<PAGE>
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
--------------------------
ARIBA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0439730
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
1314 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
(408) 543-3800
(Address, including zip code, and telephone number, including
area code, of the Registrant's principal executive offices)
KEITH J. KRACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARIBA, INC.
1314 CHESAPEAKE TERRACE
SUNNYVALE, CALIFORNIA 94089
(408) 543-3800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
BROOKS STOUGH JEFFREY R. VETTER
CRAIG M. SCHMITZ EDWARD M. URSCHEL
DAVID W. KLING PAMELA A. SERGEEFF
STEVEN P. CHEN Fenwick & West LLP
Gunderson Dettmer Stough Two Palo Alto Square
Villeneuve Franklin & Hachigian, LLP Palo Alto, California 94306
155 Constitution Drive (650) 494-0600
Menlo Park, California 94025
(650) 321-2400
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.002 par value per share.......................................... $50,000,000 $13,900
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1999
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.
<PAGE>
SHARES
[LOGO]
COMMON STOCK
-----------------
ARIBA, INC. IS OFFERING SHARES OF COMMON STOCK. THIS IS OUR INITIAL
PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER
SHARE.
-------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "ARBA."
-------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND
PUBLIC COMMISSIONS PROCEEDS TO ARIBA
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ARIBA HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL
SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES OF COMMON STOCK TO PURCHASERS ON
, 1999.
-------------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
MERRILL LYNCH & CO.
, 1999
<PAGE>
EDGAR description of artwork:
Inside cover graphics of prospectus -- These diagrams include illustrations
that depict the process of buying operating resources using the Registrant's
Ariba ORMS products and Ariba.com network. The diagrams and illustrations
indicate that the Ariba ORMS product may be accessed by employees, approvers and
administrative personnel within the buying organization through the use of a
corporate intranet and that these buyers may then interface directly with
suppliers through the Ariba.com network on the Internet. Screen shots of the
Registrant's user interface are included. These diagrams also illustrate how
buyers and supplier conduct commerce through the Ariba.com network on the
Internet. These diagrams also includes logos of customers and supplier partners
of the Registrant.
Inside back cover of prospectus -- This page depicts logos of various
customers, suppliers and strategic partners of the Registrant. The logos are
distributed throughout the page.
Outside back cover of prospectus -- This page depicts the Registrant's
trademarked logo in the middle of the page.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 6
Special Note Regarding Forward-Looking
Statements................................... 18
Use of Proceeds................................ 19
Dividend Policy................................ 19
Capitalization................................. 20
Dilution....................................... 21
Selected Consolidated Financial Data........... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 23
<CAPTION>
PAGE
-----
<S> <C>
Business....................................... 35
Management..................................... 51
Certain Transactions........................... 61
Principal Stockholders......................... 62
Description of Capital Stock................... 64
Shares Eligible for Future Sale................ 67
Underwriters................................... 69
Legal Matters.................................. 71
Experts........................................ 71
Additional Information......................... 71
Index to Consolidated Financial Statements..... F-1
</TABLE>
We were incorporated in Delaware on September 17, 1996. Our principal
executive offices are located at 1314 Chesapeake Terrace, Sunnyvale, California
94089, and our telephone number is (408) 543-3800. The information on our web
site is not incorporated by reference into this prospectus.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock 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.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to inform
yourselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus.
In this prospectus, "Ariba," "we," "us," and "our" refer to Ariba, Inc.
Unless otherwise indicated, all information contained in this prospectus (1)
assumes that the underwriters' over-allotment option is not exercised, (2)
reflects the 2-for-1 split of the common stock effected in March 1999 and the
2-for-1 split of the common stock to be effected prior to the closing of this
offering, (3) except as noted in the consolidated financial statements, gives
effect to the conversion of all outstanding shares of preferred stock into
17,845,176 shares of common stock effective upon the closing of this offering,
and (4) reflects the exercise of a warrant to purchase 524,400 shares of common
stock prior to the closing of this offering.
3
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE
IN THIS PROSPECTUS.
ARIBA
Ariba is a leading provider of intranet- and Internet-based
business-to-business electronic commerce solutions for operating resources.
Operating resources are the goods and services required to operate a company,
such as information technology and telecommunications equipment, professional
services, MRO (Maintenance, Repair and Operations) supplies, facilities and
office equipment, and expense items. Operating resources are often the largest
segment of corporate expenditures, representing approximately 33% of an average
company's revenues, according to Killen & Associates.
Today, most organizations buy operating resources through paper-based
processes that have remained largely unautomated by the information technology
advances of the last 30 years. With the recent widespread adoption of intranets
and the acceptance of the Internet as a business communications platform,
organizations can now automate enterprise-wide and inter-organizational commerce
activities. As a result, Internet-based business-to-business electronic commerce
is expected to grow rapidly from $43 billion in 1998 to $1.3 trillion in 2003,
exceeding business-to-consumer electronic commerce by a factor of nine to one in
2003, according to Forrester Research. This market is expected to create a
substantial demand for intranet- and Internet-based commerce applications.
According to International Data Corporation, the worldwide market for
Internet-based electronic commerce procurement and order management applications
will experience tremendous growth, increasing from $187 million in 1998 to $8.5
billion in 2003.
Ariba is pioneering the use of intranets and the Internet to automate the
procurement and management of operating resources. Our Operating Resource
Management System, Ariba ORMS, enables organizations to automate the procurement
cycle within their intranets, lowering the costs associated with operating
resources. Our recently launched Ariba.com network is a global
business-to-business electronic commerce network for operating resources that
enables buyers and suppliers to automate transactions on the Internet. Together,
Ariba ORMS and Ariba.com combine intranet-based network applications with an
Internet-based network to create a business-to-business electronic commerce
solution for operating resources that benefits both buyers and suppliers. Since
we began marketing Ariba ORMS in March 1997, it has been licensed by large,
multinational industry leaders and public sector organizations including
Chevron, Cisco Systems, FedEx, General Motors, Hewlett-Packard, Philips, The
State of California, U S WEST and Visa.
Our objective is to create the leading Internet-based business-to-business
electronic commerce network for operating resources. Our strategy to achieve
this objective is to leverage the buying power of a large multinational customer
base to attract leading operating resource suppliers to our Ariba.com network.
We believe a growing number of suppliers in our Ariba.com network will in turn
draw more buyers to our network. We also believe this growth cycle will help
create a network effect, where the value to each participant in the network
increases with the addition of each new participant, increasing the overall
value of our Ariba solution.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............................ shares
Common stock to be outstanding after this shares
offering......................................
Use of proceeds................................. For working capital and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... ARBA
</TABLE>
The foregoing information is based on 37,216,996 shares outstanding as of
March 31, 1999. This information does not include (1) 8,105,260 shares of common
stock subject to outstanding options under our 1996 stock plan as of March 31,
1999 and (2) 570,944 shares of common stock issuable upon exercise of
outstanding warrants, 524,400 of which will be exercised prior to the closing of
this offering. After March 31, 1999, we granted options to purchase an
additional 1,872,200 shares of common stock. See "Capitalization,"
"Management--1999 Equity Incentive Plan," "--Employee Stock Purchase Plan,"
"--1999 Directors' Stock Option Plan" and Note 3 of Notes to Consolidated
Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER SIX MONTHS ENDED
30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues............................................................ $ 760 $ 8,363 $ 1,215 $ 16,338
Gross profit (loss)....................................................... (180) 6,825 688 13,579
Operating expenses........................................................ 4,772 18,346 6,255 21,894
Loss from operations...................................................... (4,952) (11,521) (5,567) (8,315)
Net loss.................................................................. (4,679) (10,953) (5,299) (8,128)
Basic and diluted net loss per share...................................... $ (7.31) $ (1.90) $ (1.19) $ (.84)
Weighted average shares used in computing basic and diluted net loss per
share................................................................... 640 5,762 4,456 9,694
Pro forma basic and diluted net loss per share............................ $ (.29)
Shares used in computing pro forma basic and diluted net loss per share... 28,064
</TABLE>
Shares used in computing pro forma basic and diluted net loss per share
include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of preferred stock to common stock, as if the
conversion occurred at the date of original issuance, and the exercise of a
warrant for 524,400 shares of common stock, as if the exercise occurred on
October 1, 1998.
The following table presents actual summary consolidated balance sheet data
at March 31, 1999, and as adjusted consolidated balance sheet data which has
been adjusted to reflect the conversion of convertible preferred stock
outstanding at March 31, 1999 into 17,845,176 shares of common stock, the
exercise of a warrant to purchase 524,400 shares of common stock at an exercise
price of $3.30 per share and the sale of shares of common stock at an
assumed initial public offering price of $ per share and the application of
the estimated net proceeds. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.......................................... $ 21,433 $
Working capital............................................................................ 3,843
Total assets............................................................................... 35,055
Long-term debt, net of current portion..................................................... 646
Total stockholders' equity................................................................. 7,650
</TABLE>
5
<PAGE>
RISK FACTORS
THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. OUR
BUSINESS AND RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED BY ANY OF THE
FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY
OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
ARIBA IS AN EARLY-STAGE COMPANY. OUR LIMITED OPERATING HISTORY MAKES IT
DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS.
Ariba was founded in September 1996 and has a limited operating history. We
began shipping our first product, the Ariba Operating Resource Management
System, or Ariba ORMS, in June 1997 and began to operate our Ariba.com network
in March 1999. Our limited operating history makes an evaluation of our future
prospects very difficult. We will encounter risks and difficulties frequently
encountered by early-stage companies in new and rapidly evolving markets. These
risks include our:
- Limited number of customers that have implemented and are using our Ariba
ORMS products;
- Substantial dependence on our Ariba ORMS software products;
- Need to successfully introduce and grow our Ariba.com network;
- Need to expand our sales and professional services organizations;
- Need to build strategic partnerships and relationships;
- Need to compete in a highly competitive market;
- Need to manage rapidly expanding operations; and
- Need to attract and retain key personnel.
If we do not successfully address these risks, our business would be
seriously harmed.
THE MARKET FOR OUR SOLUTIONS IS AT AN EARLY STAGE. WE NEED A CRITICAL MASS
OF LARGE BUYING ORGANIZATIONS AND THEIR SUPPLIERS TO IMPLEMENT OUR
SOLUTIONS.
The market for Internet-based operating resource applications and services
is at an early stage of development. Our success depends on a significant number
of large buying organizations implementing Ariba ORMS and linking with suppliers
over the Internet through our Ariba.com network. The implementation of Ariba
ORMS by large buying organizations is complex, time consuming and expensive. In
many cases, these organizations must change established business practices and
conduct business in new ways. Our ability to attract additional customers for
our Ariba ORMS products will depend on leveraging our existing customers as
reference accounts. As of March 31, 1999, only 31 customers had licensed our
Ariba ORMS solution and only one customer was buying operating resources through
our Ariba.com network. Accordingly, our operating resource solutions may not
achieve significant market acceptance. Unless a critical mass of large buying
organizations and their suppliers join our Ariba.com network, our solutions may
not achieve widespread market acceptance and our business would be seriously
harmed.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.
We incurred net losses of $4.7 million in fiscal 1997 and $11.0 million in
fiscal 1998. As of March 31, 1999, we had an accumulated deficit of
approximately $23.8 million. We expect to derive substantially all of our
revenues for the foreseeable future from licensing Ariba ORMS. Although these
revenues have grown in recent quarters, we may not be able to sustain these
growth rates. In fact, we may not have any revenue
6
<PAGE>
growth, and our revenues could decline. Over the longer term, we expect to
derive revenues from our Ariba.com network, which is based on an unproven
business model. Moreover, we expect to incur significant sales and marketing,
research and development, and general and administrative expenses. In the
future, we expect to incur substantial non-cash costs relating to the
amortization of deferred compensation which will contribute to our net losses.
As a result, we expect to incur significant losses for the foreseeable future.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE
MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results will
likely fall below the expectations of securities analysts or investors in some
future quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our common stock.
Our quarterly operating results may vary depending on a number of factors,
including:
- Demand for both our Ariba ORMS and Ariba.com network solutions;
- Actions taken by our competitors, including new product introductions and
enhancements;
- Delays or reductions in spending for, or the implementation of,
application software by our potential customers as companies attempt to
stabilize their computer systems prior to January 1, 2000 in order to
reduce the risk of computer system problems associated with the Year 2000;
- Ability to scale our network and operations infrastructure;
- Ability to develop, introduce and market new products and enhancements to
our existing products on a timely basis;
- Changes in our pricing policies or those of our competitors;
- Ability to expand our sales and marketing operations, including hiring
additional sales personnel;
- Size and timing of sales of our products and services;
- Success in maintaining and enhancing existing relationships and developing
new relationships with strategic partners, including systems integrators
and other implementation partners;
- Compensation policies that compensate sales personnel based on achieving
annual quotas;
- Ability to control costs;
- Technological changes in our markets;
- Deferrals of customer orders in anticipation of product enhancements or
new products;
- Customer budget cycles and changes in these budget cycles; and
- General economic factors.
Our quarterly revenues are especially subject to fluctuation because they
depend on the sale of a small number of relatively large orders for our Ariba
ORMS products and related services. As a result, our quarterly operating results
may fluctuate significantly if we are unable to complete one or more substantial
sales in any given quarter. In many cases, we recognize revenues from product
sales on a percentage of completion basis. Accordingly, our ability to recognize
these revenues is subject to delays associated with our customers' ability to
complete the implementation of Ariba ORMS in a timely manner. In some cases,
7
<PAGE>
we recognize revenues on a subscription basis over the life of the subscriptions
specified in the contract, which is typically 12 months. Therefore, if we do not
book a sufficient number of large orders in a particular quarter, our revenues
in future periods could be lower than expected. We have not fully developed our
business model for our Ariba.com network. As this business model evolves, the
potential for fluctuations in our quarterly results could increase. Furthermore,
our quarterly revenues may be affected significantly by other revenue
recognition policies and procedures. These policies and procedures may evolve or
change over time based on applicable accounting standards and how these
standards are interpreted. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We plan to increase our operating expenses to expand our sales and marketing
operations, fund greater levels of research and development, develop new
partnerships, make tenant improvements to our new facilities, increase our
professional services and support capabilities and improve our operational and
financial systems. If our revenues do not increase along with these expenses,
our business, operating results and financial condition could be seriously
harmed and net losses in a given quarter could be even larger than expected.
In addition, because our expense levels are relatively fixed in the near
term and are based in part on expectations of our future revenues, any decline
in our revenues to a level that is below our expectations would have a
disproportionately adverse impact on our operating results.
WE EXPECT TO DEPEND ON OUR ARIBA ORMS SOLUTION FOR SUBSTANTIALLY ALL OF OUR
REVENUES FOR THE FORESEEABLE FUTURE.
Our Ariba ORMS products and related services accounted for all of our
revenues in fiscal 1998 and for the six months ended March 31, 1999. We
anticipate that revenues from our Ariba ORMS products and related services will
continue to constitute substantially all of our revenues for the foreseeable
future. Consequently, a decline in the price of, or demand for, our Ariba ORMS
solution, or its failure to achieve broad market acceptance, would seriously
harm our business.
IMPLEMENTATION OF OUR ARIBA ORMS SOLUTION BY LARGE CUSTOMERS IS COMPLEX,
TIME CONSUMING AND EXPENSIVE. WE FREQUENTLY EXPERIENCE LONG SALES AND
IMPLEMENTATION CYCLES.
Ariba ORMS is an enterprise-wide solution that must be deployed with many
users within a buying organization. Its implementation by large buying
organizations is complex, time consuming and expensive. In many cases, our
customers must change established business practices and conduct business in new
ways. In addition, they must generally consider a wide range of other issues
before committing to purchase our product, including product benefits,
integration, interoperability with existing computer systems, scalability,
functionality and reliability. Furthermore, because we are one of the first
companies to offer an Internet-based operating resource management system, many
customers will be addressing these issues for the first time in the context of
managing and procuring operating resources. As a result, we must educate
potential customers on the use and benefits of our products and services. In
addition, we believe that the purchase of our products is often discretionary
and generally involves a significant commitment of capital and other resources
by a customer. It frequently takes several months to finalize a sale and
requires approval at a number of management levels within the customer
organization. The implementation and deployment of our products requires a
significant commitment of resources by our customers and third-party and/or our
professional services organizations. Because we target large customers, our
sales cycles range from four to 24 months and average approximately nine months.
8
<PAGE>
OUR ARIBA.COM NETWORK WAS ONLY RECENTLY INTRODUCED AND IS AT AN EARLY STAGE
OF DEVELOPMENT AND MARKET ACCEPTANCE. WE HAVE NOT ESTABLISHED OUR PRICING
AND REVENUE MODEL FOR OUR ARIBA.COM NETWORK.
In March 1999, we began operating our Ariba.com network. As of March 31,
1999, only one customer was buying operating resources through our Ariba.com
network from a limited number of online suppliers. Broad and timely acceptance
of our Ariba.com network, which is critical to our future success, is subject to
a number of significant risks. These risks include:
- Operating resource management and procurement on the Internet is a new
market;
- Our network, which we currently host, has limited scalability;
- Our need to enhance the interface between our Ariba ORMS product and our
Ariba.com network;
- Our need to significantly enhance the features and services of our
Ariba.com network to achieve widespread commercial acceptance of our
network; and
- Our need to significantly expand our internal resources to support planned
growth of our Ariba.com network.
Although we expect to derive a significant portion of our long-term future
revenue from our Ariba.com network, we have not yet established our pricing and
revenue model for the services associated with our Ariba.com network. If we are
unable to establish a pricing and revenue model acceptable to our customers, our
Ariba.com network may not be commercially successful. This would seriously harm
our business, particularly if we experience a decline in the growth or growth
rate of revenues from our Ariba ORMS solution.
WE PLAN TO CONTRACT WITH A THIRD PARTY TO EXPAND, HOST, MANAGE AND MAINTAIN
OUR ARIBA.COM NETWORK INFRASTRUCTURE.
We plan to contract with a third party to expand, host, manage and maintain
our Ariba.com network infrastructure. Services provided by the third party will
likely include web server hosting, maintaining communications lines and managing
network data centers. We are engaged in discussions with a large third party to
obtain these services but have not entered into a contract with this party. If
we do not contract with this third party, we would have to obtain similar
services from another provider or perform these functions ourselves. We may not
successfully obtain or perform these services on a timely and cost-effective
basis. If our Ariba.com network infrastructure is successfully completed by a
third party, we will be entirely dependent on that party to manage and maintain
our network infrastructure and to provide security for it.
WE FACE INTENSE COMPETITION. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR
BUSINESS WILL BE SERIOUSLY HARMED.
The market for our solution is intensely competitive, evolving and subject
to rapid technological change. We expect the intensity of competition to
increase in the future. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any one of which
could seriously harm our business. Competitors vary in size and in the scope and
breadth of the products and services offered. We primarily encounter competition
with respect to different aspects of our solution from Captura Software, Clarus,
Commerce One, Concur Technologies, Extensity, GE Information Services,
Intelysis, Netscape Communications and TRADE'ex Electronic Commerce Systems. We
may also encounter competition from several major enterprise software
developers, such as Oracle, PeopleSoft and SAP. In addition, because there are
relatively low barriers to entry in the operating resource management software
market, we expect additional competition from other established and emerging
companies, as the operational resource management software market continues to
develop and expand. For example, third parties that currently help implement
Ariba ORMS could begin to market products and services that
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compete with our own. We could also face competition from companies who
introduce an Internet-based operating resource management solution.
Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources than us, significantly greater name recognition and a larger installed
base of customers. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. In the past, we have lost potential customers to
competitors for various reasons, including lower prices and other incentives not
matched by us. In addition, current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to increase the ability of their products to address customer needs.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. We also expect that
competition will increase as a result of industry consolidations.
We may not be able to compete successfully against our current and future
competitors.
WE EXPECT REVENUES FROM OUR ARIBA ORMS SOLUTION TO BE CONCENTRATED IN A
RELATIVELY SMALL NUMBER OF CUSTOMERS.
In fiscal 1998, five customers accounted for more than 10% of our total
revenues and, in the six months ended March 31, 1999, two customers accounted
for more than 10% of our total revenues. We may continue to derive a significant
portion of our revenues from a relatively small number of customers in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
WE RELY ON THIRD PARTIES TO IMPLEMENT OUR ARIBA ORMS SOLUTION.
We rely, and expect to rely increasingly, on a number of third parties to
implement our Ariba ORMS solution at customer sites. If we are unable to
establish and maintain effective, long-term relationships with our
implementation providers, or if these providers do not meet the needs or
expectations of our customers, our business would be seriously harmed. This
strategy will also require that we develop new relationships with additional
third-party implementation providers to provide these services if the number of
Ariba ORMS implementations continues to increase. Our current implementation
partners are not contractually required to continue to help implement Ariba
ORMS. As a result of the limited resources and capacities of many third-party
implementation providers, we may be unable to establish or maintain
relationships with third parties having sufficient resources to provide the
necessary implementation services to support our needs. If these resources are
unavailable, we will be required to provide these services internally, which
would significantly limit our ability to meet our customers' implementation
needs. A number of our competitors, including Oracle, SAP and PeopleSoft, have
significantly more well-established relationships with these third parties and,
as a result, these third parties may be more likely to recommend competitors'
products and services rather than our own. In addition, we cannot control the
level and quality of service provided by our current and future implementation
partners.
WE DEPEND ON SUPPLIERS FOR THE SUCCESS OF OUR ARIBA.COM NETWORK.
We expect to depend on suppliers joining our Ariba.com network. Any failure
of suppliers to join our Ariba.com network in sufficient and increasing numbers
would make our network less attractive to buyers and consequently other
suppliers. In order to provide buyers on our Ariba.com network an organized
method for accessing operating resources, we rely on suppliers to maintain
web-based catalogs, indexing services and other content aggregation tools. Our
inability to access and index these catalogs and services would result in our
customers having fewer products and services available to them through our
solution, which would adversely affect the perceived usefulness of our Ariba.com
network.
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WE DEPEND ON THE INTRODUCTION OF NEW VERSIONS OF ARIBA ORMS AND ON ENHANCING
THE FUNCTIONALITY AND SERVICES OFFERED BY OUR ARIBA.COM NETWORK.
If we are unable to develop new software products or enhancements to our
existing products on a timely and cost-effective basis, or if new products or
enhancements do not achieve market acceptance, our business would be seriously
harmed. The life cycles of our products are difficult to predict because the
market for our products is new and emerging, and is characterized by rapid
technological change, changing customer needs and evolving industry standards.
The introduction of products employing new technologies and emerging industry
standards could render our existing products or services obsolete and
unmarketable. For example, Ariba ORMS is written in the Java computer language.
If a new software language becomes standard in our industry or is considered
more robust than Java, we may need to rewrite Ariba ORMS in another language in
order to remain competitive.
To be successful, our products and services must keep pace with
technological developments and emerging industry standards, address the
ever-changing and increasingly sophisticated needs of our customers and achieve
market acceptance.
In developing new products and services, we may:
- Fail to develop and market products that respond to technological changes
or evolving industry standards in a timely or cost-effective manner;
- Encounter products, capabilities or technologies developed by others that
render our products and services obsolete or noncompetitive or that
shorten the life cycles of our existing products and services;
- Experience difficulties that could delay or prevent the successful
development, introduction and marketing of these new products and
services; or
- Fail to develop new products and services that adequately meet the
requirements of the marketplace or achieve market acceptance.
WE DEPEND ON THE TIMELY RELEASE OF OUR PRODUCTS.
We may fail to introduce or deliver new potential offerings on a timely
basis or at all. In the past, we have experienced delays in the commencement of
commercial shipments of our new releases. If new releases or potential new
products are delayed or do not achieve market acceptance, we could experience a
delay or loss of revenues and customer frustration. Customers may delay
purchases of Ariba ORMS in anticipation of future releases. If customers defer
material orders of Ariba ORMS in anticipation of new releases or new product
introductions, our business would be seriously harmed.
NEW VERSIONS AND RELEASES OF OUR PRODUCTS MAY CONTAIN ERRORS OR DEFECTS.
Ariba ORMS is complex and, accordingly, may contain undetected errors or
failures when first introduced or as new versions are released. This may result
in loss of, or delay in, market acceptance of our products. We have in the past
discovered software errors in our new releases and new products after their
introduction. In the past, we discovered problems with respect to the ability of
software written in Java to scale to allow for large numbers of concurrent users
of Ariba ORMS. We have experienced delays in release, lost revenues and customer
frustration during the period required to correct these errors. We may in the
future discover errors, including Year 2000 errors and additional scalability
limitations, in new releases or new products after the commencement of
commercial shipments. In addition, a delay in the commercial release of the next
version of Ariba ORMS could also slow the growth of our Ariba.com network.
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WE COULD BE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS AND THIRD PARTY
LIABILITY CLAIMS RELATED TO PRODUCTS AND SERVICES PURCHASED THROUGH OUR
ARIBA.COM NETWORK.
Our customers use our products and services to manage their operating
resources. Any errors, defects or other performance problems could result in
financial or other damages to our customers. A product liability claim brought
against us, even if not successful, would likely be time consuming and costly
and could seriously harm our business. Although our customer license agreements
typically contain provisions designed to limit our exposure to product liability
claims, existing or future laws or unfavorable judicial decisions could negate
these limitation of liability provisions.
We plan to have our Ariba.com network provide our customers with indices of
products that can be purchased from suppliers participating in our Ariba.com
network. The law relating to the liability of providers of listings of products
and services sold over the Internet for errors, defects or other performance
problems with respect to those products and services is currently unsettled. We
will not pre-screen the types of products and services that may be purchased
through our Ariba.com network. Some of these products and services could contain
performance or other problems. We may not successfully avoid civil or criminal
liability for problems related to the products and services sold through our
Ariba.com network. Any claims or litigation could still require expenditures in
terms of management time and other resources to defend ourselves. Liability of
this sort could require us to implement measures to reduce our exposure to this
liability, which may require us, among other things, to expend substantial
resources or to discontinue certain product or service offerings or to take
precautions to ensure that certain products and services are not available
through our Ariba.com network.
WE DEPEND ON OUR KEY PERSONNEL.
Our future performance depends on the continued service of our senior
management, product development and sales personnel, in particular Keith Krach,
our President and Chief Executive Officer. None of these persons, including Mr.
Krach, is bound by an employment agreement, and we do not carry key person life
insurance. The loss of the services of one or more of our key personnel could
seriously harm our business. Our future success also depends on our continuing
ability to attract, hire, train and retain a substantial number of highly
skilled managerial, technical, sales, marketing and customer support personnel.
We are particularly dependent on hiring additional personnel to increase our
direct sales and research and development organizations. In addition, new hires
frequently require extensive training before they achieve desired levels of
productivity. Competition for qualified personnel is intense, and we may fail to
retain our key employees or to attract or retain other highly qualified
personnel.
PROTECTION OF OUR INTELLECTUAL PROPERTY MAY NOT BE ADEQUATE.
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws.
We license rather than sell Ariba ORMS and require our customers to enter
into license agreements, which impose restrictions on their ability to utilize
the software. In addition, we seek to avoid disclosure of our trade secrets,
including but not limited to, requiring those persons with access to our
proprietary information to execute confidentiality agreements with us and
restricting access to our source code. We seek to protect our software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. We cannot assure you that any of our
proprietary rights with respect to our Ariba.com network will be viable or of
value in the future because the validity, enforceability and type of protection
of proprietary rights in Internet-related industries are uncertain and still
evolving.
We have no patents, and none may be issued from our existing patent
application. Our future patents, if any, may be successfully challenged or may
not provide us with any competitive advantages. We may not develop proprietary
products or technologies that are patentable.
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Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.
There has been a substantial amount of litigation in the software industry
and the Internet industry regarding intellectual property rights. It is possible
that in the future, third parties may claim that we or our current or potential
future products infringe their intellectual property. We expect that software
product developers and providers of electronic commerce solutions will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. Any claims, with or without merit, could
be time-consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all, which could seriously harm our business.
We must now, and may in the future have to, license or otherwise obtain
access to intellectual property of third parties. For example, we are currently
dependent on developers' licenses from enterprise resource planning, database,
human resource and other system software vendors in order to ensure compliance
of our Ariba ORMS products with their management systems. We may not be able to
obtain any required third party intellectual property in the future.
IN ORDER TO MANAGE OUR GROWTH AND EXPANSION, WE WILL NEED TO IMPROVE AND
IMPLEMENT NEW SYSTEMS, PROCEDURES AND CONTROLS.
We have recently experienced a period of significant expansion of our
operations that has placed a significant strain upon our management systems and
resources. If we are unable to manage our growth and expansion, our business
will be seriously harmed. In addition, we have recently hired a significant
number of employees and plan to further increase our total headcount. We also
plan to expand the geographic scope of our customer base and operations. This
expansion has resulted and will continue to result in substantial demands on our
management resources. Our ability to compete effectively and to manage future
expansion of our operations, if any, will require us to continue to improve our
financial and management controls, reporting systems and procedures on a timely
basis, and expand, train and manage our employee work force. We are currently
implementing new systems to manage our financial and human resources
infrastructure. We may encounter difficulties in transitioning to the new
enterprise resource planning software system. Even after we implement this
system, our personnel, systems, procedures and controls may be inadequate to
support our future operations.
OUR BUSINESS COULD BE AFFECTED BY YEAR 2000 ISSUES.
The risks posed by Year 2000 issues could adversely affect our business in a
number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information technology
systems nevertheless could be substantially impaired or cease to operate due to
Year 2000 problems. Additionally, we rely on information technology supplied by
third parties, and our participating sellers also are heavily dependent on
information technology systems and on their own third-party vendor systems. Year
2000 problems experienced by us or any of these third parties could materially
adversely affect our business. Additionally, the Internet could face serious
disruptions arising from the Year 2000 problem.
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Many of our customers and potential customers have implemented policies that
prohibit or strongly discourage making changes or additions to their internal
computer systems until after January 1, 2000. We will experience fewer sales if
potential customers who might otherwise purchase our Ariba ORMS product delay
the purchase and implementation of Ariba ORMS until after January 1, 2000 in an
effort to stabilize their internal computer systems in order to cope with the
Year 2000 problem or because their information technology budgets have been
diverted to address Year 2000 issues. If our potential customers delay
purchasing or implementing Ariba ORMS in preparation for the Year 2000 problem,
our business would be seriously harmed. In addition, because the revenues from
some of our customers are recognized on a percentage of completion basis, any
implementation delays by these customers caused by their needs to address Year
2000 issues will defer our ability to recognize this revenue.
We cannot guarantee that any of our participating sellers or other Internet
vendors will be Year 2000 compliant in a timely manner, or that there will not
be significant interoperability problems among information technology systems.
We also cannot guarantee that buyers and suppliers will be able to utilize our
Ariba.com network without serious disruptions arising from the Year 2000
problem. Given the pervasive nature of the Year 2000 problem, we cannot
guarantee that disruptions in other industries and market segments will not
adversely affect our business. Moreover, the costs related to Year 2000
compliance, which thus far have not been material, could ultimately be
significant. In the event that we experience disruptions as a result of the Year
2000 problem, our business could be seriously harmed.
IF WE EXPAND OUR INTERNATIONAL SALES AND MARKETING ACTIVITIES, OUR BUSINESS
WILL BE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.
To be successful, we believe we must expand our international operations and
hire additional international personnel. Therefore, we expect to commit
significant resources to expand our international sales and marketing
activities. If successful, we will be subject to a number of risks associated
with international business activities. These risks generally include:
- Currency exchange rate fluctuations;
- Seasonal fluctuations in purchasing patterns;
- Unexpected changes in regulatory requirements;
- Tariffs, export controls and other trade barriers;
- Longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- Difficulties in managing and staffing international operations;
- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- The burdens of complying with a wide variety of foreign laws;
- The risks related to the recent global economic turbulence and adverse
economic circumstances in Asia; and
- Political instability.
OUR BUSINESS COULD BE AFFECTED AS A RESULT OF ANY FUTURE ACQUISITIONS.
In order to remain competitive, we may find it necessary to acquire
additional businesses, products or technologies. If we identify an appropriate
acquisition candidate, we may not be able to negotiate the terms of the
acquisition successfully, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Further, completing a potential acquisition and integrating an acquired business
will cause significant diversions of management time and resources. If we
consummate one or more significant acquisitions in which the consideration
consists of stock or other
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securities, your equity could be significantly diluted. If we were to proceed
with one or more significant acquisitions in which the consideration included
cash, we could be required to use a substantial portion of our available cash,
including proceeds of this offering, to consummate any acquisition. Acquisition
financing may not be available on favorable terms, or at all. In addition, we
may be required to amortize significant amounts of goodwill and other intangible
assets in connection with future acquisitions, which would seriously harm our
business.
RISKS RELATED TO THE INTERNET INDUSTRY
WE DEPEND ON INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ELECTRONIC
COMMERCE. IF THE USE OF THE INTERNET AND ELECTRONIC COMMERCE DO NOT GROW AS
ANTICIPATED, OUR BUSINESS WILL BE SERIOUSLY HARMED.
Our Ariba.com network depends on the increased acceptance and use of the
Internet as a medium of commerce. Rapid growth in the use of the Internet is a
recent phenomenon. As a result, acceptance and use may not continue to develop
at historical rates and a sufficiently broad base of business customers may not
adopt or continue to use the Internet as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and there exist few proven services and
products.
Our business would be seriously harmed if:
- Use of the Internet, the web and other online services does not continue
to increase or increases more slowly than expected;
- The infrastructure for the Internet, the web and other online services
does not effectively support expansion that may occur; or
- The Internet, the web and other online services do not create a viable
commercial marketplace, inhibiting the development of electronic commerce
and reducing the need for our products and services.
CAPACITY CONSTRAINTS MAY RESTRICT THE USE OF THE INTERNET AS A COMMERCIAL
MARKETPLACE.
The Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons. These include:
- Potentially inadequate development of the necessary communication and
network infrastructure, particularly if rapid growth of the Internet
continues;
- Delayed development of enabling technologies and performance improvements;
- Delays in the development or adoption of new standards and protocols; and
- Increased governmental regulation.
SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
ELECTRONIC COMMERCE.
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Advances
in computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other web sites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the web for commerce and communications.
Anyone who circumvents our security measures could misappropriate proprietary
information or cause interruptions in our services or operations. The Internet
is a public network, and data is sent over this network from many sources. In
the past, computer viruses, software programs that disable or impair computers,
have been distributed and have rapidly spread over the
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Internet. Computer viruses could be introduced into our systems or those of our
customers or suppliers, which could disrupt our Ariba.com network or make it
inaccessible to customers or suppliers. We may be required to expend significant
capital and other resources to protect against the threat of security breaches
or to alleviate problems caused by breaches. To the extent that our activities
may involve the storage and transmission of proprietary information, such as
credit card numbers, security breaches, could expose us to a risk of loss or
litigation and possible liability. Our security measures may be inadequate to
prevent security breaches, and our business would be harmed if we do not prevent
them.
OUR ARIBA.COM NETWORK MAY EXPERIENCE DELAYS AS A RESULT OF HIGH VOLUMES OF
TRAFFIC.
Our Ariba.com network is currently operating on a limited basis. If the
volume of traffic on the web site for our Ariba.com network increases, our
Ariba.com network may in the future experience slower response times or other
problems. In addition, users will depend on Internet service providers,
telecommunications companies and the efficient operation of their computer
networks and other computer equipment for access to our Ariba.com network. Each
of these has experienced significant outages in the past and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems. Any delays in response time or performance problems could cause users
of our Ariba.com network to perceive this service as not functioning properly
and therefore cause them to use other methods to procure their operating
resources.
INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR, OR IMPOSE SALES
AND OTHER TAXES ON THE SALE OF, OUR PRODUCTS AND SERVICES.
As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services. It is possible that legislation
could expose companies involved in electronic commerce to liability, which could
limit the growth of electronic commerce generally. Legislation could dampen the
growth in Internet usage and decrease its acceptance as a communications and
commercial medium. If enacted, these laws, rules or regulations could limit the
market for our products and services.
