent
and other monetary charges as they become due without terminating Lessee's right
to possession, irrespective of whether Lessee shall have abandoned the leased
premises. In the event Lessor elects not to terminate the lease. Lessor shall
have the right to attempt to relet the leased premises at such rent and upon
such conditions and for such a term, and to do all acts necessary to maintain or
preserve the leased premises as Lessor deems reasonable and necessary without
being deemed to have elected to terminate this lease, including removal of all
persons and property in the leased premises, such property may be removed and
stored in a public warehouse or elsewhere at the cost of and for the account of
Lessee. In the event any such reletting occurs, this lease shall terminate
automatically upon the new Lessee taking possession of the leased premises.
Notwithstanding that Lessor fails to elect to terminate this lease initially,
Lessor at any time during the term of this lease may elect to terminate this
lease by virtue of such previous default by Lessee.
(ii) Terminate Lessee's right to possession by any lawful means, in
which case this lease shall terminate and Lessee shall immediately surrender
possession of the leased premises to Lessor. In such event, Lessor shall be
entitled to recover from Lessee all damages incurred by Lessor by reason of
Lessee's default, including without limitation thereto, the following: (a) the
worth at the time of award of any unpaid rent which had been earned at the time
of such termination; plus (b) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of the award exceeds the amount of such rental loss that is proved could
have been reasonably avoided; plus (c) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceed the amount of such rental loss that is proved could be reasonably
avoided; plus (d) any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform his obligations
under this lease or which in the ordinary course of events would be likely to
result therefrom; plus (e) in Lessor's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable state law. Upon such re-entry, Lessor shall have the right to make
any reasonable repairs, alterations, or modifications to the leased premises,
which Lessor, in its sole discretion, deems reasonable and necessary. As used in
subparagraph (a) above, the "worth at the time of award" is computed by allowing
interest at the maximum annual rate permitted by law from the date of default.
As used in subparagraphs (b) and (c) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the U.S. Federal
Reserve Bank at the time of award plus one percent (1%). The term "rent", as
used in this Paragraph 23, shall be deemed to be and to mean the rent to be paid
pursuant to Paragraphs 5, 6 and 8 and all other monetary sums required to be
paid by Lessee pursuant to the terms of this lease.
24. Waiver of Breach: Failure of Lessor to declare any default immediately
upon occurrence thereof, or delay in taking any action in connection therewith,
shall not waive such default at any time and take such action as might be lawful
or authorized hereunder, either in law or in equity.
25. Attorney's Fees: in the event of any action or proceeding brought by
either party against the other under this lease, the prevailing party shall be
entitled to recover all costs and expenses, including the fees of its attorneys
in such action or proceeding in such amount as the court may adjudge reasonable
as attorneys' fees.
26. Waiver of Subrogation: Anything in this lease to the contrary
notwithstanding each party hereby waives any and all rights of recovery, claim,
action or cause of action against the other, its agents, officers and employees,
for any loss or damages that may occur to the leased premises or any
improvements thereto or the Building of which the leased premises are a part, or
any improvements thereto, by reason of fire, the elements or any other cause
which could be insured against under the terms of standard fire and extended
coverage insurance policies, regardless of cause or origin, including negligence
of the parties hereto, their agents, officers and employees.
27. Signs: Lessor has not conveyed to the Lessee any rights in or to the
outer side of the outside walls of the Building of which the leased premises
forms a part. The Lessee shall not display or erect any lettering, sign,
advertisement, awning, or other projection in or on the leased premises or in or
on the Building, or make any alteration, decoration, addition or improvements in
or to the leased premises, or in or to the Building, without the prior written
consent of the Lessor. If such consent is granted, the Lessee, at its sole
expense, shall carry such workmen's compensation and general liability insurance
as the Lessor may require.
28. Hold Harmless: Lessee shall hold Lessor harmless from all damages
arising out of any damage to any person or property occurring in, on, or about
the leased premises and the Building in which the leased premises are located,
except that Lessor shall be liable to Lessee for damage resulting from the acts
or omissions of Lessor or its authorized representatives. Lessor shall hold
Lessee harmless from all damages arising out of any such damage. A party's
obligation under this paragraph to indemnify and hold the other party harmless
shall be limited to the sum that exceeds the amount of insurance proceeds, if
any, received by the party being indemnified.
29. Liens: Lessee shall keep the leased premises and the Building of which
the leased premises are a part free from any liens arising out of work
performed, materials furnished, or obligations incurred by Lessee and shall
indemnify, hold harmless and defend Lessor from any liens and encumbrances
arising out of any work performed or materials furnished by or at the direction
of Lessee. In the event that Lessee shall not, within twenty (20) days following
the imposition of any such lien, cause such lien to be released of record by
payment or posting of proper bond, Lessor shall have, in addition to all other
remedies provided herein and by law, the right, but no obligation, to cause
the same to be released by such means as it shall deem proper, including payment
of the claim giving rise to such lien. All such sums paid by Lessor and all
expenses incurred by it in connection therewith, including attorneys' fees and
costs, shall be payable to Lessor by Lessee on demand with interest at the
maximum annual rate permitted by law. Lessor shall have the right at all times
to post and keep posted on the leased premises any notices permitted or required
by law, or which Lessor shall deem proper, for the protection of Lessor and the
leased premises, and any other party having an interest therein, for mechanics'
and materialmen's liens, and Lessee shall give to Lessor at least ten (10)
business days' prior written notice of the expected date of commencement of any
work relating to alterations to the leased premises.
30. Notices: In every instance where it shall be necessary or desirable for
the Lessee to serve any notice or demand upon the Lessor, such notice or demand
shall be sent by United States Registered or Certified Mail, postage prepaid,
addressed to the Lessor at 1720 S. Amphlett, Suite 110, San Mateo, CA or at such
other address of Lessor as may appear on the records of Lessee. Any notice or
demand to be given by the Lessor to the Lessee shall be effective if mailed or
delivered to the office of the Lessee in the leased premised or at such other
address as may appear on the records of the Lessor. Notice mailed as aforesaid
shall be deemed to have been served at the time the same is posted. Rent shall
be mailed to: 1720 South Amphlett Blvd, Suite 110, San Mateo, CA 94402.
31. Subordination: Attornment: At Lessor's option, this lease shall be
subject and subordinate to all ground and underlying leases which now exist or
may hereinafter be executed affecting the Building or the land upon which the
Building is situated or both, and to the lien of any mortgages or deeds of trust
in any amount or amounts whatsoever now or hereafter placed on or against the
land or improvements of which the leased premises are a part, on or against
Lessor's interest or estate therein, or on or against any ground or underlying
lease, without the necessity of the execution and delivery of any further
instruments on the part of Lessee to effectuate such subordination. If any
mortgagee, trustee or ground lessor shall elect to have this lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, his lease shall be deemed prior to such mortgage, deed
of trust or ground lease, whether this lease is dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of the
recording thereof. Lessee covenants and agrees to execute and deliver upon
demand without charge therefor, such further instruments evidencing such
subordination of this lease to such ground or underlying leases and to the lien
of any such mortgages or deeds of trust as may be required by Lessor. Lessee
hereby appoints Lessor as Lessee's attorney-in-fact, irrevocably, to execute and
deliver any such agreements, instruments, releases or other documents.
<PAGE> 6
In the event any proceedings are brought for default under any ground or
any underlying lease or in the event of foreclosure or the exercise of the power
of sale under any mortgage or deed of trust made by Lessor covering the Building
of which the leased premises are a part, Lessee shall attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as Lessor under
this lease, provided such purchaser expressly agrees in writing to be bound by
the terms of the lease.
32. Estoppel Certificate: Lessee shall within ten (10) days after receipt
of a request therefor from Lessor, execute, acknowledge and deliver to Lessor a
statement in writing (a) certifying that this lease is unmodified and in full
force and effect (or, if modified, is in full force and effect) and the date to
which rent and other charges are paid in advance, if any and (b) acknowledging
that there are not, to Lessee's knowledge, any uncured defaults on the part of
Lessor hereunder, or specifying such defaults if any are claimed. Any such
statement may be conclusively relied upon by a prospective purchaser or
encumbrancer of the Building of which the leased premises are a part. Lessee's
failure to execute such statement within such time shall be conclusive upon
Lessee (i) that this lease is in full force and effect without modification
except as may be represented by Lessor, (ii) that there are no uncured defaults
in Lessor's performance, and (iii) that not more than one month's rent has been
paid in advance. If Lessor desires to finance or refinance said Building in
which the leased premises are a part, Lessee hereby agrees to deliver to any
lender designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender. All such statements shall be received by
Lessor in confidence and shall be used only for the purpose herein set forth.
33. Transfer of Lessor's interest: In the event of a sale or conveyance by
Lessor of Lessor's interest in the building of which the leased premises form a
part other than a transfer for security purposes only, Lessor shall be relieved,
from and after the date specified in such notice of transfer, of all obligations
and liabilities accruing thereafter on the part of Lessor, provided that any
funds in the hands of Lessor at the time of transfer in which Lessee has an
interest, shall be delivered to the successor of Lessor. This lease shall not be
affected by any such sale and Lessee agrees to attorn to the purchaser or
assignee provided all Lessor's obligations hereunder are assumed in writing by
the transferee.
34. Insolvency or Bankruptcy of Lessee: The insolvency of Lessee pursuant
to California law with respect to the appointment of a receiver to take
possession of all or substantially all of the property of Lessee, or the making
of a general assignment for the benefit of creditors by Lessee shall terminate
this lease and entitle Lessor to re-enter and regain possession of the leased
premises. In the event that there shall be filed by or against Lessee a petition
in bankruptcy or for reorganization pursuant to any statute of the United
States, the rights of Lessor and Lessee shall be determined, if applicable, by
the provisions of the Bankruptcy Reform Act of 1978 or any successor statute
hereafter in effect.
35. General:
A. This lease shall be binding and inure to the benefit of the parties
hereto and their respective heirs, personal representatives, successors and
assigns.
B. This agreement may not be altered, changed or amended, except by an
instrument in writing, signed by both parties.
C. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Lessor and Lessee relative to the
leased premises. Lessor and Lessee agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their agents or
representatives relative to the leasing of the leased premises are merged in or
revoked by this agreement.
D. If any term or provision of this lease shall, to any extent, be
determined by a court of competent jurisdiction to be invalid or unenforceable,
the remainder of this lease shall not be affected thereby, and each term and
provision of this lease shall be valid and enforceable to the fullest extent
permitted by law.
E. The captions of the paragraphs of this lease are for convenience only
and shall not be deemed to be relevant in resolving any question of
interpretation or construction of any paragraphs of this lease. Exhibits
attached hereto, and addendums and schedules initialed by the parties, are
deemed by attachment to constitute part of this lease and are incorporated
herein.
F. the words "Lessor" and Lessee," as used herein, shall include the
plural as well as the singular. Words used in neutral gender include the
masculine and feminine and words in the masculine or feminine gender include the
neuter. If there be more than one Lessor or Lessee, the obligations hereunder
imposed upon Lessor or Lessee shall be joint and several. If the Lessees are
husband and wife, the obligations shall extend individually to their sole and
separate property as well as to their community property.
G. The word "rent" as used herein, shall include minimum monthly rent,
prepaid rent, percentage rent, if any, adjustments to rent, security deposit,
real property taxes and assessments, common area charges, operating costs and
any other similar charges payable by Lessee to Lessor.
H. Time is of the essence of this lease and each and every provision
hereof. All the terms, covenants, and conditions contained in this lease to be
performed by either party, if such party shall consist of more than one person
or organization, shall be deemed to be joint and several, and all rights and
remedies of the parties shall be cumulative and non-exclusive of any other
remedy at law or in equity.
I. No covenant, term or condition or the breach thereof shall be deemed
waived, except by written consent of the party against whom the waiver is
claimed, and any waiver or the breach of any covenant, term or condition shall
not be deemed to be a waiver of any proceeding or succeeding breach of the same
or any other covenant, term or condition. Acceptance by Lessor of any
performance by Lessee after the time the same shall have become due shall not
constitute a waiver by Lessor of the breach or default of any covenant, term or
condition or otherwise expressly agreed to by Lessor in writing.
J. Except as limited elsewhere in this lease, wherever in this lease
Lessor or Lessee is required to give its consent or approval to any action on
the part of the other, such consent or approval shall not be unreasonably
withheld. In the event of failure to give any such consent, the other party
shall be entitled to specific performance at law and shall have other remedies
as are reserved to it under this lease, but in no event shall Lessor or Lessee
be responsible in monetary damages for failure to give consent unless said
consent is withheld maliciously or in bad faith.
<PAGE> 7
K. If Lessee is a corporation, each individual executing this lease on
behalf of said corporation represents and warrants that he/she is duly
authorized to execute and deliver this lease on behalf of said corporation in
accordance with a duly adopted resolution of the Board of Directors of said
corporation or in accordance with the Bylaws of said corporation, and that this
lease is binding upon said corporation in accordance with its terms. If Lessee
is a corporation, Lessee shall, within thirty (30) days after execution of this
lease, deliver to Lessor a certified copy of the resolution of the Board of
Directors of said corporation authorizing or ratifying the execution of this
lease.
L. All reference to the lease term shall include any extensions of such
term.
36. Rights Reserved to Lessor: Lessor shall have the following rights
exercisable without notice, unless otherwise herein provided, and without
liability to Lessor for damage or injury to property, person or business (all
claims for damage being hereby released), and without effecting an eviction or
disturbance of Lessee's use or possession or giving rise to any claim for
setoffs, or abatement of rent:
A. Lessor shall have the right to relocate the leased premises to another
part of the Office Complex in which the leased premises are located in
accordance with the following:
(i) The new premises shall be substantially the same in size,
dimensions, configuration, decor and nature as the leased premises described in
this lease and shall be placed in that condition by Lessor at its cost.
(ii) The physical relocation of the premises shall be accomplished by
Lessor at its cost.
(iii) Lessor shall give Lessee at least thirty (30) days notice of
Lessor's intention to relocate the leased premises.
(iv) The physical relocation of the leased premises shall take place
during evenings, weekends, or otherwise so as to incur the least inconvenience
to Lessee.
(v) All reasonable costs incurred by Lessee as a result of the
relocation shall be paid by Lessor.
(vi) If the relocated premises are smaller than the leased premises
as they existed before the relocation, rent shall be reduced to a sum computed
by multiplying the rent specified in Paragraphs 5 and 6 hereof by a fraction,
the numerator of which shall be the total number of net rentable square feet in
the relocated premises, and the denominator of which shall be the total number
of net rentable square feet in the leased premises before relocation.
(vii) The parties immediately shall execute an amendment to this
lease stating the relocation of the leased premises and the reduction of rent,
if any.
(viii) Should Lessee refuse to permit Lessor to relocate Lessee to
such new premises at the end of the said thirty (30) day period, such refusal
shall constitute a default by Lessee pursuant to paragraph 23A (iii) of this
lease.
B. To change the name or street address of the Building in which the
leased premises are located.
C. To install and maintain signs on the exterior and interior of the
Building in which the leased premises are located.
D. To designate all sources furnishing sign painting and lettering, ice,
mineral or drinking water, beverages, foods, towels, vending machines or toilet
supplies used or consumed on the leased premises.
E. To have pass keys to the leased premises.
<PAGE> 8
F. To decorate, remodel, repair, alter or otherwise prepare the leased
premises for occupancy during the last six months of the term hereof, if during
or prior to such time Lessee vacates the leased premises, or at any time after
Lessee abandons the leased premises.
G. To enter the leased premises at reasonable hours to make inspections, or
to exhibit the leased premises to prospective tenants, purchasers, others, or
for other reasonable purposes.
H. To approve the weight, size and location of safes, computers, and other
heavy articles in and about the leased premises and the Building and to
require all such items and other office furniture and equipment to be moved in
and out of the Building and leased premises only at such times and in such
manner as Lessor shall direct and in all events at Lessee's sole risk and
responsibility.
I. At any time or times, to decorate and to make, at its own expense,
repairs, alterations, additions and improvements, structural or otherwise, in or
to the leased premises, the Building or part thereof, and to perform any acts
related to the safety, protection or preservation thereof, and during such
operations to take into and through the leased premises or any part of the
Building all material and equipment required to close or temporarily suspend
operation of entrances, doors, corridors, elevators or other facilities,
provided that Lessor shall cause as little inconvenience or annoyance to Lessee
as is reasonably necessary in the circumstances. Lessor may do any such work
during ordinary business hours and Lessee shall pay Lessor for overtime and for
any other expenses incurred if such work is done during other hours at Lessee's
request.
J. To do or permit to be done any work in or about the leased premises or
the Building or any adjacent or nearby building, land, street or alley.
K. To grant to anyone the exclusive right to conduct any business or render
any service in the Building, provided such exclusive right shall not operate to
exclude Lessee from the use expressly permitted by Paragraph 14 of this lease.
<PAGE> 9
37. No Option: The submission of this Lease by Landlord, its agent or
representative for examination or execution by Tenant does not constitute an
option or offer to lease the Premises upon terms and conditions contained
herein or a reservation of the Premises in favor of Tenant, it being intended
hereby that this lease shall only become effective upon the execution hereof by
Landlord and delivery of a fully executed counterpart hereof to Tenant.
38. Tenant Improvements: Lessor to paint space and shampoo carpets.
39. Rent Abatement: Lessor to grant Lessee one (1) month of free rent to be
used for the month of July 1991.