We do not collect sales or other similar taxes in respect of goods and
services purchased through our Ariba.com network. However, one or more states
may seek to impose sales tax collection obligations on out-of-state companies
like us that engage in or facilitate electronic commerce. A number of proposals
have been made at the state and local level that would impose additional taxes
on the sale of goods and services over the Internet. These proposals, if
adopted, could substantially impair the growth of electronic commerce and could
adversely affect our opportunity to derive financial benefit from such
activities. Moreover, a successful assertion by one or more states or any
foreign country that we should collect sales or other taxes on the exchange of
goods and services through our Ariba.com network could seriously harm our
business.
Legislation limiting the ability of the states to impose taxes on
Internet-based transactions has been proposed in the U.S. Congress. This
legislation could ultimately be enacted into law or this legislation could
contain a limited time period in which this tax moratorium will apply. In the
event that the tax moratorium is imposed for a limited time period, legislation
could be renewed at the end of this period. Failure to enact or renew this
legislation could allow various states to impose taxes on electronic commerce,
and the imposition of these taxes could seriously harm our business.
RISKS RELATED TO THIS OFFERING
WE MAY NEED TO RAISE ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE.
We expect the net proceeds from this offering will be sufficient to meet our
working capital and capital expenditure needs for at least the next 12 months.
After that, we may need to raise additional funds and we cannot be certain that
we will be able to obtain additional financing on favorable terms, if at all. If
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we cannot raise funds on acceptable terms, if and when needed, we may not be
able to develop or enhance our products and services, take advantage of future
opportunities, grow our business or respond to competitive pressures or
unanticipated requirements, which could seriously harm our business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
OUR STOCK PRICE MAY BE VOLATILE.
Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after the offering. We will negotiate and determine the initial public offering
price with the representatives of the underwriters based on several factors.
This price may vary from the market price of the common stock after the
offering. You may be unable to sell your shares of common stock at or above the
offering price. The market price of the common stock may fluctuate significantly
in response to the following factors, some of which are beyond our control:
- Variations in our quarterly operating results;
- Changes in securities analysts' estimates of our financial performance;
- Changes in market valuations of similar companies;
- Announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- Loss of a major customer or failure to complete significant license
transactions;
- Additions or departures of key personnel; and
- Fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of software and Internet-based
companies.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED
STOCK PRICE VOLATILITY.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.
OUR STOCK PRICE COULD BE AFFECTED BY SHARES BECOMING AVAILABLE FOR SALE.
Sales of a substantial number of shares of common stock in the public market
after this offering could depress the market price of the common stock and could
impair our ability to raise capital through the sale of additional equity
securities. For a description of shares of our common stock that are available
for future sale, see "Shares Eligible for Future Sale."
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, SUBSTANTIAL DILUTION.
We expect that the initial public offering price of our common stock will be
substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire common stock at prices significantly below the initial public offering
price. To the extent these outstanding options are ultimately exercised, there
will be further dilution to investors in this offering. See "Dilution."
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be
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beneficial to our stockholders. See "Description of Capital Stock--Antitakeover
Effects of Provisions of the Certificate of Incorporation and Delaware Law."
OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
CONTROL ARIBA.
Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
% of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This could have the effect of delaying or preventing a change of
control of Ariba. See "Principal Stockholders."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology.
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 these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock we are offering will be approximately $ million, or $
million if the underwriters exercise their over-allotment option in full, at an
assumed initial public offering price of $ per share, after deducting
underwriting discounts and commissions and after deducting estimated offering
expenses of $ payable by Ariba. The primary purposes of this offering are
to obtain additional equity capital, create a public market for our common stock
and facilitate future access to public markets.
We intend to use the net proceeds we receive from the offering for working
capital and general corporate purposes. Although we may use a portion of the net
proceeds to acquire technology or businesses that are complementary to our
business, there are no current plans in this regard. Pending their use, we plan
to invest the net proceeds in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
We have not paid any cash dividends since our inception and do not intend to
pay any cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. The
pro forma information reflects (1) the conversion of all shares of convertible
preferred stock outstanding as of March 31, 1999 into 17,845,176 shares of
common stock on completion of this offering and (2) the exercise of a warrant to
purchase 524,400 shares of common stock at an exercise price of $3.30. The as
adjusted information reflects the foregoing as well as the sale of the shares of
common stock in this offering, at an assumed initial public offering price of
$ per share and the receipt of the net proceeds from the sale of common
stock after deducting the estimated expenses and underwriting discounts and
commissions payable by Ariba.
The outstanding share information excludes:
- 8,105,260 shares of common stock issuable on exercise of outstanding
options as of March 31, 1999 with a weighted average exercise price of
$2.00 per share;
- 46,544 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $3.18 per share; and
- 1,380,700 shares of stock reserved for issuance under our stock plan as of
March 31, 1999.
You should read this table with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the related notes. See "Use of Proceeds" and "Management--1999
Equity Incentive Plan," "--Employee Stock Purchase Plan," and "--1999 Directors'
Stock Option Plan."
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MARCH 31, 1999
------------------------------------
<S> <C> <C> <C>
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Long-term liabilities, less current portion.......................... $ 646 $ 646 $ 646
Stockholders' equity:
Convertible preferred stock, $.002 par value per share,
actual--10,000,000 shares authorized, 4,461,294 shares issued and
outstanding; pro forma and as adjusted-- 20,000,000 shares
authorized, no shares issued and outstanding..................... 9 -- --
Common stock, $.002 par value per share, actual--
80,000,000 shares authorized, 19,371,820 shares issued and
outstanding; pro forma--200,000,000 shares authorized, 37,741,396
shares issued and outstanding; as adjusted-- 200,000,000 shares
authorized, shares issued and outstanding.................. 39 75
Additional paid-in capital......................................... 49,339 51,042
Deferred stock-based compensation.................................. (17,942) (17,942) (17,942)
Accumulated other comprehensive loss............................... (35) (35) (35)
Accumulated deficit................................................ (23,760) (23,760) (23,760)
Total stockholders' equity....................................... 7,650 9,380
---------- ----------- -----------
Total capitalization........................................... $ 8,296 $ 10,026 $
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
20
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999 was $9,380,000 or approximately $.25 per share. Pro forma net tangible book
value per share represents the amount of our stockholders' equity, less
intangible assets, divided by 37,741,396 shares of common stock outstanding
after giving effect to the conversion of all outstanding shares of preferred
stock into shares of common stock upon completion of this offering and the
exercise of a warrant to purchase 524,400 shares of common stock at an exercise
price of $3.30.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering made hereby and the pro forma net tangible book value per
share of common stock immediately after completion of this offering. After
giving effect to the sale by us of shares of common stock in this offering
at an assumed initial offering price of $ per share, and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses and the application of the estimated net proceeds, our pro forma net
tangible book value as of March 31, 1999, would have been $ , or $ per
share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to purchasers of common stock in this
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................... $
---------
Pro forma net tangible book value per share as of March 31, 1999............ $ .25
---------
Increase per share attributable to new investors............................
---------
Pro forma net tangible book value per share after this offering...............
---------
Net tangible book value dilution per share to new investors................... $
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis, as of March 31, 1999,
the number of shares of common stock, purchased from Ariba, the total
consideration paid or to be paid, and the average price per share paid or to be
paid by existing stockholders and by new investors of an assumed initial
offering price of $ per share, before deducting the estimated expenses and
underwriting discounts and commissions payable by Ariba:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... 37,741,396% $ 27,579,000% $ .73
New stockholders...............................
------------ --------- ------------- ---------
Total...................................... 100.0% $ 100.0%
------------ --------- ------------- ---------
------------ --------- ------------- ---------
</TABLE>
As of March 31, 1999, there were options outstanding to purchase a total of
8,105,260 shares of common stock at a weighted average exercise price of $2.00
per share under our 1996 Stock Plan. In addition, as of March 31, 1999, there
were outstanding warrants to purchase a total of 570,944 shares of common stock
at a weighted average exercise price of $3.29 per share, 524,400 of which will
be exercised prior to the closing of this offering. After March 31, 1999, we
increased the number of shares reserved for issuance under our 1996 Stock Plan
by 2,600,000 shares and granted options to purchase an additional 1,872,200
shares of common stock. To the extent outstanding options or warrants are
exercised, there will be further dilution to new investors. See Note 3 of Notes
to Consolidated Financial Statements.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to the
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are included elsewhere in
this prospectus. The consolidated statement of operations data for each of the
two years in the period ended September 30, 1998, and the consolidated balance
sheet data at September 30, 1997 and 1998, are derived from our consolidated
financial statements that have been audited by KPMG LLP, independent auditors,
and are included elsewhere in this prospectus. The consolidated balance sheet
data as of March 31, 1999 and the consolidated statement of operations data for
the six months ended March 31, 1998 and 1999 are derived from unaudited
consolidated financial statements included elsewhere in this prospectus and
include, in the opinion of management, all adjustments consisting only of normal
recurring adjustments, that we consider necessary for the fair presentation of
our financial position and results of operations for those periods.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License.................................................................. $ 630 $ 6,040 $ 807 $ 10,500
Maintenance and service.................................................. 130 2,323 408 5,838
--------- --------- --------- ---------
Total revenues......................................................... 760 8,363 1,215 16,338
--------- --------- --------- ---------
Cost of revenues:
License.................................................................. 13 165 17 250
Maintenance and service.................................................. 927 1,373 510 2,509
--------- --------- --------- ---------
Total cost of revenues................................................. 940 1,538 527 2,759
--------- --------- --------- ---------
Gross profit (loss)........................................................ (180) 6,825 688 13,579
--------- --------- --------- ---------
Operating expenses:
Sales and marketing...................................................... 2,235 10,311 3,333 11,302
Research and development................................................. 1,899 4,499 1,963 3,849
General and administrative............................................... 588 2,580 880 2,698
Amortization of stock-based compensation................................. 50 956 79 4,045
--------- --------- --------- ---------
Total operating expenses............................................... 4,772 18,346 6,255 21,894
--------- --------- --------- ---------
Loss from operations....................................................... (4,952) (11,521) (5,567) (8,315)
Other income, net.......................................................... 273 568 268 187
--------- --------- --------- ---------
Net loss................................................................... $ (4,679) $ (10,953) $ (5,299) $ (8,128)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted net loss per share....................................... $ (7.31) $ (1.90) $ (1.19) $ (.84)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares used in computing basic and diluted net loss per
share(1)................................................................. 640 5,762 4,456 9,694
--------- --------- --------- ---------
--------- --------- --------- ---------
Pro forma basic and diluted net loss per share............................. $ (.29)
---------
---------
Shares used in computing pro forma basic and diluted net loss per
share(2)................................................................. 28,064
---------
---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................................. $ 15,471 $ 13,932 $ 21,433
Working capital.................................................................... 13,685 8,151 3,843
Total assets....................................................................... 16,800 19,242 35,055
Long-term liabilities.............................................................. 140 647 646
Accumulated deficit................................................................ (4,679) (15,632) (23,760)
Total stockholders' equity......................................................... 14,517 9,959 7,650
</TABLE>
- ------------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used to compute basic and
diluted net loss per share.
(2) Shares used in computing pro forma basic and diluted net loss per share
include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of our convertible preferred stock to common
stock, as if the conversion occurred at the date of original issuance and
the exercise of a warrant for 524,400 shares of common stock, as if the
exercise occurred on October 1, 1998.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF ARIBA SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED
FINANCIAL DATA" AND ARIBA'S CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS.
THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
Ariba is a leading provider of intranet- and Internet-based business to
business electronic commerce solutions for operating resources. We were founded
in September 1996 and from that date through March 1997 were in the development
stage, conducting research and developing our initial products. In March 1997,
we began selling our Ariba ORMS products and related services and currently sell
them primarily in the United States, and to a lesser extent in Europe, through
our direct sales force.
Through March 31, 1999, our revenues have been principally derived from
licenses of our Ariba ORMS products, maintenance and support contracts and from
the delivery of implementation consulting and training services. Customers who
license our Ariba ORMS products also generally purchase maintenance contracts
which provide software upgrades and technical support over a stated term, which
is usually a twelve month period. Customers may purchase implementation services
from us, but we expect to increasingly rely on third-party consulting
organizations to deliver these services directly to our customers. We also offer
fee-based training services to our customers.
On October 1, 1997, we adopted Statement of Position, or SOP, 97-2, SOFTWARE
REVENUE RECOGNITION, which supersedes SOP 91-1, SOFTWARE REVENUE RECOGNITION.
The adoption of SOP 97-2 did not have a material effect on our operating
results. SOP 97-2 generally requires revenues earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. Revenue allocated to software licenses is
generally recognized upon delivery of the products or ratably over a contractual
period if unspecified software products are to be delivered during that period.
Starting in fiscal 1999, our standard license agreement provides customers the
right to future unspecified software licenses. Accordingly, payments received
from our customers upon the signing of these license agreements are deferred,
and the revenue is recognized ratably over the contract period. Revenue
allocated to maintenance is recognized ratably over the maintenance term and
revenue allocated to training and other service elements is recognized as the
services are performed.
When we manage the implementation process for our customers, the services
are considered essential to the functionality of the software products.
Accordingly, both the software license revenue and service revenue is recognized
using the percentage of completion method in accordance with the provisions of
SOP 81-1, ACCOUNTING FOR PERFORMANCE OF CONSTRUCTION TYPE AND CERTAIN PRODUCTION
TYPE CONTRACTS. The implementation of our products can take several months or
more depending on the objectives of the customers, the complexity of the
customers' information technology environments and the resources directed by the
customers to the implementation projects.
Customers who license our software products receive a server capacity
license, one or more of the Ariba ORMS modules and adapters to interface with
financial, human resource and other existing enterprise systems. The fee for the
server capacity license is based on the customer's estimated annual volume of
line items of purchasing transactions. The license fees for the software modules
and adapters consist of individual prices for each module or adapter.
The volume licensing of the server capacity allows customers to scale the
total cost of their purchase of our Ariba ORMS products to their needs. The
server capacity license entitles customers to execute the
23
<PAGE>
licensed volume of line items of purchasing transactions during any annual
period following their purchase of the server license. Ariba's customers
generally purchase estimated server capacity at the time of the purchase of the
server license. Following the initial implementation of Ariba ORMS, and based on
the reporting and analysis tools available through Ariba ORMS, our customers are
able to understand their annual transaction volume more fully. Customers who
exceed their estimated volume can purchase additional server capacity. However,
there are no recurring annual license fees. To date, three customers have
purchased additional annual server capacity licenses.
Our cost of license revenues include royalties due to third parties for
integrated technology, the cost of manuals and product documentation, production
media used to deliver our products and shipping costs, including the costs
associated with the electronic transmission of software to new customers. Our
cost of maintenance and service revenues includes salaries and related expenses
for our customer support, implementation and training services organizations,
costs of third parties contracted to provide consulting services to customers
and an allocation of our facilities, communications and depreciation expenses.
Our operating expenses are classified into three general categories: sales
and marketing, research and development and general and administrative. We
classify all charges to these operating expense categories based on the nature
of the expenditures. Although each category includes expenses that are unique to
the category type, there are commonly recurring expenditures that are typically
included in these categories in our operating expenses, such as salaries,
employee benefits, incentive compensation, bonuses, sales commissions, travel
and entertainment costs, telephone, communication, rent and facilities costs,
and third-party professional services fees. The sales and marketing category of
operating expenses includes expenditures specific to the marketing group, such
as public relations and advertising, trade shows, marketing collateral materials
and customer advisory council meetings.
We allocate the total costs for overhead and facilities to each of the
functional areas that use the overhead and facilities services based on their
headcount. These allocated charges include facility rent for the corporate
office, communication charges and depreciation expense for office furniture and
equipment.
In connection with the granting of stock options to our employees, we
recorded deferred stock-based compensation totaling approximately $22.4 million
as of March 31, 1999. This amount represents the difference between the exercise
price and the deemed fair value of our common stock for accounting purposes on
the date these stock options were granted. This amount is included as a
component of stockholders' equity and is being amortized on an accelerated basis
by charges to operations over the vesting period of the options, consistent with
the method described in Financial Accounting Standards Board Interpretation No.
28. During fiscal 1998, we recorded $830,000 of stock-based compensation
amortization expense and, during the six months ended March 31, 1999, we
recorded $3.9 million of stock-based compensation amortization expense. The
amortization of the remaining deferred stock-based compensation will result in
additional charges to operations through fiscal 2003. The amortization of
stock-based compensation is classified as a separate component of operating
expenses in our consolidated statement of operations.
Although revenues consistently increased from quarter to quarter, we
incurred significant costs to develop our technology and products and to recruit
and train personnel for our engineering, sales, marketing, professional services
and administration departments. As a result, we incurred significant losses
since inception, and, as of March 31, 1999, had an accumulated deficit of $23.8
million. We believe our success is contingent on increasing our customer base,
developing our Ariba ORMS products and developing our Ariba.com network. We
intend to continue to invest heavily in sales, marketing and research and
development. We therefore expect to continue to incur substantial operating
losses for the foreseeable future.
We had 232 full-time employees as of March 31, 1999 and intend to hire a
significant number of employees in the future. This expansion places significant
demands on our management and operational resources. To manage this rapid growth
and increased demand, we must invest in and implement scalable
24
<PAGE>
operational systems, procedures and controls. We must also be able to recruit
qualified candidates to manage our expanding operations. We expect future
expansion to continue to challenge our ability to hire, train, manage and retain
our employees.
Our limited operating history makes the prediction of future operating
results very difficult. We believe that period-to-period comparisons of
operating results should not be relied upon as predictive of future performance.
The prospects must be considered in light of the risks, expenses and
difficulties encountered by companies at an early state of development,
particularly companies in new and rapidly evolving markets. We may not be
successful in addressing such risks and difficulties. Although we have
experienced significant percentage growth in revenues in recent periods, we do
not believe that prior growth rates are sustainable or indicative of future
operating results.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth consolidated statement of operations data for
each of the six quarters ended March 31, 1999, as well as the percentage of our
total revenues represented by each item. This information has been derived from
our unaudited consolidated financial statements. The unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements contained in this prospectus and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of such information. You should read this
information in conjunction with our annual audited consolidated financial
statements and related notes appearing elsewhere in this prospectus. You should
not draw any conclusions about our future results from the results of operations
for any quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1998 1998 1998 1998 1999
-------- -------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License....................................................... $ 362 $ 445 $ 1,693 $ 3,540 $ 4,827 $ 5,673
Maintenance and service....................................... 126 282 770 1,145 2,025 3,813
-------- -------- -------- --------- -------- ---------
Total revenues.............................................. 488 727 2,463 4,685 6,852 9,486
-------- -------- -------- --------- -------- ---------
Cost of revenues:
License....................................................... 4 13 87 61 53 197
Maintenance and service....................................... 333 177 362 501 902 1,607
-------- -------- -------- --------- -------- ---------
Total cost of revenues...................................... 337 190 449 562 955 1,804
-------- -------- -------- --------- -------- ---------
Gross profit.................................................... 151 537 2,014 4,123 5,897 7,682
Operating expenses:
Sales and marketing........................................... 1,521 1,812 3,040 3,938 4,399 6,903
Research and development...................................... 919 1,044 1,197 1,339 1,649 2,200
General and administrative.................................... 392 488 551 1,149 1,201 1,497
Amortization of stock-based compensation...................... 13 66 404 473 1,113 2,932
-------- -------- -------- --------- -------- ---------
Total operating expenses.................................... 2,845 3,410 5,192 6,899 8,362 13,532
-------- -------- -------- --------- -------- ---------
Loss from operations............................................ (2,694) (2,873) (3,178) (2,776) (2,465) (5,850)
Other income, net............................................... 174 94 151 149 106 81
-------- -------- -------- --------- -------- ---------
Net loss........................................................ $(2,520) $(2,779) $(3,027) $(2,627) $(2,359) $(5,769)
-------- -------- -------- --------- -------- ---------
-------- -------- -------- --------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1998 1998 1998 1998 1999
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License....................................................... 74.2% 61.2% 68.7% 75.6% 70.4% 59.8%
Maintenance and service....................................... 25.8 38.8 31.3 24.4 29.6 40.2
-------- -------- -------- --------- -------- ---------
Total revenues.............................................. 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- --------- -------- ---------
Cost of revenues:
License....................................................... .8 1.8 3.5 1.3 .8 2.1
Maintenance and service....................................... 68.2 24.4 14.7 10.7 13.2 16.9
-------- -------- -------- --------- -------- ---------
Total cost of revenues...................................... 69.1 26.2 18.2 12.0 13.9 19.1
-------- -------- -------- --------- -------- ---------
Gross profit.................................................... 31.0 73.8 81.8 88.0 86.1 80.9
Operating expenses:
Sales and marketing........................................... 311.7 249.2 123.4 84.1 64.2 72.8
Research and development...................................... 188.3 143.6 48.6 28.6 24.1 23.2
General and administrative.................................... 80.3 67.1 22.4 24.5 17.5 15.8
Amortization of stock-based compensation...................... 2.7 9.1 16.4 10.1 16.2 30.9
-------- -------- -------- --------- -------- ---------
Total operating expenses.................................... 583.0 469.0 210.8 147.3 122.0 142.7
-------- -------- -------- --------- -------- ---------
Loss from operations............................................ (552.0) (395.2) (129.0) (59.3) (36.1) (61.8)
Other income, net............................................... 35.7 12.9 6.1 3.2 1.5 .9
-------- -------- -------- --------- -------- ---------
Net loss........................................................ (516.3)% (382.3)% (122.9)% (56.1)% (34.4)% (60.8)%
-------- -------- -------- --------- -------- ---------
-------- -------- -------- --------- -------- ---------
</TABLE>
26
<PAGE>
Our quarterly operating results are expected to vary significantly from
quarter to quarter and are difficult or impossible to predict.
SIX QUARTERS ENDED MARCH 31, 1999
REVENUES
LICENSE. Our license revenues increased in each of the six quarters ended
March 31, 1999. The continuous increases resulted from the sale of new licenses
of our Ariba ORMS products and the implementation of our Ariba ORMS products at
existing customers.
MAINTENANCE AND SERVICE. Our maintenance and service revenues also
increased in each of the six quarters ended March 31, 1999. During this period
of time we were directly involved in the implementation process at most of our
initial customers' locations and were involved in an advisory capacity with all
of our new customers. Our service revenues grew as the number of active
implementations increased during this six quarter period. Our maintenance
revenues grew in each quarter during the six quarters ended March 31, 1999, as
the revenues from the maintenance contracts that we sold to our growing customer
base were recognized over the period of the maintenance contracts.
COST OF REVENUES
LICENSE. As our Ariba ORMS products were being shipped to new customers, we
incurred royalty costs payable to third-party software developers. Consequently,
our cost of license revenues increased beginning in the fourth quarter of fiscal
1997. In the second quarter of fiscal 1998, we licensed certain report writing
technology from a third-party software developer. This technology was integrated
into our product releases and product upgrades beginning in June 1998. At that
time, we shipped upgrades with this new technology to all of our previous
customers and incurred royalty costs for those shipments. As a result, our cost
of license revenues in the third quarter of fiscal 1998 was higher than the
fourth quarter of that year.
MAINTENANCE AND SERVICE. Beginning in the second quarter of fiscal 1997, we
began to hire implementation and technical support personnel. In each subsequent
quarter, we hired additional implementation and technical support personnel. In
the third quarter of fiscal 1998, we began to hire training personnel to provide
training services to customers and third-party implementation partners. As a
direct result of additional maintenance and service personnel, our costs of
maintenance and service revenues have been increasing in each quarter after the
second quarter of fiscal 1997.
GROSS PROFIT
Our gross profit increased in each of the six quarters ended March 31, 1999.
The increases were primarily due to the increase in our customer base and the
incremental amounts of revenues that were recognized in each quarter.
OPERATING EXPENSES
SALES AND MARKETING. Our sales and marketing expenses increased in each of
the six quarters ended March 31, 1999. The increases are attributable to
increased sales commissions, expanded marketing programs for trade shows and
customer advisory council meetings, the expansion of our regional sales office
and international subsidiary locations, and the hiring of additional marketing
and sales personnel.
RESEARCH AND DEVELOPMENT. Our research and development expenses
consistently increased in each quarter during the six quarters ended March 31,
1999. Personnel costs are the largest component of this expense category. During
this period of time, we have consistently increased the number of research and
development personnel to develop subsequent releases of our Ariba ORMS products.
We primarily hire these people from Silicon Valley. The market for qualified
people in this area is competitive, and costs associated with finding and
retaining qualified personnel are high. The increased number of personnel and
27
<PAGE>
the increased cost per person have contributed to our consistent increases in
research and development expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
in each of the six quarters ended March 31, 1999, as a result of the addition of
finance, information technology, legal and administrative personnel and the
purchase and implementation of our financial and human resource system
infrastructure.
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data for
each of the comparative periods indicated as a percentage of total revenues.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
--------- --------- --------- ---------
Revenues:
License............................................................... 82.9% 72.2% 66.4% 64.3%
Maintenance and service............................................... 17.1 27.8 33.6 35.7
--------- --------- --------- ---------
Total revenues...................................................... 100.0 100.0 100.0 100.0
--------- --------- --------- ---------
Cost of revenues:
License............................................................... 1.7 2.0 1.4 1.5
Maintenance and service............................................... 122.0 16.4 42.0 15.4
--------- --------- --------- ---------
Total cost of revenues.............................................. 123.7 18.4 43.4 16.9
--------- --------- --------- ---------
Gross profit (loss)..................................................... (23.7) 81.6 56.6 83.1
Operating expenses:
Sales and marketing................................................... 294.1 123.3 274.3 69.2
Research and development.............................................. 249.8 53.8 161.6 23.6
General and administrative............................................ 77.4 30.9 72.4 16.5
Amortization of stock-based compensation.............................. 6.6 11.4 6.5 24.8
--------- --------- --------- ---------
Total operating expenses............................................ 627.9 219.4 514.8 134.0
--------- --------- --------- ---------
Loss from operations.................................................... (651.6) (137.8) (458.2) (50.9)
Other income, net....................................................... 35.9 6.8 22.1 1.1
--------- --------- --------- ---------
Net loss................................................................ (615.7)% (131.0)% (436.1)% (49.8)%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED MARCH 31, 1998 AND 1999
REVENUES
LICENSE. License revenues increased from $807,000 for the six months ended
March 31, 1998 to $10.5 million for the six months ended March 31, 1999. This
increase is attributable to a larger number of customers and implementations of
our Ariba ORMS products.
MAINTENANCE AND SERVICE. Maintenance and service revenues increased from
$408,000 for the six months ended March 31, 1998 to $5.8 million for the six
months ended March 31, 1999. This increase is attributable to increases in the
number of active customer implementations over the previous period and a larger
number of maintenance contracts.
TOTAL REVENUES. During the six months ended March 31, 1998, six customers
accounted for more than 10% of total revenues, and, in the six months ended
March 31, 1999, two customers accounted for more than 10% of revenues. Revenues
from international sales were insignificant for the six months ended
28
<PAGE>
March 31, 1998 and $1.1 million for the six months ended March 31, 1999. Our
international revenues during the six months ended March 31, 1999 were derived
from sales in Canada and The Netherlands.
COST OF REVENUES
LICENSE. Cost of license revenues increased from $17,000 for the six months
ended March 31, 1998 to $250,000 for the six months ended March 31, 1999. This
increase is attributable to royalties and packaging costs for shipments to new
customers and shipments of product updates to existing customers.
MAINTENANCE AND SERVICE. Cost of maintenance and service revenues increased
from $510,000 for the six months ended March 31, 1998 to $2.5 million for the
six months ended March 31, 1999. This increase is primarily attributable to
increases in the number of implementation, training and technical support
personnel required to support our growing customer base.
GROSS PROFIT
Gross profit increased from $688,000 for the six months ended March 31, 1998
to $13.6 million for the six months ended March 31, 1999. The increase is
attributable to the growth in our customer base, which contributed to increased
revenues from software licenses, implementation and maintenance services.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased from $3.3
million for the six months ended March 31, 1998 to $11.3 million for the six
months ended March 31, 1999. The increase in the total amount of sales and
marketing expenses is attributable to increased sales commissions, an increase
in the number of sales and marketing employees and increases in marketing
program spending. We believe these expenses will continue to increase in
absolute dollar amounts in future periods as we expect to continue to expand our
sales and marketing efforts.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$2.0 million for the six months ended March 31, 1998 to $3.8 million for the six
months ended March 31, 1999. The increase in the total amount of research and
development expenses is attributable to increases in the number of research and
development personnel. To date, all software development costs have been
expensed in the period incurred. We believe that continued investment in
research and development is critical to attaining our strategic objectives, and,
as a result, we expect research and development expenses to increase
significantly in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $880,000 for the six months ended March 31, 1998 to $2.7 million for the
six months ended March 31, 1999. This increase is attributable to a growing
number of administrative employees, increased facility costs from the expanded
facility required for the total incremental company headcount, hiring costs for
new employees, increased communication costs particularly to remote offices, the
implementation costs to install our financial and human resource systems
infrastructure and professional fees. We believe general and administrative
expenses will increase in absolute dollars, as we expect to add personnel to
support our expanding operations, incur additional costs related to the growth
of our business, and assume the responsibilities of a public company.
OTHER INCOME, NET
Other income, net decreased from $268,000 for the six months ended March 31,
1998 to $187,000 for the six months ended March 31, 1999. This decrease is
attributable to increases in interest expense during the six months ended March
31, 1999 over the same period in the previous year. This interest expense
results from capital equipment loans used to purchase computer equipment and
office furniture and equipment. Other income, net consists of interest income,
interest expense and other non-operating expenses.
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FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1998
REVENUES
LICENSE. License revenues increased from $630,000 in fiscal 1997 to $6.0
million in fiscal 1998. This increase was attributable to new customers and
customer implementations of our Ariba ORMS products at a number of existing
customers' locations. During fiscal 1997, three customers accounted for more
than 10% of total revenues and during fiscal 1998, five customers accounted for
more than 10% of total revenues.
MAINTENANCE AND SERVICE. Maintenance and service revenues increased from
$130,000 in fiscal 1997 to $2.3 million in fiscal 1998. This increase is
attributable to increases in the number of active customer implementations over
the previous year and an increase in the number of customers who purchased
maintenance contracts.
COST OF REVENUES
LICENSE. Cost of license revenues increased from $13,000 in fiscal 1997 to
$165,000 in fiscal 1998. This increase is attributable to royalties and
packaging costs for shipments to new customers and shipments of product updates
to existing customers.
MAINTENANCE AND SERVICE. Cost of maintenance and service revenues increased
from $927,000 in fiscal 1997 to $1.4 million in fiscal 1998. This increase is
attributable to increases in the number of implementation, training and
technical support employees required to support a larger number of customers.
GROSS PROFIT
We incurred a gross loss of $180,000 in fiscal 1997, and we earned a gross
profit of $6.8 million in fiscal 1998. This increase is attributable to a
greater amount of revenues from our growing customer base and the accrual of
anticipated losses from implementation projects in fiscal 1997 and in the first
quarter of fiscal 1998. During this period of time we entered into fixed-fee
implementation service contracts with certain customers. Fixed-fee
implementation projects can be unprofitable because of the scope of the work and
the amount of changes that can occur after the project begins. In accordance
with the provisions of SOP 81-1, ACCOUNTING FOR PERFORMANCE OF CONSTRUCTION TYPE
AND CERTAIN PRODUCTION TYPE CONTRACTS, whenever we anticipate a loss from an
implementation agreement we accrue for the estimated amount of the loss. We
believed that these fixed-fee projects would be unprofitable and accordingly
accrued for such losses.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased from $2.2
million in fiscal 1997 to $10.3 million in fiscal 1998. The increase is
attributable to increased sales commissions, a larger number of sales and
marketing employees and increases in marketing program spending.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$1.9 million in fiscal 1997 to $4.5 million in fiscal 1998. This increase is
attributable to the growing number of research and development personnel.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $588,000 in fiscal 1997 to $2.6 million in fiscal 1998. This increase is
attributable to a growing number of administrative personnel, increased facility
costs for the expanded facility required for the total incremental company
headcount, hiring costs for new employees, increased communication costs
particularly to remote offices, the implementation costs to install our
financial and human resource systems infrastructure and professional fees.
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OTHER INCOME, NET
Other income, net increased from $273,000 in fiscal 1997 to $568,000 in
fiscal 1998. This is attributable to an increase in interest income on our
deposits in our operating and investment accounts.
PROVISION FOR INCOME TAXES
We incurred operating losses for all periods from inception through March
31, 1999, and therefore have not recorded a provision for income taxes. We have
recorded a valuation allowance for the full amount of our net deferred tax
assets, as the future realization of the tax benefit is not currently likely.
As of September 30, 1998, we had net operating loss carry-forwards for
federal tax purposes of approximately $11.5 million and for state tax purposes
of approximately $8.3 million. These federal and state tax loss carry-forwards
are available to reduce future taxable income and expire at various dates into
fiscal 2012. Under the provisions of the Internal Revenue Code, certain
substantial changes in our ownership may limit the amount of net operating loss
carry-forwards that could be utilized annually in the future to offset taxable
income.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through private sales of
preferred stock, with net proceeds of $23.2 million, bank loans and equipment
leases. As of March 31, 1999, we had $21.4 million in cash, cash equivalents and
short-term investments, and $3.8 million in working capital.
Net cash used in operating activities was $3.1 million in fiscal 1997 and
$4.9 million in fiscal 1998. Net cash from operating activities was $10.0
million in the six months ended March 31, 1999. Net cash flows from operating
activities in each period reflect increasing net losses and, to a lesser extent,
accounts receivable offset in part by increases in accrued compensation and
liabilities. Net cash from operating activities in the six months ended March
31, 1999 reflects $14.4 million of deferred revenue from customer payments that
were not recognized as revenue.
Net cash used in investing activities was $1.0 million in fiscal 1997, $6.5
million in fiscal 1998 and $4.1 million in the six months ended March 31, 1999.
Cash used in investing activities reflects purchases of property and equipment
in each period, purchases of short-term investments in fiscal 1998 and in the
six months ended March 31, 1999, and proceeds from the sale of short-term
investments in the six months ended March 31, 1999.
Net cash from financing activities was $19.5 million in fiscal 1997, $4.2
million in fiscal 1998, and $374,000 in the six months ended March 31, 1999.
These cash flows reflect primarily proceeds from private sales of preferred
stock.
Capital expenditures, including capital leases, were $995,000 in fiscal
1997, $2.0 million in fiscal 1998, and $2.4 million in the six months ended
March 31, 1999. Our capital expenditures consisted of purchases of operating
resources to manage our operations, including computer hardware and software,
office furniture and equipment and leasehold improvements. We expect that our
capital expenditures will continue to increase in the future. Since inception,
we have generally funded capital expenditures either through the use of working
capital or with capital leases. In connection with the relocation of our
headquarters, we are planning to make approximately $8.0 million in leasehold
improvements. We will also need to purchase additional operating resources. We
intend to enter into a loan agreement to finance these commitments. To the
extent we are unable to secure this financing, we may be required to apply a
portion of the proceeds from this offering toward these expenditures.
We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. We believe that the net
proceeds from the sale of the common stock in this offering will be sufficient
to meet our working
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capital and operating resource expenditure requirements for at least the next
two years. Thereafter, we may find it necessary to obtain additional equity or
debt financing. In the event additional financing is required, we may not be
able to raise it on acceptable terms or at all.
YEAR 2000 READINESS
The "Year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.
We designed all of our products to be Year 2000 compliant 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 our products are Year 2000 compliant. However, we have
not tested our products for Year 2000 compliance. We continue to respond to
customer questions about prior versions of our products on a case-by-case basis.
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;
- Respond to two-digit date input in a way that resolves the ambiguity as to
century in a disclosed, defined and predetermined manner;
- Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and
- Recognize year 2000 as a leap year.
We have tested software obtained from third parties that is incorporated
into our products, and we are seeking assurances from our vendors that licensed
software is Year 2000 compliant. To date, we have received assurances from the
vendors of our enterprise resource planning software, and technology support
software as to their Year 2000 compliance. Despite testing by us and current and
potential customers, and assurances from developers of products incorporated
into our products, our products may contain undetected errors or defects
associated with Year 2000 date functions. Known or unknown errors or defects in
our products could result in delay or loss of revenues, diversion of development
resources, damage to our reputation, increased service and warranty costs, or
liability from our customers, any of which could seriously harm our business.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of these lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is uncertain
whether or to what extent we may be affected by it.
We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology. We have not initiated an assessment of our
non-information technology systems, although we have received a favorable
assessment of the Year 2000 compliance of our new headquarters in Mountain View,
California. We expect to complete testing of our information technology systems
in 1999. To the extent that we are not able to test the technology provided by
third-party vendors, we are seeking assurances from these 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 information
technology and non-information technology 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 information technology
and non-information technology systems.
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We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our products and services. As a result, our business could be
seriously harmed.
We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could seriously harm our business.
We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not anticipate the need to do so. The cost of developing
and implementing such a plan may itself be material. Finally, we are also
subject to external forces that might generally affect industry and commerce,
such as utility or transportation company Year 2000 compliance failure
interruptions.
Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:
- The inability of our customers to use our products and services to procure
and manage their operating resources;
- Claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgments; and
- Our inability to manage our own business.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires
disclosure of certain information regarding operating segments, products and
services, geographic areas of operation and major customers. We are in the
process of evaluating the effects of this change on our reporting segments. We
will adopt SFAS No. 131 in fiscal 1999.
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position, or SOP, 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We do not expect SOP 98-1
to have a material effect on our financial position, results of operations or
cash flow. We will adopt SOP 98-1 in fiscal 2000.
In April 1998, the AcSEC issued SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. Under SOP 98-5, the cost of start-up activities should be expensed
as incurred. We expect that the adoption of SOP 98-5 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to adopt SOP 98-5 in fiscal 2000.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because Ariba
does not currently hold any derivative instruments and does not engage in
hedging activities, we expect the adoption of SFAS No. 133 will not have a
material impact on our financial position, results of operations or cash flows.
We will be required to adopt SFAS No. 133 in fiscal 2000.
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QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, Europe and the Asia-Pacific region. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates
or weak economic conditions in foreign markets. As all sales are currently made
in U.S. dollars, a strengthening of the dollar could make our products less
competitive in foreign markets. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since the majority of our
investments are in short-term instruments. Due to the short-term nature of our
investments, we believe that there is no material risk exposure. Therefore, no
quantitative tabular disclosures are required.
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BUSINESS
THE PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH
FORWARD-LOOKING STATEMENTS.
OVERVIEW
Ariba is a leading provider of intranet- and Internet-based
business-to-business electronic commerce solutions for operating resources. Our
Operating Resource Management System, Ariba ORMS, enables organizations to
automate the procurement cycle within their intranets, lowering the costs
associated with operating resources. Our recently launched Ariba.com network is
a global business-to-business electronic commerce network for operating
resources that enables buyers and suppliers to automate transactions on the
Internet. Together, Ariba ORMS and Ariba.com combine intranet-based network
applications with an Internet-based network to create a business-to-business
electronic commerce solution for operating resources that benefits both buyers
and suppliers. Since we began marketing Ariba ORMS in March 1997, it has been
licensed by large, multinational industry leaders and public sector
organizations including Chevron, Cisco Systems, FedEx, General Motors,
Hewlett-Packard, Philips, The State of California, U S WEST and Visa.
Our objective is to create the leading Internet-based business-to-business
electronic commerce network for operating resources. Our strategy to achieve
this objective is to leverage the buying power of a large multinational customer
base to attract leading operating resource suppliers to our Ariba.com network.
We believe a growing number of suppliers in our Ariba.com network will in turn
draw more buyers to our network. We also believe this growth cycle will help
create a network effect, where the value to each participant in the network
increases with the addition of each new participant, increasing the overall
value of our Ariba solution.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE
The Internet has emerged as the fastest growing communication medium in
history. With over 97 million users at the end of 1998, growing to 320 million
users by 2002, as estimated by International Data Corporation, the Internet is
dramatically changing how businesses and individuals communicate and share
information. The Internet has created new opportunities for conducting commerce,
such as business-to-consumer and person-to-person electronic commerce. Recently,
the widespread adoption of intranets and the acceptance of the Internet as a
business communications platform has created a foundation for
business-to-business electronic commerce that will enable organizations to
streamline complex processes, lower costs and improve productivity.
With this foundation, Internet-based business-to-business electronic
commerce is poised for rapid growth and is expected to represent a significantly
larger opportunity than business-to-consumer or person-to-person electronic
commerce. According to Forrester Research, business-to-business electronic
commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003,
accounting for more than 90% of the dollar value of electronic commerce in the
United States. This market is expected to create a substantial demand for
intranet- and Internet-based commerce applications. According to International
Data Corporation, the worldwide market for Internet-based electronic commerce
procurement and order management applications is expected to experience
tremendous growth, increasing from $187 million in 1998 to $8.5 billion in 2003.
TRADITIONAL APPROACHES TO BUYING OPERATING RESOURCES
Operating resources are the goods and services required to operate a
company, ranging from significant items, such as information technology,
telecommunications equipment and professional
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services, to recurring items, such as MRO (Maintenance, Repair and Operations)
supplies, travel and entertainment expenses, and office equipment. Operating
resource expenditures are distinct from manufacturing resource expenditures,
such as raw materials and other costs of goods sold, and from human resource
expenditures, such as wages, salaries and benefits. According to Killen &
Associates, operating resource expenditures are often the largest segment of
corporate expenditures, representing approximately 33% of an average company's
total revenues.
Today, most organizations buy operating resources through paper-based or
semi-automated processes. These processes are costly, time consuming and complex
and often include the re-keying of information, lengthy approval cycles and
significant involvement of financial and administrative personnel. AMR estimates
that the cost per procurement transaction ranges from $75 to $175, often
exceeding the cost of the items being purchased. In addition, these time
consuming processes often result in fulfillment delays to end-users, leading to
productivity losses.
Beyond the time and expense associated with manual processing costs,
organizations suffer even greater costs when they cannot fully leverage
procurement economies of scale. Most organizations lack the systems that enable
them to monitor purchases and compile data necessary to negotiate better volume
discounts with preferred suppliers. In addition, most organizations suffer from
a problem known as "maverick buying," which occurs when personnel do not follow
internal guidelines as to which suppliers to use for operating resource
purchases. When preferred suppliers are not used, organizations pay a premium.
AMR estimates that maverick buying accounts for one-third of operating resource
expenditures, costing organizations a 15% to 27% premium on those purchases.
Traditional procurement processes also result in missed revenue
opportunities and additional costs to suppliers. When buyers are unable to
channel purchases to preferred suppliers, these suppliers lose revenue.
Suppliers also suffer from inefficient, error prone and manually-intensive order
fulfillment processes. Many suppliers dedicate significant resources to the
manual entry of information from faxed or phoned-in purchase orders and the
manual processing of paper checks, invoices and ship notices. Suppliers also
spend significant resources on customer acquisition and sales costs, including
the production and distribution of paper catalogs. Without fully automated and
integrated electronic commerce technologies, both buyers and suppliers incur
substantial extraneous costs in conducting commerce.
OPPORTUNITY FOR BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE SOLUTIONS FOR
OPERATING RESOURCES
Over the past 30 years, information technologies have brought automation to
departmental operations such as manufacturing resource planning, financial
management, sales force automation and human resource management. However, the
information technology platforms that made departmental automation possible did
not provide enterprise-wide connectivity within organizations or connectivity
between organizations. Thus, the processes linking end-users to approvers and
organizations to suppliers for operating resources are today largely
paper-based. With the widespread implementation of intranets and the adoption of
the Internet as a business communication platform, organizations can now
automate enterprise-wide and inter-organizational commerce activities. This
infrastructure creates a significant market opportunity for intranet- and
Internet-based business-to-business electronic commerce solutions for operating
resources.
For buyers, a solution must include a user-friendly, intranet-based system
that links end-users, approvers and administrative personnel with an integrated
global network that connects buying organizations with suppliers. This system
must be flexible enough to meet the unique business process requirements of
large, multinational organizations and must be highly scalable, reliable and
rapidly deployable. It must leverage an organization's existing investments in
information technologies by integrating with multiple financial, human resource
and enterprise resource planning systems. The system must provide data reporting
and analytical tools that enable analysis of end-user spending patterns and
provide insight into savings opportunities. For suppliers, the solution must be
easy to implement, based on
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open standards and leverage existing investments in on-line catalogs and order
processing technologies. Additionally, the solution should offer suppliers the
opportunity to expand their customer base by providing access to a critical mass
of buyers. Addressing these requirements for both buyers and suppliers is
critical to enabling full scale business-to-business electronic commerce for
operating resources.
THE ARIBA SOLUTION
Ariba is a leading provider of intranet- and Internet-based
business-to-business electronic commerce solutions for operating resources. Our
solution consists of two components, our intranet-based Ariba ORMS (Operating
Resource Management System) network application and our Internet-based Ariba.com
network. Ariba ORMS is a robust, scalable and reliable network application that
operates primarily within a buying organization's intranet. Ariba ORMS enables
an organization to reduce processing costs and improve productivity by
automating the procurement cycle and linking end-users throughout an
organization with internal approvers and financial systems. Ariba ORMS also
enables organizations to reduce the cost of operating resources by channeling
purchases to preferred suppliers. Our recently launched Ariba.com network is a
global business-to-business electronic commerce network for operating resources,
enabling buyers and suppliers to automate transactions on the Internet.
Together, Ariba ORMS and our Ariba.com network combine intranet-based network
applications with an Internet-based network to create a business-to-business
electronic commerce solution for operating resources benefiting both buyers and
suppliers.
We believe our solution provides the following benefits:
BENEFITS TO BUYERS:
SIGNIFICANTLY REDUCED PROCESSING COSTS AND INCREASED PRODUCTIVITY. By
automating the operating resource procurement process, our Ariba solution
allows organizations to achieve significant cost savings and productivity
enhancements. Ariba ORMS is capable of streamlining and automating complex
and unusual business processes. Ariba ORMS also leverages existing
investments in financial, human resource and enterprise resource planning
systems, which reduces or eliminates the need to manually enter data into
these systems. As a result, our Ariba solution allows organizations to focus
on value-added activities such as negotiating better discounts with
preferred suppliers. Through our solution, end-users can order and receive
requested items more quickly and with less effort, improving overall
productivity.
SUBSTANTIALLY REDUCED COSTS OF OPERATING RESOURCES. Our Ariba solution
enables organizations to maximize procurement economies of scale, lowering
the overall costs of operating resources. Ariba ORMS provides corporate-wide
data, analysis and reporting tools on buying patterns, enabling
organizations to negotiate more favorable contracts with preferred
suppliers. Our Ariba solution in turn routes transactions to these preferred
suppliers automatically. Moreover, Ariba ORMS is accessible on every
desktop, is easy-to-use and streamlines the procurement process. These
benefits minimize the frustration to end-users that often results in
maverick buying, further enabling organizations to take advantage of
negotiated discounts with preferred suppliers.
BENEFITS TO SUPPLIERS:
INCREASED VOLUME AND REVENUE OPPORTUNITIES. Ariba ORMS and our Ariba.com
network enable buyers to channel spending to preferred suppliers, providing
these suppliers the opportunity to increase revenues. Our Ariba.com network
provides suppliers with greater access to new and existing customers through
a global presence and availability 24 hours a day, seven days a week. In
addition, by leveraging suppliers' web-based catalog capabilities, our
solution enables suppliers to differentiate and market their goods and
services in their preferred format.
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REDUCED SALES COSTS. Our Ariba solution enables suppliers to reduce sales
costs in several ways. By automating transactions, suppliers can reduce the
costs associated with, and reduce the potential for error inherent in,
paper-based ordering and payment processes. Product information can be
distributed electronically, reducing the cost of printed product catalog
distribution. In addition, suppliers can leverage their existing investments
in electronic commerce infrastructure, including catalogs and product web
pages.
We believe that the benefits of Ariba ORMS and our Ariba.com network will
create a growth cycle that increases the value of our Ariba solution to both
buyers and suppliers over time. As buyers benefit from the efficiencies of our
Ariba solution, we believe suppliers will be drawn to our Ariba.com network by
the aggregated purchasing power of buyers using our network. As more suppliers
offer operating resources through the network, more buyers are encouraged to
join our network.
THE ARIBA GROWTH STRATEGY
Our objective is to create the leading Internet-based business-to-business
electronic commerce network for operating resources. Key elements of our
strategy to achieve this objective include:
TARGET LARGE MULTINATIONAL BUYERS IN A BROAD RANGE OF INDUSTRIES. We intend
to continue to target large, multinational corporations and public sector
institutions, leveraging our first mover advantage with many of these
organizations. We believe these organizations will be the most likely early
beneficiaries of an automated, reliable, robust and scalable procurement
solution and can provide strong customer references. Furthermore, we believe the
large spending power these organizations can channel through our Ariba.com
network will attract suppliers to the network. Finally, these organizations have
demanding requirements and rigorously test our products, assisting us in
designing a robust, reliable and scalable solution.
CREATE A NETWORK EFFECT BY ATTRACTING THE LARGEST BUYERS AND SUPPLIERS TO
OUR ARIBA.COM NETWORK. As Ariba ORMS is deployed to a critical mass of large
buyers in numerous industries, we intend to leverage the buying power of these
large organizations to attract suppliers to our Ariba.com network. We believe a
growing number of suppliers in our Ariba.com network will in turn draw more
buyers to our network. We also believe this growth cycle will help create a
network effect, where the value to each participant in the network increases
with the addition of each new participant, increasing the overall value of our
Ariba solution.
LEVERAGE AND EXTEND THE ARIBA COMMUNITY OF PARTNERS. We intend to leverage
our strategic relationships with industry leaders in the areas of electronic
commerce infrastructure, information technology consulting, distribution and
content aggregation. We are working with these partners to accelerate our
Ariba.com network rollout, provide additional customer implementation
capabilities, expand our customer base and increase the content available on our
Ariba.com network. These relationships allow us to focus on our core area of
expertise, while leveraging the strengths of complementary technologies and the
influence of these industry leaders. We believe that these relationships, as
well as others that we intend to pursue, will enable the rapid and widespread
deployment of our electronic commerce solution.
PROVIDE SUPERIOR CUSTOMER SATISFACTION. We believe a loyal base of
reference customers affords us a significant competitive advantage. Therefore,
we intend to continue to focus significant resources on customer satisfaction
programs. In order to foster a culture of customer satisfaction as our highest
priority, all of our employees with variable compensation are paid in part based
on customer satisfaction as measured by an independent third party organization.
We continue to make use of a number of other programs to promote superior
customer satisfaction including our customer-driven development process and our
frequent customer advisory councils.
EXPAND WORLDWIDE INFRASTRUCTURE. We intend to aggressively grow our global
presence by expanding our worldwide field sales, marketing and services
organizations. To complement this strategy, we intend to
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continue to globalize our operations and expand our corporate and administrative
infrastructure. We also intend to enter into a strategic relationship with a
third party to create a worldwide infrastructure for our Ariba.com network.
ARIBA PRODUCTS AND SERVICES
Ariba provides a comprehensive intranet- and Internet-based
business-to-business electronic commerce solution for operating resources. This
solution consists of two components, Ariba ORMS and our Ariba.com network. Ariba
ORMS is a network application that operates primarily within a buying
organization's intranet. Ariba ORMS enables organizations to reduce processing
costs and improve productivity by automating the procurement cycle, linking
end-users throughout the organization with approvers and financial systems.
Ariba ORMS also enables organizations to reduce the cost of operating resources
by channeling purchases to preferred suppliers. As orders are generated and
approved, Ariba ORMS automates commerce transactions securely with suppliers on
the Internet through our Ariba.com network. Our recently launched Ariba.com
network is a global business-to-business electronic commerce network for
operating resources that enables buying organizations, suppliers and
distributors to automate transactions on the Internet. Together, Ariba ORMS and
our Ariba.com network combine intranet-based network applications with an
Internet-based network to create a business-to-business electronic commerce
solution for operating resources benefiting both buyers and suppliers.
[EDGAR description of artwork: This diagram depicts a component-level overview
of both the Registrant's Ariba ORMS product and the Ariba.com network. The
diagram demonstrates that Ariba ORMS resides in the intranet of an organization
and that the Ariba.com network resides on the Internet.]
ARIBA ORMS
Ariba ORMS is a robust, scalable and reliable network application that
operates primarily within a buying organization's intranet. Ariba ORMS enables
organizations to reduce processing costs and improve productivity by automating
the procurement cycle, linking end-users throughout the organization with
approvers and financial systems. Ariba ORMS also enables organizations to reduce
the cost of operating resources channeling purchases to preferred suppliers.
Ariba ORMS is designed to handle the large-scale integration of end-users,
approvers and administrative personnel through web-based applications that
automate procurement and finance processes. Ariba ORMS works with multiple
enterprise systems
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simultaneously, in addition to providing real-time electronic access to
important procurement information, such as supplier product specifications,
price lists, web sites and order status.
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[EDGAR description of artwork: This diagram depicts a component-level view
of the Registrant's Ariba ORMS product including the modules, adapters, and
characteristics as described under the section, "Ariba ORMS."]
The primary characteristics of Ariba ORMS are:
USER FRIENDLY, WEB-BASED INTERFACES. The browser-based user interface
enables users throughout an organization to take full advantage of Ariba
ORMS from their desktop and with minimal training. Wizards, software that
provides automated assistance, guide less experienced users through the
acquisition process, while an advanced user interface makes the system more
productive for experienced users.
ELECTRONIC BUSINESS PROCESS AUTOMATION. Ariba ORMS provides flexible
workflow capable of streamlining and automating even the most complex or
unusual business processes of large, multinational organizations. This
flexible workflow can be customized for the unique processes of an
organization and can be tailored to respond to end-user input, system events
or any extrinsic or intrinsic data in the procurement cycle.
SIMULTANEOUS INTEGRATION WITH MULTIPLE ENTERPRISE SYSTEMS. Ariba ORMS
integrates with leading finance, human resource management and enterprise
resource planning systems from vendors such as PeopleSoft, SAP and Oracle.
In addition, Ariba ORMS provides a comprehensive API (Application
Programming Interface) to integrate with other legacy systems through
adapters that are sold as separate products. A single Ariba ORMS
installation can connect with multiple enterprise applications
simultaneously through real-time or scheduled interfaces. These interfaces
also enable Ariba ORMS to leverage standard user authentication and
directory services such as LDAP (Lightweight Directory Access Protocol) and
Microsoft's Active Directory.
INFORMATION ACCESS. With powerful analytical and reporting tools, Ariba
ORMS enables organizations to evaluate data collected throughout the process
of acquiring, receiving and paying for operating resources. By employing
these analytical tools, an organization can analyze purchasing patterns to
streamline the procurement process, negotiate more favorable terms with
preferred suppliers and gain insight into additional savings opportunities.
ELECTRONIC COMMERCE INTEGRATION THROUGH OUR ARIBA.COM NETWORK. Ariba ORMS
delivers electronic commerce integration over the Internet and through our
Ariba.com network, allowing organizations to automate commerce transactions
with suppliers. By adhering to open standards, Ariba ORMS provides a variety
of methods for suppliers to communicate electronically with buying
organizations through our Ariba.com network. Ariba ORMS also allows
suppliers to leverage their existing web-based catalogs in a seamless and
integrated manner.
SCALABLE, MULTI-PLATFORM ARCHITECTURE. The Ariba ORMS server currently
supports industry-standard approaches to high-performance databases and
multi-processor hardware. Ariba ORMS currently supports Microsoft Windows NT
and Unix platforms including Hewlett-Packard HP-UX and Sun Solaris.
ARIBA ORMS MODULES
Ariba ORMS modules are designed specifically for the procurement and
management of different operating resources. Each module contains powerful
reporting and data analysis tools that enable operations managers to monitor the
requisition process and identify areas for cost reductions.
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The Ariba ORMS modules are:
ARIBA MRO. Ariba MRO allows organizations to manage purchases associated
with maintenance, repair and operations supplies. These items are primarily
ordered through electronic catalogs and may include office products,
information technologies and facilities items.
ARIBA SERVICES. Ariba Services are specifically designed to address the
unique data collection requirements for the procurement of professional
services, such as facility, legal, temporary and maintenance services.
Purchasing professional services, unlike commodities, involves a number of
different variables, such as scope of services needed, qualification of
personnel and duration of the services. Ariba Services can integrate this
data to process requisitions obtained from the end-user at various points in
the requisitioning, procurement and receiving cycle.
ARIBA CAPITAL EQUIPMENT. Ariba Capital Equipment addresses the specific
needs of capital equipment purchases such as manufacturing, facilities or
information technology equipment. The procurement of capital equipment often
requires unique data such as different accounting, asset identification and
tracking information. Ariba Capital Equipment can be easily configured to
suit an organization's specific accounting and tracking needs.
ARIBA EFORMS. Ariba eForms allow organizations to create custom forms,
which can be attached to existing Ariba applications or used to create new
applications for nearly any type of operating resource request. Ariba eForms
are created using XML (eXtensible Markup Language), a robust definition
language that allows organizations to design forms that capture information
from end-users and route the information for internal approval. Each Ariba
eForm can have its own approval rules and can incorporate standard data from
Ariba ORMS including financial accounting and human resources information.
ARIBA EXPENSE MANAGEMENT. Ariba Expense Management automates the expense
reporting process associated with expenditures such as travel and
entertainment. Ariba Expense Management provides a robust set of features to
generate expense reports automatically from electronic credit card, travel
card or procurement card data feeds and can route expense reports to
functional, travel and expense managers.
ARIBA P-CARD RECONCILIATION. Ariba P-Card Reconciliation provides support
for the use of P-Cards, credit cards designed specifically for business
procurement. P-Cards can be allocated to a given user or an accounting
entity. Electronic P-Card statements from financial institutions can be read
automatically by Ariba ORMS and reconciled against purchases made, flagging
any exceptions or inconsistencies.
ARIBA ORMS ENTERPRISE ADAPTERS
Ariba ORMS enterprise adapters are designed specifically to integrate with
leading finance, human resource management and enterprise resource and planning
systems. Ariba ORMS enterprise adapters can provide standard integration with
these systems or can be configured to integrate with custom installations of the
enterprise system. These adapters enable a single Ariba ORMS installation to
integrate with multiple enterprise applications simultaneously through real-time
or scheduled interfaces.
ARIBA SAP ADAPTER. Ariba SAP Adapter provides real-time and scheduled
integration with SAP applications through standard programming interfaces
for personnel, accounting, distribution, supplier and financial information.
ARIBA PEOPLESOFT ADAPTER. Ariba PeopleSoft Adapter allows real-time and
scheduled integration with PeopleSoft finance, distribution and human
resources management systems through PeopleSoft's
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message agent for administrative, personnel, accounting, distribution,
supplier and financial information.
ARIBA ORACLE ADAPTER. Ariba Oracle Adapter allows real-time and scheduled
integration with Oracle applications for personnel, accounting,
distribution, supplier and financial information.
ARIBA AUTHENTICATION ADAPTER. Ariba Authentication Adapter provides
integration with standard user authentication and directory services such as
LDAP (Lightweight Directory Access Protocol) and Microsoft's Active
Directory.
ARIBA GENERAL API ADAPTER. Ariba General API Adapter provides integration
with existing and legacy enterprise systems to interface information with
Ariba ORMS on a real-time or scheduled basis.
Customers who purchase our software products receive a server capacity
license, one or more of the Ariba ORMS modules and adapters to interface with
enterprise financial and human resource systems. The license fee for the server
capacity license is based on the customer's annual volume of line items of
purchasing transactions. The license fees for the software modules and adapters
consist of individual prices for each module or adapter.
The volume licensing of the server capacity allows customers to scale the
total cost of their purchase of the Ariba ORMS system to their needs. The server
capacity license entitles customers to execute the licensed volume of line items
of purchasing transactions during any annual period following their purchase of
the server license. Ariba's customers generally purchase estimated server
capacity at the time of the purchase of the server license. Following the
initial implementation of Ariba ORMS, and based on the reporting and analysis
tools available through Ariba ORMS, our customers are able to understand their
annual transaction volume more fully. Customers who exceed their estimated
volume can purchase additional server capacity. However, there are no recurring
annual license fees. To date, three customers have purchased additional annual
server capacity licenses.
OUR ARIBA.COM NETWORK
Our Ariba.com network is an Internet-based operating resource solution
designed for large-scale content integration and electronic commerce
transactions. Our Ariba.com network bridges buyer and supplier networks on the
Internet and offers catalog and content management, order transaction routing
and multi-protocol support for numerous electronic commerce standards.
Our multi-protocol network allows buyers to send transactions from Ariba
ORMS in one standard format; it then automatically converts the order into the
supplier's preferred transaction format, such as CXML (Commerce eXtensible
Markup Language), a format used on the Internet to describe commerce data and
documents, or EDI (Electronic Data Interchange), a format used to exchange data
and documents electronically. This infrastructure eliminates the need for a
single standard for electronic commerce and gives suppliers the freedom to
transact in their preferred protocols.
Our Ariba.com network also allows suppliers to leverage their existing
electronic commerce infrastructure to provide information about their products
and services. Suppliers can send electronic catalogs through standard formats
such as CIF (Catalog Interchange Format), a format commonly used to transfer
catalog information electronically, and CXML. In addition, buyers can link to a
supplier's web site using a technology called CXML Punch-out. CXML Punch-out
allows a buyer to select a product utilizing a supplier's web site while keeping
the purchasing process within our Ariba ORMS system for internal approval,
accounting and administrative controls. This feature is particularly useful for
suppliers with robust web site, electronic product configuration systems and
large product catalogs. In addition, suppliers can leverage their existing
web-based catalog capabilities to differentiate and market their goods and
services. Using our Ariba.com network, suppliers have the opportunity to
eliminate distance barriers and
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reach a large, aggregated customer base with little additional cost. A schematic
of our Ariba.com network is shown below.
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[EDGAR description of artwork: This diagram depicts a component-level view
of the Registrant's Ariba.com network on the Internet. This diagram illustrates
the nature of the interaction of buyers and suppliers through the Ariba.com
network on the Internet. This diagram also illustrates how various communication
protocols, such as CXML, HTML, EDI, CIF, and OBI, are used by Ariba.com on the
Internet to allow buyers and suppliers to conduct commerce. The diagram also
illustrates the primary components of the Ariba.com network as described under
"The Ariba.com Network."]
The key components of our Ariba.com network are:
OPEN STANDARDS MULTI-PROTOCOL TRANSACTION NETWORK. Our Ariba.com network
automatically routes and translates transactions between buyers and
suppliers using most major electronic commerce standards, including: XML;
CXML; Internet EDI; VAN EDI (Value Added Networks for EDI); a subset of the
OBI standard (Open Buying on the Internet), a protocol for buying goods and
services on the Internet; HTML (Hyper-Text Markup Language), a format
commonly used to define content for web pages; e-mail; auto-fax and CIF.
This inter-operability enables buyers to conduct business with suppliers
independent of the type of web infrastructure used by the supplier.
WEB-BASED CONTENT ACCESS AND INDEXING. Our Ariba.com network uses a
scalable approach for content management. This approach employs indexing,
rather than content aggregation, to connect buying organizations using Ariba
ORMS to suppliers' existing web-based catalogs. This indexing approach
eliminates the need to aggregate content in a central repository, yet
provides robust and comprehensive searching tools to buyers. In addition,
our Ariba.com network allows suppliers to leverage existing electronic
commerce web-based catalogs through CIF, CXML and CXML Punch-out.
ARIBA SUPPLIER LINK. In December 1998, we announced our Ariba Supplier Link
program, an initiative to integrate supplier content into our Ariba.com
network. Members of Ariba Supplier Link provide buying organizations using
Ariba ORMS access to indices of millions of items from thousands of
manufacturers.
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SUPPLIER SELF-MANAGEMENT AND REGISTRATION. To conduct commerce with all
buying organizations using Ariba ORMS, suppliers need only to register once
and continue to manage their relationships online, in their preferred
transaction standards and configurations without the need for additional
software.
NEWS, INFORMATION AND SERVICES. Our Ariba.com network provides news,
information and services of interest to business buyers and suppliers such
as sourcing, supplier, financial and industry information.
Our Ariba.com network is designed for high-performance databases and
multi-processing hardware and utilizes a multi-server configuration to allow
workloads to be shared across multiple servers and the site to maintain
availability of online service. We intend to enter into an outsourcing
relationship with a third party to build and operate the network and platform
infrastructure for our Ariba.com network. It will be difficult for us to operate
our Ariba.com network if we are unable to contract with a third party as we
would have to perform these functions ourselves or obtain similar services from
another provider, and we may not successfully perform or obtain these services
for our Ariba.com network on a timely and cost-effective basis.
Although we expect to derive revenue from our Ariba.com network in the
future, we have not yet established our pricing and revenue model for the
services associated with our network. If we are unable to establish a pricing
and revenue model acceptable to our customers, our Ariba.com network may not be
commercially successful. As of March 31, 1999, only one customer was buying
operating resources through our network from a limited number of linked
suppliers.
CUSTOMERS
We target large, multinational market leaders in a broad range of
industries. As of March 31, 1999, customers that have purchased licenses for
Ariba ORMS include:
<TABLE>
<S> <C>
Advanced Micro Devices Motorola
Autodesk Nestle USA
Boehringer-Ingelheim Octel Messaging Division of Lucent
Bristol-Myers Squibb Technologies
Cadence Design Systems Parametric Technology Corporation
Caltex Philips Electronics
Canadian Imperial Bank of Commerce Purdue University
Chevron Seagate Technology
Cisco Systems Sonoco Products
Citizens Telecommunications Staples
Cypress Semiconductor The State of California
Earthgrains Transamerica
FedEx U S WEST
General Motors Visa International
Hewlett-Packard Visa USA
Merck
</TABLE>
SUPPLIERS
In December 1998, we announced our Ariba Supplier Link or "ASL" program,
which is an initiative to provide supplier content to Ariba ORMS customers
electronically. We have over 40 members in our
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program. These members include individual manufacturers, distributors,
resellers, content management solution providers and sourcing organizations. Our
ASL members include the following companies:
<TABLE>
<S> <C>
1.800.Batteries Interworld
1Nine Systems Ironside Technologies
Anderson Unicom Group Life Technologies
Barnesandnoble.com MicroAge Integration
Beyond.com MicroAge Toronto
Boise Cascade Office Products NCR Systemedia Group
BT Office Products International Neoforma
CAP Office Depot
Collabria PCNet
Com-Kyl PcOrder.com
Compucom Reynolds and Reynolds
Fatbrain.com RoweCom
Contact East Saqquaro Systems
Cort Furniture Rental SciQuest
Data Impressions Staples
Digital River Technicon
Electro Rent Telepress
EMAX Solution Partners US Technologies
Grand & Toy ViewTek
Harbinger W.W. Grainger
Hewlett-Packard Wood Associates
Inacom
</TABLE>
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STRATEGIC RELATIONSHIPS
To ensure that we deliver a comprehensive solution to our customers, we have
established strategic relationships with organizations in four general
categories: hardware platforms; software platforms; electronic commerce; and
systems integrators. Our hardware partners include Cisco Systems,
Hewlett-Packard and Sun Microsystems. These relationships help ensure the
reliability, scalability and performance of the Ariba solution on these
platforms. In addition, we intend to enter into an outsourcing relationship with
a third party to build and operate the network and platform infrastructure for
our Ariba.com network. Our electronic commerce partners include American
Express, Sterling Commerce and Visa International.
We have system integrator relationships with Andersen Consulting, Deloitte &
Touche, Ernst & Young, KPMG, PricewaterhouseCoopers, Cambridge Technology
Partners, Computer Sciences Corporation, Core Technologies, SRA International,
Tier Technologies and TSA Associates. These system integrators implement our
products and often assist us with sales lead generation. We have certified and
trained approximately 125 consultants in these organizations for the
implementation and operation of our products.
We rely, and expect to increasingly rely, on a number of third parties for
implementation, support and recommendations of our products during the
evaluation stage of a customer's purchase process. If we are unable to maintain
or increase the number and quality of our relationships with providers that
recommend, implement or support operating resources management systems, our
business will be seriously harmed. A number of our competitors, including
Oracle, SAP and PeopleSoft, have significantly more established relationships
with such providers and, as a result, these firms may be more likely to
recommend competitors' products and services rather than our products and
services. Furthermore, it is possible that our current implementation partners,
many of which have significantly greater financial, technical, marketing and
other resources than we have, could begin to market software products and
services that compete with our products and services.
SALES AND IMPLEMENTATION
We sell our software primarily through our worldwide direct sales
organization. As of March 31, 1999, our direct sales force consisted of 57 sales
professionals located in 14 domestic locations and offices in Canada, the United
Kingdom and The Netherlands. Application specialists that provide pre-sales
support to potential customers on product information and deployment
capabilities complement our direct sales force. We plan to expand our direct
sales force.
During our sales process, we typically approach senior executive management
teams including the chief financial officer, chief information officer and chief
executive officer of our potential customers. We utilize sales teams consisting
of both sales and technical professionals who work with our strategic partners
to create organization-specific proposals, presentations and demonstrations that
address the specific needs of each potential customer.
Ariba provides professional services to augment the implementation efforts
of customers and systems integrators. This organization provides professional
services on the strategy, methodology and technical implementation of Ariba
ORMS. As of March 31, 1999, our professional services organization consisted of
41 employees.
We believe that strategic partnerships will assist us in gaining broad
market acceptance as well as enhance our marketing, sales and distribution
capabilities. We have therefore developed close relationships with a number of
strategic integrators and technology providers. These companies have worked with
us and participated in joint sales calls to several of our large accounts. See
"--Strategic Relationships."
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MARKETING
We focus our marketing efforts toward educating our target market,
generating new sales opportunities, and creating awareness for our
business-to-business electronic commerce solutions. We conduct a variety of
marketing programs worldwide to educate our target market. We have engaged in
marketing activities such as business seminars, trade shows, press relations and
industry analyst programs and advisory councils.
Our marketing organization also serves an integral role in acquiring,
organizing and prioritizing customer and industry feedback in order to help
provide product direction to our development organizations. We formalized this
customer-driven approach by establishing advisory council meetings, made up of
numerous industry experts, to provide forums for discussing customer needs and
requirements. To date, we have held ten of these events. Our most recent
advisory council meeting was attended by over 800 people, including procurement,
information technology and finance executives. In addition to providing
information to prospective customers, advisory council meetings provide a useful
forum in which to share information, test product concepts and collect data on
customer and industry needs. We have also augmented advisory council meetings
with a detailed product management process that surveys customer and market
needs to predict and prioritize future customer requirements. We also have
marketing relationships with Andersen Consulting, Cisco Systems,
Hewlett-Packard, Sun Microsystems and Visa International. These relationships
provide collaborative resources to help extend the reach of our presence in the
marketplace. We intend to continue to pursue these programs in the future.
CUSTOMER SERVICE, TRAINING AND SUPPORT
We believe that customer satisfaction is essential for our long-term success
and offer comprehensive customer assistance programs. Our technical support
provides dependable and timely resolution of customer technical inquiries and is
available to clients by telephone, over the web or by electronic mail. We use a
customer service automation system to track each customer inquiry until it is
resolved. Our education services group delivers education and training to our
clients and partners. We offer a comprehensive series of classes to provide the
knowledge and skills to successfully deploy, use and maintain our products and
solutions. These courses focus on the technical aspects of our products as well
as real-world business issues and processes. All of our classes include lecture,
demonstration, discussion and hands-on use of our solutions. Classes are held
regularly in our training facilities at our headquarters in Sunnyvale,
California. Our customer support and training organizations consisted of 22
employees as of March 31, 1999.
RESEARCH AND DEVELOPMENT
We originally introduced Ariba ORMS in May 1997 and have released a number
of product enhancements in five subsequent major releases. We introduced our
Ariba.com network in March 1999 and continue to provide enhancements to this
Internet platform on an ongoing basis. As of March 31, 1999, our research and
development organizations were comprised of 74 employees.
Our research and development operations are divided into two organizations,
one focusing on Ariba ORMS and the other focusing on our Ariba.com network. Our
Ariba ORMS organization has eight teams that include server and infrastructure
development, user interface and application design, tools development,
enterprise integration, quality assurance, documentation, release management and
advanced development. Our Ariba.com network organization has five teams that
include Internet applications and design, platform and infrastructure
engineering, operations, quality assurance and documentation. Both the Ariba
ORMS and our Ariba.com network organizations regularly share resources and
collaborate on code development, quality assurance and documentation.