Dated: 6/27/91 LESSOR: GREAT AMERICAN BANK
A Federal Savings Bank
By: GREAT AMERICAN ASSET MANAGEMENT
COMPANY, AGENT
By: /s/ Douglas Dyck
________________________________
Douglas Dyck, President
By: /s/ Peter F. Bride
________________________________
Peter F. Bride, Senior Vice
President
Dated: 6/18/91 LESSEE: FULCRUM INNOVATIONS, INC.
By: /s/ Christopher Keene
________________________________
Christopher Keene
Title: President
By: /s/ Derek Henninger
________________________________
Derek Henninger
Title: Vice President
<PAGE> 10
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building/Office Complex or the leased premises without the prior
written consent of Lessor and Lessor shall have the right to remove any such
sign, placard, picture, advertisement, name or notice without notice to and at
the expense of Lessee.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Lessee by a person approved of by Lessor.
Lessee shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the leased premises; provided, however, that Lessor may furnish and
install a sliding standard window covering at all exterior windows. Lessee shall
not without prior written consent of Lessor cover or otherwise sunscreen any
window.
2. Lessor shall approve in writing, prior to installation, the method of
attachment of any objects affixed to walls, ceilings, or doors.
3. The bulletin board or directory of the Building/Office Complex will be
provided exclusively for the display of the name and location of Lessee only and
Lessor reserves the right to exclude any other names therefrom.
4. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Lessee or used by Lessee for any purpose
other than ingress to and egress from the leased premises. The halls, passages,
exits, entrances, elevators, stairways, balconies and roof are not for the use
of the general public and the Lessor shall in all cases retain the right to
control and prevent access thereto by all persons whose presence in the
judgement of the Lessor shall be prejudicial to the safety, character,
reputation and interests of the Building/Office Complex and its Lessees,
provided that nothing herein contained shall be construed to prevent such access
to persons with whom the Lessee normally deals in the ordinary course of
Lessee's business unless such persons are engaged in illegal activities. No
Lessee and no employees or invitees of any Lessee shall go upon the roof of the
Building/Office Complex.
5. Locks -- No additional locks or bolts of any kind shall be placed upon
any of the doors or windows by Lessee, nor shall any changes be made in existing
locks or the mechanisms thereof without the prior written consent of the Lessor.
Lessee must, upon the termination of Lessee's tenancy, restore to Lessor all
keys of storage, offices and toilet rooms either furnished to or otherwise
procured by Lessee and in the event of the loss of any keys so furnished Lessee
shall pay to Lessor the cost thereof or of changing the lock or locks opened by
lost keys if Lessor deems it necessary to make a change.
6. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by the Lessee who, or whose employees or invitees, shall have
caused it.
7. Lessee shall not overload the floor of the leased premises or mark,
drive nails, screw or drill into the partitions, woodwork or plaster or in any
way deface the leased premises or any part thereof. No boring, cutting or
stringing of wires shall be permitted except with the prior written consent of
the Lessor and as the Lessor may direct.
8. No furniture, freight or equipment of any kind shall be brought into the
Building/Office Complex without the consent of Lessor and all moving of the same
into or out of the Building/Office Complex shall be done at such time and in
such manner as Lessor shall designate. Lessor shall have the right to prescribe
the weight, size and position of all safes and other heavy equipment brought
into the Building/Office Complex and also the times and manner of moving the
same in and out of the Building/Office Complex. Safes or other heavy objects
shall, if considered necessary by Lessor, stand on wood strips of such thickness
as is necessary to properly distribute the weight. Lessor will not be
responsible for loss of or damage to any such safe or property from any cause
and all damage done to the Building/Office Complex by moving or maintaining any
such safe or other property shall be repaired at the expense of Lessee. There
shall not be used in any space, or in the public halls of the Building/Office
Complex, either by any Lessee or others, any hand trucks except those equipped
with rubber tires and side guards.
9. Janitorial Service -- Lessee shall not employ any person or persons for
the purpose of cleaning the leased premises without the consent of Lessor.
Lessor shall be in nowise responsible to Lessee for any loss of property from
the leased premises, however occurring, or for any damage done to the effects of
Lessee by the Janitorial Service or any of Lessor's employees, or by any other
person. Janitorial service will not include the cleaning of carpets and rugs,
other than vacuuming. Lessee shall not cause unnecessary labor by reason of
Lessee's carelessness and indifference in the preservation of good order and
cleanliness.
10. Lessee shall not use, keep or permit to be used any food or noxious gas
or substance in the leased premises, or permit or suffer the leased premises to
be occupied or used in a manner offensive or objectionable to the Lessor or
other occupants of the Building/Office Complex by reason of noise, odors, and/or
vibrations, or interfere in any way with other Lessees or those having business
therein nor shall any animals or birds be brought in or kept in or about the
leased premises or the Building/Office Complex. No Lessee shall make or permit
to be made any unseemly or disturbing noises or disturb or interfere with
occupants of this or neighboring Buildings or leased premises or those having
business with them whether by the use of any musical instruments, radio,
phonograph, unusual noise, or in any other way. No Lessee shall throw anything
out of doors or down the passageways. No trash shall be put in the common areas
before 5:00 p.m.
11. The leased premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the use of
the leased premises for general office purposes. No Lessee shall occupy or
permit any portion of his leased premises to be occupied as an office for the
manufacture or sale of liquor, narcotics, or tobacco in any form, or as a
medical office, or as a barber shop or manicure shop. The leased premises shall
not be used for lodging or sleeping or for any illegal purposes.
12. Lessee shall not use or keep in the leased premises or the Building/
Office Complex any kerosene, gasoline, or inflammable or combustible fluid or
material.
13. Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Lessor. The location of telephones, call boxes
and other office equipment affixed to the leased premises shall be subject to
the approval of Lessor.
<PAGE> 11
14. Installation of Floor coverings - No Lessee shall lay linoleum or other
similar floor covering so that the same shall be affixed to the floor of the
leased premises in any manner except by a paste, or other material, which may
easily be removed with water, the use of cement or other similar adhesive
materials being expressly prohibited. The method of affixing any such linoleum
or other similar floor covering to the floor, as well as the method of affixing
carpets or rugs to the leased premises, shall be subject to approval by Lessor.
The expense of repairing any damage resulting from a violation of this rule
shall be borne by Lessee by whom, or by whose agents, employees, or visitors,
the damage shall have been caused.
15. Carpet/Floor Protection - Lessee shall provide and use chair pads and
carpet protectors at all desk and furniture locations.
16. No furniture, packages, supplies, equipment or merchandise will be
received in the Building/Office Complex or carried up or down in the elevators,
except between such hours and in such elevators as shall be designated by
Lessor.
17. On Saturdays, Sundays and legal holidays and on other days between the
hours of 7:00 p.m. and 7:00 a.m. the following day, access to the
Building/Office Complex, or the halls, corridors, elevators or stairways in the
Building/Office Complex, or to the leased premises may be refused unless the
person seeking access is known to the person or employee of the Building/Office
Complex in charge and has a pass or is properly identified. The Lessor shall in
no case be liable for damages for any error with regard to the admission to or
exclusion from the Building/Office Complex of any person. In case of invasion,
mob, riot, public excitement, or other commotion, the Lessor reserves right to
prevent access to the Building/Office Complex during the continuance of the same
by closing the doors or otherwise, for the safety of the Lessees and protection
of property in the Building/Office Complex. The Lessor reserves the right to
close and keep locked all entrance and exit doors of the Building/Office Complex
on Saturdays, Sundays and legal holidays and other days between the hours of
7:00 p.m. and 7:00 a.m., and during such further hours as Lessor may deem
advisable for the adequate protection of said Building/Office Complex and the
property of its Lessees.
18. All entrance doors in the leased premises shall be left locked when the
leased premises are not in use, and all doors opening to public corridors shall
be kept closed except for normal ingress and egress from the leased premises.
19. Lessor reserves the right to exclude or expel from the Building/Office
Complex any person who, in the judgment of Lessor, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building/Office Complex.
20. Employees of Lessor shall not perform any work or do anything outside of
their regular duties unless under special instructions from the Lessor, and no
employee will admit any person (Lessee or otherwise) to any office without
specific instructions from the Lessor.
21. No vending machine or machines of any description shall be installed,
maintained or operated upon the leased premises without the prior written
consent of the Lessor.
<PAGE> 12
22. Lessor shall have the right, exercisable without notice and without
liability to Lessee, to change the name and the street address of the
Building/Office Complex of which the leased premises are a part.
23. Lessee agrees that it shall comply with all fire and security
regulations that may be issued from time to time by Lessor and Lessee also shall
[illegible] Lessor with the name of a designated responsible employee to
represent Lessee in all matters pertaining to such fire or security regulations.