We believe our software and Internet applications teams and core
technologies represent a significant competitive advantage. The software and
Internet applications development organizations include a number of key members
from past engineering organizations that have developed Internet applications
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and services, and have extensive experience with Java programming. We believe a
technically skilled and highly productive development organization is a key
component for the success of new product offerings. We must attract and retain
highly qualified employees to further our research and development efforts. Our
business could be seriously harmed if we are not able to hire and retain a
sufficient number of these individuals.
We cannot be sure that existing and future development efforts will be
completed within our anticipated schedules or that, if completed, they will have
the features or quality necessary to make them successful in the marketplace. In
addition, the widespread adoption of our Ariba.com network by our customers
depends in part on the adoption and implementation of the next version of our
Ariba ORMS product, which is not scheduled for commercial release until later
this year. Future delays in this release or problems in the development or
marketing of product enhancements, Internet services or applications or new
products could seriously harm the deployment of our Ariba.com network and could
harm our business. Further, despite testing by us and by current and potential
customers, errors could be found in our products. We may not be able to
successfully correct these errors in a timely and cost effective manner. If we
are not able to develop new products or enhancements to existing products or
corrections on a timely and cost-effective basis, or if these new products or
enhancements do not have the features or quality necessary to make them
successful in the marketplace, our business will be seriously harmed.
We expect that most of our enhancements to existing and future products will
be developed internally. However, we currently license certain
externally-developed technologies and will continue to evaluate
externally-developed technologies to integrate with our solutions. These
externally developed technologies, if suffering from defects, quality issues or
the lack of product functionality required to make our solutions successful in
the marketplace, may seriously impact and harm our business.
COMPETITION
The market for our solution is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition is expected to
increase in the future. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any one of which
could seriously harm our business. Competitors vary in size and in the scope and
breadth of the products and services offered. We encounter competition with
respect to different aspects of our solution from a variety of vendors including
Captura Software, Clarus, Commerce One, Concur Technologies, Extensity, GE
Information Services, Intelysis, Netscape Communications and TRADE'ex Electronic
Commerce Systems. We may also encounter competition from several major
enterprise software developers, such as Oracle, PeopleSoft and SAP. In addition,
because there are relatively low barriers to entry in the operating resource
management software market, we expect additional competition from other
established and emerging companies, as the operational resource management
software market continues to develop and expand.
We believe that the principal competitive factors affecting our market
include a significant base of reference customers, breadth and depth of
solution, critical mass of buyers and suppliers, product quality and
performance, customer service, core technology, product features, ability to
implement solutions and value of solution. Although we believe that our
solutions currently compete favorably with respect to these factors, our market
is relatively new and is evolving rapidly. We may not be able to maintain our
competitive position against current and potential competitors, especially those
with significantly greater financial, marketing, service, support, technical and
other resources.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than us,
significantly greater name recognition and a larger installed base of customers.
In addition, many of our competitors have well-established relationships with
our current and potential customers and have extensive knowledge of our
industry. In the past, we have lost potential customers to competitors for
various reasons, including lower prices and other incentives not matched by
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us. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. We also expect that competition
will increase as a result of industry consolidations.
We may not be able to compete successfully against our current and future
competitors.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws.
We license rather than sell Ariba ORMS and require our customers to enter
into license agreements, which impose restrictions on their ability to utilize
the software. In addition, we seek to avoid disclosure of our trade secrets,
including but not limited to, requiring those persons with access to our
proprietary information to execute confidentiality agreements with us and
restricting access to our source code. We seek to protect our software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. We cannot assure you that any of our
proprietary rights with respect to our Ariba.com network will be viable or of
value in the future since the validity, enforceability and type of protection of
proprietary rights in Internet-related industries are uncertain and still
evolving.
We presently have one U.S. patent application pending. It is possible that
the patent that we have applied for, if issued, or our potential future patents
may be successfully challenged or that no patent will be issued from our patent
application. It is also possible that we may not develop proprietary products or
technologies that are patentable, that any patent issued to us may not provide
us with any competitive advantages, or that the patents of others will seriously
harm our ability to do business.
We rely on technology that we license from third parties, including software
that is integrated with internally developed software and used in Ariba ORMS to
perform key functions. For example, we license reporting software from Actuate.
If we are unable to continue to license any of this software on commercially
reasonable terms, we will face delays in releases of our software until
equivalent technology can be identified, licensed or developed, and integrated
into our current product. These delays if they occur could seriously harm our
business.
Ariba and the Ariba logo are registered as trademarks in the United States.
In addition, we have the following trademarks registered in one or more foreign
countries: Ariba, the Ariba logo, the Ariba "boomerang" design, ORM, ORMS and
Walk-Up UI. We also have filed applications to register these trademarks in
several countries. We have filed trademark applications in the United States for
Ariba.com and Ariba.com Network. The above mentioned trademark applications are
subject to review by the applicable governmental authority, may be opposed by
private parties, and may not issue.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers
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and providers of electronic commerce solutions will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Any claims, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all, which could seriously
harm our business.
EMPLOYEES
As of March 31, 1999, we had a total of 232 employees, including 74 in
research and development, 69 in sales and marketing, 63 in customer support,
professional services and training, and 26 in administration and finance. Of
these employees, 221 were located in the United States and 11 were located
outside the United States. None of our employees is represented by a collective
bargaining agreement, nor have we experienced any work stoppage. We consider our
relations with our employees to be good.
Our future operating results depend in significant part on the continued
service of our key technical, sales and senior management personnel, none of
whom is bound by an employment agreement. Our future success also depends on our
continuing ability to attract and retain highly qualified technical, sales and
senior management personnel. Competition for these personnel is intense, and we
may not be able to retain our key technical, sales and senior management
personnel or attract these personnel in the future. We have experienced
difficulty in recruiting qualified technical, sales and senior management
personnel, and we expect to experience these difficulties in the future. If we
are unable to hire and retain qualified personnel in the future, this inability
could seriously harm our business.
FACILITIES
Our principal sales, marketing, research, development and administrative
office occupies approximately 33,000 square feet in Sunnyvale, California, under
a lease that expires on August 31, 2004. In addition, we also lease sales and
support offices in the metropolitan areas of Atlanta, Amsterdam, Boston,
Chicago, Columbus, Dallas, Detroit, London, Los Angeles, Milwaukee, Minneapolis,
New York, St. Louis, Toronto, Washington, D.C. and Zurich. In September 1999, we
intend to move our headquarters to expanded facilities located in approximately
130,000 square feet in Mountain View, California. Our sublease for this facility
expires in October 2006.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Ariba, and their ages as of March
31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Keith J. Krach....................................... 42 President, Chief Executive Officer and Chairman of
the Board of Directors
Edward P. Kinsey..................................... 42 Chief Financial Officer, Vice President-- Finance &
Administration and Secretary
Robert J. DeSantis................................... 35 Vice President--International Operations
Rune C. Eliasen...................................... 44 Vice President--Customer Services
K. Charly Kleissner.................................. 42 Vice President--Engineering
Robert D. Lent....................................... 45 Vice President--Business Development
Paul L. Melchiorre................................... 38 Vice President--North American Operations
David L. Rome........................................ 50 Vice President--Marketing
Paul C. M. Touw...................................... 34 Vice President--Corporate Strategy
Paul Hegarty......................................... 34 Director
Robert C. Kagle...................................... 43 Director
John B. Mumford...................................... 55 Director
Hatim A. Tyabji...................................... 54 Director
</TABLE>
KEITH J. KRACH, a co-founder of Ariba, has served as Chairman of the Board
of Directors, Chief Executive Officer and President since our inception in
September 1996. From March 1996 to September 1996, Mr. Krach served as an
Entrepreneur in Residence at Benchmark Capital. From October 1988 to August
1995, Mr. Krach served as Chief Operating Officer of Rasna Corporation, a
mechanical computer-aided design automation software company. Prior to joining
Rasna, Mr. Krach held various positions with General Motors, including General
Manager and Vice President of GMF Robotics. Mr. Krach holds a Bachelor of
Science degree in Industrial Engineering from Purdue University and a Master of
Business Administration from Harvard Business School.
EDWARD P. KINSEY, a co-founder of Ariba, has served as Chief Financial
Officer, Secretary and Vice President of Finance and Administration since our
inception in September 1996. From October 1995 to August 1996, Mr. Kinsey served
as the Chief Financial Officer and Vice President of Finance of CenterView
Software, an Internet development tools company. From March 1994 to October
1996, Mr. Kinsey served as Corporate Controller of Rasna Corporation and, from
July 1988 to March 1994, Mr. Kinsey served in various capacities at
Zenger-Miller, Inc., a management and supervisory skills training and
development company, most recently as the Chief Financial Officer and Vice
President of Operations. Prior to 1988, Mr. Kinsey held management positions at
Peat Marwick Mitchell and at Price Waterhouse. Mr. Kinsey is a Certified Public
Accountant in California and Ohio and holds a Bachelor of Business
Administration degree in Accounting from the University of Toledo.
ROBERT J. DESANTIS, a co-founder of Ariba, has served as Vice President of
International Operations since July 1998 and Vice President of Sales from our
inception in September 1996 to July 1998. From October 1995 to September 1996,
Mr. DeSantis worked as a consultant in the venture capital community. From
August 1990 to October 1995, Mr. DeSantis served as Vice President of Sales and
Vice President of European Operations at Rasna Corporation. Prior to joining
Rasna, Mr. DeSantis served as Director of Sales for Structural Research and
Analysis Corporation, a design analysis software company, and as a member of the
technical staff of Hughes Aircraft Company. Mr. DeSantis holds a Bachelor of
Science degree in Mechanical Engineering from the University of Rhode Island.
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<PAGE>
RUNE C. ELIASEN has served as Ariba's Vice President of Customer Services
since March 1997. From August 1995 to February 1997, Mr. Eliasen served as Vice
President of Operations at CBT Systems, Inc., a computer training development
company. From March 1989 to August 1995, Mr. Eliasen served as the Vice
President of Operations at Rasna Corporation. Prior to joining Rasna, Mr.
Eliasen held various senior engineering management positions at General Motors
and Ford Motor Company. Mr. Eliasen holds a Bachelor of Science degree in
Aeronautical and Astronautical Engineering from Purdue University.
K. CHARLY KLEISSNER has served as Ariba's Vice President of Engineering
since July 1997. From June 1996 to July 1997, Dr. Kleissner was Vice President
of Product Development at DataMind Corporation, a data mining software tools
development company. From April 1994 to June 1996, Dr. Kleissner held various
senior engineering management positions at NeXT Software Inc., a software
development company. Prior to joining NeXT, Dr. Kleissner held various senior
engineering management positions at Digital Equipment Corporation and
Hewlett-Packard Company. Dr. Kleissner holds a Ph.D. in Computer Science from
the University of Technology, Vienna and a Master of Science degree in Computer
Science from the Institute of Technology at the University of Vienna.
ROBERT D. LENT, a co-founder of Ariba, has served as Vice President of
Business Development since December 1997. From January 1993 to September 1996,
Mr. Lent was Vice President of U.S. Marketing for Inmac, a supplier of
networking and computing equipment. Prior to joining Inmac, he held various
senior product-marketing positions at Quantum, a mass storage company, and
Softbridge Microsystems. Mr. Lent began his career with Deloitte & Touche LLP.
Mr. Lent is a Certified Public Accountant and holds a Bachelor of Science degree
in Business Administration from the University of California, Berkeley and a
Master of Business Administration with distinction from the Harvard Business
School.
PAUL L. MELCHIORRE has served as Ariba's Vice President of North American
Operations since May 1998. From December 1992 to May 1998, Mr. Melchiorre served
as Senior Vice President of Global Accounts for SAP America, Inc., an enterprise
software company. Prior to joining SAP, he held various sales and management
positions with MAI Systems, an accounting software company, and Automatic Data
Processing, a developer of business software. Mr. Melchiorre holds a Bachelor of
Science degree in Marketing from Villanova University and a Master of Business
Administration from Drexel University.
DAVID L. ROME has served as Ariba's Vice President of Marketing since July
1997. From March 1997 to July 1997, Mr. Rome served as Vice President of
Marketing at Calico Technology, an Internet company focused on enabling
electronic commerce for companies selling complex products and services. From
July 1990 to September 1995, Mr. Rome held several general manager positions at
Lotus Development Corporation. Prior to joining Lotus, Mr. Rome held various
senior sales and marketing management positions with Alliant Computer Systems, a
specialized computer manufacturer, and Data General Corporation, a data storage
products company. Mr. Rome holds a Bachelor of Science degree in Mechanical
Engineering from Purdue University and a Master of Business Administration from
Harvard Business School.
PAUL C. M. TOUW, a co-founder of Ariba, has served as Vice President of
Corporate Strategy since March 1997 and managed marketing and business
development for Ariba from our inception in September 1996 to March 1997. From
September 1995 to July 1996, Mr. Touw managed western area sales and business
development for Open Market, Inc., an Internet commerce software company. From
1991 to September 1995, Mr. Touw held various senior technical and sales
management positions at Rasna Corporation. Prior to joining Rasna, Mr. Touw held
analyst and senior analyst positions at Westinghouse Electric Company, AEC Able
Engineering, and BP Advanced Materials serving primarily in aerospace
engineering and analysis roles. Mr. Touw holds a Bachelor of Science degree in
Mechanical and Physics Engineering from University of the Pacific, School of
Engineering.
52
<PAGE>
PAUL HEGARTY, a co-founder of Ariba, has served as Vice President of
Engineering from our inception in September 1996 to August 1997, as Chief
Technical Officer from our inception to October 1998 and as a director since
October 1998. From June 1996 to September 1996, Mr. Hegarty served as an
Entrepreneur in Residence at Benchmark Capital. From February 1988 to May 1996,
Mr. Hegarty served in various engineering capacities at NeXT Software, Inc.,
including Vice President of Engineering. Mr. Hegarty holds Bachelor of Science
and Master of Science degrees in Electrical Engineering from Stanford
University.
ROBERT C. KAGLE has served as a director of Ariba since our inception in
September 1996. Mr. Kagle has been a Managing Member of Benchmark Capital
Management Co., L.L.C., the General Partner of Benchmark Capital Partners, L.P.
and Benchmark Founders' Fund, L.P., since its founding in May 1995. Mr. Kagle
also has been a General Partner of Technology Venture Investors since January
1984. Mr. Kagle currently serves as a director of publicly held companies eBay
Inc. and E-Loan, and is currently a Director of the National Association of
Venture Capitalists and a Trustee of Kettering University, formerly known as the
General Motors Institute. Mr. Kagle holds a Bachelor of Science degree in
Electrical and Mechanical Engineering from the General Motors Institute and a
Master of Business Administration from the Stanford Graduate School of Business.
JOHN B. MUMFORD has served as a director of Ariba since our inception in
September 1996. Mr. Mumford has served as Managing Partner of Crosspoint Venture
Partners since 1970. Mr. Mumford currently serves as a director of a number of
private companies primarily in the information technology area. Mr. Mumford is a
co-founder and director of Hello Direct, Inc., a public company, and served as a
director of Office Depot, a public company, from its formation in 1986 to April
1997. Mr. Mumford was also a founding director of Inmac Corp., a public company,
and served in this capacity until its merger with Micro Warehouse in 1996. Mr.
Mumford holds a Bachelor of Science degree in Accounting from Arizona State
University and a Master of Business Administration from Stanford University.
HATIM A. TYABJI has served as a director of Ariba since January 1998. Mr.
Tyabji served as President and Chief Executive Officer from 1986 to 1998 and as
Chairman of the Board from 1992 to 1998 of VeriFone, Inc., a wholly-owned
subsidiary of Hewlett-Packard. Prior to joining VeriFone, Mr. Tyabji served as
President of the Information Systems Products and Technologies Group of Unisys
Corporation, formerly known as Sperry Corporation. Mr. Tyabji holds a Bachelor
of Science degree in Electrical Engineering from the College of Engineering in
Poona, India and a Master of Science degree in Electrical Engineering from the
State University of New York, Buffalo. He also has a Master of Business
Administration in International Business from Syracuse University and is a
graduate of the Stanford University Executive Program.
Ariba currently has authorized five directors. Each director holds office
until the next annual meeting of stockholders or until his successor is elected.
Our officers serve at the discretion of the board of directors. There are no
family relationships among our directors and officers.
BOARD COMMITTEES
The board of directors has an audit committee and a compensation committee.
AUDIT COMMITTEE. The audit committee makes recommendations to the board of
directors regarding the selection of independent accountants, reviews the
results and scope of audit and other services provided by our independent
accountants and reviews and evaluates the our audit and control functions. The
audit committee currently consists of Robert C. Kagle and John B. Mumford.
COMPENSATION COMMITTEE. The compensation committee reviews and makes
recommendations regarding our stock plans and makes decisions concerning
salaries and incentive compensation for our
53
<PAGE>
employees and consultants. The compensation committee currently consists of
Robert C. Kagle and Hatim A. Tyabji.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
DIRECTOR COMPENSATION
Directors currently do not receive any cash compensation from Ariba for
their services as members of the board of directors, although members are
reimbursed for expenses in connection with attendance at board of directors and
committee meetings. Directors are eligible to participate in Ariba's stock
plans, and beginning in 1999, employee directors will also be able to
participate in Ariba's 1999 Equity Incentive Plan and non-employee directors
will receive periodic option grants under Ariba's 1999 Directors' Stock Option
Plan. On January 21, 1998, in connection with his appointment to the board of
directors, Mr. Tyabji was granted an option to purchase 200,000 shares of our
common stock at an exercise price of $.375 per share, subject to a four-year
vesting schedule. On April 20, 1999, in connection with his service as a
director and employee of Ariba, Mr. Hegarty was granted an option to purchase
544,000 shares of our common stock at an exercise price of $9.00 per share,
subject to a four-year vesting schedule. See "Management--1999 Equity Incentive
Plan."
54
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation information for fiscal 1998 paid
by Ariba for services by our Chief Executive Officer and our four other
highest-paid executive officers whose total salary and bonus for such fiscal
year exceeded $100,000, whom we collectively refer to as the Named Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
---------------------- NUMBER OF SECURITIES OTHER
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($) UNDERLYING OPTIONS(#) COMPENSATION($)(2)
- ---------------------------------------------- ----------- --------- --------------------- ------------------
<S> <C> <C> <C> <C>
Keith J. Krach ............................... $ 106,667 $ 33,000 -- --
President, Chief Executive Officer and
Director
Edward P. Kinsey ............................. 106,667 36,333 -- --
Chief Financial Officer, Vice
President--Finance & Administration and
Secretary
Robert J. DeSantis ........................... 106,667 76,605(3) 200,000 $ 6,250
Vice President--International Sales
Rune C. Eliasen .............................. 106,667 33,000 -- --
Vice President--Customer Service
David L. Rome ................................ 90,000 60,000 -- --
Vice President--Marketing
</TABLE>
- ------------------------
(1) Includes amounts deferred under our 401(k) plan.
(2) Represents a car allowance.
(3) Includes commissions of $36,605.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during fiscal
1998 to each of the Named Officers. No stock appreciation rights were granted
during the fiscal year. Each of the options listed in the table below is
immediately exercisable. The shares purchasable thereunder are subject to
repurchase by us at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in those shares. The repurchase
right lapses and the optionee vests as to 25% of the option shares upon
completion of one year of service from the date of grant and the balance in a
series of equal monthly installments over the next 36 months of service. The
option shares will vest upon a change in control, unless our repurchase right
with respect to the unvested option shares is transferred to the acquiring
entity. The option shares will also vest in certain circumstances should the
optionee's employment or service be involuntarily terminated following a change
in control. Each of the options has a ten-year term, subject to earlier
termination in the event the holder ceases providing services to us.
The percentage numbers are based on an aggregate of 3,978,000 options
granted to our employees under our 1996 Stock Plan during fiscal 1998. The
exercise price was equal to the fair market value of our common stock as valued
by the board of directors on the date of grant. The exercise price may be paid
in cash, in shares of our common stock valued at fair market value on the
exercise date or through a cashless exercise procedure as long as this procedure
would not cause us to recognize compensation expense for financial reporting
purposes. We may also finance the option exercise by accepting a full recourse
note from the optionee equal to the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.
The potential realizable value is calculated based on a ten-year term of the
option at the time of grant. Stock price appreciation of 5% and 10% is assumed
because of SEC rules and does not represent our prediction of our stock price
performance. The potential realizable values at 5% and 10% appreciation are
calculated by assuming that the exercise price on the date of grant appreciates
at the indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL 1998 ($/SH) DATE 5% 10%
- -------------------------------- ----------- ------------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Keith J. Krach.................. -- -- -- -- -- --
Edward P. Kinsey................ -- -- -- -- -- --
Robert J. DeSantis.............. 200,000 5.0% $ 1.00 5/31/08 $ 125,779 $ 318,748
Rune C. Eliasen................. -- -- -- -- -- --
David L. Rome................... -- -- -- -- -- --
</TABLE>
In addition to the options listed in the table, stock options were granted
in fiscal 1999 to some of the Named Officers and to other executive officers
under our 1996 Stock Plan for the following number of shares and at the exercise
price of $2.375 per share: Mr. Krach, 400,000; Mr. DeSantis, 80,000; Mr.
Eliasen, 40,000; and Mr. Kinsey, 160,000. Each of the options is immediately
exercisable subject to deferral to satisfy the $100,000 limitation applicable to
incentive options. The shares purchasable under the options are subject to
repurchase by us at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in such shares. The repurchase
right lapses as to 10% of the shares upon completion of one year of service, 20%
upon completion of two years of service, 30% upon completion of three years of
service and the balance upon completion of four years of service from the grant
date.
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<PAGE>
FISCAL YEAR END OPTION VALUES
The following table sets forth for each of the Named Officers options
exercised and the number and value of securities underlying unexercised options
that are held by the Named Officers as of September 30, 1998. The heading
"Vested" refers to shares no longer subject to repurchase by us, and the heading
"Unvested" refers to shares subject to repurchase by us, in each case as of
September 30, 1998. The value of unexercised in-the-money options at 1998 fiscal
year end is based on the fair market value of our common stock at September 30,
1998, or $1.3325 per share, less the exercise price payable for these shares.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
END (#) AT FISCAL YEAR END ($)
---------------------- ----------------------
NAME VESTED UNVESTED VESTED UNVESTED
- -------------------------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Keith J. Krach............................................................ -- -- -- --
Edward P. Kinsey.......................................................... -- -- -- --
Robert J. DeSantis........................................................ -- 200,000 -- $ 66,500
Rune C. Eliasen........................................................... -- -- -- --
David L. Rome............................................................. -- -- -- --
</TABLE>
CHANGE OF CONTROL ARRANGEMENTS
The compensation committee of the board of directors, as administrator of
the 1999 Equity Incentive Plan, can provide for accelerated vesting of the
shares of common stock subject to outstanding options held by any executive
officer or director of Ariba in connection with certain changes in control of
Ariba. The accelerated vesting may be conditioned on the termination of the
individual's employment following the change in control event.
None of the Named Officers have employment agreements with us, and they may
resign and we may terminate their employment at any time.
1999 EXECUTIVE BONUS PROGRAM
We have a bonus program pursuant to which selected officers and other
full-time employees are eligible for annual cash bonuses based on our
achievement of specified objectives. For 1999, an officer's target bonus will be
awarded based on our achievement of revenue targets, customer bookings targets,
income targets and customer satisfaction targets and other individual objectives
to be determined by the compensation committee of the board of directors.
1999 EQUITY INCENTIVE PLAN
Ariba's 1999 Equity Incentive Plan was adopted by our board of directors on
April 20, 1999 and our stockholders will also be asked to approve the adoption
of the plan. We have reserved 2,400,000 shares of common stock for issuance
under the 1999 Equity Incentive Plan. Any shares not yet issued under our 1996
Stock Plan as of the date of this offering will also be available for grant
under the 1999 Equity Incentive Plan. As of January 1 of each year, commencing
with the year 2000, the number of shares we reserve for issuance under the 1999
Equity Incentive Plan will be increased automatically by 5% of the total number
of shares of common stock then outstanding or, if less, by 2,000,000 shares. As
of March 31, 1999, we had not granted any options under the 1999 Equity
Incentive Plan.
Under the 1999 Equity Incentive Plan, the eligible individuals are
employees, non-employee members of the board of directors and consultants. The
types of awards that may be made under the 1999 Equity Incentive Plan are
options to purchase shares of common stock, stock appreciation rights,
restricted shares
57
<PAGE>
and stock units. Options may be incentive stock options that qualify for
favorable tax treatment for the optionee under Section 422 of the Internal
Revenue Code of 1986 or nonstatutory stock options not designed to qualify for
such favorable tax treatment. With limited restrictions, if shares awarded under
the 1999 Equity Incentive Plan or the 1996 Stock Plan are forfeited, then those
shares will again become available for new awards under the 1999 Equity
Incentive Plan.
The compensation committee of our board of directors administers the 1999
Equity Incentive Plan. The committee has complete discretion to make all
decisions relating to the interpretation and operation of the 1999 Equity
Incentive Plan, including the discretion to determine which eligible individuals
are to receive any award, and to determine the type, number, vesting
requirements and other features and conditions of each award.
The exercise price for incentive stock options granted under the 1999 Equity
Incentive Plan may not be less than 100% of the fair market value of the common
stock on the option grant date. The exercise price for non-qualified options
granted under the 1999 Equity Incentive Plan may not be less than 85% of the
fair market value of the common stock on the option grant date. The exercise
price may be paid in cash or in outstanding shares of common stock. The exercise
price may also be paid by using a cashless exercise method, a pledge of shares
to a broker or promissory note. The purchase price for newly issued restricted
shares awarded under the 1999 Equity Incentive Plan may be paid in cash, by
promissory note or by the rendering of past or future services.
The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.
Upon certain defined events causing a change in control of Ariba, an option
or other award under the 1999 Equity Incentive Plan will become fully
exercisable or fully vested if the option or award is not assumed by the
surviving corporation or its parent or if the surviving corporation or its
parent does not substitute another award on substantially the same terms.
In addition, if a change in control occurs more than 12 months after the
optionee's vesting start date, then the option or award shall vest as to the
lesser of:
- 50% of the then remaining unvested portion of the option or award; or
- the excess of (1) 75% of the total number of shares originally subject to
the option or award over (2) the number of shares that had already vested.
Each option or award shall fully vest after a change in control if the
optionee's employment or service is terminated without his or her consent and
without cause; or the optionee resigns after he or she is subject to a reduction
in authority or responsibility or a reduction in compensation or benefits.
Change in control includes:
- a merger or consolidation of Ariba after which our then current
stockholders own less than 50% of the surviving corporation;
- sale of all or substantially all of the assets of Ariba;
- a proxy contest that results in replacement of more than one-third of our
directors over a 24-month period; or
- an acquisition of 50% or more of our outstanding stock by a person other
than a person related to Ariba, such as a corporation owned by the
stockholders of Ariba.
In the event of a merger or other reorganization, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed
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<PAGE>
by the surviving corporation or its parent, shall be continued by us if Ariba is
the surviving corporation, shall have accelerated vesting and then expire early,
or shall be canceled for a cash payment.
Our board of directors may amend or terminate the 1999 Equity Incentive Plan
at any time. If our board amends the plan, stockholder approval of the amendment
will be sought only if required by an applicable law. The 1999 Equity Incentive
Plan will continue in effect indefinitely unless our board decides to terminate
the plan earlier.
EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted our Employee Stock Purchase Plan on April 20,
1999, and our stockholders will also be asked to approve the adoption of the
plan. We have reserved 4,000,000 shares of common stock for issuance under the
Employee Stock Purchase Plan. As of January 1 each year, we will increase the
number of shares we reserve for issuance under the Employee Stock Purchase Plan
automatically by 2% of the total number of shares of our common stock
outstanding or, if less, 750,000 shares.
The Employee Stock Purchase Plan is intended to qualify under Section 423 of
the Internal Revenue Code. Two overlapping offering periods each with a duration
of 24 months will commence on February 1 and August 1 each calendar year.
However, the first offering period will commence on the effective date of the
offering and end on July 31, 2001. Purchases of common stock will occur on
January 31 and July 31 each calendar year during an offering period. The
Employee Stock Purchase Plan will be administered by the compensation committee
of our board of directors. Each of our employees is eligible to participate if
he or she is employed by us for at least 20 hours per week and for more than
five months per year.
The Employee Stock Purchase Plan permits each eligible employee to purchase
our common stock through payroll deductions. Each employee's payroll deductions
may not exceed 15% of the employee's cash compensation. The initial period
during which payroll deductions will be accumulated will begin on the effective
date of this offering and end on January 31, 2000. No more than 2,000 shares may
be purchased on any purchase date. The price of each share of common stock
purchased under the Employee Stock Purchase Plan will be 85% of the lower of (1)
the fair market value per share of common stock on the date immediately before
the first date of the applicable offering period or (2) the fair market value
per share of common stock on the purchase date. In the case of the first
offering period, the price per share under the plan will be 85% of the price
offered to the public in the offering. Employees may end their participation in
the Employee Stock Purchase Plan at any time. Participation ends automatically
upon termination of employment with Ariba.
In the event of a change in control of Ariba, the Employee Stock Purchase
Plan will end and shares will be purchased with the payroll deductions
accumulated to date by participating employees. The board may amend or terminate
the Employee Stock Purchase Plan at any time. If our board of directors
increases the number of shares of common stock reserved for issuance under the
Employee Stock Purchase Plan, we must seek the approval of our stockholders.
1999 DIRECTORS' STOCK OPTION PLAN
The 1999 Directors' Stock Option Plan was adopted by our board of directors
on April 20, 1999, and our stockholders will also be asked to approve the
adoption of the plan. Under the 1999 Directors' Stock Option Plan, non-employee
members of our board of directors will be eligible for automatic option grants.
We have reserved 500,000 shares of our common stock for issuance under the
1999 Directors' Stock Option Plan. We have not yet granted any options under the
1999 Directors' Stock Option Plan. The compensation committee of the board of
directors will make any administrative determinations under the 1999 Directors'
Stock Option Plan.
59
<PAGE>
The exercise price for options granted under the 1999 Directors' Stock
Option Plan may be paid in cash or in outstanding shares of common stock.
Options may also be exercised on a cashless basis through the same-day sale of
the purchased shares.
Each individual who first joins the board as a non-employee director on or
after the effective date of this offering will receive at that time an option
grant for 10,000 shares of our common stock. In addition, at each annual meeting
of our stockholders, beginning in 2000, each non-employee director will
automatically be granted at that meeting, whether or not he or she is standing
for re-election at that particular meeting, a stock option to purchase 2,500
shares of our common stock. The initial option will become exercisable for 50%
of the shares at the grant date and the balance after 12 months of board
service. Each option will have an exercise price equal to the fair market value
of our common stock on the automatic grant date. Each option will have a maximum
term of ten years, but will terminate earlier if the optionee ceases to be a
member of our board of directors. Each option will fully vest automatically upon
a change in control. Change in control has the same meaning under this plan as
it does in the 1999 Equity Incentive Plan.
Our board of directors may amend or modify the 1999 Directors' Stock Option
Plan at any time. The 1999 Directors' Stock Option Plan will terminate on April
19, 2009, unless the board of directors decides to terminate the plan sooner.
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<PAGE>
CERTAIN TRANSACTIONS
Since our inception on September 17, 1996, we have issued and sold preferred
stock to the following persons who are our principal stockholders, executive
officers or directors.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
SERIES A SERIES B
PREFERRED PREFERRED
INVESTOR STOCK STOCK
- --------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Entities affiliated with Benchmark Capital Management Co., L.L.C................. 6,000,000 480,000
Crosspoint Venture Partners 1996................................................. 5,000,000 320,000
Keith J. Krach................................................................... 340,000 34,000
Hatim A. Tyabji.................................................................. -- 96,000
</TABLE>
Shares held by all affiliated persons and entities have been aggregated.
Share numbers and purchase price information are reflected on an as if converted
into shares of common stock basis. See "Principal Stockholders" for more detail
on shares held by these purchasers. The per share purchase price for the Series
A preferred stock was $.50. The per share purchase price for the Series B
preferred stock was $3.125. Robert C. Kagle, one of our directors, is an
affiliate of each of the entities affiliated with Benchmark Capital Management
Co., L.L.C. John B. Mumford, one of our directors, is an affiliate of Crosspoint
Venture Partners 1996.
In addition, we have granted options to some of our directors and executive
officers. See "Management--Director Compensation," "--Option Grants in Last
Fiscal Year" and "Principal Stockholders."
We intend to enter into an indemnification agreement with each of our
executive officers and directors.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board of directors, and will continue to
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of March 31, 1999, and as adjusted to reflect the sale of
shares offered and the conversion of all outstanding shares of preferred stock
into shares of common stock held by (1) each person who we know to own
beneficially more than five percent of our common stock, (2) each of the Named
Officers, (3) each of our directors and (4) all directors and executive officers
as a group.
Under the rules of the Securities and Exchange Commission, beneficial
ownership includes voting or investment power with respect to securities and
includes the shares issuable under stock options that are exercisable within 60
days of March 31, 1999. Shares issuable under stock options are deemed
outstanding for computing the percentage of the person holding options but are
not outstanding for computing the percentage of any other person. The number of
shares of common stock outstanding after this offering includes
shares of common stock being offered for sale by us in this offering. The
percentage of beneficial ownership for the following table is based on
37,216,996 shares of common stock outstanding as of March 31, 1999 assuming
conversion of all outstanding shares of preferred stock into common stock, and
shares of common stock outstanding after the completion of this
offering assuming no exercise of the underwriters' over-allotment option.
Unless otherwise indicated, the address for each listed stockholder is: c/o
Ariba, Inc., 1314 Chesapeake Terrace, Sunnyvale, California 94089. To our
knowledge, except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY OWNED
OWNED ------------------------
------------ BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------------------------------------------------ ------------ ----------- -----------
<S> <C> <C> <C>
Entities affiliated with
Benchmark Capital Management Co., L.L.C.(1) ................................ 6,480,000 17.4%
Crosspoint Venture Partners 1996(2) .......................................... 5,320,000 14.3
Robert C. Kagle(1)............................................................ 6,480,000 17.4
John B. Mumford(2)............................................................ 5,320,000 14.3
Keith J. Krach................................................................ 5,261,200 14.1
Robert J. DeSantis(3)......................................................... 1,921,600 5.1
Paul Hegarty(4)............................................................... 1,439,380 3.9
Edward P. Kinsey(5)........................................................... 1,228,104 3.3
Rune C. Eliasen(6)............................................................ 680,000 1.8
David L. Rome................................................................. 640,000 1.7
Hatim A. Tyabji............................................................... 296,000 *
All directors and executive officers as a group(7) (13 persons)............... 26,017,760 69.9
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 5,689,152 shares held by Benchmark Capital Partners, L.P. and
790,848 shares held by Benchmark Founders' Fund, L.P. Mr. Kagle, a director
of Ariba, is a General Partner of Benchmark Capital Management Co., L.L.C.,
which is the general partner of each of Benchmark Capital Partners, L.P. and
Benchmark Founders' Fund, L.P. Mr. Kagle disclaims beneficial ownership of
the shares held by Benchmark Capital Partners, L.P. and Benchmark Founders'
Fund, L.P. except to the extent of his pecuniary interest therein arising
from his general partnership interest. The address of Benchmark Capital
Management Co., L.L.C., is 2480 Sand Hill Road, Suite 200, Menlo Park, CA
94025.
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<PAGE>
(2) Mr. Mumford, a director of Ariba, is a Managing Member of Crosspoint
Associates 1996, which is the general partner of Crosspoint Venture Partners
1996. Mr. Mumford disclaims beneficial ownership of the shares held by
Crosspoint Venture Partners 1996 except to the extent of his pecuniary
interest therein arising from his ownership interest. The address of
Crosspoint Venture Partners 1996 is The Pioneer Building, 2925 Woodside
Road, Woodside, CA 94062.
(3) Includes options immediately exercisable for 200,000 shares. Excludes 80,000
shares subject to options not immediately exercisable.
(4) Includes options immediately exercisable for 244,800 shares. Excludes
299,200 shares subject to options not immediately exercisable.
(5) Includes options immediately exercisable for 42,104 shares. Also includes
20,000 shares held by Lisa J. Kinsey as Custodian for Katelind Irene Kinsey
under the Uniform Transfers to Minors Act and 20,000 shares held by Lisa J.
Kinsey as Custodian for Grant Stephen Kinsey under the Uniform Transfers to
Minors Act. Excludes 117,896 shares subject to options not immediately
exercisable.
(6) Includes options immediately exercisable for 40,000 shares.
(7) Includes options immediately exercisable for 1,166,380 shares. Excludes
1,177,620 shares subject to options not immediately exercisable.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 200,000,000 shares of common stock,
$.002 par value, and 20,000,000 shares of preferred stock, $.002 par value,
after giving effect to the amendment and restatement of our amended and restated
certificate of incorporation to delete references to Series A, Series B and
Series BB preferred stock, which will occur upon conversion of such preferred
stock into common stock upon the closing of this offering, and the subsequent
authorization of shares of undesignated preferred stock, as described below.
COMMON STOCK
As of March 31, 1999, there were 37,216,996 shares of common stock
outstanding after giving effect to the conversion of our Series A, Series B and
Series BB preferred stock into common stock at a four-to-one ratio that were
held of record by approximately 159 stockholders. There will be shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and assuming no exercise after March 31, 1999 of
outstanding options, after giving effect to the sale of the shares of common
stock to the public offered and the conversion of our Series A, Series B and
Series BB preferred stock into common stock at a four-to-one ratio.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available at times and in
amounts as the board may determine from time to time. See "Dividend Policy." The
holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Upon the liquidation, dissolution or winding up
of Ariba, the holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights and is not subject to redemption. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
On the closing of this offering, our amended and restated certificate of
incorporation will authorize 20,000,000 shares of preferred stock. The board of
directors has the authority to issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions of each series,
such as dividend rights, dividend rates, conversion rights, voting rights, terms
of redemption, redemption prices, liquidation preferences and the right to
increase or decrease the number of shares of any series, without further vote or
action by the stockholders. The board of directors may issue preferred stock
with voting or conversion rights that may have the effect of delaying, deferring
or preventing a change in control of Ariba and could adversely affect the market
price of the common stock and the voting and other rights of the holders of
common stock. We currently have no plans to issue any of the preferred stock.
WARRANTS
As of March 31, 1999, there were warrants outstanding to purchase 570,944
shares of common stock with a weighted average exercise price of $3.29. A
warrant to purchase 14,544 shares expires three years from the date of this
offering. A warrant to purchase 32,000 shares expires on October 31, 2003. A
warrant to purchase 524,400 shares expires upon the closing of this offering.
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<PAGE>
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The amended and restated certificate of incorporation provides that all
stockholder actions must be effected at a duly called meeting and not by a
consent in writing. This provision could discourage potential acquisition
proposals and could delay or prevent a change of control of Ariba because a
potential acquisition of Ariba could not be approved by the stockholders without
a duly called meeting. See "Risk Factors--We Have Implemented Certain
Anti-Takeover Provisions."
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to various exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder. This restriction applies unless:
- the transaction is approved by the board of directors prior to the date
the stockholder became an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (1) persons who are
directors and also officers and (2) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to the date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder,
subject to various exceptions;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person who owns 15% or more of the outstanding voting stock of the corporation,
and any entity or person affiliated with or controlling or controlled by the
entity or person.
REGISTRATION RIGHTS
After this offering, the holders of approximately 29,850,556 shares of
outstanding common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act. The holders of
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<PAGE>
registration rights are those investors that purchased shares of our Series A,
Series B and Series BB preferred stock, as well as some of our present and
former officers. Under the terms of the agreements between us and the holders of
these registrable securities, if we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, the holders are entitled to
notice of the registration and are entitled to include these shares in the
registration. Some of the stockholders benefiting from these rights may also
require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
reasonable efforts to effect a registration. Further, holders may require us to
file additional registration statements on Form S-3 at our expense. These rights
are subject to conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares included in that
registration under certain circumstances.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is .
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Therefore, future sales of substantial amounts of our common stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, because only a limited number of shares will be available for sale
shortly after this offering due to existing contractual and legal restrictions
on resale as described below, sales of substantial amounts of our common stock
in the public market after the restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have shares of common
stock outstanding, assuming no exercise of options and warrants outstanding as
of March 31, 1999, and the conversion of all outstanding shares of preferred
stock. Of these shares, shares sold in this offering will be freely
transferable without restriction or registration under the Securities Act,
except for any shares purchased by one of our existing "affiliates," as that
term is defined in Rule 144 under the Securities Act. The remaining 37,216,996
shares of common stock existing are "restricted shares" as defined in Rule 144.
Restricted shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 of the
Securities Act. As a result of the contractual restrictions described below and
the provisions of Rules 144 and 701, additional shares will be available for
sale in the public market as follows: (1) none of the restricted shares will be
eligible for immediate sale on the date of this prospectus and (2) all of the
restricted shares will be eligible for sale upon expiration of lock-up
agreements 120 days after the date of this prospectus subject to Rule 144.
LOCK-UP AGREEMENTS
Ariba, our directors and executive officers and certain of our stockholders
and option holders have each agreed not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock, for
a period of 120 days after the date of this prospectus, without the prior
written consent of Morgan Stanley & Co. Incorporated, subject to limited
exceptions. Morgan Stanley & Co. Incorporated, however, may in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person, or persons whose shares are aggregated, who owns shares
that were purchased from us, or any affiliate, at least one year previously, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of our then-outstanding shares of common stock, which
will equal approximately shares immediately after this offering, or the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice of the sale on
Form 144. Sales under Rule 144 are also subject to manner of sale provisions,
notice requirements and the availability of current public information about us.
Any person, or persons whose shares are aggregated who is not deemed to have
been one of our affiliates at any time during the three months preceding a sale,
and who owns shares within the definition of "restricted securities" under Rule
144 that were purchased from us, or any affiliate, at least two years
previously, would be entitled to sell the shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
RULE 701
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees,
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<PAGE>
directors, officers, consultants or advisers prior to the date we become subject
to the reporting requirements of the Securities Exchange Act of 1934, or the
Exchange Act, under written compensatory benefit plans or written contracts
relating to the compensation of these persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of the options, including exercises after the date of this prospectus.
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this prospectus, may be sold by persons other than affiliates subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its minimum holding period requirements.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of approximately 29,850,556
shares of common stock, or their transferees, will be entitled to various rights
with respect to the registration of these shares under the Securities Act.
Registration of these shares under the Securities Act would result in these
shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration, except for shares
purchased by affiliates. See "Description of Capital Stock--Registration
Rights."
STOCK OPTIONS
As of March 31, 1999, options to purchase a total of 8,105,260 shares of
common stock under our 1996 Stock Plan were outstanding and exercisable. All of
the shares subject to options are subject to lock-up agreements. As of March 31,
1999, warrants to purchase up to 570,944 shares of common stock were outstanding
and exercisable. An additional 1,380,700 shares of common stock were available
for future option grants under the 1996 Stock Plan. On April 20, 1999, we
adopted, subject to stockholder approval, the 1999 Equity Incentive Plan to
replace the 1996 Stock Plan, with an increase of shares available for issuance
of 2,400,000 shares, plus an additional number of shares equal to 5% of the
shares outstanding on January 1 of each year or, if less, 2,000,000 shares each
year. In addition, on April 20, 1999, we adopted, subject to stockholder
approval, the Employee Stock Purchase Plan, and reserved 4,000,000 shares of
common stock for issuance, and the 1999 Directors' Stock Option Plan, and
reserved 500,000 shares of common stock for issuance. See "Management--1999
Equity Incentive Plan," "--Employee Stock Purchase Plan," "--1999 Directors'
Stock Option Plan" and Note 6 of Notes to Consolidated Financial Statements.
We intend to file registration statements under the Securities Act covering
all shares of common stock subject to outstanding options or issuable pursuant
to our 1999 Equity Incentive Plan and 1999 Directors' Stock Option Plan, and
4,000,000 shares of common stock issuable under our Employee Stock Purchase
Plan. We expect to file the registration statement covering shares issuable
pursuant to the Employee Stock Purchase Plan on the effective date of this
offering and to file the registration statement covering shares offered under
the 1999 Equity Incentive Plan and 1999 Directors' Stock Option Plan
approximately 30 days after the closing of this offering. Subject to Rule 144
volume limitations applicable to affiliates, shares registered under any
registration statements will be available for sale in the open market, beginning
90 days after the date of the prospectus, except to the extent that the shares
are subject to vesting restrictions with us or the contractual restrictions
described above. See "Management--1999 Equity Incentive Plan," "--Employee Stock
Purchase Plan" and "--1999 Directors' Stock Option Plan."
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<PAGE>
UNDERWRITERS
Under the terms and subject to conditions contained in an underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated are acting as representatives, have severally agreed to purchase,
and Ariba has agreed to sell to the underwriters, the respective number of
shares of common stock set forth opposite the names of such underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated.....................................................
BT Alex. Brown Incorporated...........................................................
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated.......................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................................
----------------
Total............................................................................
----------------
----------------
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from Ariba and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by us in this offering
are subject to the approval of legal matters by their counsel and to other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered by us in this offering, other than those covered by the
over-allotment option described below, if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ per share to other underwriters or to certain dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.
Ariba has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price set forth
on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of common stock offered by us in this offering. To the extent such option
is exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of common stock as the number set forth next to such underwriter's name
in the preceding table bears to the total number of shares of common stock set
forth next to the names of the underwriters in the preceding table.
The underwriters have informed Ariba that the underwriters do not intend
sales to discretionary accounts to exceed five percent of the total number of
shares of common stock offered by them.
Ariba has applied to list the common stock on the Nasdaq National Market
under the symbol "ARBA."
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares of common stock offered by us in
this offering for directors, officers, employees, business associates and
related persons of Ariba. The number of shares of common stock available for
sale
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<PAGE>
to the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not so purchased will be offered
by the underwriters to the general public on the same basis as the other shares
offered hereby.
Ariba, our directors and executive officers and certain of our stockholders
and option holders have each agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, he, she or it
will not, during the period ending 120 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other agreement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the common
stock.
The restrictions described in the previous paragraph do not apply to:
- the issuance by Ariba of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or
- transactions by any person other than Ariba relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
Ariba and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price will be determined
by negotiations between us and the representatives of the underwriters. Among
the factors to be considered in determining the initial public offering price
will be:
- the future prospects of Ariba and its industry in general;
- sales, earnings and certain other financial operating information of Ariba
in recent periods; and
- the price-earnings ratios, price-sales ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to those of Ariba.
The estimated initial public offering price range set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.
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<PAGE>
LEGAL MATTERS
The validity of the issuance of the common stock offered by us in this
offering will be passed upon for us by Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Menlo Park, California. Members of Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, participating in the consideration
of legal matters relating to the common stock offered by us in this offering are
the beneficial owners of 12,800 shares of our common stock. Legal matters in
connection with this offering will be passed upon for the underwriters by
Fenwick & West LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements as of September 30, 1997 and 1998 and
for each of the years in the two-year period ended September 30, 1998 have been
included in this registration statement in reliance upon the report of KPMG LLP,
independent auditors, given and upon the authority of said firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
us and our common stock, reference is made to the registration statement and the
exhibits and schedules filed as a part of the registration statement. Statements
contained in this prospectus concerning the contents of any contract or any
other document referred to are not necessarily complete; reference is made in
each instance to the copy of the contract or document filed as an exhibit to the
registration statement. Each such statement is qualified in all respects by
reference to that exhibit. The registration statement, including exhibits and
schedules, may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission. The Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov.
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<PAGE>
ARIBA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Form of Independent Auditors' Report................................................. F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations and Other Comprehensive Income (Loss).......... F-4
Consolidated Statements of Stockholders' Equity...................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
When the recapitalization, which includes a stock split, referred to in Note
6 of the Consolidated Financial Statements has been consummated, we will be in a
position to render the following report.
/s/ KPMG LLP
FORM OF INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ariba, Inc.:
We have audited the accompanying consolidated balance sheets of Ariba, Inc.
and subsidiaries (the Company) as of September 30, 1997 and 1998, and the
related consolidated statements of operations and other comprehensive income
(loss), stockholders' equity, and cash flows for each of the years then ended.
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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ariba, Inc. and subsidiaries as of September 30, 1997 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Mountain View, California
April 22, 1999, except as to
Note 6, which is as of
, 1999
F-2
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, 1999
-------------------- ----------------------
1997 1998 ACTUAL PRO FORMA
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 15,471 $ 8,305 $ 14,615 $ 16,345
Short-term investments................................................ -- 5,627 6,818 6,818
Restricted cash....................................................... -- -- 800 800
Accounts receivable................................................... 222 2,600 6,316 6,316
Prepaid expenses and other current assets............................. 135 255 2,053 2,053
--------- --------- --------- -----------
Total current assets................................................ 15,828 16,787 30,602 32,332
Property and equipment, net............................................. 861 2,217 4,075 4,075
Other assets............................................................ 111 238 378 378
--------- --------- --------- -----------
$ 16,800 $ 19,242 $ 35,055 $ 36,785
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 896 $ 962 $ 1,445 $ 1,445
Accrued compensation and related liabilities.......................... 115 1,704 3,759 3,759
Accrued liabilities................................................... 560 1,264 2,396 2,396
Deferred revenue...................................................... 332 4,409 18,759 18,759
Current portion of long-term debt..................................... 240 297 400 400
--------- --------- --------- -----------
Total current liabilities........................................... 2,143 8,636 26,759 26,759
Long-term debt, net of current portion.................................. 140 647 646 646
--------- --------- --------- -----------
Total liabilities................................................... 2,283 9,283 27,405 27,405
--------- --------- --------- -----------
Commitments
Stockholders' equity:
Convertible preferred stock, $.002 par value; actual--10,000,000
shares authorized; 4,127,900, 4,461,294 and 4,461,294 shares issued
and outstanding as of September 30, 1997 and 1998, and March 31,
1999; liquidation preferences of $18,914, $23,214 and $23,214 in
aggregate as of September 30, 1997 and 1998 and March 31, 1999; pro
forma--20,000,000 shares authorized; no shares issued and
outstanding......................................................... 8 9 9 --
Common stock, $.002 par value; actual--80,000,000 shares authorized;
18,227,400, 19,092,040 and 19,371,820 shares issued and outstanding
as of September 30, 1997 and 1998 and March 31, 1999, respectively;
pro forma-- 200,000,000 shares authorized; 37,741,396 shares issued
and outstanding..................................................... 36 38 39 75
Additional paid-in capital............................................ 19,302 28,218 49,339 51,042
Deferred stock-based compensation..................................... (150) (2,735) (17,942) (17,942)
Accumulated other comprehensive income (loss)......................... -- 61 (35) (35)
Accumulated deficit................................................... (4,679) (15,632) (23,760) (23,760)
--------- --------- --------- -----------
Total stockholders' equity.......................................... 14,517 9,959 7,650 9,380
--------- --------- --------- -----------
$ 16,800 $ 19,242 $ 35,055 $ 36,785
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License....................................... $ 630 $ 6,040 $ 807 $ 10,500
Maintenance and service....................... 130 2,323 408 5,838
--------- --------- --------- ---------
Total revenues.............................. 760 8,363 1,215 16,338
--------- --------- --------- ---------
Cost of revenues:
License....................................... 13 165 17 250
Maintenance and service....................... 927 1,373 510 2,509
--------- --------- --------- ---------
Total costs of revenues..................... 940 1,538 527 2,759
--------- --------- --------- ---------
Gross profit (loss)............................. (180) 6,825 688 13,579
--------- --------- --------- ---------
Operating expenses:
Sales and marketing........................... 2,235 10,311 3,333 11,302
Research and development...................... 1,899 4,499 1,963 3,849
General and administrative.................... 588 2,580 880 2,698
Amortization of stock-based compensation...... 50 956 79 4,045
--------- --------- --------- ---------
Total operating expenses.................... 4,772 18,346 6,255 21,894
--------- --------- --------- ---------
Loss from operations............................ (4,952) (11,521) (5,567) (8,315)
Other income, net............................... 273 568 268 187
--------- --------- --------- ---------
Net loss........................................ $ (4,679) $ (10,953) $ (5,299) $ (8,128)
--------- --------- --------- ---------
Other comprehensive income (loss):
Unrealized gain (loss) on short-term
investments................................. -- 61 -- (80)
Foreign currency translation adjustment....... -- -- -- (16)
--------- --------- --------- ---------
Other comprehensive income (loss)............... -- 61 -- (96)
--------- --------- --------- ---------
Comprehensive loss.............................. $ (4,679) $ (10,892) $ (5,299) $ (8,224)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted net loss per share............ $ (7.31) $ (1.90) $ (1.19) $ (0.84)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing basic and diluted net
loss per share................................ 639,587 5,761,912 4,455,761 9,694,493
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED ACCUMULATED
STOCK COMMON STOCK ADDITIONAL DEFERRED OTHER
---------------------- ---------------------- PAID-IN STOCK-BASED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS)
--------- ----------- --------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock......... -- $ -- 14,086,400 $ 28 $ 180 $ (200) $ --
Issuance of Series A convertible
preferred stock, net of
issuance costs of $12.......... 3,112,800 6 -- -- 6,208 -- --
Issuance of Series B convertible
preferred stock, net of
issuance costs of $30.......... 1,015,100 2 -- -- 12,656 -- --
Issuance of common stock--options
exercised...................... -- -- 5,339,000 10 258 -- --
Repurchase of common stock....... -- -- (1,198,000) (2) -- -- --
Amortization of stock-based
compensation................... -- -- -- -- -- 50 --
Net loss......................... -- -- -- -- -- -- --
--------- ----- --------- --- ----------- ------------- ---
Balances, September 30, 1997..... 4,127,900 8 18,227,400 36 19,302 (150) --
Issuance of Series B convertible
preferred stock, net of
issuance costs of $3........... 144,000 -- -- -- 1,798 -- --
Issuance of Series BB convertible
preferred stock, net of
issuance costs of $7........... 189,394 1 -- -- 2,493 -- --
Issuance of common stock--options
exercised...................... -- -- 1,109,640 2 487 -- --
Repurchase of common stock....... -- -- (245,000) -- -- -- --
Deferred stock-based
compensation................... 3,541 (3,541) --
Amortization of stock-based
compensation................... -- -- -- -- -- 956 --
Issuance of warrants for common
stock.......................... -- -- -- -- 504 -- --
Issuance of warrants for
preferred stock................ -- -- -- -- 93 -- --
Other comprehensive income....... -- -- -- -- -- -- 61
Net loss......................... -- -- -- -- -- -- --
--------- ----- --------- --- ----------- ------------- ---
Balances, September 30, 1998..... 4,461,294 9 19,092,040 38 28,218 (2,735) 61
Issuance of common stock--options
exercised (unaudited).......... -- -- 1,461,300 3 1,872 -- --
Repurchase of common stock
(unaudited).................... -- -- (1,181,520) (2) (3) -- --
Deferred stock-based compensation
(unaudited).................... -- -- -- 19,252 (19,252)
Amortization of stock-based
compensation (unaudited)....... -- -- -- -- -- 4,045 --
Other comprehensive loss
(unaudited).................... -- -- -- -- -- -- (96)
Net loss (unaudited)............. -- -- -- -- -- -- --
--------- ----- --------- --- ----------- ------------- ---
Balances, March 31, 1999
(unaudited).................... 4,461,294 $ 9 19,371,820 $ 39 $ 49,339 $ (17,942) $ (35)
--------- ----- --------- --- ----------- ------------- ---
--------- ----- --------- --- ----------- ------------- ---
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Issuance of common stock......... $ -- $ 8
Issuance of Series A convertible
preferred stock, net of
issuance costs of $12.......... -- 6,214
Issuance of Series B convertible
preferred stock, net of
issuance costs of $30.......... -- 12,658
Issuance of common stock--options
exercised...................... -- 268
Repurchase of common stock....... -- (2)
Amortization of stock-based
compensation................... -- 50
Net loss......................... (4,679) (4,679)
------------ -------------
Balances, September 30, 1997..... (4,679) 14,517
Issuance of Series B convertible
preferred stock, net of
issuance costs of $3........... -- 1,798
Issuance of Series BB convertible
preferred stock, net of
issuance costs of $7........... -- 2,494
Issuance of common stock--options
exercised...................... -- 489
Repurchase of common stock....... -- --
Deferred stock-based
compensation................... -- --
Amortization of stock-based
compensation................... -- 956
Issuance of warrants for common
stock.......................... -- 504
Issuance of warrants for
preferred stock................ -- 93
Other comprehensive income....... -- 61
Net loss......................... (10,953) (10,953)
------------ -------------
Balances, September 30, 1998..... (15,632) 9,959
Issuance of common stock--options
exercised (unaudited).......... -- 1,875
Repurchase of common stock
(unaudited).................... -- (5)
Deferred stock-based compensation
(unaudited).................... -- --
Amortization of stock-based
compensation (unaudited)....... -- 4,045
Other comprehensive loss
(unaudited).................... -- (96)
Net loss (unaudited)............. (8,128) (8,128)
------------ -------------
Balances, March 31, 1999
(unaudited).................... $ (23,760) $ 7,650
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................. $ (4,679) $ (10,953) $ (5,299) $ (8,128)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 112 644 196 496
Amortization of stock-based compensation............. 50 956 79 4,045
Non-cash warrant expense............................. -- 521 7 13
Loss on disposition of property and equipment........ 22 4 -- --
Changes in operating assets and liabilities:
Accounts receivable................................ (222) (2,378) 69 (3,716)
Prepaid expenses and other assets.................. (246) (171) (119) (674)
Accounts payable................................... 896 66 (145) 483
Accrued compensation and related liabilities....... 115 1,589 197 2,055
Accrued liabilities................................ 560 704 74 1,116
Deferred revenue................................... 332 4,077 1,177 14,350
--------- --------- --------- ---------
Net cash provided by (used) in operating
activities......................................... (3,060) (4,941) (3,764) 10,040
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment.................. (995) (896) (275) (2,033)
Proceeds from the sales of short term investments.... -- -- -- 1,369
Purchases of short-term investments.................. -- (5,566) -- (2,640)
Allocation to restricted cash........................ -- -- -- (800)
--------- --------- --------- ---------
Net cash used in investing activities................ (995) (6,462) (275) (4,104)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Borrowings under long-term debt...................... 400 -- -- --
Repayments under long-term debt...................... (20) (544) (139) (219)
Proceeds from sale of convertible preferred stock,
net................................................ 18,872 4,292 1,798 --
Proceeds from sale of common stock................... 275 489 154 598
Repurchase of common stock........................... (1) -- -- (5)
--------- --------- --------- ---------
Net cash provided by financing activities............ 19,526 4,237 1,813 374
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents... 15,471 (7,166) (2,226) 6,310
Cash and cash equivalents at beginning of period....... -- 15,471 15,471 8,305
--------- --------- --------- ---------
Cash and cash equivalents at end of period............. $ 15,471 $ 8,305 $ 13,245 $ 14,615
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during period for interest................. $ 14 $ 120 $ 75 $ 52
--------- --------- --------- ---------
--------- --------- --------- ---------
Non-cash investing and financing activities:
Assets recorded under capital leases............... $ -- $ 1,108 $ 1,108 $ 321
--------- --------- --------- ---------
--------- --------- --------- ---------
Warrants issued for financing commitments.......... $ -- $ 93 $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Ariba, Inc. (Ariba or the Company) is a provider of intranet- and
Internet-based business-to-business electronic commerce solutions for operating
resources. Ariba's Operating Resources Management System (ORMS) is a robust,
scalable and reliable network application that operates primarily within a
buying organization's intranet. Ariba ORMS enables organizations to automate the
procurement cycle by linking enclosures throughout the organization with
approvers and financial systems and by channeling purchases to preferred
suppliers, enabling reduced operating costs and improved productivity. The
recently launched Ariba.com network is a global business-to-business electronic
commerce network for operating resources, enabling buyers and suppliers to
automate transactions on the Internet.
The Company was incorporated on September 17, 1996, under the laws of the
state of Delaware and commenced operations on that date. The Company is
headquartered in Sunnyvale, California, and has offices throughout the United
States. Subsequent to year end, the Company established three wholly-owned
subsidiaries, namely Ariba Canada, Inc., Ariba Technologies U.K. Limited and
Ariba Technologies Nederland B.V., which are located in Canada, the United
Kingdom and The Netherlands, respectively.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared using
an inception date of October 1, 1996, as no significant operating activities
occurred between September 17, 1996, the date of incorporation, and September
30, 1996. The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported results of operations during the reporting period.
Actual results could differ from those estimates.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements, and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the Company's financial position as of March 31, 1999, and the
results of its operations and its cash flows for the six months ended March 31,
1998 and 1999.
F-7
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's international subsidiaries is the
local currency of the country in which it operates. Assets and liabilities are
translated using the exchange rate at the balance sheet date. Revenues,
expenses, gains, and losses are translated at the exchange rate on the date
those elements are recognized. Any translation adjustments are included in other
comprehensive income (loss).
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. As of September 30, 1997 and
1998, cash equivalents consist of money market funds in the amount of
$15,392,000 and $8,288,000 respectively.
The Company classifies its short-term investments as "available-for-sale."
Such investments are recorded at fair value based on quoted market prices, with
unrealized gains and losses, which are considered to be temporary, recorded as
other comprehensive income (loss) until realized.
In March 1999, the Company entered into a new facilities operating lease
agreement (see Note 5). As part of this agreement, the Company is required to
hold a certificate of deposit as a form of security. As of March 31, 1999, the
certificate of deposit amounted to $800,000, and this is classified as
restricted cash.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
The carrying value of the Company's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable and long-term
debt approximates fair market value. Financial instruments that subject the
Company to concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments and trade accounts receivable. Management
believes the financial risks associated with these financial instruments are
minimal. The Company maintains its cash and cash equivalents and short term
investments with high quality financial institutions. The Company's customer
base consists of businesses throughout North America. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral on accounts receivable, as the Company's customers are large,
well-established companies. To date, the Company has had no write-offs of
accounts receivable.
F-8
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
Significant customer information is as follows:
<TABLE>
<CAPTION>
% OF TOTAL REVENUES ACCOUNTS RECEIVABLE
------------------------ ------------------------
1997 1998 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Customer A...................................................... 39% -- -- --
Customer B...................................................... 28% -- -- --
Customer C...................................................... 26% -- 45% --
Customer D...................................................... -- 21% -- --
Customer E...................................................... -- 18% -- 25%
Customer F...................................................... -- 13% -- --
Customer G...................................................... -- 13% -- 43%
Customer H...................................................... -- 11% -- --
</TABLE>
CAPITALIZED SOFTWARE
Costs related to the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility of the product has been established, at which time
such costs are capitalized, subject to expected recoverability. To date, the
Company had not capitalized any development costs related to software products.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the equipment, generally three to five years. Equipment recorded
under capital leases and leasehold improvements are amortized using the
straight-line method over the shorter of the respective lease term or the
estimated useful life of the asset.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of any asset to future 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 exceed 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.
REVENUE RECOGNITION
On October 1, 1997 the Company adopted Statement of Position (SOP) 97-2,
SOFTWARE REVENUE RECOGNITION, which supersedes SOP 91-1, SOFTWARE REVENUE
RECOGNITION. The adoption of SOP 97-2 did not have a material effect on the
Company's operating results. SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements to be allocated to each
element based on the relative fair values of the elements. License revenue
allocated to software products generally is recognized upon
F-9
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
delivery of the products or ratably over a contractual period if unspecified
software products are to be delivered during that period. Revenue allocated to
maintenance is recognized ratably over the maintenance term and revenue
allocated to training and other service elements is recognized as the services
are performed.
If the services are considered essential to the functionality of the
software products, both the software product revenue and service revenue are
recognized using the percentage of completion method in accordance with the
provisions of SOP 81-1, ACCOUNTING FOR PERFORMANCE OF CONSTRUCTION TYPE AND
CERTAIN PRODUCTION TYPE CONTRACTS.
Cost of license revenue primarily includes product, delivery and royalty
costs. Cost of maintenance and service revenue consists primarily of labor costs
for engineers performing implementation services and technical support personnel
and facilities and equipment costs.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is recorded to reduce deferred tax
assets to an amount whose realization is more likely than not. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
STOCK-BASED COMPENSATION
The Company uses the intrinsic value-based method of accounting for all of
its employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized on an accelerated basis over the vesting period
of the individual award consistent with the method described in Financial
Accounting Standards Board (FASB) Interpretation No 28.
ACCUMULATED OTHER COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes
standards of reporting and display of comprehensive income and its components of
net income and "Other Comprehensive Income" in a full set of general purpose
financial statements. "Other Comprehensive Income" refers to revenues, expenses,
gains and losses that are not included in net income but rather are recorded
directly in stockholders' equity. SFAS 130 was adopted by the Company in 1998.
Tax effects of comprehensive income (loss) are not considered material.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of
vested outstanding shares of common stock. Diluted net loss per share is
computed using the weighted-average number of shares of
F-10
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
vested common stock outstanding and, when dilutive, unvested common stock
outstanding, potential common shares from options and warrants to purchase
common stock using the treasury stock method and from convertible securities
using the as-if-converted basis. All potential common shares have been excluded
from the computation of diluted net loss per share for all periods presented
because the effect would be antidilutive. Pursuant to the Securities and
Exchange Commission (SEC) Staff Accounting Bulletin No. 98, common stock and
convertible preferred stock issued for nominal consideration, prior to the
anticipated effective date of the IPO, are included in the calculation of basic
and diluted net loss per share as if they were outstanding for all periods
presented. To date, the Company has not had any issuances or grants for nominal
consideration. Diluted net loss per share does not include the effect of the
following common equivalent shares:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Shares issuable under stock options.................................. 653,200 3,568,960
Shares of unvested stock subject to repurchase....................... 14,781,800 10,290,760
Shares issuable pursuant to warrants to purchase common and
convertible preferred stock........................................ -- 570,944
Shares of convertible preferred stock on an "as if converted"
basis.............................................................. 16,511,600 17,845,176
</TABLE>
The weighted-average exercise price of stock options outstanding was $0.14
and $0.77 as of September 30, 1997 and 1998, respectively. The weighted average
purchase price of unvested stock was $0.05 and $0.06 as of September 30, 1997
and 1998, respectively. The weighted average exercise price of warrants was
$3.29 as of September 30, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires disclosure of certain
information regarding operating segments, products and services, geographic
areas of operation, and major customers. Management is in the process of
evaluating the financial reporting impact of this pronouncement. The Company
will adopt SFAS No. 131 in fiscal 1999.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the Company expects the adoption of SFAS No. 133 will not
have a material impact on its financial position, results of operations or cash
flows. The Company will be required to adopt SFAS No. 133 in fiscal 2000.
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE. SOP 98-1 establishes the accounting for costs of software
products developed or purchased for internal use, including when such costs
should be capitalized. The Company does not expect SOP 98-1 to have a material
effect on its financial position, results of operations or cash flows. The
Company will adopt SOP 98-1 in fiscal 2000.
F-11
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
In April 1998, the AcSEC issued SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. Under SOP 98-5, the cost of start-up activities should be expensed
as incurred. The Company expects that the adoption of SOP 98-5 will not have a
material impact on its financial position, results of operations or cash flows.
The Company will be required to adopt SOP 98-5 in fiscal 2000.
2. FINANCIAL STATEMENT COMPONENTS
SHORT-TERM INVESTMENTS
The following is a summary of available for sale securities as of September
30, 1998 (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
Government bonds............................................... $ 8,387 $ 61 -- $ 8,448
Money market funds............................................. 5,467 -- -- 5,467
--
----------- --- ---------
13,854 61 -- 13,915
Less amounts classified as cash equivalents.................... 8,288 -- -- 8,288
--
----------- --- ---------
Securities available for sale.................................. $ 5,566 $ 61 -- $ 5,627
--
--
----------- --- ---------
----------- --- ---------
</TABLE>
As of September 1998, the weighted average portfolio duration and
contractual maturity was 15 months. The Company had no short term investments as
of September 30, 1997.
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of September 30, 1997
and 1998 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment and purchased software............................ $ 668 $ 1,648
Office equipment..................................................... 130 300
Furniture and fixtures............................................... 175 609
Leasehold improvements............................................... -- 416
--------- ---------
973 2,973
Less accumulated depreciation and amortization....................... 112 756
--------- ---------
$ 861 $ 2,217
--------- ---------
--------- ---------
</TABLE>
Certain computer and office equipment are recorded under capital leases that
aggregated $1,108,000 as of September 30, 1998. Accumulated amortization on the
assets recorded under capital leases aggregated $277,000 as of September 30,
1998.
F-12
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
OTHER INCOME (NET)
Other income, net, consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Interest income, net................................................... $ 289 $ 568
Other expense.......................................................... (16) --
--------- ---------
$ 273 $ 568
--------- ---------
--------- ---------
</TABLE>
3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
In September 1996 and May 1997, the Company issued 3,112,800 shares of
Series A convertible preferred stock at $2.00 per share. From August 1997
through December 1997, the Company issued 1,159,100 shares of Series B
convertible preferred stock at $12.50 per share. In April 1998, the Company
issued 189,394 shares of Series BB convertible preferred stock at $13.20 per
share.
The rights, preferences, and privileges of the holders of Series A, B and BB
convertible preferred stock are as follows:
- The holders of Series A, B and BB preferred stock are entitled to receive
annual dividends at the rate of $.16, $1.00 and $1.06 per share,
respectively, payable when and if declared by the Company's Board of
Directors, in preference and priority to any payments of dividends to
holders of the Company's common stock. The dividend rights are not
cumulative. No dividends have been declared or paid on preferred stock
since inception of the Company.
- Shares of Series A, B and BB preferred stock have a liquidation preference
of $2.00, $12.50 and $13.20 per share, respectively; plus any declared but
unpaid dividends. Shares of Series A also have pro rata liquidation rights
with the common stock in any remaining assets after distribution to common
stockholders, up to a total of $8.00 per share.
- Each share of preferred stock is convertible into four shares of common
stock, subject to adjustment for certain dilutive issuances, splits, or
combinations. Conversion will occur upon written consent of the holders of
preferred stock and automatically upon an initial public offering at a
price of not less than $3.125 per share, which price increases ratably at
approximately 10% annually beginning with the issuance date of the Series
B preferred stock, and with aggregate proceeds equal to or exceeding
$7,500,000.
- Holders of Series A, B and BB preferred stock vote equally with shares of
common stock on an "as if converted" basis.
- Holders of Series A, B and BB preferred stock possess certain registration
rights and the right to participate in future financings.
F-13
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
- The Company has authorized and designated 3,112,800, 1,167,100 and 200,000
shares as Series A-1, B-1 and BB-1 preferred stock, respectively, and such
shares have rights and preferences similar to the Series A, B and BB
preferred stock, except that they are not entitled to antidilution
protection.
WARRANTS
In November 1997, in connection with a lease line arrangement, the Company
issued warrants to purchase 8,000 shares of the Company's Series B convertible
preferred stock at a price of $12.50 per share, the fair value on the date of
issuance. The warrants are immediately exercisable and expire October 31, 2003.
The fair value of the warrants of $62,000 was calculated using the Black-Scholes
option pricing model and is being amortized to interest expense over the term of
the lease, 42 months.
In June 1998, in connection with a marketing arrangement, the Company issued
warrants to purchase 524,400 shares of the Company's common stock at a price of
$3.30 per share. The warrants are immediately exercisable and expire on the
earliest of (i) January 1, 2002, (ii) the effective date of the Company's
initial public offering, (iii) on a sale or transfer by the Company of all or
substantially all of its assets or (iv) on the acquisition of the Company by
another entity. The fair value of the warrants of $504,000 was calculated using
the Black-Scholes option pricing model and is included in sales and marketing
expense for the year ended September 30, 1998.
In August 1998, in connection with an additional lease line arrangement, the
Company issued warrants to purchase 3,636 shares of the Company's Series BB
convertible preferred stock at a price of $13.20 per share, the fair value on
the date of issuance. The warrants are immediately exercisable and expire on the
earliest of (i) August 26, 2005 or (ii) three years from the effective date of
the Company's initial public offering. The fair value of the warrants of $31,000
was calculated using the Black-Scholes option pricing model and is being
amortized to interest expense over the term of the lease, 42 months.