24. Lessor reserves the right by written notice to Lessee to rescind,
alter or waive any rule or regulation at any time prescribed for the
Building/Office Complex when, in the Lessor's judgment, it is necessary,
desirable or proper for the best interest of the Building/Office Complex and its
Lessees.
25. Lessee shall not disturb, solicit or canvass any occupant of the
Building/Office Complex and shall cooperate to prevent same.
26. Without the prior written consent of Lessor, Lessee shall not use the
name of the Building/Office Complex in connection with or in promoting or
advertising the business of Lessee except as Lessee's address.
27. Lessor shall furnish reasonable amounts of heating and air
conditioning during the hours of 7:00 a.m. to 10:00 p.m., Monday through
Saturday. In the event Lessee requires heating and air conditioning during off
hours, Sundays or holidays, Lessor shall, on notice, provide such services at
the rate of $25 per hour.
28. Energy Conservation Measures -- Lessee shall abide by all energy
conservation measures employed by Lessor, including but not limited to
requirements that lights be extinguished upon leaving the leased premises and
that draperies be closed at times specified by Lessor. Lessee shall not use any
method of heating or air conditioning other than that supplied by Lessor.
29. Equipment Defects -- Lessee shall give Lessor prompt notice of any
accidents to or defects in the water pipes, gas pipes, electric lights and
fixtures, heating apparatus, or any other service equipment.
30. Parking -- Cars are to park in properly marked spaces only. Under no
circumstances are cars to (a) back in, (b) park in spaces reserved for other
Lessees, (c) park in driveways, (d) park in front of entrances to the
Building/Office Complex, (e) park in unmarked areas, (f) park in loading zones,
(g) park in two or more spaces or (h) park in areas reserved for the
handicapped. Lessor shall have the right to cause improperly parked cars to be
towed at the owner's expense.
<PAGE> 13
[Diagram of floor plan]
BAYSHORE CORPORATE CENTER
1650 So. Amphlett Blvd.
Suite(s) 100/105
San Mateo, CA 94402
1,236 Square Feet
<PAGE> 14
#1 AMENDMENT TO LEASE
NAME CHANGE
Regarding the Lease between , GREAT AMERICAN BANK, A Federal Savings
Bank (Lessor), and FULCRUM INNOVATIONS, INC. (Lessee), dated June 12, 1991 for
1650 So. Amphlett Blvd., Suite 100, located in San Mateo, California, the
parties now agree that the name of Lessee in this Lease shall be changed to
PERSISTENCE SOFTWARE.
All other sections of this Lease shall remain the same. This NAME CHANGE shall
be effective upon the date of signing.
Dated: 2/25/92 Lessor: GREAT AMERICAN FEDERAL SAVINGS
ASSOCIATION, A Federal Mutual
Savings Association
By: GREAT AMERICAN ASSET
MANAGEMENT COMPANY, Agent
By: /s/ Douglas Dyck
------------------------------------
Douglas Dyck, President
By: /s/ Peter F. Bride
------------------------------------
Peter F. Bride
Senior Vice President
Dated: 2/11/92 Lessee: PERSISTENCE SOFTWARE
By: /s/ Christopher Keene
------------------------------------
Christopher Keene
President
<PAGE> 15
[#2 AMENDMENT TO LEASE DOES NOT EXIST]
#3 AMENDMENT TO LEASE
RENEWAL
AMENDMENT, made this 23rd day of June by and between E.C. Properties, A
California General Partnership, having an office at 1720 South Amphlett
Boulevard, Suite 110, San Mateo, California 94402, party of the first part,
hereinafter referred to as "Lessor", and Persistence Software, having an office
at 1650 South Amphlett Boulevard, Suite 100, San Mateo, California 94402, party
of the second part, hereinafter referred to as "Lessee".
WITNESSETH
WHEREAS, Great American Bank and Persistence Software entered into a Lease dated
June 12, 1991, covering Suite 100 in the building known as 1650 South Amphlett
Boulevard, San Mateo, California 94402 at the rental and upon the terms and
conditions there more particularly set forth; and
WHEREAS, E.C. Properties, A California General Partnership, has assumed
ownership of Bayshore Corporate Center, and;
WHEREAS, Lessor and Lessee are desirous of amending said Lease (and said
Amendment(s)) in the matter set forth below.
RENTAL PREMISES: Lessor and Lessee mutually agree to renew said above-mentioned
Lease, plus an expansion of approximately 508 rentable sq. ft., its
configuration as indicated by "Exhibit A" to this Amendment. The lease term for
the expansion space shall not be for less than nine months.
RENTAL RATE & TERM: The term for the above-mentioned space shall be from
September 1, 1992, until July 31, 1993. Base rent shall be $2,180.00 per month
and will be due the first of the month.
TENANT IMPROVEMENTS: An opening will be created into the adjacent space, the
adjacent space will be reconfigured to suit (see attached) and electrical to
suit.
EXPANSION CLAUSE: Upon not less than 60 days prior written notice by Lessee,
Lessor to provide Lessee additional expansion space in the complex. If Lessor is
unable to provide sufficient expansion space, Lessee can vacate the premises
upon not less than 60 days prior written notice.
GENERAL TERMS: All other terms, covenants, provisions, and agreements of said
Lease dated June 12, 1991 and subsequent Amendments shall remain in full force.
IN WITNESS WHEREOF, this Amendment to Lease has been duly executed by the
parties hereto.
Dated: 8/10/92 LESSOR: E.C. PROPERTIES
A California General Partnership
By: /s/ Steve Kaufman
------------------------------------
Steve Kaufman
Dated: 8/12/92 LESSEE: Persistence Software
By: /s/ Christopher Keene
------------------------------------
Christopher Keene
<PAGE> 16
EXHIBIT A
[FLOORPLAN OF RENTAL PREMISES]
<PAGE> 17
#4 AMENDMENT TO LEASE
RELOCATION AND RENEWAL
AMENDMENT, made this 27th day of July, 1993, between E.C. Properties, A
California General Partnership, having an office at 1720 South Amphlett Blvd,
Suite 110, San Mateo, California 94402, "Lessor", and PERSISTENCE SOFTWARE,
having an office at 1650 South Amphlett Blvd., Suite 100, San Mateo, California
94402, "Lessee".
WHEREAS, Great American Bank and Persistence Software, entered into a Lease
dated June 12, 1991, covering Suite 100 in the building 1650 South Amphlett
Blvd., San Mateo, California 94402, at the rental and upon the terms and
conditions there more particularly set forth; and
WHEREAS, E.C. Properties, A California General Partnership, has assumed
ownership of Bayshore Corporate Center, and
WHEREAS, Lessor and Lessee are desirous of amending said Lease in the manner
set forth below.
RENTAL PREMISES: Lessor and Lessee mutually agree to renew said above-mentioned
Lease, its configuration as indicated by "Exhibit A" to this Amendment.
RELOCATION: Persistence Software will relocate from 1650 So. Amphlett Blvd.,
Suite #100 to 1700 So. Amphlett, Suite #215.
RELOCATION COSTS: Lessor to pay for new stationery, movers, and relocation of
phones.
RENTAL RATE & TERM: The term for the above-mentioned space shall be from August
7, 1993, until August 6, 1996. Base rent shall be $1.25 a square foot, per
month, full service, for 3,072 square feet, or $3,840.00 and will be due the
first of the month.
Lessee will initially occupy 2,000 square feet at $1.25 a square foot. The
balance of 1,072 square feet will be paid for when occupied by Lessee.
OPERATING COSTS AND TAXES: Waived.
CPI: Annual CPI increases not to exceed 4%.
TENANT IMPROVEMENTS: Per the attached floor plan, including new carpet and
paint, and a kitchen with a sink and cabinets above.
GENERAL TERMS: All other terms, covenants, provisions, and agreements of said
Lease dated June 12, 1991, and subsequent Amendments shall remain in full force.
IN WITNESS WHEREOF, this Amendment to Lease has been duly executed by the
parties hereto.
Dated: 7/27/93 Lessor: E.C. Properties, A California
General Partnership
By: /s/Steve Kaufman
_________________________________
Steve Kaufman
Dated: 7/28/93 Lessee: PERSISTENCE SOFTWARE
By: /s/Christopher Keene
_________________________________
Exhibit "A" Attached
<PAGE> 18
EXHIBIT A
BAYSHORE CORPORATE CENTER
1700 S. Amphlett Blvd Suite 200, SAN MATEO
{FLOOR PLAN OF RENTAL PREMISE]
Rentable Space 3072 SQ. FT.
<PAGE> 19
#5 AMENDMENT TO LEASE
EXPANSION
AMENDMENT, made this 27TH day of APRIL, 1994, between E. C. Properties, A
California General Partnership, having an office at 1720 South Amphlett Blvd,
Suite 110, San Mateo, California 94402, "Lessor", and PERSISTENCE SOFTWARE,
having an office at 1700 South Amphlett Blvd., Suite 250, San Mateo, California
94402, "Lessee".
WHEREAS, GREAT AMERICAN BANK and PERSISTENCE SOFTWARE, entered into a Lease
dated June 12, 1991, covering Suite 100 in the building 1650 South Amphlett
Blvd., San Mateo, California 94402, at the rental and upon and terms and
conditions there more particularly set forth; and
WHEREAS, E. C. Properties, A California General Partnership, has assumed
ownership of Bayshore Corporate Center, and
WHEREAS, Lessor and Lessee are desirous of amending said Lease in the manner
set forth below.
RENTAL RATE & TERM: The term is from May 1, 1994, to August 6, 1996. The total
leased square footage increases 1,072 square feet, from 2,000 square feet, to
3,072 square feet, at $1.25 a square foot, per month, full service, for a total
rent of $3,840.00 per month, full service, which will be due the first of the
month.
GENERAL TERMS: All other terms, covenants, provisions, and agreements of said
Lease dated June 12, 1991, and subsequent Amendments shall remain in full force.
IN WITNESS WHEREOF, this Amendment to Lease has been duly executed by the
parties hereto.
Dated: 5/2/94 Lessor: E.C. Properties, A California
----------- General Partnership
By: /s/ Steve Kaufman
-----------------------------
Steve Kaufman
Dated: 5/2/94 Lessee: PERSISTENCE SOFTWARE
-----------
By: /s/ Christopher Keene
-----------------------------
Exhibit A Attached
<PAGE> 20
EXHIBIT A
- ------------------------------------------------------------------------------
BAYSHORE CORPORATE CENTER
1700 S. Amphlett Blvd Suite #250, San Mateo
- ------------------------------------------------------------------------------
[FLOOR PLAN OF RENTAL PREMISES]
<PAGE> 21
#6 AMENDMENT TO LEASE
RENEWAL & EXPANSION
AMENDMENT, made this 18th day of JANUARY, 1995, between E. C. Properties, A
California General Partnership, having an office at 1720 South Amphlett Blvd,
Suite 110, San Mateo, California 94402, "Lessor", and PERSISTENCE SOFTWARE,
having an office at 1700 South Amphlett Blvd., Suite 250, San Mateo, California
94402, "Lessee".
WHEREAS, GREAT AMERICAN BANK, and PERSISTENCE SOFTWARE, entered into a Lease
dated June 12, 1991, covering Suite 100 in the building 1650 South Amphlett
Blvd., San Mateo, California 94402, at the rental and upon the terms and
conditions there more particularly set forth; and
WHEREAS, E. C. Properties, A California General Partnership, has assumed
ownership of Bayshore Corporate Center, and
WHEREAS, Lessor and Lessee are desirous of amending said Lease in the manner
set forth below.
RENTAL PREMISES: Lessor and Lessee mutually agree to renew said
above-mentioned Lease, its configuration as indicated by "Exhibit A" to this
Amendment.
RENTAL RATE & TERM: The term for the above-mentioned space shall be from
February 1, 1995, until August 6, 1997.
Square footage is increasing from 3,072 square feet to 4,056 square feet.
Base rent shall be $1.27 a square foot, per month, full service, for 4,056
square feet, or $5,151.12 per month, and will be due the first of the month.
CONSUMER PRICE INDEX: There will be an annual consumer price index increase,
not to exceed 4%. The next increase will be in August, 1995.
TENANT IMPROVEMENTS: Lessor, at his sole cost and expense, will construct the
improvements as marked on the attached plan. Lessor shall expand the storage
and conference room in the existing premises at a date to be determined by
Persistence Software, per attached Exhibit "A".
GENERAL TERMS: All other terms, covenants, provisions, and agreements of said
Lease dated June 12, 1991, and subsequent Amendments shall remain in full
force.
IN WITNESS WHEREOF, this Amendment to Lease has been duly executed by the
parties hereto.
Dated: 1/18/95 Lessor: E.C. Properties, A California
-------- General Partnership
By: /s/ Steve Kaufman
------------------------------
Steve Kaufman
Dated: 1/18/95 Lessee: PERSISTENCE SOFTWARE
-------- ------------------------------
Christopher Keene
<PAGE> 22
#7 AMENDMENT TO LEASE
EXPANSION
AMENDMENT, made this 27th day of July, 1995, between E.C. PROPERTIES, A
California General Partnership, having an office at 1720 So. Amphlett Blvd.,
Suite 110, San Mateo, California, 94402, "Lessor", and PERSISTENCE SOFTWARE,
having an office at 1700 So. Amphlett Blvd., Suite 250, San Mateo, California,
94402, "Lessee."
WHEREAS, E.C. PROPERTIES, and PERSISTENCE SOFTWARE, entered into a Lease dated
June 21, 1991, covering Suite 250 in the building 1700 South Amphlett Blvd., San
Mateo, California, 94402, at the rental and upon the terms and conditions there
more particularly set forth; and
WHEREAS, Lessor and Lessee are desirous of amending said Lease in the manner set
forth below.
WHEREAS, BAYSHORE CORPORATE CENTER, LLC, has assumed ownership of Bayshore
Corporate Center.
EXPANSION: Lessee to occupy an additional 1,427 square feet upon completion of
tenant improvements. This will increase the Lessee's square footage from 4,056
square feet to 5,483 square feet. This additional square footage will be from
suite #220.
RENTAL RATE & TERM: The term for the above-mentioned space shall be from
September 1, 1995, until August 31, 1997. Base rent shall be $1.30 per square
foot, full service, per month for 5,483 square feet, for a total monthly rent of
$7,127.90 and will be due on the first of the month.
RENT ADJUSTMENT, CONSUMER PRICE INDEX: There will be an annual rental increase
based on the previous twelve (12) months increase in the Bay Area Consumer Price
Index, capped at 4%.
TENANT IMPROVEMENTS: Cost of expansion shall be paid by Lessee. Lessee shall
have the option to amortize the costs into the term of the lease with a 10%
amortization charge.
EARLY OCCUPANCY: Lessee may occupy suite upon completion of tenant improvements.
GENERAL TERMS: All other terms, covenants, provisions, and agreements of said
Lease dated June 21, 1991 and subsequent Amendments shall remain in full force.
IN WITNESS WHEREOF, this Amendment to Lease has been duly executed by the
parties hereto.
Dated: 8/7/95 LESSOR: E.C. PROPERTIES, A California General Partnership
By: /s/ Steve Kaufman
-------------------------------
Steve Kaufman
Dated: 8/7/95 Lessee: PERSISTENCE SOFTWARE
By: /s/ Christopher Keene
--------------------------------
Christopher Keene
Print signers name
<PAGE> 23
#8 AMENDMENT TO LEASE
AMORTIZED TENANT IMPROVEMENTS
AMENDMENT, made this 6th day of November, 1995, between E.C. PROPERTIES, A
California General Partnership, having an office at 1720 So. Amphlett Blvd.,
Suite 110, San Mateo, California, 94402, "Lessor", and PERSISTENCE SOFTWARE,
having an office at 1700 So. Amphlett Blvd., Suite 250, San Mateo, California,
94402, "Lessee."
WHEREAS, E.C. PROPERTIES, and PERSISTENCE SOFTWARE, entered into a Lease dated
June 21, 1991, covering Suite 250 in the building 1700 South Amphlett Blvd., San
Mateo, California, 94402, at the rental and upon the terms and conditions there
more particularly set forth; and
WHEREAS, Lessor and Lessee are desirous of amending said Lease in the manner set
forth below.
WHEREAS, BAYSHORE CORPORATE CENTER, LLC, has assumed ownership of Bayshore
Corporate Center.
AMORTIZED TENANT IMPROVEMENTS: The Tenant Improvements marked on Exhibit "B"
(Invoice dated 10-31-95) will be amortized over the term of the Lease starting
on December 1, 1995 and continuing on a monthly basis until August 31, 1997 for
a total of 21 payments. The cost is $4,456.20 which will increase the monthly
rent by $232.19 per month based on 21 months.
BASE RENT $7,127.90 PER MONTH + TENANT IMPROVEMENTS $232.19 PER MONTH =
$7,360.09 TOTAL MONTHLY RENT.
GENERAL TERMS: All other terms, covenants, provisions, and agreements of said
Lease dated June 21, 1991 and subsequent Amendments shall remain in full force.
IN WITNESS WHEREOF, this Amendment to Lease has been duly executed by the
parties hereto.