COMMON STOCK
In September 1996, 14,086,400 shares of common stock were issued to the
Company's founders at $.001 per share. Upon issuance, the Company had the right
to repurchase 100% of these shares at $.001 per share. These shares were issued
subject to vesting based upon continued employment, with the repurchase right
generally expiring ratably through September 2000. As of September 30, 1998,
6,045,200 shares of common stock issued to the Company's founders were subject
to repurchase. Certain shares immediately vest upon a change in control of the
Company, in an amount equal to the lesser of 50% of unvested shares or the
number of unvested shares, that when added to the vested shares, equals 75% of
shares purchased by that stockholder. Based on management's estimate of the fair
value of these shares, the Company recorded $200,000 of deferred stock-based
compensation expense. This amount is being amortized over the four-year vesting
period.
The Company has a right of first refusal to repurchase all vested shares of
common stock at the then current fair market value. All unvested shares of
common stock may be repurchased by the Company at the original issuance price
upon an individual's termination of service with the Company. The right of first
refusal expires upon an initial public offering of the Company's common stock.
F-14
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the 1996 Stock Plan) authorizes the
granting of incentive and nonstatutory common stock options to employees,
directors, and consultants at exercise prices no less than 85% of the fair
market value of the common stock on the grant date, as determined by the Board
of Directors. Stock options generally vest 25% after one year of service and
thereafter ratably over 36 months of service and generally have a term of 10
years. The 1996 Stock Plan also allows for exercise of unvested options. Shares
of common stock issued to employees upon exercise of unvested options are
subject to repurchase by the Company at the original exercise price. The
Company's ability to repurchase these shares expires at a rate consistent with
the vesting schedule of each option. Any right to repurchase shares upon an
employee's termination of service lapses and all shares vest if the Company is
subject to a change in control unless the Company's repurchase right is assumed
by the acquiring entity. As of September 30, 1998, 4,245,560 shares of common
stock were issued upon the exercise of unvested options subject to repurchase.
Approximately 10,244,000 shares of common stock have been reserved for issuance
under the 1996 Stock Plan as of September 30, 1998. As of September 1997 and
1998, the Company has 4,268,200 and 495,800 shares available for grant,
respectively.
On October 5, 1998 and March 16, 1999, the Board of Directors increased the
number of authorized shares of common stock for issuance under the 1996 Stock
Plan by 4,600,000 and 2,200,000 shares, respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of its stock options when the exercise price of each option equals or
exceeds the fair value of the underlying common stock as of the grant date for
each stock option. With respect to the stock options granted since inception
through March 1999, the Company recorded deferred stock-based compensation of
$22,374,000 for the difference at the grant date between the exercise price and
the fair value of the common stock underlying the options. This amount is being
amortized in accordance with FASB Interpretation No. 28 over the vesting period
of the individual options, generally 4 years.
Had compensation cost been determined in accordance with SFAS No. 123 for
all of the Company's stock-based compensation plans, net loss and net loss per
share would have been changed to the amounts indicated below (in thousands,
except per share data):
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net loss:
As reported......................................................... $ (4,679) $ (10,953)
Pro forma........................................................... (4,685) (11,000)
Basic and diluted net loss per share:
As reported......................................................... (7.31) (1.90)
Pro forma........................................................... $ (7.32) $ (1.91)
</TABLE>
F-15
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
The fair value of each stock option is estimated on the date of grant using
the minimum value method with no expected dividends and the following
weighted-average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
2.50 2.60
Expected life......................................................... years years
Risk-free interest rate............................................... 6.00% 5.50%
Volatility (for nonemployees)......................................... 60% 60%
</TABLE>
A summary of the 1996 Stock Plan is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------- SIX MONTHS ENDED MARCH
1997 1998 31, 1999
------------------------ ------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period............. -- $ -- 653,200 $ .14 3,568,960 $ .77
Granted...................................... 5,976,200 .06 4,272,400 .76 6,106,800 2.53
Exercised.................................... (5,323,000) .05 (1,101,640) .45 (1,461,300) 1.32
Forfeited.................................... -- -- (255,000) .44 (109,200) .23
----------- ----------- -----------
Outstanding at end of period................... 653,200 .14 3,568,960 .77 8,105,260 2.00
----------- ----------- -----------
----------- ----------- -----------
Exercisable at end of period................... 653,200 .14 3,568,960 .77
----------- -----------
----------- -----------
Weighted-average fair value of options granted
during the period at market.................. 5,976,200 .01 1,034,000 .07
Weighted-average fair value of options granted
during the period at less than market........ -- -- 3,238,400 1.18
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 1998:
<TABLE>
<CAPTION>
OUTSTANDING
-------------------------------------- EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
- ------------------------------------------ ---------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$.05...................................... 380,000 8.75 $ .05 380,000 $ .05
.31 - .38................................. 806,960 9.20 .35 806,960 .35
.50 - 1.00................................ 1,629,000 9.63 .88 1,629,000 .88
1.33...................................... 753,000 9.81 1.33 753,000 1.33
---------- ----------
.05 - 1.33................................ 3,568,960 9.47 .77 3,568,960 $ .77
---------- ----------
---------- ----------
</TABLE>
F-16
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
The following table summarizes information about shares subject to
repurchase as of September 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED-
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER OF CONTRACTUAL REPURCHASE
PRICES SHARES LIFE (YEARS) PRICE
- ------------------------------------------ ------------ ------------- -------------
<S> <C> <C> <C>
$.001 - $.05.............................. 9,227,720 8.17 $ .02
$.31 - $.38............................... 846,040 9.19 .35
$.50 - $1.00.............................. 217,000 9.58 .83
------------
$.001 - $1.00............................. 10,290,760 8.29 $ .06
------------
------------
</TABLE>
4. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets as of September 30, 1997 and 1998, are as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves.................................................... $ 426 $ 1,095
Depreciation and amortization............................................ 20 87
Deferred start-up costs.................................................. 530 310
Net operating loss carryforwards......................................... 1,508 4,386
--------- ---------
Total gross deferred tax assets........................................ 2,484 5,878
Less valuation allowance............................................... 2,484 5,878
--------- ---------
Net deferred taxes..................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company has provided a valuation allowance due to the uncertainty of
generating future profits that would allow for the realization of such deferred
tax assets.
The reconciliation between the amount computed by applying the U.S. federal
statutory tax rate of 34% to income taxes and the actual provision for income
taxes as of September 30, 1997 and 1998 follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Income tax at statutory rate............................................. $ (1,591) $ (3,724)
Nondeductible expenses................................................... 6 416
Net operating loss and temporary differences for which no benefit was
realized............................................................... 1,585 3,308
--------- ---------
Total................................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. INCOME TAXES (CONTINUED)
As of September 30, 1998, the Company has net operating loss carryforwards
for federal and state tax purposes of approximately $11,500,000 and $8,300,000,
respectively. These federal and state carryforwards begin to expire in 2012 and
2004, respectively.
The Internal Revenue Code of 1986, and applicable state tax laws, impose
substantial restrictions on the ability of the Company to utilize net operating
losses and tax credit carryforwards in the event of an "ownership change," as
defined in Section 382 of the Internal Revenue Code. The Company's federal and
state tax losses and tax credit carryover incurred through that date of change
are subject to an annual limitation.
F-18
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
5. LONG-TERM DEBT AND LEASE COMMITMENTS
The Company leases certain equipment and its facilities under various
noncancelable operating leases. The leases expire from 1999 to 2004. The Company
also leases certain computer equipment under capital leases. Future minimum
lease payments under operating leases as of September 30, 1998, are as follows
(in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- ----------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
1999............................................................................... $ 361 $ 1,333
2000............................................................................... 361 951
2001............................................................................... 310 851
2002............................................................................... -- 851
2003............................................................................... -- 828
Thereafter......................................................................... -- 729
--------- -----------
Total minimum lease payments....................................................... 1,032 $ 5,543
-----------
-----------
Less amount representing imputed interest.......................................... 88
---------
Present value of minimum lease payments............................................ 944
Less current portion............................................................... 297
---------
Capital lease obligations, less current portion.................................... $ 647
---------
---------
</TABLE>
Rental expense was $371,000 and $865,000 for the years ended September 30,
1997 and 1998, respectively.
On November 22, 1996, the Company entered into an equipment line of credit
for $400,000 with a financial institution and $380,000 was outstanding under the
line of credit as of September 30, 1997. In August 1998, the Company repaid the
entire amount outstanding under the line of credit and the line of credit was
terminated.
In November 1997, the Company entered into a lease line arrangement with a
lending company in which the Company can obtain financing for up to $2,000,000.
The lease term commences on January 1, 1998, and is for 42 months. Warrants to
purchase up to 8,000 shares of Series B preferred stock, at an exercise price of
$12.50 per share, were issued in conjunction with the lease line agreement (see
Note 3).
In August, 1998 the Company entered into an additional lease line
arrangement with a lending company in which the Company can obtain financing for
up to $1,000,000. The lease term commences on August 26, 1998, and is for 42
months. Warrants to purchase up to 3,636 shares of Series BB preferred stock, at
an exercise price of $13.20 per share, were issued in conjunction with the lease
line agreement (see Note 3).
In March, 1999, the Company entered into a new facilities operating sublease
agreement. The lease term commences on May 1, 1999 and is for 90 months. Lease
payments are made on an escalating basis with the total future minimum lease
payments amounting to approximately $14,319,000 over the lease term. The Company
must also contribute $1,316,000 toward initial improvement costs. In addition,
the Company has also entered into a sub-sublease agreement for the same
facilities. The Company has subleased part of the facilities from May 1, 1999
for a period of 8 months. Minimum sub-sublease receipts total approximately
$269,000.
F-19
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
In April 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC), that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering (IPO). If the offering is
consummated under the terms presently anticipated, all of the outstanding shares
of the Company's convertible preferred stock will automatically convert into
shares of common stock on a one-for-four basis, upon closing of the proposed
IPO. The conversion of the convertible preferred stock and exercise of the
common stock warrants for 524,400 shares has been reflected in the accompanying
unaudited pro forma consolidated balance sheet.
STOCK SPLIT
On both March 16, 1999 and on April 20, 1999, the Board of Directors
approved a two-for-one stock split of the Company's common stock thus effecting
an overall four-for-one stock split as of April 20, 1999. The accompanying
consolidated financial statements have been restated to give effect to the stock
splits.
AUTHORIZED SHARES
On April 20, 1999, the Board of Directors increased the number of authorized
shares of common stock to 80,000,000, subject to stockholder approval. The
accompanying consolidated financial statements have been restated to give effect
to the increased authorized shares. If the offering is consummated, the
authorized number of shares of common stock and preferred stock will increase to
200,000,000 and 20,000,000, respectively.
EQUITY INCENTIVE PLAN
The Company's Board of Directors approved the Equity Incentive Plan (the
Incentive Plan) on April 20, 1999 under which 2,400,000 shares have been
reserved for issuance. In addition, any shares not issued under the 1996 Stock
Plan will also be available for grant. The number of shares reserved under the
Incentive Plan will automatically increase annually beginning on January 1, 2000
by the lesser of 2,000,000 shares or 5% of the total amount of common stock
shares outstanding. Under the Incentive Plan, eligible employees may purchase
stock options, stock appreciation rights, restricted shares, and stock units.
The exercise price for incentive stock options and non-qualified options may not
be less than 100% and 85%, respectively, of the fair value of common stock at
the option grant date.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors adopted the Employee Stock Purchase Plan
(the Purchase Plan) on April 20, 1999 under which 4,000,000 shares have been
reserved for issuance. The Purchase Plan is pending approval by the
stockholders. The number of shares reserved under the Incentive Plan will
automatically increase beginning on January 1 of each year by the lesser of
750,000 shares or 2% of the total amount of common stock shares outstanding.
Under the Purchase Plan, eligible employees may purchase common stock in an
amount not to exceed 15% of the employees cash compensation. The
F-20
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
purchase price per share will be 85% of the common stock fair value at the lower
of certain plan defined dates.
DIRECTORS STOCK OPTION PLAN
The Company's Board of Directors adopted the Directors' Stock Option Plan
(the Directors Plan) on April 20, 1999 under which 500,000 shares have been
reserved for issuance. The Directors Plan is pending approval by the
stockholders. Each non-employee joining the Board of Directors following the
effective date of the initial public offering will automatically receive options
to purchase 10,000 shares of common stock. In addition, each non-employee
director will automatically receive options to purchase 2,500 shares of common
stock at each annual meeting of the Board of Directors beginning after January
1, 2000. Each option will have an exercise price equal to the fair value of the
common stock on the automatic grant date.
F-21
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 13,900
NASD fee........................................................... 5,500
Nasdaq National Market initial listing fee......................... 1,000
Printing and engraving............................................. *
Legal fees and expenses of the Registrant.......................... *
Accounting fees and expenses....................................... *
Directors and officers liability insurance......................... *
Blue sky fees and expenses......................................... *
Transfer agent fees................................................ *
Miscellaneous...................................................... *
---------
Total.......................................................... *
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933
(the "Act"). Article VII of the Registrant's Bylaws provides for mandatory
indemnification of its directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Amended and Restated Certificate of
Incorporation provides that, pursuant to Delaware law, its directors shall not
be liable for monetary damages for breach of the directors' fiduciary duty as
directors to the Registrant and its stockholders. This provision in the Amended
and Restated Certificate of Incorporation does not eliminate the directors'
fiduciary duty, and in appropriate circumstances equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant has
entered into Indemnification Agreements with its officers and directors, a form
of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. The Registrant maintains liability insurance
for its directors and officers. Reference is also made to Section of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities, and Section 1.9 of
the Amended and Restated Investor Rights Agreement contained in Exhibit 4.1
hereto, indemnifying certain of the Company's stockholders, including
controlling stockholders, against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since our formation, we have issued and sold the following securities:
1. On September 17, 1996, we issued and sold an aggregate of 14,537,600
shares of its common stock to nine founders of the Company for an aggregate
purchase price of $7,268.80.
2. On September 27, 1996, we issued and sold 12,000,000 shares of Series A
Preferred Stock to a group of eight investors for an aggregate purchase price of
$6,000,000.
3. On November 13, 1996, we issued and sold an aggregate of 16,000 shares
of its common stock to five individuals for an aggregate purchase price of $800.
4. On May 9, 1997, we issued and sold an aggregate of 451,200 shares of its
Series A Preferred Stock to one investor for an aggregate purchase price of
$225,600.
5. On August 15, 1997, we issued and sold 4,060,400 shares of Series B
Preferred Stock to a group of 26 investors for an aggregate purchase price of
$12,688,750.
6. On October 15, 1997, we issued and sold an additional 160,000 shares of
Series B Preferred Stock to an additional investor for an aggregate purchase
price of $500,000.
7. On November 11, 1997, we issued and sold a warrant to purchase 32,000
shares of Series B Preferred Stock to Lighthouse Capital Partners II, L.P.
8. On December 19, 1997, we issued and sold an additional 416,000 shares of
Series B Preferred Stock to an additional two investors for an aggregate
purchase price of $1,300,000.
9. On April 17, 1998, we issued and sold 757,576 shares of Series BB
Preferred Stock to an investor for an aggregate purchase price of $2,500,000.80.
10. On June 30, 1998, we issued and sold a warrant to purchase 524,400
shares of common stock to Chevron Corporation.
11. On July 15, 1998, we issued and sold 8,000 shares of common stock to
Blanc & Otus for an aggregate purchase price of $8,000.
12. On August 26, 1998, we issued and sold a warrant to purchase 14,544
shares of Series BB Preferred Stock to Comdisco, Inc.
13. We issued and sold an aggregate of 7,885,940 shares (assuming no
exercise of stock options after March 31, 1999) of common stock to employees,
consultants and other service providers pursuant to stock grants and exercises
of options under our 1996 Stock Plan (Exhibit 10.2).
14. We granted options to purchase 16,399,400 shares of common stock to
employees, consultants and other service providers of the Company under our 1996
Stock Plan, of which 7,885,940 shares have been exercised as of March 31, 1999.
The share amounts referred to in Part II of this registration statement
reflect the two-for-one split of the common stock effected in March 1999 and the
two-for-one split of the common stock to be effected prior to the closing of
this offering and gives effect to the conversion of all outstanding shares of
preferred stock into common stock effective upon the closing of this offering.
The sale of the above securities was deemed to be exempt from registration
under the Act in reliance upon Section 4(2) of the Act or Rule 701 promulgated
under Section 3(b) of the Act as transactions by an issuer not involving any
public offering or transactions pursuant to compensation benefit plans and
contracts relating to compensation as provided under Rule 701. 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
II-2
<PAGE>
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
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended to date.
3.2* Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed after the closing
of the offering made pursuant to this Registration Statement.
3.3 Bylaws of the Registrant.
3.4* Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering made
pursuant to this Registration Statement.
4.1 Amended and Restated Investors' Rights Agreement, dated April 17, 1998.
4.2* Specimen Certificate of the Registrant's common stock.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.
10.1 Form of Indemnification Agreement entered into between the Registrant and its directors and executive
officers.
10.2 1996 Stock Plan, as amended.
10.3* 1999 Equity Incentive Plan.
10.4* 1999 Directors' Stock Option Plan.
10.5* Employee Stock Purchase Plan.
10.6 Industrial Complex Lease, dated August 11, 1997, by and between MP Caribbean, Inc. and the Registrant.
10.7 Lease Agreement, dated June 12, 1996, by and between Charleston Place Associates and U.S. Robotics Access
Corp., as amended.
10.8 Sublease, dated February 1999, by and between 3Com Corporation, successor in interest to U.S. Robotics
Access Corp., and the Registrant.
23.1 Consent of Independent Accountants (see page S-1).
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.
Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see signature page hereto).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be supplied by amendment.
(b) Financial Statement Schedule
Financial Statement Schedules are not listed because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Amended and Restated
Certificate of Incorporation or the Bylaws of the Registrant, Indemnification
Agreements entered into between the Registrant and its officers and directors,
the Underwriting Agreement, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on this 22nd day of April, 1999.
<TABLE>
<S> <C> <C>
ARIBA, INC.
By: /s/ KEITH J. KRACH
-----------------------------------------
Keith J. Krach
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Keith J. Krach and Edward P. Kinsey, and
each of them, his or her true and lawful attorneys-in-fact and agents with full
power of substitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective on filing pursuant to Rule 462(b) promulgated
under the Securities Act of 1933, and all post-effective amendments thereto, and
to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or her or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
President, Chief Executive
/s/ KEITH J. KRACH Officer and Chairman of
- ------------------------------ the Board (Principal April 22, 1999
Keith J. Krach Executive Officer)
Chief Financial Officer,
Vice President--Finance
/s/ EDWARD P. KINSEY and Administration and
- ------------------------------ Secretary (Principal April 22, 1999
Edward P. Kinsey Financial and Accounting
Officer)
/s/ ROBERT C. KAGLE
- ------------------------------ Director April 22, 1999
Robert C. Kagle
/s/ PAUL HEGARTY
- ------------------------------ Director April 21, 1999
Paul Hegarty
/s/ JOHN B. MUMFORD
- ------------------------------ Director April 22, 1999
John B. Mumford
/s/ HATIM A. TYABJI
- ------------------------------ Director April 22, 1999
Hatim A. Tyabji
</TABLE>
II-5
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our form of report included herein and to the
references to our firm under the headings "Experts" and "Selected Consolidated
Financial Data" in the prospectus.
/s/ KPMG LLP
Mountain View, California
April 22, 1999
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended to date.
3.2* Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed after the
closing of the offering made pursuant to this Registration Statement.
3.3 Bylaws of the Registrant.
3.4* Amended and Restated Bylaws of the Registrant to be effective upon the closing of the offering made
pursuant to this Registration Statement.
4.1 Amended and Restated Investors' Rights Agreement, dated April 17, 1998.
4.2* Specimen Certificate of the Registrant's common stock.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.
10.1 Form of Indemnification Agreement entered into between the Registrant and its directors and executive
officers.
10.2 1996 Stock Plan, as amended.
10.3* 1999 Equity Incentive Plan.
10.4* 1999 Directors' Stock Option Plan.
10.5* Employee Stock Purchase Plan.
10.6 Industrial Complex Lease, dated August 11, 1997, by and between MP Caribbean, Inc. and the
Registrant.
10.7 Lease Agreement, dated June 12, 1996, by and between Charleston Place Associates and U.S. Robotics
Access Corp., as amended.
10.8 Sublease, dated February 1999, by and between 3Com Corporation, successor in interest to U.S.
Robotics Access Corp., and the Registrant.
23.1 Consent of Independent Accountants (see page S-1).
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Registrant.
Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see signature page hereto).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
<PAGE>
Exhibit 1.1
_______________ SHARES
ARIBA, INC.
COMMON STOCK, $0.002 PAR VALUE
UNDERWRITING AGREEMENT
__________, 1999
<PAGE>
_____________, 1999
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Ariba, Inc., a Delaware corporation (the "COMPANY"), proposes to issue
and sell to the several Underwriters named in Schedule I hereto (the
"UNDERWRITERS") _______________ shares of its Common Stock, $0.002 par value
(the "FIRM SHARES"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional ______________ shares of its Common
Stock, $0.002 par value (the "ADDITIONAL SHARES") if and to the extent that you,
as Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES." The shares of Common
Stock, $0.002 par value, of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "COMMON STOCK."
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement.
Morgan Stanley & Co. Incorporated ("MORGAN STANLEY") has agreed to
reserve a portion of the Shares to be purchased by it under this Agreement for
sale to the Company's directors, officers, employees and business associates and
other parties related to the Company (collectively, "PARTICIPANTS"), as set
forth in the Prospectus under the heading "Underwriters" (the "DIRECTED SHARE
PROGRAM"). The Shares to be sold by Morgan Stanley pursuant to the
1
<PAGE>
Directed Share Program are referred to hereinafter as the "DIRECTED SHARES."
Any Directed Shares not orally confirmed for purchase by any Participant by
the end of the business day on which this Agreement is executed will be
offered to the public by the Underwriters as set forth in the Prospectus.
1. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are
2
<PAGE>
fully paid and non-assessable and are owned directly by the Company,
free and clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or
by-laws of the Company or any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company and
its subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under
3
<PAGE>
the Securities Act, complied when so filed in all material respects
with the Securities Act and the applicable rules and regulations of
the Commission thereunder.
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(p) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(q) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(r) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Company and
its subsidiaries have not incurred any material liability or obligations,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (2) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (3) there has not been any material
change in the capital stock, short-term
4
<PAGE>
debt or long-term debt of the Company and its subsidiaries, except in
each case as described in the Prospectus.
(s) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries, in each
case except as described in the Prospectus.
(t) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have a material adverse
affect on the Company and its subsidiaries, taken as a whole.
(u) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in the Prospectus, or,
to the knowledge of the Company, is imminent; and the Company is not aware
of any existing, threatened or imminent labor disturbance by the employees
of any its principal suppliers, manufacturers or contractors that could
have a material adverse effect on the Company and its subsidiaries, taken
as a whole.
(v) The Company and its subsidiaries are insured by the insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any of its subsidiaries has been
refused any insurance coverage sought or applied for; and neither the
Company nor any of its subsidiaries has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole, except as described in the Prospectus.
(w) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities
5
<PAGE>
necessary to conduct their respective business, and neither the Company
nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the Company and its subsidiaries, taken as a
whole, except as described in the Prospectus.
(x) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's general
or specific authorizations; (2) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (3)
access to assets is permitted only in accordance with management's general
or specific authorization; and (4) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations of
the Company or any of its subsidiaries will be affected by the Year 2000
Problem (that is, any significant risk that computer hardware or software
applications used by the Company and its subsidiaries will not, in the case
of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000); as a result of such review, (i) the Company has
no reason to believe, and does not believe, that (A) there are any issues
related to the Company's preparedness to address the Year 2000 Problem that
are of a character required to be described or referred to in the
Registration Statement or Prospectus which have not been accurately
described in the Registration Statement or Prospectus and (B) the Year 2000
Problem will have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, or result in any material loss or
interference with the business or operations of the Company and its
subsidiaries, taken as a whole; and (ii) the Company reasonably believes,
after due inquiry, that the suppliers, vendors, customers or other material
third parties used or served by the Company and such subsidiaries are
addressing or will address the Year 2000 Problem in a timely manner, except
to the extent that a failure to address the Year 2000 Problem by any
supplier, vendor, customer or material third party would not have a
material adverse effect on the condition, financial or otherwise, or on the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole.
(z) As of the date the Registration Statement became effective, the
Common Stock was authorized for listing on the Nasdaq National Market upon
official notice of issuance.
(aa) Substantially all of the outstanding shares of Common Stock, and
all securities convertible into or exercisable or exchangeable for Common
Stock, are subject
6
<PAGE>
to valid, binding and enforceable agreements (collectively, the "LOCK-UP
AGREEMENTS") in substantially the form attached as EXHIBIT A.
Furthermore, the Company represents and warrants to Morgan Stanley
that (i) the Registration Statement, the Prospectus and any preliminary
prospectus comply, and any further amendments or supplements thereto will
comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or
supplemented, if applicable, are distributed in connection with the Directed
Share Program, and that (ii) no authorization, approval, consent, license,
order, registration or qualification of or with any government, governmental
instrumentality or court, other than such as have been obtained, is necessary
under the securities laws and regulations of foreign jurisdictions in which
the Directed Shares are offered outside the United States.
The Company has not offered, or caused the Underwriters to offer,
Shares to any person pursuant to the Directed Share Program with the specific
intent to unlawfully influence (i) a customer or supplier of the Company to
alter the customer's or supplier's level or type of business with the Company,
or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees
to sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $______ a share (the "PURCHASE PRICE").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to _______________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 120 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or
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contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii)
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the Shares to be
sold hereunder or (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been advised in
writing.
3. TERMS OF PUBLIC OFFERING. The Company is advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Company
is further advised by you that the Shares are to be offered to the public
initially at $_____________ a share (the "PUBLIC OFFERING PRICE") and to certain
dealers selected by you at a price that represents a concession not in excess of
$______ a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of $_____ a
share, to any Underwriter or to certain other dealers.
4. PAYMENT AND DELIVERY. Payment for the Firm Shares shall
be made to the Company in Federal or other funds immediately available in New
York City against delivery of such Firm Shares for the respective accounts of
the several Underwriters at 10:00 a.m., New York City time, on ____________,
1999,(1) or at such other time on the same or such other date, not later than
_________, 1999,(2) as shall be designated in writing by you. The time and
date of such payment are hereinafter referred to as the "CLOSING DATE."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against
delivery of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such
other date, in any event not later than _______, 1999,(3) as shall be
designated in writing by you. The time and date of such payment are
hereinafter referred to as the "OPTION CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may
- ----------------
(1) Insert date 3 business days or, in the event the offering is priced
after 4:30 p.m. Eastern Time, 4 business days after date of Underwriting
Agreement.
(2) Insert date 5 business days after the date inserted in accordance with
note 6 above.
(3) Insert date 10 business days after the expiration of the green shoe
option.
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be. The certificates evidencing the Firm Shares and Additional Shares shall
be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, for the respective accounts of the several Underwriters, with
any transfer taxes payable in connection with the transfer of the Shares to
the Underwriters duly paid, against payment of the Purchase Price therefor.
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Company to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than [_____] (New York City time) on the
date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
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(c) The Underwriters shall have received on the Closing Date an
opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
outside counsel for the Company, dated the Closing Date, to the effect
that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the issuance
of the Shares have been duly authorized and are validly issued, fully
paid and non-assessable;
(v) all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly by the Company,
free and clear of all liens, encumbrances, equities or claims;
(vi) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
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(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or bylaws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale
of the Shares;
(ix) the statements (A) in the Prospectus under the captions "Risk
Factors - Shares Eligible for Future Sale," "Dividend Policy,"
"Certain Transactions," "Shares Eligible for Future Sale,"
"Description of Capital Stock" and "Underwriters" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as
such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(x) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and
are not so described or of any statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended; and
(xii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no reason
to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not
express any belief) the Registration Statement and the prospectus
included therein at the time the
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Registration Statement became effective contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (C) has no reason to believe that
(except for financial statements and schedules and other financial
and statistical data as to which such counsel need not express any
belief) the Prospectus contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Fenwick & West LLP, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 5(c)(vi),
5(c)(vii), 5(c)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and 5(c)(xiii) above.
With respect to Section 5(c)(xiii) above, Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP and Fenwick & West LLP may state that
their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments
or supplements thereto and review and discussion of the contents thereof,
but are without independent check or verification, except as specified.
The opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP described in Section 5(c) above shall be rendered to the
Underwriters at the request of the Company and shall so state therein.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from KPMG LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus; PROVIDED that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(f) The Lock-Up Agreements, each substantially in the form of Exhibit
A hereto, between you and certain shareholders, officers and directors of
the Company relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before the
date hereof, shall be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due
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authorization and issuance of the Additional Shares and other matters related
to the issuance of the Additional Shares.
6. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, five signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the
twelve-month period ending ________, 2000 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
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(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and the reasonable fees
and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the
National Association of Securities Dealers, Inc., (v) all fees and expenses
in connection with the preparation and filing of the registration statement
on Form 8-A relating to the Common Stock and all costs and expenses
incident to listing the Shares on the Nasdaq National Market, (vi) the cost
of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs
and expenses of the Company relating to investor presentations on any "road
show" undertaken in connection with the marketing of the offering of the
Shares, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and
the cost of any aircraft chartered in connection with the road show, and
(ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise
made in this Section. It is understood, however, that except as provided
in this Section, Section 7 entitled "Indemnity and Contribution", and the
last paragraph of Section 9 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel,
stock transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make.
(g) that in connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent required
by the National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. Morgan Stanley will notify the Company as
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to which Participants will need to be so restricted. The Company will
direct the transfer agent to place stop transfer restrictions upon such
securities for such period of time.
(h) the Company agrees: (i) to enforce the terms of each Lock-Up Agreement
and (ii) issue stop-transfer instructions to the transfer agent for the
Common Stock with respect to any transaction or contemplated transaction
that would constitute a breach of or default under the applicable Lock-Up
Agreement. In addition, without the prior written consent of Morgan
Stanley, the Company agrees: (i) not to amend or terminate, or waive any
right under, and Lock-Up Agreement, or take any other action that would
directly or indirectly have the same effect as an amendment or termination,
or waiver of any right under, any Lock-Up Agreement, that would permit any
holder of shares of Common Stock, or securities convertible into or
exercisable or exchangeable for Common Stock, to (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase,
lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, or
(ii) not to consent to any of the foregoing.
(i) the Company agrees to place a restrictive legend on any shares of
Common Stock acquired pursuant to the exercise, after the date hereof and
prior to the expiration of the 120-day period after the date of the
Prospectus, of any option granted under the Company's 1996 option plan,
which legend shall restrict the transfer of such shares prior to the
expiration of such 120-day period. In addition, the Company agrees that,
without the prior written consent of Morgan Stanley, it will not release
any stockholder or option holder from the market standoff provision imposed
by the Company pursuant to its 1996 option plan earlier than 120 days after
the date of the initial public offering of the Shares.
(j) to pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with Morgan Stanley that the
Company will comply with all applicable securities and other applicable laws,
rules and regulations in each foreign jurisdiction in which the Directed Shares
are offered in connection with the Directed Share Program.
7. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably
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incurred in connection with defending or investigating any such action or
claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by 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, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through
you expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 7(a) or 7(b), such person (the "INDEMNIFIED PARTY")
shall promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 7(a), and by the Company, in the case of
parties indemnified pursuant to Section 7(b). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse he indemnified party for
fees and expenses of counsel as contemplated by the
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second and third sentences of this paragraph, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding.
(d) To the extent the indemnification provided for in Section 7(a) or
7(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information andopportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 7 were determined by PRO
RATA allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 7(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
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Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in
this Section 7 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.
8. DIRECTED SHARE PROGRAM INDEMNIFICATION. (a) The Company
agrees to indemnify and hold harmless Morgan Stanley and each person, if any,
who controls Morgan Stanley within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act ("MORGAN STANLEY ENTITIES"),
from and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i) caused
by any untrue statement or alleged untrue statement of a material fact contained
in any material prepared by or with the consent of the Company for distribution
to Participants in connection with the Directed Share Program or caused by 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; (ii)
caused by the failure of any Participant to pay for and accept delivery of
Directed Shares that the Participant agreed to purchase; or (iii) related to,
arising out of, or in connection with the Directed Share Program, other than
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental investigation)
shall be instituted involving any Morgan Stanley Entity in respect of which
indemnity may be sought pursuant to Section 8(a), the Morgan Stanley Entity
seeing indemnity, shall promptly notify the Company in writing and the Company,
upon request of the Morgan Stanley Entity, shall retain counsel reasonably
satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity
and any others the Company may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Morgan Stanley Entity unless (i) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of both parties by the same counsel would be
inappropriate due to actual or
18
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potential differing interests between them. The Company shall not, in
respect of the legal expenses of the Morgan Stanley Entities in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all Morgan Stanley Entities. Any such separate
firm for the Morgan Stanley Entities shall be designated in writing by Morgan
Stanley. The Company shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Company agrees
to indemnify the Morgan Stanley Entities from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time a Morgan Stanley Entity shall have
requested the Company to reimburse it for fees and expenses of counel as
contemplated by the second and third sentences of this paragraph, the Company
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than
30 days after receipt by the Company of the aforesaid request and (ii) the
Company shall not have reimbursed the Morgan Stanley Entity in accordance
with such request prior to the date of such settlement. The Company shall
not, without the prior written consent of Morgan Stanley, effect any
settlement of any pending or threatened proceeding in respect of which any
Morgan Stanley Entity is or could have been a party and indemnity could have
been sought hereunder by such Morgan Stanley Entity, unless such settlement
includes an unconditional release of the Morgan Stanley Entities from all
liability on claims that are the subject matter of such proceeding.
(c) To the extent the indemnification provided for in Section 8(a) is
unavailable to a Morgan Stanley Entity or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then the Company in lieu of
indemnifying the Morgan Stanley Entity thereunder, shall contribute to the
amount paid or payable by the Morgan Stanley Entity as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Morgan Stanley Entities on the other hand from the offering of the Directed
Shares or (ii) if the allocation provided by clause 8(c)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(c)(i) above but also the
relative fault of the Company on the one hand and of the Morgan Stanley Entities
on the other hand in connection with any statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Morgan Stanley Entities on the other hand in connection with
the offering of the Directed Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Directed Shares (before
deducting expenses) and the total underwriting discounts and commissions
received by the Morgan Stanley Entities for the Directed Shares, bear to the
aggregate Public Offering Price of the Directed Shares. If the loss, claim,
damage or liability is caused by an untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact, the
relative fault of the Company on the one hand and the Morgan Stanley Entities on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement or the omission or alleged omission
relates to information supplie by the Company or by the Morgan Stanley Entities
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
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(d) The Company and the Morgan Stanley Entities agree that it would
not be just or equitable if contribution pursuant to this Section 8 were
determined by PRO RATA allocation (even if the Morgan Stanley Entities were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 8(c). The amount paid or payable by the Morgan Stanley Entities as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
the Morgan Stanley Entities in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 8, no
Morgan Stanley Entity shall be required to contribute any amount in excess of
the amount by which the total price at which the Directed Shares distributed to
the public were offered to the public exceeds the amount of any damages that
such Morgan Stanley Entity has otherwise been required to pay. The remedies
provided for in this Section 8 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
(e) The indemnity and contribution provisions contained in this
Section 8 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Morgan Stanley Entity or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Directed Shares.
9. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall
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be obligated severally in the proportions that the number of Firm Shares set
forth opposite their respective names in Schedule I bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; PROVIDED that in no event shall
the number of Shares that any Underwriter has agreed to purchase pursuant to
this Agreement be increased pursuant to this Section 9 by an amount in excess
of one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm
Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Firm Shares to be purchased, and arrangements
satisfactory to you and the Company for the purchase of such Firm Shares are
not made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and in
the Prospectus or in any other documents or arrangements may be effected.
If, on the Option Closing Date, any Underwriter or Underwriters shall fail or
refuse to purchase Additional Shares and the aggregate number of Additional
Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Additional Shares to be purchased, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation
hereunder to purchase Additional Shares or (ii) purchase not less than the
number of Additional Shares that such non-defaulting Underwriters would have
been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
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13. HEADINGS. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
Very truly yours,
ARIBA, INC.