Dated: -------- Lessor: E.C. PROPERTIES, A California General Partnership
By: /s/ Steve Kaufman
------------------------------------------------------
Steve Kaufman
Dated: 11/14/95 Lessee: PERSISTENCE SOFTWARE
By: /s/ Christopher Keene
-------------------------------------------------------
Christopher Keene
Print signers name
<PAGE> 24
#9 AMENDMENT TO LEASE
RENEWAL AND EXPANSION
AMENDMENT, made this 13th day of March, 1996, between E.C. PROPERTIES, A
California General Partnership, having an office at 1720 So. Amphlett Blvd.,
Suite 110, San Mateo, California, 94402, "Lessor", and Persistence Software,
having an office at 1700 So. Amphlett Blvd., Suite 250, San Mateo, California,
94402, "Lessee."
WHEREAS, BAYSHORE CORPORATE CENTER, and PERSISTENCE SOFTWARE, entered into a
Lease dated June 21, 1991 covering Suite 250 in the building 1700 South Amphlett
Blvd., San Mateo, California, 94402, at the rental and upon the terms and
conditions there more particularly set forth; and
WHEREAS E.C. PROPERTIES IS NOW BAYSHORE CORPORATE CENTER, LLC
WHEREAS, Lessor and Lessee are desirous of amending said Lease in the manner set
forth below.
RENTAL, RATE AND TERM: The term for the above mentioned space shall be from
April 1, 1996 to August 31, 1997. Current base rent shall be $1.30 per square
foot, full service, per month for 5,483 square feet for a monthly rent of
$7,127.90 plus $232.19 in Tenant Improvements for a total of $7,360.90 and will
be due on the first of the month.
RENTAL INCREASE: For the additional new space the base rent shall be $1.40 per
square foot, full service, per month for 3,294 square feet for a monthly rent of
$4,611.60. The total base rent for both spaces is $11,971.69 and will be due on
the first of the month.
CONSUMER PRICE INDEX INCREASE: There will be an annual rental increase based on
the previous twelve (12) months increase in the Bay Area Consumer Price Index,
capped at 4%.
TENANT IMPROVEMENTS: Lessor pays: will steam clean the carpets and paint
touch-up.
TENANT IMPROVEMENTS: Lessee pays: costs associated with joining Suite 250 and
Suite 221: demolishing one wall, repairing carpet, and adjoining walls and
ceiling.
Tenant shall have the option to amortize costs into the term of the lease with a
12% amortization charge.
GENERAL TERMS: All other terms, covenants, provisions, and agreements of said
Lease dated June 21, 1991 and subsequent Amendments shall remain in full force.
IN WITNESS WHEREOF, this Amendment to Lease has been duly executed by the
parties hereto.
Dated: -------- Lessor: BAYSHORE CORPORATE CENTER, LLC
By: /s/ Steve Kaufman
-----------------------------------
Steve Kaufman
Dated: 7/16/96 Lessee: /s/ Christopher Keene
-------------------------------
By: Christopher Keene
-----------------------------------
<PAGE> 25
#10 Amendment to Lease
Relocation and Expansion
AMENDMENT, made this 26th day of May, 1996, between E.C. PROPERTIES, A
California General Partnership, having an office at 1720 So. Amphlett Blvd.,
Suite 110, San Mateo, California, 94402, "Lessor", and PERSISTENCE SOFTWARE,
having an office at 1700 So. Amphlett Blvd., Suite 250, San Mateo, California,
94402, "Lessee."
WHEREAS, BAYSHORE CORPORATE CENTER, and PERSISTENCE SOFTWARE, entered into a
Lease dated June 21, 1991 covering Suite 250 in the building 1700 South
Amphlett Blvd., San Mateo, California, 94402, at the rental and upon the terms
and conditions there more particularly set forth; and
WHEREAS E.C. PROPERTIES IS NOW BAYSHORE CORPORATE CENTER, LLC
WHEREAS, Lessor and Lessee are desirous of amending said Lease in the manner
set forth below.
RELOCATION: Lessee will relocate from 1700 S. Amphlett Blvd., Suite 250 to 1720
S. Amphlett Blvd., Suite 300.
TERM: The term for the above mentioned space shall be from July 1, 1996 to June
30, 1999.
SQUARE FOOTAGE: 1720 S. Amphlett Blvd., Suite 300 consists of 17,181 square
feet. Lessee to initially occupy square feet. Lessee to pay for
additional square footage as occupied.
RENTAL RATE: From July 1, 1996 to June 30, 1997 the rent will be $1.45 per
square foot, full service, per month.
From July 1, 1997 to June 30, 1998 the rent will be $1.52 per square foot, full
service, per month.
From July 1, 1998 to June 30, 1999 the rent will be $1.60 per square foot, full
service, per month.
STOCK: Persistence Software agrees to exchange for rent 110,000 shares of stock
at $2.30 per share. Rent will be abated from the first month of occupancy until
such time as the stock purchase is complete.
TENANT IMPROVEMENTS: As per the attached floor plan, Lessor pays: For buildout
including glass for offices, parabolic lights, three sinks and new ceiling
tiles. Lessee pays: Upgrades at lobby area and relocation of Vanguard. Vanguard
relocation costs will be capped at $4,000.00 and will only be amortized into
the rent after the Vanguard space is fully occupied. Lessee's tenant
improvement costs are to be paid after work is completed or can be amortized
over the term of the lease at a rate of 10% per annum. Lessor pays: Upgrade
restrooms, hallway carpet and hallway wallpaper.
GENERAL TERMS: All other terms, covenants, provisions, and agreements of said
Lease dated June 21, 1991 and subsequent Amendments shall remain in full
force.
IN WITNESS WHEREOF, this Amendment to Lease has been duly executed by the
parties hereto.
Dated: 5/23/96 Lessor: BAYSHORE CORPORATE CENTER, LLC
By: /s/ Steve Kaufman
------------------------------
Steve Kaufman
Dated: 6/14/96 Lessee: PERSISTENCE SOFTWARE
By: /s/ Christopher Keene
------------------------------
Christopher Keene
Exhibit "A" Attached
<PAGE> 1
Exhibit 10.10
SETTLEMENT AND LICENSE AGREEMENT
This Settlement and License Agreement ("Agreement"), effective as of the
later date signed below ("Effective Date"), is made by Sun Microsystems, Inc.,
with a place of business at 901 San Antonio Road, Palo Alto, California 94043
and acting by and through its JavaSoft division ("Sun"), and Persistence
Software, Inc. with a place of business at 1720 South Amphlett Blvd., Suite
300, San Mateo, California 94402 ("Persistence").
RECITALS
A. Persistence is the owner of the Persistence Patents (defined below),
and has informed Sun that its Java Blend(TM) software may require a license
under the Persistence Patents.
B. Sun is the owner of the Sun Patents (defined below), and has informed
Persistence that its products may require a license under the Sun Patents.
C. Sun and Persistence wish to resolve and settle certain disputes that
have arisen with respect to the Persistence Patents and the Sun Patents, and to
avoid future conflict or dispute that might arise with respect to such patents
by entering into a non-exclusive object code license under such patents (as
further defined below).
D. Commencing in 1994, Sun's wholly-owned subsidiary SunSoft, Inc. and
Persistence entered into a series of agreements and engaged in other business
dealings ("SunSoft/Persistence Relationship" as further defined below)
concerning, Inter alia, Persistence's product related to relational database
access then known as Persistence. Persistence has alleged, and Sun has denied,
that Sun may have misappropriated Persistence's trade secrets which it may have
been exposed to as a result of the SunSoft/Persistence Relationship.
E. Sun and Baan have entered into a joint development relationship under
which Baan is entitled to receive access to the JavaBlend source code for use
and incorporation by Baan into its products, and to avoid future conflict or
dispute that might arise with respect to such products Persistence is willing
to enter into a non-exclusive object code license relating to such products (as
further defined below);
F. Sun and Persistence wish to resolve and settle certain disputes that
have arisen with respect to the SunSoft/Persistence Relationship, and to avoid
future conflict or dispute that might arise with respect to it by entering into
a mutual release of claims related thereto (as further defined below).
G. In conjunction with the foregoing, Sun and Persistence wish to engage
in certain cooperative marketing efforts as described below.
THEREFORE, Sun and Persistence agree as follows:
1. DEFINITIONS.
1.1 "JavaBlend Source Code Licensing" shall mean the licensing by Sun of
the source code of its JavaBlend software or any derivative works thereof to
third parties who are authorized by Sun to develop and introduce products of
such third party based upon and incorporating Jav-
[****] Confidential Treatment Requested
Omitted Portions on File with the
Securities Exchange Commission
<PAGE> 2
aBlend software. "JavaBlend Source Code Licensing" shall not include the
licensing by Sun of the source code of its JavaBlend(TM) software to Baan
pursuant to Section 2.1 b. or to contractors engaged by Sun or Baan on a "work
for hire" basis pursuant to Section 2.1 a. (iii) or Section 2.1 b. (iii),
respectively.
1.2 "Persistence Patents" means (a) U.S. Patent Numbers 5,499,371 and
5,615,362 and 5,706,506 and (b) any foreign counterparts, reissues,
reexaminations, divisionals, continuations and continuations-in-part of U.S.
Patent Numbers 5,499,371 and 5,615,362 and 5,706,506 claiming or entitled to
priority therefrom, and (c) any of its patents or pending patent applications
which, as of the date of this Agreement, Persistence knows would be infringed
by the making, using, leasing, licensing, selling or other transfer, or
practice of the Sun Technology.
1.3 "Persistence Technology" shall mean software technology, including
but not limited to PowerTier for Enterprise Java Beans, offered for license or
sale by Persistence.
1.4 "Sun Patents" means (a) U.S. Patent Number 5,261,098, (b) any foreign
counterparts, reissues, reexaminations, divisionals, continuations or
continuations-in-part of U.S. Patent Number 5,261,098 claiming and entitled to
priority therefrom, and (c) any of its patents or pending patent applications
which, as of the date of this Agreement, Sun knows would be infringed by the
making, using, leasing, licensing, selling or other transfer, or practice of
the Persistence Technology.
1.5 "Sun Technology" shall mean software technology, including but not
limited to Sun's JavaBlend(TM) software, offered for license or sale by Sun.
1.6 "SunSoft/Persistence Relationship" means matters related to SunSoft's
and Persistence's business relationship commencing in 1994 concerning
Persistence's object-to-relational mapping technology, multi-threading
technology, and caching technology, including but not limited to the parties'
respective obligations under and activities related to the subject matter of
the Technology and Licensing Agreement of December 21, 1994, the Distribution
Agreement of January 31, 1995, including Rick Cattell's participation (if any)
as a member of Persistence's Technical Advisory Board.
2. LICENSE GRANTS.
2.1 License to Persistence Patents for Sun Technology.
a. Subject to payment of the fee specified in Section 3.1, and except
with respect to JavaBlend Source Code Licensing, Persistence hereby grants to
Sun a perpetual, worldwide, non-exclusive, royalty free and fully paid-up
license under the Persistence Patents: (i) to make and use Sun Technology in
any form and to lease, license, sell or otherwise transfer, whether directly or
indirectly, Sun Technology in object code form only; (ii) to practice any
method or process in the manufacture or use of such Sun Technology; and (iii)
to have made or modified Sun Technology in source code or object code form by a
contractor engaged by Sun on a "work for hire" basis. Persistence further
agrees that, except with respect to JavaBlend Source Code Licensing, it will
not enforce any rights it might have under the Persistence Patents against
Sun's object code licensees or sublicensees with respect to their use, lease,
license, sale or other transfer, or practice of methods or processes for the
manufacture, of such Sun Technology.
b. In addition, and except with respect to JavaBlend Source Code
Licensing, Persistence
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hereby grants to Baan a perpetual, worldwide, non-exclusive, royalty free and
fully paid-up license under the Persistence Patents: (i) to make and use
JavaBlend software in any form and to lease, license, sell or otherwise
transfer, whether directly or indirectly, JavaBlend software in object code form
only; (ii) to practice any method or process in the manufacture or use of such
JavaBlend software; and (iii) to have made or modified JavaBlend software in
source code or object code form by a contractor engaged by Baan on a "work for
hire" basis. Persistence further agrees that, except with respect to JavaBlend
Source Code Licensing, it will not enforce any rights it might have under the
Persistence Patents against Baan's object code licensees or sublicensees with
respect to their use, lease, license, sale or other transfer, or practice of
methods or processes for the manufacture, of such JavaBlend software.
2.2 License to Sun Patents for Persistence Technology. In consideration for
the licenses granted by Persistence under this Section 2 and for the mutual
release agreed to under Section 4, Sun hereby grants to Persistence a perpetual,
worldwide, non-exclusive, royalty free and fully paid-up license under the Sun
Patents: (i) to make and use Persistence Technology in any form and to lease,
license, sell or otherwise transfer, whether directly or indirectly, Persistence
Technology in object code form only; (ii) to practice any method or process in
the manufacture or use of such Persistence Technology; and (iii) to have made or
modified Persistence Technology in source code or object code form by a
contractor engaged by Persistence on a "work for hire" basis. Sun further agrees
that it will not enforce any rights it might have under the Sun Patents against
Persistence's object code licensees or sublicensees with respect to their use,
lease, license, sale or other transfer, or practice of methods or processes for
the manufacture, of such Persistence Technology.
2.3 JavaBlend Source Code Licensing. Nothing in this Agreement shall be
construed as granting a license to Sun from Persistence for Sun to engage in
JavaBlend Source Code Licensing. In addition, nothing in this Agreement shall be
construed as an agreement by Sun to refrain from engaging in JavaBlend Source
Code Licensing, or as an admission by Sun that Sun requires a license from
Persistence in order to be able to engage in JavaBlend Source Code Licensing.
However, and without contravening the two sentences immediately above, Sun
agrees that if it anticipates initiating JavaBlend Source Code Licensing, Sun
shall inform Persistence in writing of Sun's intentions no later than thirty
days prior to the first instance of JavaBlend Source Code Licensing. Upon
receipt of such notice, the parties will promptly and in good faith attempt to
negotiate a mutually acceptable license for JavaBlend Source Code Licensing, it
being understood that neither party is obligated to enter into such a license
and that failure to enter into such will not prevent Sun from engaging in
JavaBlend Source Code Licensing.
3. MARKETING COOPERATION.
3.1 One-Time Payment. Within 10 days following execution of this Agreement,
Sun shall make a one-time payment of $[****] to Persistence. Persistence shall
use these funds to promote its PowerTier for Enterprise JavaBeans product and
the Enterprise JavaBeans(TM) component architecture specification.
3.2 Cooperative Marketing Activities. In addition to the payment specified
in Section 3.1, to support Persistence's promotion of its PowerTier for
Enterprise JavaBeans product and the Enterprise JavaBeans component architecture
specification Sun shall provide Persistence with: (i) a waiver of fees charged
in connection with the 100% Pure Java(TM) certification program; (ii) in-
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clusion of demonstration of product in next version of Java Reel CD; (iii)
reference story inclusion in on-line Solutions Guide; and, if this Agreement is
executed before the commencement of Sun's 1998 JavaOne Conference ("JavaOne
1998"); (iv) free space at JavaOne 1998; and (v) support for press announcements
and activities at JavaOne 1998. In addition, (a) subject to each party's consent
to the wording of the announcement, which consent shall not be unreasonably
withheld, the parties shall jointly announce that they have entered into a joint
marketing and technology licensing agreement, and (b) the parties will promptly
enter into good faith negotiations with the objective of executing and
announcing a Technology License Agreement relating to Sun's source code for the
Java Development Kit (JDK), for which Sun will waive the initial upfront license
fee (but not support fees) that would typically be associated with Sun's lowest
level, non-distribution rights, least expensive JDK source code license.
4. MUTUAL RELEASE.
Notwithstanding anything else in this Agreement to the contrary, and except
for Persistence's reservation of all claims arising directly out of JavaBlend
Source Code Licensing (in the event that the parties are unsuccessful in
achieving a mutually agreeable source code license for JavaBlend Source Code
Licensing pursuant to Section 2.3 hereof), each of the parties, on behalf of
itself and its attorneys, agents, officers, shareholders, directors, employees,
subsidiaries, affiliates, divisions, successors and assigns, hereby fully and
forever releases the other party, its attorneys, agents, officers, shareholders,
directors, employees, subsidiaries, affiliates, divisions, successors and
assigns, and customers, of and from any and all suits, debts, liens, contracts,
agreements, promises, losses, costs and expenses (including without limitation
court costs and reasonable attorneys' fees), claims, demands, actions,
obligations, liabilities and damages of every kind and nature whatsoever, in law
or in equity, whether known or unknown, which either party or any person acting
under it, may now have, or claim at any future time to have, arising from, or
based in whole or in part upon, any act, omission, event, transaction, matter or
thing involved, alleged or referred to, directly or indirectly, related to the
SunSoft/Persistence Relationship, the Sun Patents and the Persistence Patents
("Released Matters").
Notwithstanding anything else in this Agreement to the contrary, and except
for Persistence's reservation of all claims arising directly out of JavaBlend
Source Code Licensing (in the event that the parties are unsuccessful in
achieving a mutually agreeable source code license for JavaBlend Source Code
Licensing pursuant to Section 2.3 hereof), the parties specifically covenant
never to institute or to participate in any suit or action, at law or in equity,
against each other by reason of any claim, demand, action or cause of action
described in this Section 4.