By:____________________________
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:__________________________
Name:
Title:
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<PAGE>
SCHEDULE I
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
----------------
Total ........
----------------
----------------
<PAGE>
EXHIBIT A
________________, 1999
Morgan Stanley & Co. Incorporated
BT Alex. Brown Incorporated
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("MORGAN
STANLEY") proposes to enter into an Underwriting Agreement (the "UNDERWRITING
AGREEMENT") with Ariba, Inc., a Delaware corporation (the "COMPANY") providing
for the public offering (the "PUBLIC OFFERING") by the several Underwriters,
including Morgan Stanley (the "UNDERWRITERS"), of shares (the "SHARES") of the
Common Stock, $0.002 par value per share, of the Company (the "COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 120 days after the date of the final prospectus relating
to the Public Offering (the "PROSPECTUS"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement or (b) transactions
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 120 days after the date of the Prospectus, make any
demand for or exercise any right with respect to, the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
_______________________
(Name)
_______________________
(Address)
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ARIBA, INC.,
A DELAWARE CORPORATION
The undersigned, Keith J. Krach and Edward P. Kinsey hereby certify
that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The name of the corporation is Ariba, Inc. and that the
corporation was originally incorporated on September 17, 1996, under the name
ProcureSoft, Inc., pursuant to the General Corporation Law.
THREE: The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Ariba, Inc.
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted 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. This corporation is authorized to issue two
classes of stock, to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that this corporation is authorized to issue
is fifty million (50,000,000). Forty million (40,000,000) shares shall be
Common Stock, par value $.002 per share, and ten million (10,000,000) shares
shall be Preferred Stock, par value $.002 per share.
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF THE PREFERRED STOCK. The
Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The
rights, preferences, privileges, and restrictions granted to and imposed on the
Series A Preferred Stock, which series shall consist of three million one
<PAGE>
hundred twelve thousand eight hundred (3,112,800) shares (the "Series A
Preferred Stock"), the Series A-1 Preferred Stock, which series shall consist of
three million one hundred twelve thousand eight hundred (3,112,800) shares (the
"Series A-1 Preferred Stock"), the Series B Preferred Stock, which series shall
consist of one million one hundred sixty-seven thousand one hundred (1,167,100)
shares (the "Series B Preferred Stock"), the Series B-1 Preferred Stock, which
series shall consist of one million one hundred sixty-seven thousand one hundred
(1,167,100) shares (the "Series B-1 Preferred Stock"), the Series BB Preferred
Stock, which series shall consist of two hundred thousand (200,000) shares (the
"Series BB Preferred Stock"), and the Series BB-1 Preferred Stock, which series
shall consist of two hundred thousand (200,000) shares (the "Series BB-1
Preferred Stock") are as set forth below in this Article IV(B). The Board of
Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon additional series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to compliance with applicable
protective voting rights that have been or may be granted to the Preferred Stock
or series thereof in Certificates of Determination or this corporation's Amended
and Restated Certificate of Incorporation ("Protective Provisions"), but
notwithstanding any other rights of the Preferred Stock or any series thereof,
the rights, privileges, preferences and restrictions of any such additional
series may be subordinated to, PARI PASSU with (including, without limitation,
inclusion in provisions with respect to liquidation and acquisition preferences,
redemption and/or approval of matters by vote or written consent), or senior to
any of those of any present or future class or series of Preferred or Common
Stock. Subject to compliance with applicable Protective Provisions, the Board
of Directors is also authorized to increase or decrease the number of shares of
any series, prior or subsequent to the issue 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 that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
1. DIVIDEND PROVISIONS. Subject to the rights of series of
Preferred Stock that may from time to time come into existence, the holders of
shares of Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, prior and in preference to any declaration or
payment of any dividend or distribution (payable other than pursuant to a
transaction covered by Section 2 or subsections 4(d)(iii), 4(e) or 4(f) hereof)
on the Common Stock of this corporation, at the rate of (i) in the case of the
Series A and Series A-1 Preferred Stock, $0.16 per share per annum, (ii) in the
case of the Series B and Series B-1 Preferred Stock, $1.00 per share per annum,
and (iii) in the case of the Series BB and Series BB-1 Preferred Stock, $1.06
per share per annum (each amount as adjusted for any stock dividends,
combinations or splits with respect to such shares) or, if greater (as
determined on a per annum basis and an as-converted basis for the Series A,
Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred Stock), an
amount equal to that paid on any other outstanding shares of this corporation,
payable when, as, and if declared by the Board of Directors. Such dividends
shall not be cumulative.
2. LIQUIDATION PREFERENCE.
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(a) In the event of any liquidation, dissolution or winding up
of this corporation, either voluntary or involuntary, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
holders of Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock by reason of their ownership thereof, (i) for the Series A and Series A-1
Preferred Stock, an amount per share equal to the sum of (A) $2.00 for each
outstanding share of Series A and Series A-1 Preferred Stock (the "Original
Series A Issue Price" and the "Original Series A-1 Issue Price", respectively),
as adjusted for any stock dividends, combinations or splits with respect to such
share, and (B) an amount equal to declared but unpaid dividends on such share;
(ii) for the Series B and Series B-1 Preferred Stock, an amount per share equal
to the sum of (A) $12.50 for each outstanding share of Series B and Series B-1
Preferred Stock (the "Original Series B Issue Price" and the "Original
Series B-1 Issue Price", respectively), as adjusted for any stock dividends,
combinations or splits with respect to such share, and (B) an amount equal to
declared but unpaid dividends on such share; and (iii) for the Series BB and
Series BB-1 Preferred Stock, an amount per share equal to the sum of (A) $13.20
for each outstanding share of Series BB and Series BB-1 Preferred Stock (the
"Original Series BB Issue Price" and the "Original Series BB-1 Issue Price",
respectively), as adjusted for any stock dividends, combinations or splits with
respect to such share, and (B) an amount equal to declared but unpaid dividends
on such share. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A, Series A-1, Series B, Series B-1,
Series BB and Series BB-1 Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, the entire assets and funds of this corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred
Stock in proportion to the preferential amount each such holder is otherwise
entitled to receive.
(b) Upon the completion of the distribution required by
subsection (a) of this Section 2 and any other distribution that may be required
with respect to series of Preferred Stock that may from time to time come into
existence, the remaining assets of this corporation available for distribution
to stockholders shall be distributed among the holders of Series A Preferred
Stock, Series A-1 Preferred Stock and Common Stock pro rata based on the number
of shares of Common Stock held by each (assuming full conversion of all such
Series A Preferred Stock and Series A-1 Preferred Stock) until (i) with respect
to the holders of Series A Preferred Stock and Series A-1 Preferred Stock, such
holders shall have received an aggregate of $8.00 per share (including amounts
paid to such holders pursuant to subsection (a) of this Section 2); thereafter,
subject to the rights of series of Preferred Stock that may from time to time
come into existence, if assets remain in this corporation, the holders of the
Common Stock of this corporation shall receive all of the remaining assets of
this corporation pro rata based on the number of shares of Common Stock held by
each.
(c) (i) For purposes of this Section 2, the dissolution or
winding up of this corporation shall be deemed to be occasioned by, and to
include, (A) the acquisition of this corporation by another entity by means of
any transaction or series of related transactions
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(including, without limitation, any reorganization, merger or consolidation)
that results in the transfer of fifty percent (50%) or more of the outstanding
voting power of this corporation; or (B) a sale of all or substantially all of
the assets of this corporation; UNLESS this corporation's stockholders of record
as constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for this corporation's acquisition or sale or otherwise) hold at least 50% of
the voting power of the surviving entity (or its parent); provided, however,
that shares of the surviving entity held by holders of the capital stock of this
corporation acquired by means other than the exchange or conversion of the
capital stock of this corporation for shares of the surviving entity shall not
be used in determining if the stockholders of this corporation own more than
fifty percent (50%) of the voting power of the surviving entity (or its parent),
but shall be used for determining the total outstanding voting power of such
entity.
(ii) In any of such events, if the consideration received
by this corporation or its stockholders is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability covered by (B) below:
(1) If traded on a securities exchange or through
the National Market tier of Nasdaq, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the thirty (30)
day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by this
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by this corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this subsection 2(c)
are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this Section 2 have been complied with; or
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<PAGE>
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Series A, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 2(c)(iv) hereof.
(iv) This corporation shall give each holder of record of
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred
Stock written notice of such impending transaction not later than twenty
(20) days prior to the stockholders' meeting called to approve such transaction,
if any, or twenty (20) days prior to the closing of such transaction, whichever
is earlier, and shall also notify such holders in writing of the final approval
of such transaction. The first of such notices shall describe the material
terms and conditions of the impending transaction and the provisions of this
Section 2, and this corporation shall thereafter give such holders prompt notice
of any material changes. The transaction shall in no event take place sooner
than twenty (20) days after this corporation has given the first notice provided
for herein or sooner than ten (10) days after this corporation has given notice
of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock.
3. REDEMPTION. The Preferred Stock is not redeemable.
4. CONVERSION. The holders of the Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Subject to subsection 4(d), each share of
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 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 this corporation or
any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Issue Price for such series by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Conversion Price per share for shares
of Series A and Series A-1 Preferred Stock shall be $1.00. The initial
Conversion Price per share for shares of Series B and Series B-1 Preferred Stock
shall be $6.25. The initial Conversion Price per share for shares of Series BB
and Series BB-1 Preferred Stock shall be $6.60. The initial Conversion Price
for each such series has been adjusted as a result of the two-for-one stock
split of this corporation's Common Stock effected on March 19, 1999. The
Conversion Price for the Series A, Series A-1, Series B, Series B-1, Series BB
and Series BB-1 Preferred Stock shall be subject to adjustment as set forth in
subsection 4(d).
(b) AUTOMATIC CONVERSION. Each share of Series A, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 Preferred Stock shall
automatically be
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converted into shares of Common Stock at the Conversion Price at the time in
effect for such series immediately upon the earlier of (i) the consummation of
this corporation's sale of its Common Stock in a bona fide, firm commitment
underwritten initial public offering pursuant to a registration statement on
Form S-1 or Form SB-2 under the Securities Act of 1933, as amended (the "Act"),
at a public offering price not less than (A) on a per share basis, the sum of
$12.50 (appropriately adjusted for the two-for-one stock split of this
corporation's Common Stock effected on March 19, 1999 and any other stock split,
dividend, combination or recapitalization) (the "Series B Price") plus an amount
equal to the product of 10% of the Series B Price multiplied by a fraction, the
numerator of which shall be the number of days elapsed from the Purchase Date
(as defined below) and the denominator of which shall be 365, and (B) $7,500,000
in the aggregate, or (ii) the date specified by written consent or agreement of
the holders of a majority of the then outstanding shares of Series A,
Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred Stock
(voting together as a single class and not as separate series, and on an
as-converted basis).
(c) MECHANICS OF CONVERSION. Before any holder of Series A,
Series A-1, Series B, Series B-1, Series BB or Series BB-1 Preferred Stock shall
be entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of this corporation or of any transfer agent for the Series A, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 Preferred Stock, and shall give
written notice, to this corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued.
This corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A, Series A-1, Series B, Series B-1,
Series BB or Series BB-1 Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A, Series A-1, Series B, Series B-1,
Series BB or Series BB-1 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 offering of securities registered pursuant to the Act, the
conversion may, at the option of any holder tendering Series A, Series A-1,
Series B, Series B-1, Series BB or Series BB-1 Preferred Stock for conversion,
be conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Series A, Series A-1,
Series B, Series B-1, Series BB or Series BB-1 Preferred Stock shall not be
deemed to have converted such Series A, Series A-1, Series B, Series B-1,
Series BB or Series BB-1 Preferred Stock until immediately prior to the closing
of such sale of securities.
(d) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK FOR CERTAIN
DILUTIVE ISSUANCES, SPLITS AND COMBINATIONS. The Conversion Price of the
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred
Stock shall be subject to adjustment from time to time as follows:
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(i) (A) If this corporation shall issue, after the date of
the filing of this Amended and Restated Certificate of Incorporation (the
"Filing Date"), any Additional Stock (as defined below) without consideration or
for a consideration per share less than the Conversion Price for the Series A
Preferred Stock, the Series B Preferred Stock or the Series BB Preferred Stock
in effect immediately prior to the issuance of such Additional Stock,
immediately after the closing of such issuance, the Conversion Price for such
series (specifically excepting the Series A-1, Series B-1 and Series BB-1
Preferred Stock) in effect immediately prior to the closing of each such
issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including shares deemed issued
pursuant to Section 4(d)(i)(E) on account of options, rights or convertible or
exchangeable securities) plus the number of shares of Common Stock that the
aggregate consideration received by this corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
(including shares deemed issued pursuant to Section 4(d)(i)(E) on account of
options, rights or convertible or exchangeable securities) plus the number of
shares of such Additional Stock.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock, Series B Preferred Stock or Series BB Preferred Stock
shall be made in an amount less than one cent per share, provided that any
adjustments that are not required to be made by reason of this sentence shall be
carried forward and shall be either taken into account in any subsequent
adjustment made prior to three (3) years from the date of the event giving rise
to the adjustment being carried forward, or shall be made at the end of three
(3) years from the date of the event giving rise to the adjustment being carried
forward. Except to the limited extent provided for in subsections 4(d)(i)(E)(3)
and (E)(4), no adjustment of such Conversion Price pursuant to this
subsection 4(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the applicable Filing Date) of options to purchase or rights to subscribe
for Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection 4(d)(i) and subsection 4(d)(ii):
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(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)), if any, received by this corporation upon
the issuance of such options or rights plus the minimum exercise price provided
in such options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by this corporation for any such
securities and related options or rights, plus the minimum additional
consideration, if any, to be received by this corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in
subsections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to this
corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof (unless
such options or rights or convertible or exchangeable securities were merely
deemed to be included in the numerator and denominator for purposes of
determining the number of shares of Common Stock outstanding for purposes of
subsection 4(d)(i)(A)), the Conversion Price of the Series A Preferred Stock,
Series B Preferred Stock or Series BB Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, Series B
Preferred Stock or Series BB Preferred Stock, to the extent in any way affected
by or computed using such options, rights or securities or options or rights
related to such securities (unless such options or rights were merely deemed to
be included in the numerator and denominator for purposes of determining the
number of shares of Common Stock outstanding for purposes of subsection
4(d)(i)(A)), shall be recomputed to reflect the issuance of
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only the number of shares of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to
subsections 4(d)(i)(E)(1) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either
subsection 4(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to subsection 4(d)(i)(E))
by this corporation after the Filing Date other than
(A) Common Stock issued pursuant to a transaction
described in subsection 4(d)(iii) hereof;
(B) shares of Common Stock issuable or issued to
employees, consultants, directors or vendors (if in transactions with primarily
non-financing purposes) of this corporation directly or pursuant to a stock
option plan, restricted stock plan or stock purchase agreement approved by the
Board of Directors of this corporation;
(C) shares of Common Stock issued or issuable (I) in a
firm commitment underwritten public offering before or in connection with which
all outstanding shares of Series A, Series A-1, Series B, Series B-1, Series BB
and Series BB-1 Preferred Stock are converted to Common Stock or (II) upon
exercise of warrants or rights granted to underwriters in connection with such a
public offering;
(D) shares of Common Stock issued or issuable upon
conversion of the Preferred Stock;
(E) shares of Common Stock issued or issuable upon
exercise of warrants issued to banks or equipment lessors; or
(F) shares of Common Stock issued or issuable in
connection with business combinations or corporate partnering transactions not
primarily for equity financing purposes approved by the Board of Directors.
(iii) In the event this corporation should at any time or
from time to time after the Filing Date fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common
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Stock issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such split, subdivision, dividend or other distribution,
if no record date is fixed), the Conversion Price of the Series A, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in subsection 4(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at
any time after the Filing Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Price for the Series A, Series A-1, Series B, Series B-1, Series BB
and Series BB-1 Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of such
series shall be decreased in proportion to such decrease in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event this corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this subsection 4(e), the holders of the
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock of this
corporation into which their shares of Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of this
corporation entitled to receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or in Section 2), provision shall be made so that the holders of
the Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred
Stock the number of shares of stock or other securities or property of the
Company to which a holder of Common Stock deliverable upon conversion would have
been entitled to receive on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Series A,
Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable.
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(g) NO IMPAIRMENT. This corporation will not, by amendment of
this Amended and Restated Certificate of Incorporation or through any
reorganization, recapitalization, 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 this 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 the holders of the Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock against impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of the Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 Preferred Stock the holder is at
the time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of Series A, Series A-1, Series B, Series B-1, Series BB
or Series BB-1 Preferred Stock pursuant to this Section 4, this corporation, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series A, Series A-1, Series B, Series B-1, Series BB or Series BB-1 Preferred
Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. This
corporation shall, upon the written request at any time of any holder of
Series A, Series A-1, Series B, Series B-1, Series BB or Series BB-1 Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment and readjustment, (B) the Conversion Price for
the Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1
Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of a share of Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock, at least twenty (20) days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
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(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This
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 shares of the Series A, Series A-1, Series B, Series B-1,
Series BB and Series BB-1 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 the Series A, Series A-1, Series B, Series B-1, Series BB
and Series BB-1 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 the Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Preferred Stock, this
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,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this certificate.
(k) NOTICES. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A, Series A-1,
Series B, Series B-1, Series BB and Series BB-1 Preferred Stock shall be deemed
given if delivered by confirmed facsimile or electronic transmission (with
duplicate original sent by United States mail) or if deposited in the United
States mail, postage prepaid, and addressed to each holder of record at his
address appearing on the books of this corporation.
(l) SPECIAL MANDATORY CONVERSION.
(i) At any time following the Filing Date, if (A) any
holder of shares of Series A Preferred Stock, Series B Preferred Stock or
Series BB Preferred Stock is entitled to exercise the right of first offer (the
"Right of First Offer") set forth in Section 2.4 of the Investors' Rights
Agreement dated on or about April 13, 1998, by and between this corporation and
certain Investors and Founders (as defined therein), as amended from time to
time (the "Rights Agreement"), with respect to an equity financing of this
corporation at a price per share which is less than the applicable Conversion
Price of the Series BB Preferred Stock (the "Equity Financing"), (B) this
corporation has complied with its notice obligations, or such obligations have
been waived, under the Right of First Offer with respect to such Equity
Financing and this corporation thereafter proceeds to consummate the Equity
Financing, and (C) such holder (a "Non-Participating Holder") does not by
exercise of such holder's Right of First Offer acquire his, her or its Pro Rata
Share (as defined in Section 2.4 of the Rights Agreement) offered in such Equity
Financing (a "Mandatory Offering"), then all of such Non-Participating Holder's
shares of Series A Preferred Stock, Series B Preferred Stock and Series BB
Preferred Stock shall automatically and without further action on the part of
such holder be converted effective upon, subject to, and concurrently with, the
closing of the Mandatory Offering (the "Mandatory Offering Date") into, in the
case of Series A Preferred Stock, an equivalent number of shares of Series A-1
Preferred Stock, in the case of Series B Preferred Stock, an equivalent number
of shares of Series B-1 Preferred Stock, and in the case of Series BB Preferred
Stock, an equivalent number of shares of Series BB-1 Preferred Stock (a "Special
Mandatory Conversion"); PROVIDED, HOWEVER, that no such conversion shall occur
in
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connection with a particular Equity Financing if, pursuant to the written
request of this corporation, such holder agrees in writing to waive his, her or
its Right of First Offer with respect to such Equity Financing. Upon conversion
pursuant to this subsection 4(l)(i), the shares of Series A Preferred Stock,
Series B Preferred Stock and Series BB Preferred Stock so converted shall be
canceled and not subject to reissuance.
(ii) The holder of any shares of Series A Preferred Stock,
Series B Preferred Stock or Series BB Preferred Stock converted pursuant to this
subsection 4(l) shall deliver to this corporation during regular business hours
at the office of any transfer agent of this corporation for the Series A
Preferred Stock, Series B Preferred Stock and Series BB Preferred Stock, or at
such other place as may be designated by this corporation, the certificate or
certificates for the shares so converted, duly endorsed or assigned in blank or
to this corporation. As promptly as practicable thereafter, this corporation
shall issue and deliver to such holder, at the place designated by such holder,
a certificate or certificates for the number of full shares of the Series A-1
Preferred Stock, Series B-1 Preferred Stock or Series BB-1 Preferred Stock, as
the case may be, to be issued and such holder shall be deemed to have become a
stockholder of record of Series A-1 Preferred Stock, Series B-1 Preferred Stock
or Series BB-1 Preferred Stock, as the case may be, on the Mandatory Offering
Date unless the transfer books of this corporation are closed on that date, in
which event he, she or it shall be deemed to have become a stockholder of record
of Series A-1 Preferred Stock, Series B-1 Preferred Stock or Series BB-1
Preferred Stock, as the case may be, on the next succeeding date on which the
transfer books are open.
(iii) In the event that any shares of Series A-1 Preferred
Stock, Series B-1 Preferred Stock or Series BB-1 Preferred Stock are issued,
concurrently with such issuance, this corporation shall use its best efforts to
take all such action as may be required, including amending its Certificate of
Incorporation, (A) to cancel all authorized shares of Series A-1 Preferred
Stock, Series B-1 Preferred Stock and Series BB-1 Preferred Stock that remain
unissued after such issuance, (B) to create and reserve for issuance upon the
Special Mandatory Conversion of any Series A Preferred Stock, Series B Preferred
Stock or Series BB Preferred Stock a new series of Preferred Stock equal in
number to the number of shares of Series A-1 Preferred Stock, Series B-1
Preferred Stock or Series BB-1 Preferred Stock so canceled and designated
Series A-2 Preferred Stock, Series B-2 Preferred Stock and Series BB-2 Preferred
Stock, respectively, with the designations, powers, preferences and rights and
the qualifications, limitations and restrictions identical to those then
applicable to the Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series BB-1 Preferred Stock, respectively, except that the Conversion Price for
such shares of Series A-2 Preferred Stock once initially issued shall be the
Series A Conversion Price in effect immediately prior to such issuance, the
Conversion Price for such shares of Series B-2 Preferred Stock once initially
issued shall be the Series B Conversion Price in effect immediately prior to
such issuance, and the Conversion Price for such shares of Series BB-2 Preferred
Stock once initially issued shall be the Series BB Conversion Price in effect
immediately prior to such issuance, and (C) to amend the provisions of this
subsection 4(l) as appropriate to provide that any subsequent Special Mandatory
Conversion will be into shares of Series A-2 Preferred Stock, Series B-2
Preferred Stock and Series BB-2 Preferred Stock rather than Series A-1 Preferred
Stock, Series B-1 Preferred Stock and Series BB-1 Preferred Stock, as the case
may be. This corporation shall take the same
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actions with respect to the Series A-2 Preferred Stock, Series B-2 Preferred
Stock and Series BB-2 Preferred Stock and each subsequently authorized series of
Preferred Stock upon initial issuance of shares of the last such series to be
authorized. The right to receive any dividend declared but unpaid at the time
of conversion on any shares of Preferred Stock converted pursuant to the
provisions of this subsection 4(l) shall accrue to the benefit of the new shares
of Preferred Stock issued upon conversion thereof.
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5. VOTING RIGHTS.
(a) GENERAL VOTING RIGHTS. The holder of each share of
Series A, Series A-1, Series B, Series B-1, Series BB or Series BB-1 Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such share could then be converted, and with respect to such vote, such holder
shall have full voting rights and powers equal to the voting rights and powers
of the holders of Common Stock, and shall be entitled, notwithstanding any
provision hereof, to notice of any stockholders' meeting in accordance with the
bylaws of this corporation, and shall be entitled to vote, together with holders
of Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote. Fractional votes shall not, however, be permitted and
any fractional voting rights available on an as-converted basis (after
aggregating all shares into which shares of Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock held by each holder could
be converted) shall be rounded to the nearest whole number (with one-half being
rounded upward).
(b) VOTING FOR ELECTION OF DIRECTORS. As long as at least a
majority of the shares of Series A Preferred Stock, Series B Preferred Stock and
Series BB Preferred Stock originally issued, including any such shares
subsequently converted to Series A-1 Preferred Stock, Series B-1 Preferred Stock
or Series BB-1 Preferred Stock pursuant to subparagraph 4(l) hereof, remain
outstanding, the holders of such shares of Series A, Series A-1, Series B,
Series B-1, Series BB and Series BB-1 Preferred Stock (voting together as a
single class and not as separate series, and on an as-converted basis) shall be
entitled to elect two (2) directors of this corporation at each annual election
of directors. The holders of outstanding Common Stock shall be entitled to
elect three (3) directors of this corporation at each annual election of
directors. The holders of Series A Preferred Stock, Series A-1 Preferred Stock,
Series B Preferred Stock, Series B-1 Preferred Stock, Series BB Preferred Stock,
Series BB-1 Preferred Stock and Common Stock (voting together as a single class
and not as separate series, and on an as-converted basis) shall be entitled to
elect any remaining directors of this corporation.
In the case of any vacancy (other than a vacancy caused by removal) in
the office of a director occurring among the directors elected by the holders of
a class or series of stock pursuant to this Section 5(b), the remaining
directors so elected by that class or series may by affirmative vote of a
majority thereof (or the remaining director so elected if there be but one, or
if there are no such directors remaining, by the affirmative vote of the holders
of a majority of the shares of that class or series), elect a successor or
successors to hold office for the unexpired term of the director or directors
whose place or places shall be vacant. Any director who shall have been elected
by the holders of a class or series of stock or by any directors so elected as
provided in the immediately preceding sentence hereof may be removed during the
aforesaid term of office, either with or without cause, by, and only by, the
affirmative vote of the holders of a majority of the shares of the class or
series of stock entitled to elect such director or directors, given either at a
special meeting of such stockholders duly called for that purpose or pursuant to
a written consent of stockholders, and any vacancy thereby created may be filled
by the holders of that class or series of stock represented at the meeting or
pursuant to unanimous written consent.
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6. PROTECTIVE PROVISIONS.
(a) Subject to the rights of series of Preferred Stock that may
from time-to-time come into existence, so long as at least a majority of the
shares of Series A Preferred Stock, Series B Preferred Stock and Series BB
Preferred Stock originally issued, including any such shares subsequently
converted to Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series BB-1 Preferred Stock pursuant to subparagraph 4(l) hereof, remain
outstanding, this corporation shall not take any of the following actions
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of the then outstanding shares of the
Series A, Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred
Stock, voting together as a single class and not as separate series and on an
as-converted basis, except that no approval pursuant to this Section 6 shall be
required to implement a conversion described in subsection 4(l) hereof:
(i) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any share or shares of Preferred
Stock or Common Stock; provided, however, that this restriction shall not apply
to the repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for this corporation or any
subsidiary pursuant to agreements under which this corporation has the option to
repurchase such shares at cost upon the termination of such service as an
employee, officer, director or consultant, as applicable;
(ii) consummate any transaction specified in subsection
2(c)(i) hereof (collectively, a "Corporate Transaction"), unless the
consideration received per share of Series A, Series A-1, Series B, Series B-1,
Series BB and Series BB-1 Preferred Stock in such Corporate Transaction is at
least (i) $20.00, if such Corporate Transaction occurs on or prior to the first
anniversary of the date on which any shares of Series BB Preferred Stock were
first issued (the "Purchase Date"); (ii) $40.00, if such Corporate Transaction
occurs after the first anniversary of the Purchase Date and on or prior to the
second anniversary of the Purchase Date; (iii) $80.00, if such Corporate
Transaction occurs after the second anniversary of the Purchase Date and on or
prior to the third anniversary of the Purchase Date; (iv) $100.00, if such
Corporate Transaction occurs after the third anniversary of the Purchase Date
and on or prior to the fourth anniversary of the Purchase Date; and (v) $120.00,
if such Corporate Transaction occurs on or at any time after the fourth
anniversary of the Purchase Date. Each such per share price specified in the
preceding sentence shall be appropriately adjusted for any stock dividends,
combinations or splits. The consideration received per share of Series A,
Series A-1, Series B, Series B-1, Series BB and Series BB-1 Preferred Stock in a
Corporate Transaction shall include the consideration per share received
directly by a holder of Series A, Series A-1, Series B, Series B-1, Series BB or
Series BB-1 Preferred Stock in such transaction and the consideration received
by this corporation that would be distributed to such holder assuming such
consideration is distributed to the holders of Preferred Stock and Common Stock
in accordance with subsections 2(a) and 2(b) hereof. All consideration other
than cash received in a Corporate Transaction shall be valued in accordance with
subsection 2(c)(ii) hereof;
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(iii) increase or decrease (other than by redemption or
conversion or by operation of subsection 4(l) hereof) the authorized number of
shares of Series A, Series A-1, Series B, Series B-1, Series BB or Series BB-1
Preferred Stock;
(iv) amend this corporation's certificate of incorporation
or bylaws, as then in effect, in a manner that has a material adverse effect on
the rights, preferences or privileges of the Series A, Series A-1, Series B,
Series B-1, Series BB or Series BB-1 Preferred Stock;
(v) authorize, create or issue any new class or series of
capital stock or any other securities convertible into capital stock of this
corporation having a preference over the Series A, Series A-1, Series B,
Series B-1, Series BB or Series BB-1 Preferred Stock with respect to voting,
dividends, conversion rights or rights upon liquidation;
(vi) declare or pay any cash dividends on its Common Stock;
or
(vii) increase the authorized number of directors of this
corporation above seven (7).
(b) (i) Subject to the rights of series of Preferred Stock
that may from time-to-time come into existence, so long as at least a majority
of the shares of Series A Preferred Stock originally issued, including any such
shares subsequently converted to Series A-1 Preferred Stock pursuant to
subparagraph 4(l) hereof, remain outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of the
Series A Preferred Stock and Series A-1 Preferred Stock, voting together as a
single class and not as separate series and on an as-converted basis, (A) amend
this corporation's Amended and Restated Certificate of Incorporation to alter or
change the rights, preferences or privileges of the shares of such Series A
Preferred Stock or Series A-1 Preferred Stock, if such Series A Preferred Stock
or Series A-1 Preferred Stock would be adversely affected by such amendment in a
manner different from other then outstanding series of this corporation's
Preferred Stock (it being understood that, without limiting the foregoing,
different series of Preferred Stock shall not be affected differently because of
proportional differences in the amounts of their respective issue prices,
liquidation preferences and redemption prices that arise out of differences in
the original issue price for each such series) or (B) increase or decrease the
aggregate number of authorized shares of such Series A Preferred Stock or
Series A-1 Preferred Stock. Notwithstanding the foregoing, no approval pursuant
to this Section 6 shall be required to implement a conversion described in
subsection 4(l) hereof.
(ii) Subject to the rights of series of Preferred Stock
that may from time-to-time come into existence, so long as at least a majority
of the shares of Series B Preferred Stock originally issued, including any such
shares subsequently converted to Series B-1 Preferred Stock pursuant to
subparagraph 4(l) hereof, remain outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of the
Series B Preferred Stock and Series B-1 Preferred Stock, voting together as a
single class and not as
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separate series and on an as-converted basis, (A) amend this corporation's
Amended and Restated Certificate of Incorporation to alter or change the rights,
preferences or privileges of the shares of such Series B Preferred Stock or
Series B-1 Preferred Stock, if such Series B Preferred Stock or Series B-1
Preferred Stock would be adversely affected by such amendment in a manner
different from other then outstanding series of this corporation's Preferred
Stock (it being understood that, without limiting the foregoing, different
series of Preferred Stock shall not be affected differently because of
proportional differences in the amounts of their respective issue prices,
liquidation preferences and redemption prices that arise out of differences in
the original issue price for each such series) or (B) increase or decrease the
aggregate number of authorized shares of such Series B Preferred Stock or
Series B-1 Preferred Stock. Notwithstanding the foregoing, no approval pursuant
to this Section 6 shall be required to implement a conversion described in
subsection 4(l) hereof.
(iii) Subject to the rights of series of Preferred Stock
that may from time-to-time come into existence, so long as at least a majority
of the shares of Series BB Preferred Stock originally issued, including any such
shares subsequently converted to Series BB-1 Preferred Stock pursuant to
subparagraph 4(l) hereof, remain outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of the
Series BB Preferred Stock and Series BB-1 Preferred Stock, voting together as a
single class and not as separate series and on an as-converted basis, (A) amend
this corporation's Amended and Restated Certificate of Incorporation to alter or
change the rights, preferences or privileges of the shares of such Series BB
Preferred Stock or Series BB-1 Preferred Stock, if such Series BB Preferred
Stock or Series BB-1 Preferred Stock would be adversely affected by such
amendment in a manner different from other then outstanding series of this
corporation's Preferred Stock (it being understood that, without limiting the
foregoing, different series of Preferred Stock shall not be affected differently
because of proportional differences in the amounts of their respective issue
prices, liquidation preferences and redemption prices that arise out of
differences in the original issue price for each such series) or (B) increase or
decrease the aggregate number of authorized shares of such Series BB Preferred
Stock or Series BB-1 Preferred Stock. Notwithstanding the foregoing, no
approval pursuant to this Section 6 shall be required to implement a conversion
described in subsection 4(l) hereof.
7. STATUS OF CONVERTED STOCK. In the event any shares of Series A,
Series A-1, Series B, Series B-1, Series BB or Series BB-1 Preferred Stock shall
be converted pursuant to Section 4 hereof, the shares so converted shall be
canceled and shall not be issuable by this corporation. The Amended and
Restated Certificate of Incorporation of this corporation shall be appropriately
amended to effect the corresponding reduction in this corporation's authorized
capital stock.
(C) COMMON STOCK. The rights, preferences, privileges and
restrictions granted to and imposed on the Common Stock are as set forth below
in this Article IV(C).
1. DIVIDEND RIGHTS. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common
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Stock shall be entitled to receive, when and as declared by the Board of
Directors, out of any assets of this corporation legally available therefor,
such dividends as may be declared from time to time by the Board of Directors.
2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding
up of this corporation, the assets of this corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV hereof.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
A director of this corporation shall, to the fullest extent permitted
by the General Corporation Law as it now exists or as it may hereafter be
amended, not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after approval by the stockholders of this Article,
to authorize corporation action further eliminating or limiting the personal
liability of directors, then the liability of a director of this corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law, as so amended.
Any amendment, repeal or modification of this Article V, or the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article V, by the stockholders of this corporation shall
not apply to or adversely affect any right or protection of a director of this
corporation existing at the time of such amendment, repeal, modification or
adoption.
ARTICLE VI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which Delaware law permits this
corporation to provide indemnification) through 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 this corporation,
its stockholders and others.
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ARTICLE VII
This corporation reserves the right to adopt, amend, alter,
supplement, rescind or repeal in any respect any provision contained in this
Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute or applicable law, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE VIII
The Board of Directors may from time to time adopt, amend, alter,
supplement, rescind or repeal any or all of the bylaws of this corporation
without any action on the part of the stockholders; provided, however, that the
stockholders may adopt, amend or repeal any bylaw adopted by the Board of
Directors, and no amendment or supplement to the bylaws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement adopted by the
stockholders.
ARTICLE IX
Subject to any Protective Provisions, the number of directors of this
corporation shall be set from time to time by resolution of the Board of
Directors or by the stockholders.
ARTICLE X
Elections of directors need not be by written ballot unless the bylaws
of this corporation shall so provide.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of this corporation may be kept
(subject to any statutory requirements) 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 this corporation.
* * *
FOUR: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of said corporation in accordance with
Section 228 of the General Corporation Law.
FIVE: That said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the General Corporation
Law.
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IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the President and the Secretary of this
corporation this _____ day of April, 1999.