5. CALIFORNIA CIVIL CODE SECTION 1542.
It is expressly understood and agreed by Persistence and Sun that the
mutual releases stated in Section 4 are intended to cover and do cover not only
all known damages and losses but any further damages and losses not now known or
anticipated but which may later develop or be discovered arising out of any of
the Released Matters.
Each of the parties understands and acknowledges that he or it is aware of
California Civil Code 1542 which provides as follows:
A general release does not extend to claims which the creditor does
not know
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or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with
the debtor.
Each of the parties expressly waives and relinquishes any rights he or it
may have under Civil Code 1542 or any other statute or common law principle with
a similar effect. In connection with such waiver and relinquishment, Persistence
and Sun acknowledge that they or their attorneys or agents may hereafter
discover claims or facts in addition to or different from those which they now
know or believe to exist with respect to the Released Matters, but that it is
their intention hereby fully, finally and forever to settle and release all of
the Released Matters. In furtherance of this intention, the releases herein
given shall be and remain in effect as full and complete mutual releases
notwithstanding the discovery or existence of any such additional or different
claim or fact.
6. REPRESENTATION BY COUNSEL.
Persistence and Sun acknowledge that they have been represented by counsel
of their choice and this Agreement has been executed with the consent and on the
advice of such legal counsel. Each of them further acknowledges that they and
their counsel have had an adequate opportunity to make whatever investigation or
inquiry they deemed necessary or desirable in connection with the subject matter
of this Agreement prior to the execution thereof.
7. SUCCESSOR AND ASSIGNS.
This Agreement may not be assigned by either party without the prior
written consent of the other party except that either party may assign this
Agreement in the event of a merger or acquisition of all or substantially all of
the assets of the assigning party. In such event, the provisions of this
Agreement and the releases contained herein shall extend to and inure to the
benefit of and be binding upon such assignees, in addition to Persistence and
Sun.
8. ENTIRE AGREEMENT: MODIFICATION.
This Agreement constitutes the entire agreement between the parties
concerning its subject matter and supersedes all prior negotiations and
agreements, whether written or oral, relating to such subject matter. Nothing in
this Agreement shall affect the right of either party to license technology or
otherwise engage in business activities provided that they do not do so in
violation of their obligations hereunder. This Agreement may not be altered,
amended, modified, or otherwise changed except in writing duly executed by the
parties' authorized representatives.
9. PUBLIC COMMENTS.
Each party agrees that it will use all reasonable efforts to confine the
substance of any public comment, oral or written, that it makes regarding the
disputes settled herein to the fact that a mutually acceptable settlement has
been reached, without further characterization of either party's position
regarding the disputes themselves.
10. COUNTERPARTS.
This Settlement Agreement may be executed in counterparts.
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11. GOVERNING LAW.
This Agreement will be governed by the laws of the State of California,
notwithstanding the application of choice of law rules of any jurisdiction to
the contrary.
12. INDEMNIFICATION.
Persistence and Sun each represent and warrant that they have not assigned
or otherwise transferred any right, title or interest in any claim they might
have against each other. Further, Persistence and Sun agree to indemnify and
hold each other forever harmless for any claims, liabilities, demands, damages,
costs and expenses, including attorneys' fees, incurred as a result of any
person or entity asserting any such claim pursuant to any such assignment or
transfer. This indemnity does not require payment as a condition precedent to
recovery under same.
13. SEVERABILITY.
If any provision of this Agreement or the application of any provision of
this Agreement is held by any tribunal of competent jurisdiction to be contrary
to law, the remaining provisions of this Agreement shall remain in full force
and effect and this Agreement shall be interpreted as if such invalid
provision(s) were omitted.
14. HEADINGS.
The paragraph headings contained in this Agreement are provided for
convenience only and shall not be considered in the interpretation and
construction of this Agreement.
15. WAIVER.
The failure of either party at any time to demand strict performance of
this Agreement shall not be deemed a waiver thereof, and each party may at any
time demand strict and complete performance of this Agreement.
16. NOTICES.
All notices must be in writing and delivered either in person or by
certified mail or registered mail, postage prepaid, return receipt requested, to
the person(s) and address specified below. Such notice will be effective upon
receipt.
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Sun: Persistence:
Sun Microsystems, Inc. Persistence Software, Inc.
901 San Antonio Road 1720 South Amphlett Blvd., Suite 300
Palo Alto, California 94043 San Mateo, California 94402
Attn: JavaSoft Legal Department Attn.:
MS: UCUP01-305 ---------------------------------
WHEREFORE, the parties hereby execute this Agreement by and through their
duly authorized representatives, whose signatures appear below.
Sun Microsystems, Inc. Persistence Software, Inc.
By: /s/ Dean Baratz By: /s/ Chris Keene
-------------------------- -----------------------------
Name: Dean Baratz Name: Chris Keene
------------------------ ---------------------------
(Print or Type) (Print or Type)
Title: President, JavaSoft Title: President
----------------------- -------------------------
Date: 3/23/98 Date: 3/23/98
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EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of April
____, 1999, by and between Persistence Software, Inc., a California corporation
(the "Company"), and <<IndemniteeName>> (the "Indemnitee").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers and key employees, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance. The Company and Indemnitee further recognize
the substantial increase in corporate litigation in general, subjecting
directors, officers and key employees to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely
limited. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and agents of the Company may
not be willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee
<PAGE> 2
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, that Indemnitee
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld), in
each case to the extent actually and reasonably incurred by Indemnitee in
connection with the defense or settlement of such action or suit if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company and its stockholders, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudicated by court order or
judgment to be liable to the Company in the performance of Indemnitee's duty to
the Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the
defense of any claim, issue or matter therein, Indemnitee shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
Indemnitee in connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is
intended to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action, suit or proceeding
referred to in Section l(a) or Section 1(b) hereof (including amounts actually
paid in settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in
<PAGE> 3
writing as soon as practicable of any claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company and
shall be given in accordance with the provisions of Section 12(d) below. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for
in Section 1 and this Section 3 shall be made no later than twenty (20) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within twenty (20) days after a written request for
payment thereof has first been received by the Company, Indemnitee may, but need
not, at any time thereafter bring an action against the Company to recover the
unpaid amount of the claim and, subject to Section 11 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Section 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to Section 3(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 3(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel
<PAGE> 4
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes shall be deemed to be
within the purview of Indemnitee's rights and the Company's obligations under
this Agreement. In the event of any change in any applicable law, statute or
rule which narrows the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested members of the Company's
Board of Directors, the General Corporation Law of the State of Delaware, or
otherwise, both as to action in Indemnitee's official capacity and as to action
in another capacity while holding such office. The indemnification provided
under this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though he or she may have
ceased to serve in any such capacity at the time of any action, suit or other
covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise.
<PAGE> 5
For example, the Company and Indemnitee acknowledge that the Securities and
Exchange Commission (the "SEC") has taken the position that indemnification is
not permissible for liabilities arising under certain federal securities laws,
and federal legislation prohibits indemnification for certain ERISA violations.
Indemnitee understands and acknowledges that the Company has undertaken or may
be required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
<PAGE> 6
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any
expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that if Indemnitee is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
11. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee
<PAGE> 7
with respect to such action, unless as a part of such action, the court of
competent jurisdiction determines that each of the material assertions made by
Indemnitee as a basis for such action were not made in good faith or were
frivolous. In the event of an action instituted by or in the name of the Company
under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action
(including with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action the court determines that each of
Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Delaware, without giving effect to principles of conflict of
law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or
permitted to be given under this Agreement shall be in writing and shall be
deemed sufficient when delivered personally or sent by telegram or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, and addressed to the party to be notified at such
party's address as set forth below or as subsequently modified by written
notice.
(e) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and its successors and assigns, and inure to the benefit of
Indemnitee and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of
<PAGE> 8
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company to effectively
bring suit to enforce such rights.
[Signature Page Follows]
<PAGE> 9
The parties hereto have executed this Agreement as of the day and year
set forth on the first page of this Agreement.
PERSISTENCE SOFTWARE, INC.
By:
-------------------------------------
Title:
-------------------------------------
Address: 1720 S. Amphlett Blvd., Third Floor
San Mateo, CA 94402
AGREED TO AND ACCEPTED:
<<IndemniteeName>>
- -------------------------------
(Signature)
Address: <<IndemniteeAddress1>>
<<IndemniteeAddress2>>
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
Persistence Software Limited, a United Kingdom Corporation
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
of Persistence Software, Inc.:
We consent to the use in this Registration Statement on Form S-1 of Persistence
Software, Inc. of our report dated March 2, 1999 (April 21, 1999 as to Note 11)
appearing in the Prospectus, which is part of this Registration Statement, and
of our report dated March 2, 1999 relating to the financial statement schedule
appearing elsewhere in this Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
San Jose, California
April 21, 1999
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0 0
19,859 15,717
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<INCOME-CONTINUING> (1,915) 0
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