/s/ Keith J. Krach
----------------------------------------
Keith J. Krach
President and Chief Executive Officer
/s/ Edward P. Kinsey
----------------------------------------
Edward P. Kinsey
Secretary
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Exhibit 3.3
BYLAWS
OF
ARIBA, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the city of Menlo Park, State of California, at such
place as may be fixed from time to time by the Board of Directors, or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the
year 1997, shall be held at such date and time as shall be designated from time
to time by the Board of
<PAGE>
Directors and stated in the notice of the meeting, at which they shall elect by
a plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
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Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express
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provision of the statutes or of the certificate of incorporation, a different
vote is required, in which case such express provision shall govern and control
the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Notwithstanding the above, if the certificate of incorporation permits
cumulative voting in the election of directors, then each stockholder shall be
entitled to as many votes in such election of directors as shall equal the
number of votes which (except for such cumulative voting) such stockholder would
otherwise be entitled to cast for the election of directors (with respect to the
shares of capital stock having voting power held by such stockholder) multiplied
by the number of directors to be elected by such stockholder, and such
stockholder 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 or more of them.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the
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taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
whole board shall be determined by resolution of the Board of Directors or by
the stockholders at the annual meeting of the stockholders, except as provided
in Section 2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and new created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of the shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office.
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Section 3. The business of the corporation shall be managed by or
under the direction of its board of directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the certificate of incorporation or by these bylaws directed or required
to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telegram; special meetings
shall be called by the president or secretary in like
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manner and on like notice on the written request of two (2) directors unless the
board consists of only one director, in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
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COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
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Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of shares
entitled to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the
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time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
Board of Directors and shall be a president, a treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or
more vice-presidents, assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
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Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of
the corporation; and in the absence of the Chairman and Vice Chairman of the
Board he shall preside at all meetings of the stockholders and the Board of
Directors; he shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
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Section 9. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform 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 perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
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secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he shall give
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as
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shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 16. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the Chairman or Vice Chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative,
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participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
Section 2. Any of or all 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 upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or
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<PAGE>
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
16
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REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by
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the Board of Directors of the corporation. The indemnification provided for in
this Section 6 shall: (i) not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) continue as to a person who has ceased to be a director, and (iii)
inure to the benefit of the heirs, executors and administrators of such a
person. The corporation's obligation to provide indemnification under this
Section 6 shall be offset to the extent of any other source of indemnification
or any otherwise applicable insurance coverage under a policy maintained by the
corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
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The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
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ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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CERTIFICATE OF SECRETARY OF
ARIBA, INC.
The undersigned, Edward Kinsey, hereby certifies that he is the duly
elected and acting Secretary of Ariba, Inc., a Delaware corporation (the
"Corporation"), and that the Bylaws attached hereto constitute the Bylaws of
said Corporation as duly adopted by Action by Written Consent in Lieu of
Organizational Meeting by the Board of Directors on September 17, 1996 and as
amended by the Board of Directors at a meeting duly held on March 16, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this 30th day of March, 1999.
/s/ Edward P. Kinsey
---------------------------------------
Edward P. Kinsey,
Secretary
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Exhibit 4.1
ARIBA TECHNOLOGIES, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
APRIL 17, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Request for Registration. . . . . . . . . . . . . . . . . . . . . 3
1.3 Company Registration. . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Obligations of the Company. . . . . . . . . . . . . . . . . . . . 5
1.5 Furnish Information . . . . . . . . . . . . . . . . . . . . . . . 6
1.6 Expenses of Demand Registration . . . . . . . . . . . . . . . . . 6
1.7 Expenses of Company Registration. . . . . . . . . . . . . . . . . 6
1.8 Underwriting Requirements . . . . . . . . . . . . . . . . . . . . 6
1.9 Delay of Registration . . . . . . . . . . . . . . . . . . . . . . 7
1.10 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.11 Reports Under Securities Exchange Act of 1934 . . . . . . . . . . 9
1.12 Form S-3 Registration . . . . . . . . . . . . . . . . . . . . . .10
1.13 Assignment of Registration Rights . . . . . . . . . . . . . . . .11
1.14 Market Stand-Off Agreement Rights . . . . . . . . . . . . . . . .11
1.15 Termination of Registration Rights. . . . . . . . . . . . . . . .12
2. Covenants of the Company. . . . . . . . . . . . . . . . . . . . . . . .12
2.1 Delivery of Financial Statements. . . . . . . . . . . . . . . . .12
2.2 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.3 Termination of Information and Inspection Covenants . . . . . . .13
2.4 Right of First Offer. . . . . . . . . . . . . . . . . . . . . . .13
2.5 Proprietary Information and Inventions Agreements . . . . . . . .15
2.6 Board Representation. . . . . . . . . . . . . . . . . . . . . . .15
3. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.1 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . .15
3.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . .16
3.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .16
3.4 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . . . .16
3.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
3.6 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
3.7 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . .16
3.8 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.9 Aggregation of Stock. . . . . . . . . . . . . . . . . . . . . . .17
3.10 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . .17
3.11 Waiver of Right of First Offer. . . . . . . . . . . . . . . . . .17
3.12 Prior Agreement . . . . . . . . . . . . . . . . . . . . . . . . .17
</TABLE>
Schedule A Schedule of Investors
Schedule B Schedule of Founders
<PAGE>
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of
April 17, 1998, by and among Ariba Technologies, Inc., a Delaware corporation
(the "Company"), the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor", and the founders listed on Schedule B
hereto, each of which is herein referred to as a "Founder".
RECITALS
WHEREAS, certain of the Investors and the Founders possess
registration rights and certain of the Investors possess other investor
rights granted pursuant to that certain Amended and Restated Investors'
Rights Agreement (the "August Agreement"), dated August 15, 1997, among the
Company and the persons listed on the Schedule of Investors attached thereto
(the "Prior Investors"), as amended by that certain Amendment No. 1 of
Amended and Restated Investors' Rights Agreement (the "Amendment") dated as
of February 27, 1998 by and among the Company and the Amending Investors (as
defined therein) (the August Agreement as amended by the Amendment is
referred to herein as the "Prior Agreement");
WHEREAS, one of the Investors has been granted a warrant (the
"Warrant") to purchase shares of the Company's Series B Preferred Stock
pursuant to an equipment leasing transaction and pursuant to such Warrant the
Company agreed to make such Investor a party to this Agreement;
WHEREAS, one of the Investors (the "Series BB Investor") is a party
to the Series BB Preferred Stock Purchase Agreement of even date herewith
(the "Series BB Agreement") among the Company and such Investor, pursuant to
which the Series BB Investor is purchasing shares of Series BB Preferred
Stock of the Company;
WHEREAS, in order to induce the Company to enter into the Series BB
Agreement and to induce the Series BB Investor to invest funds in the Company
pursuant to the Series BB Agreement, the Prior Investors and the Founders
hereby agree to unconditionally waive their rights under the Prior Agreement,
and the Investors, the Founders and the Company hereby agree that this
Agreement shall govern the rights of the Investors and the Founders to cause
the Company to register shares of Common Stock issued or issuable to such
persons, and certain other matters as set forth herein; and
WHEREAS, the Series BB Investors and the Company have agreed,
pursuant to the Series BB Agreement, to enter into this Agreement;
NOW, THEREFORE, in consideration of the promises, covenants, and
conditions set forth herein, the parties hereto hereby agree as follows:
<PAGE>
1. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(c) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof.
(d) The term "1934 Act" shall mean the Securities
Exchange Act of 1934, as amended.
(e) The term "register," "registered," and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and
the declaration or ordering of effectiveness of such registration statement
or document.
(f) The term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series A Preferred
Stock and the Series B Preferred Stock, (ii) the shares of Common Stock
issued to the Founders; provided, however, that such shares of Common Stock
shall not be deemed Registrable Securities and the aforementioned individuals
shall not be deemed Holders for the purposes of Section 1.2, 1.12 and 3.7
(except as provided therein), and (iii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right
or other security that is issued as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of the shares referenced in
(i) and (ii) above, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his rights under this
Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities that are, Registrable
Securities.
(h) The term "Series A Preferred Stock" shall refer to
and include the Series A-1 Preferred Stock.
(i) The term "Series B Preferred Stock" shall refer to
and include the Series B-1 Preferred Stock, the Series BB Preferred Stock,
the Series BB-1 Preferred Stock and the Series B Preferred Stock issued upon
exercise of the Warrant.
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<PAGE>
(j) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time after the
earlier of (i) September 27, 2000, 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 either to the
sale of securities to employees of the Company pursuant to a stock option,
stock purchase or similar plan or a SEC Rule 145 transaction), a written
request from the Holders of a majority of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of at least fifty percent (50%) of the Registrable
Securities then outstanding (or a lesser percent if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would exceed
$7,500,000), then the Company shall:
(i) within ten (10) days of the receipt thereof,
give written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any event
within sixty (60) days of the receipt of such request, the registration under
the Act of all Registrable Securities that the Holders request to be
registered, subject to the limitations of subsection 1.2(b), within twenty
(20) days of the mailing of such notice by the Company in accordance with
Section 3.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to subsection
1.2(a) and the Company shall include such information in the written notice
referred to in subsection 1.2(a). The underwriter will be selected by the
Company and shall be reasonably acceptable to a majority in interest of the
Initiating Holders. In such event, the right of any Holder to include his
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company
as provided in subsection 1.4(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if
the underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Initiating Holders shall so advise all Holders of Registrable Securities
that would otherwise be underwritten pursuant hereto, and the number of
shares of Registrable Securities that may be included in the underwriting
shall be allocated among all Holders thereof, including the Initiating
Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided,
however, that the number of shares of Registrable
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<PAGE>
Securities to be included in such underwriting shall not be reduced unless
all other securities are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to
defer taking action with respect to such filing for a period of not more than
one hundred twenty (120) days after receipt of the request of the Initiating
Holders; provided, however, that the Company may not utilize this right more
than once in any twelve (12) month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date
sixty (60) days prior to the Company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a registration subject to Section 1.3 hereof; provided
that the Company is actively employing in good faith all reasonable efforts
to cause such registration statement to become effective; or
(iii) If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately
registered on Form S-3 pursuant to a request made pursuant to Section 1.12
below.
1.3 COMPANY REGISTRATION. If (but without any obligation to
do so) the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than the Holders)
any of its stock or other securities under the Act in connection with the
public offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, a registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities or a registration in which
the only Common Stock being registered is Common Stock issuable upon
conversion of debt securities that are also being registered), the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with
Section 3.5, the Company shall, subject to the provisions of Section 1.8,
cause to be registered under the Act all of the Registrable Securities that
each such Holder has requested to be registered.
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1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective, and, upon
the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for a
period of up to one hundred twenty (120) days or until the distribution
contemplated in the Registration Statement has been completed.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities
owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or blue sky laws of such jurisdictions as shall be reasonably requested by
the Holders; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for
all such Registrable Securities, in each case not later than the effective
date of such registration.
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1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Section 1 with respect to
the Registrable Securities of any selling Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such
securities as shall be required to effect the registration of such Holder's
Registrable Securities.
(b) The Company shall have no obligation with respect to
any registration requested pursuant to Section 1.2 or Section 1.12 if, due to
the operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in subsection 1.2(a) or
subsection 1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company and the reasonable fees and disbursements of one counsel for the
selling Holders shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand
registration pursuant to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as
provided in Section 1.13), including (without limitation) all registration,
filing, and qualification fees, printer's and accounting fees relating or
apportionable thereto and the fees and disbursements of one counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 UNDERWRITING REQUIREMENTS In connection with any
offering involving an underwriting of shares of the Company's capital stock,
the Company shall not be required under Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it (or by other persons entitled to select the underwriters), and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion
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is compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, that the underwriters determine in their
sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling
stockholders according to the total amount of securities entitled to be
included therein owned by each selling stockholder or in such other
proportions as shall mutually be agreed to by such selling stockholders) but
in no event shall (i) the amount of securities of the selling Holders
included in the offering be reduced below twenty-five percent (25%) of the
total amount of securities included in such offering, unless such offering is
the initial public offering of the Company's securities, in which case the
selling stockholders may be excluded if the underwriters make the
determination described above and no other stockholder's securities are
included or (ii) notwithstanding (i) above, any shares being sold by a
stockholder exercising a demand registration right similar to that granted in
Section 1.2 be excluded from such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder that is a
holder of Registrable Securities and that is a partnership or corporation,
the partners, retired partners and stockholders of such holder, or the
estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be
a single "selling stockholder," and any pro-rata reduction with respect to
such "selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included
in such "selling stockholder," as defined in this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as defined in the
Act) for such Holder, and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Act, the 1934 Act or any state securities law; and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however,
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that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any
losses, claims, damages or liabilities (joint or several) to which any of the
foregoing persons may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information furnished
by such Holder expressly for use in connection with such registration; and
each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.10(b) in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 1.10(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided that, in no event
shall any indemnity under this subsection 1.10(b) exceed the gross proceeds
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.10,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time
of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 1.10, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
1.10.
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(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage or expense as
well as any other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the provisions
in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after the
effective date of the first registration statement filed by the Company for
the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after
the end of the fiscal year in which the first registration statement filed by
the Company for the offering of its securities to the general public is
declared effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule
144 (at any time after ninety (90) days
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after the effective date of the first registration statement filed by
the Company), the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule or regulation of the SEC that permits the selling of any
such securities without registration or pursuant to such form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive
from the Holders of a majority of the Registrable Securities then outstanding
a written request or requests that the Company effect a registration on Form
S-3 and any related qualification or compliance with respect to all or a part
of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such written notice
from the Company; provided, however, that the Company shall not be obligated
to effect any such registration, qualification or compliance, pursuant to
this section 1.12: (1) if Form S-3 is not available for such offering by the
Holders; (2) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $1,000,000; (3) if the Company shall furnish to the
Holders a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall
have the right to defer the filing of the Form S-3 registration statement for
a period of not more than one hundred twenty (120) days after receipt of the
request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve
(12) month period; or (4) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of a majority of the Holders. All expenses other
than underwriting discounts and commissions incurred in connection with a
registration requested pursuant to Section 1.12, including (without
limitation) all registration, filing, qualification, printer's and accounting
fees and the reasonable fees and
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disbursements of one counsel for the selling Holder or Holders and counsel
for the Company shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to this Section 1.12 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses). Registrations effected pursuant to this
Section 1.12 shall not be counted as demands for registration or
registrations effected pursuant to Sections 1.2 or 1.3, respectively.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this Section 1 may
be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities who, after such assignment or
transfer, holds at least 92,197 shares of Registrable Securities (subject to
appropriate adjustment for stock splits, stock dividends, combinations and
other recapitalizations), provided: (a) the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.14 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act. For
the purposes of determining the number of shares of Registrable Securities
held by a transferee or assignee, the holdings of transferees and assignees
of a partnership who are partners or retired partners of such partnership
(including spouses and ancestors, lineal descendants and siblings of such
partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the partnership;
provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices
or taking any action under this Section 1.
1.14 "MARKET STAND-OFF" AGREEMENT RIGHTS. Each Investor
hereby agrees that, during the period of duration specified by the Company
and an underwriter of Common Stock or other securities of the Company,
following the effective date of a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase
or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any securities of the Company held by it immediately prior
to the effective date of such registration statement, except Common Stock
included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company that covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten
offering;
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(b) all officers and directors of the Company and all
other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements; and
(c) such market stand-off time period shall not exceed
one hundred eighty (180) days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.15 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be
entitled to exercise any right provided for in this Section 1 after seven (7)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with
the initial firm commitment underwritten offering of its securities to the
general public or, as to any Holder, such earlier time at which all
Registrable Securities held by such Holder can be sold in any three (3) month
period without registration in compliance with Rule 144 of the Act.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall
deliver to each Investor:
(a) so long as such Investor holds at least 160,000
shares of Series A and/or Series B Preferred Stock (either in the form of
Series A and/or Series B Preferred Stock or Common Stock issued upon
conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications), as soon as practicable, but in any
event within ninety (90) days after the end of each fiscal year of the
Company, an income statement for such fiscal year, a balance sheet of the
Company and statement of stockholder's equity as of the end of such year, and
a statement of cash flows for such year, such year-end financial reports to
be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("gaap"), and audited and certified by independent
public accountants of nationally recognized standing selected by the Company;
(b) so long as such Investor holds at least 160,000
shares of Series A and/or Series B Preferred Stock (either in the form of
Series A and/or Series B Preferred Stock or Common Stock issued upon
conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications), as soon as practicable, but in any
event within forty-five (45) days after the end of each of the first three
(3) quarters of each fiscal year of the Company, an unaudited income
statement, statement of cash flows for such fiscal quarter and an unaudited
balance sheet and a statement of stockholder's equity as of the end of such
fiscal quarter;
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(c) so long as such Investor holds at least 160,000
shares of Series A and/or Series B Preferred Stock (either in the form of
Series A and/or Series B Preferred Stock or Common Stock issued upon
conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications), within thirty (30) days of the end of
each month, an unaudited income statement and statement of cash flows and
balance sheet for and as of the end of such month, in reasonable detail;
(d) so long as such Investor holds at least 160,000
shares of Series A and/or Series B Preferred Stock (either in the form of
Series A and/or Series B Preferred Stock or Common Stock issued upon
conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications), as soon as practicable, but in any
event thirty (30) days prior to the end of each fiscal year, (i) a budget for
the next fiscal year, and (ii) a business plan with respect to such next
fiscal year; and
(e) with respect to the financial statements called for
in subsections (b) and (c) of this Section 2.1, an instrument executed by the
Chief Financial Officer or President of the Company certifying that such
financials were prepared in accordance with gaap consistently applied with
prior practice for earlier periods (with the exception of footnotes that may
be required by gaap) and fairly present the financial condition of the
Company and its results of operation for the period specified, subject to
year-end audit adjustment.
2.2 INSPECTION. So long as such Investor holds at least
160,000 shares of Series A and/or Series B Preferred Stock (either in the
form of Series A and/or Series B Preferred Stock or Common Stock issued upon
conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications), the Company shall permit each Investor,
at such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable
times as may be requested by the Investor; provided, however, that the
Company shall not be obligated pursuant to this Section 2.2 to provide access
to any information that it reasonably considers to be a trade secret or
similar confidential information.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The
covenants set forth in Section 2.1, Section 2.2, Section 2.4, Section 2.5 and
Section 2.6 shall terminate as to the Investors and the Founders and be of no
further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with
the firm commitment underwritten offering of its securities to the general
public is consummated or when the Company first becomes subject to the
periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.4 RIGHT OF FIRST OFFER. Subject to the terms and
conditions specified in this paragraph 2.4, the Company hereby grants to each
Investor a right of first offer with respect to future sales by the Company
of its Shares (as hereinafter defined). An Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate.
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Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for, any shares of any class of
its capital stock ("Shares"), the Company shall first make an offering of
such Shares to each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investors stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company,
within twenty (20) calendar days after giving of the Notice, the Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion
of the Series A and/or Series B Preferred Stock then held, by such Investor
bears to the total number of shares of Common Stock of the Company then
outstanding (assuming full conversion, exercise and exchange of all
convertible, exercisable or exchangeable securities) (such Investor's "Pro
Rata Share").
(c) If all Shares that Investors are entitled to obtain
pursuant to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the ninety (90) day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of such Shares to any person or
persons at a price not less than, and upon terms no more favorable to the
offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Shares within such period, or if such
agreement is not consummated within sixty (60) days of the execution thereof,
the right provided hereunder shall be deemed to be revived and such Shares
shall not be offered unless first reoffered to the Investors in accordance
herewith.
(d) The right of first offer in this paragraph 2.4 shall
not be applicable (i) to the issuance or sale of shares of Common Stock (or
options therefor) to employees or directors of or consultants to the Company
for the primary purpose of soliciting or retaining their services, (ii) to or
after consummation of a bona fide, firmly underwritten public offering of
shares of Common Stock, registered under the Act pursuant to a registration
statement on Form S-1 or SB-2, at an offering price equal to (A) on a per
share basis, the sum of $12.50 (appropriately adjusted for any stock split,
dividend, combination or other recapitalization) (the "Series B Purchase
Price") plus an amount equal to the product of 10% of the Series B Purchase
Price multiplied by a fraction, the numerator of which shall be the number of
days elapsed from the date of this Agreement and the denominator of which
shall be 365, and (B) $7,500,000 in the aggregate, (iii) the issuance of
securities pursuant to the conversion, exercise or exchange of convertible,
exercisable or exchangeable securities, (iv) the issuance of securities in
connection with a bona fide business acquisition of or by the Company,
whether by merger, consolidation, sale of assets, sale or exchange of stock
or otherwise, or (v) the issuance of stock, warrants or other securities or
rights to persons or entities with which the Company has
14
<PAGE>
business relationships, provided such issuances are for other than primarily
equity financing purposes.
2.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. The
Company will cause each person with access to confidential information now or
hereafter employed by it or any subsidiary to enter into a proprietary
information and inventions agreement substantially in the form approved by
the Board of Directors.
2.6 BOARD REPRESENTATION.
(a) As long as Benchmark Capital Partners, L.P. or any
affiliate thereof ("Benchmark") owns not less than fifty percent (50%) of the
shares of Series A and Series B Preferred Stock it holds immediately after
the Closing (as defined in the Series BB Agreement) (or an equivalent amount
of Common Stock issued upon conversion thereof), it shall be entitled to
designate one (1) of the two (2) representatives which the holders of the
Series A and Series B Preferred Stock, voting separately as a single class
and not as separate series, are entitled to elect to the Company's Board of
Directors ("Board") pursuant to the Company's Amended and Restated
Certificate of Incorporation ("Restated Certificate"). As long as Crosspoint
Venture Partners 1996 or any affiliate thereof owns not less than fifty
percent (50%) of the shares of Series A and Series B Preferred Stock they
hold immediately after the Closing (or an equivalent amount of Common Stock
issued upon conversion thereof), they shall be entitled to designate one (1)
of the two (2) such representatives which the holders of the Series A and
Series B Preferred Stock, voting separately as a single class and not as
separate series, are entitled to elect to the Board pursuant to the Restated
Certificate. Each Investor (including any successor and assign of the rights
and obligations of such Investor under this Agreement) shall vote a
sufficient number of shares of Series A and Series B Preferred Stock (or
shares of Common Stock issued upon conversion thereof), to elect to the Board
the representatives designated pursuant to this Section 2.6.
(b) Each Founder agrees that he shall not vote to elect
to the Board any of the three (3) representatives that holders of Common
Stock, voting separately as a class, are entitled to elect to the Board
pursuant to the Restated Certificate without obtaining the prior approval of
the holders of a majority of the Series A and Series B Preferred Stock and
Common Stock issued upon conversion thereof (calculated on an as converted
basis), which approval shall not be unreasonably withheld. The foregoing
shall not apply to the election to the Board of the Company's chief executive
officer.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in
this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
15
<PAGE>
3.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California; notwithstanding the foregoing, Section 2.6 shall be governed by
and construed under the laws of the State of Delaware as applied to
agreements among Delaware residents entered into and to be performed entirely
within Delaware.
3.3 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be
deemed effectively given (i) upon personal delivery to the party to be
notified, (ii) upon deposit with the United States Post Office, by registered
or certified mail, postage prepaid and addressed to the party to be notified
at the address indicated for such party on the signature page hereof, or at
such other address as such party may designate by ten (10) days' advance
written notice to the other parties, or (iii) upon delivery by facsimile
transmission to the party to be notified at the facsimile number indicated
for such party on the signature page hereof, or at such other facsimile
number as such party may designate by ten (10) days' advance written notice
to the other parties.
3.6 EXPENSES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding; provided,
however, (i) that in the event such amendment or waiver adversely affects the
rights and/or obligations of the Founders under this Agreement in a different
manner than the other Holders, such amendment or waiver shall also require
the written consent of a majority of the Common Stock held by the Founders
and (ii) that in the event such amendment or waiver adversely affects the
rights and/or obligations of the holders of Series B Preferred Stock under
this Agreement in a different manner than the other Holders, such amendment
or waiver shall also require the written consent of the holders of a majority
of the shares of Series B Preferred Stock (or shares of Common Stock issued
upon conversion thereof) then outstanding (calculated on an as-converted
basis). Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
16
<PAGE>
3.8 SEVERABILITY. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
3.9 AGGREGATION OF STOCK. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
3.10 ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
3.11 WAIVER OF RIGHT OF FIRST OFFER. The Prior Investors
hereby unconditionally waive that certain right to notice and right of first
offer set forth in Section 2.4 of the Prior Agreement, with respect to the
sale and issuance of the Series BB Preferred Stock pursuant to the Series BB
Agreement.
3.12 PRIOR AGREEMENT. The Prior Agreement is hereby superseded
in its entirety and shall be of no further force or effect.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
ARIBA TECHNOLOGIES, INC.
By: /s/ Keith J. Krach
-----------------------------------------
Keith J. Krach
President and Chief Executive
Officer
Address: 1314 Chesapeake Terrace
Sunnyvale, California 94089
Telephone: (408) 543-3800
Facsimile: (408) 543-3900
<PAGE>
INVESTORS:
AMERINDO TECHNOLOGY GROWTH FUND II, INC.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Print Name:
---------------------------------
Title: Director
--------------------------------------
Address: 43 Upper Grosvenor Street
London W1X 9PG
Telephone:
----------------------------------
Facsimile:
----------------------------------
<PAGE>
BENCHMARK CAPITAL PARTNERS, L.P.
By: Benchmark Capital Management Co., L.L.C.
By: /s/ Robert C. Kugle
-----------------------------------------
Member
BENCHMARK FOUNDERS' FUND, L.P.
By: Benchmark Capital Management Co., L.L.C.
By: /s/ Robert C. Kugle
-----------------------------------------
Member
Address: 2480 Sand Hill Road, Suite 200
Menlo Park, California 94025
Telephone: (650) 854-8180
Facsimile: (650) 854-8183
<PAGE>
/s/ Anthony Ciulla
--------------------------------------------
Anthony Ciulla
Address: 1080 Sunshine Circle
Danville, California 94506
Telephone: (510) 736-8126
Facsimile: (510) 736-5109
<PAGE>
CROSSPOINT VENTURE PARTNERS 1996
By: /s/ John B. Munford
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: One First Street
Los Altos, California 94022
Telephone:
----------------------------------
Facsimile: (650) 948-6172
<PAGE>
DMG TECHNOLOGY VENTURES, L.L.C.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: 1550 El Camino Real, Suite 100
Menlo Park, CA 94025
Telephone: (650) 614-5000
Facsimile: (650) 614-5030
<PAGE>
ERIC A. ELDRED SEPARATE PROPERTY TRUST
By: /s/ Philip R. Taylor
-----------------------------------------
Philip R. Taylor, Trustee
Address: 535 Cowper Street, Second Floor
Palo Alto, California 94301
Telephone: (650) 614-9203
Facsimile: (650) 833-6903
<PAGE>
G & H PARTNERS
By: /s/ [ILLEGIBLE]
-----------------------------------------
Partner
Address: 155 Constitution Drive
Menlo Park, California 94025
Telephone: (650) 321-2400
Facsimile: (650) 321-2800
<PAGE>
/s/ Joaquin A. Garcia-Larrieu
--------------------------------------------
Joaquin A. Garcia-Larrieu
Address: 10380 Southwest 115th Street
Miami, Florida 33176
Telephone: (305) 235-0267
Facsimile:
----------------------------------
<PAGE>
INTEL CORPORATION
By: /s/ [ILLEGIBLE]
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: 2200 Mission College Boulevard
Mail Stop SC 4-210
Santa Clara, California 95052
Telephone:
---------------------------------
Facsimile:
---------------------------------
<PAGE>
THE KENNETH A. & ROBERTA E. ELDRED
REVOCABLE TRUST DATED 1/19/90
By: /s/ Kenneth A. Eldred
-----------------------------------------
Kenneth A. Eldred, Trustee
Address: 1075 Westridge Drive
Portola Valley, California 94028
Telephone:
----------------------------------
Facsimile: (415) 851-5279
<PAGE>
/s/ Keith J. Krach
--------------------------------------------
Keith J. Krach
Address: 16520 South Kennedy Road
Los Gatos, California 95032
Telephone:
----------------------------------
Facsimile: (408) 358-9395
<PAGE>
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By: Lighthouse Management Partners II,
L.P., its g.p.
By: Lighthouse Capital Partners, Inc.,
its g.p.
By: /s/ [ILLEGIBLE]
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: 100 Drakes Landing Road, Suite 260
Greenbrae, California 94904-2131
Telephone: (415) 925-3370
Facsimile: (415) 925-3387
<PAGE>
LITTON MASTER TRUST
By: Amerindo Investment Advisors Inc.
By: /s/ Alberto W. Vilar
-----------------------------------------
Alberto W. Vilar
Attorney-in-Fact for Litton Master
Trust
Address: One Embarcadero Center, Suite 2300
San Francisco, California 94111
Telephone:
----------------------------------
Facsimile:
----------------------------------
<PAGE>
/s/ Emeric J. McDonald
--------------------------------------------
Emeric J. McDonald
Address: P.O. Box 4849
Mountain View, California 94040
Telephone: (650) 249-1535
Facsimile: (650) 834-3581
<PAGE>
/s/ John McMahon
--------------------------------------------
John McMahon
Address: 1527 Grace Avenue
San Jose, California 95125
Telephone:
----------------------------------
Facsimile: (408) 371-7469
<PAGE>
PEOPLESOFT VENTURES, INC.,
a California corporation
By: /s/ [ILLEGIBLE]
-----------------------------------------
Print Name:
---------------------------------
Title:
--------------------------------------
Address: 4440 Rosewood Drive
Pleasanton, California 94588
Telephone:
----------------------------------
Facsimile: (510) 467-7190
<PAGE>
/s/ Donald Petersen
--------------------------------------------
Donald Petersen
Address: 255 East Brown Street, #460
Birmingham, Michigan 48009
Telephone:
----------------------------------
Facsimile: (313) 845-2300
<PAGE>
THE PIDWELL FAMILY LIVING TRUST
DATED 6/25/87
By: /s/ [ILLEGIBLE]
-----------------------------------------
Trustee
Address: 20628 Vickery Lane
Saratoga, California 95070
Telephone:
----------------------------------
Facsimile: (408) 867-5049
<PAGE>
PRAISE THE LORD FOUNDATION
By: /s/ Kenneth A. Eldred
-----------------------------------------
Kenneth A. Eldred
Chief Financial Officer
Address: 1075 Westridge Drive
Portola Valley, California 94028
Telephone: (650) 851-4707
Facsimile: (650) 851-5279
<PAGE>
/s/ A. Brooke Seawell
--------------------------------------------
A. Brooke Seawell
Address: 1245 San Mateo Drive
Menlo Park, California 94025
Telephone:
----------------------------------
Facsimile: (650) 328-0388
<PAGE>
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By: /s/ Robert C. Bensky
-----------------------------------------
Robert C. Bensky, Chief Financial Officer
Technology Crossover Ventures II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
-----------------------------------------
Robert C. Bensky, Chief Financial Officer
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
-----------------------------------------
Robert C. Bensky, Chief Financial Officer
TCV II Strategic Partners, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
-----------------------------------------
Robert C. Bensky, Chief Financial Officer
Technology Crossover Ventures II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II,
L.L.C.,
Its: Investment General Partner
By: /s/ Robert C. Bensky
-----------------------------------------
Robert C. Bensky, Chief Financial Officer
Address: 56 Main Street, Suite 210
Millburn, New Jersey 07041
Telephone:
----------------------------------
Facsimile: (973) 467-5323
<PAGE>
/s/ Hatim A. Tyabji
--------------------------------------------
Hatim A. Tyabji
Address: c/o VeriFone
4988 Great America Parkway
Santa Clara, California 95054-1200
Telephone: (408) 919-5542
Facsimile: (408) 919-8899
<PAGE>
VAN WAGONER CAPITAL MANAGEMENT
By: /s/ Garrett Von Wagoner
-----------------------------------------
Print Name: Garrett Von Wagoner
---------------------------------
Title: President
--------------------------------------
Address: 345 California Street, Suite 2450
San Francisco, California 94104
Telephone: (415) 835-5000
Facsimile: (415) 835-5050
<PAGE>
VISA INTERNATIONAL SERVICE ASSOCIATION
By: /s/ Todd Chaffee
-----------------------------------------
Todd Chaffee
Title:
--------------------------------------
Address: 900 Metro Center Boulevard
M/S M1-12th Floor
Foster City, California 94404
Telephone: (650) 432-3152
Facsimile: (650) 432-3980
<PAGE>
VISA U.S.A. INC.
By: /s/ [Illegible]
-----------------------------------------
Print Name: [Illegible]
---------------------------------
Title:
--------------------------------------
Address: 900 Metro Center Boulevard
Foster City, California 94404
Telephone: (650) 432-2607
Facsimile: (650) 432-4125
<PAGE>
/s/ Sarah L. Gordon Wild
--------------------------------------------
Sarah L. Gordon Wild
Address: 43 West 84th Street, #2
New York, New York 10024
Telephone:
----------------------------------
Facsimile:
----------------------------------
<PAGE>
FOUNDERS:
/s/ Rob DeSantis
--------------------------------------------
Rob DeSantis
Address: 105 Kennedy Court
Los Gatos, California 95032
Telephone: (408) 356-2759
Facsimile: (408) 358-1242
<PAGE>
/s/ Paul Hegarty
--------------------------------------------
Paul Hegarty
Address: 538 Sullivan Drive
Mountain View, California 94041
Telephone: (650) 903-9327
Facsimile:
----------------------------------
<PAGE>
/s/ Edward P. Kinsey
--------------------------------------------
Edward P. Kinsey
Address: 100 Dundee Lane
San Carlos, California 94070
Telephone: (650) 591-6876
Facsimile: (650) 591-6380
<PAGE>
/s/ Keith J. Krach
--------------------------------------------
Keith J. Krach
Address: 16520 South Kennedy Road
Los Gatos, California 95032
Telephone:
----------------------------------
Facsimile:
----------------------------------
<PAGE>
/s/ Robert Lent
--------------------------------------------
Robert Lent
Address: 2010 Broadway
Burlingame, California 94010
Telephone: (650) 344-4412
Facsimile: (650) 340-7049
<PAGE>
/s/ Boris Putanec
--------------------------------------------
Boris Putanec
Address: 1175 Laurel Street
Menlo Park, California 94025
Telephone:
----------------------------------
Facsimile: (650) 325-8464
<PAGE>
/s/ Paul Touw
--------------------------------------------
Paul Touw
Address: 220 Miramonte Avenue
Palo Alto, California 94306
Telephone: (650) 321-4215
Facsimile:
----------------------------------
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
NAME AND ADDRESS OF INVESTOR
Amerindo Technology Growth Fund II, Inc.
43 Upper Grosvenor Street
London W1X 9PG
Benchmark Capital Partners, L.P.
Benchmark Founders' Fund, L.P.
2480 Sand Hill Road, Suite 200
Menlo Park, California 94025
Anthony Ciulla
1080 Sunshine Circle
Danville, California 94506
Crosspoint Venture Partners 1996
One First Street
Los Altos, California 94022
DMG Technology Ventures, L.L.C.
1550 El Camino Real, Suite 100
Menlo Park, California 94025
Attention: Monica Komives
Eric A. Eldred Separate Property Trust
c/o Philip R. Taylor, Trustee
535 Cowper Street, Second Floor
Palo Alto, California 94301
G & H Partners
155 Constitution Drive
Menlo Park, California 94025
Joaquin A. Garcia-Larrieu
10380 Southwest 115th Street
Miami, Florida 33176
Intel Corporation
2200 Mission College Boulevard, Mail Stop SC 4-210
Santa Clara, California 95052
S-1
<PAGE>
NAME AND ADDRESS OF INVESTOR
The Kenneth A. and Roberta E. Eldred Revocable Trust dated 1/19/90
c/o Kenneth A. Eldred, Trustee
1075 Westridge Drive
Portola Valley, California 94028
Keith J. Krach
16520 South Kennedy Road
Los Gatos, California 95032
Lighthouse Capital Partners
100 Drake's Landing Road, Suite 260
Greenbrae, California 94904-3121
Litton Master Trust
c/o Amerindo Investment Advisors Inc.
Attention: Alberto W. Vilar, Attorney-in-Fact
One Embarcadero Center, Suite 2300
San Francisco, California 94111
Emeric J. McDonald
P.O. Box 4849
Mountain View, California 94040
John McMahon
1527 Grace Avenue
San Jose, California 95125
PeopleSoft Ventures, Inc.
4440 Rosewood Drive
Pleasanton, California 94588
Donald Petersen
255 East Brown Street, #460
Birmingham, Michigan 48009
The Pidwell Family Living Trust dated 6/25/87
20628 Vickery Lane
Saratoga, California 95070
Praise the Lord Foundation
c/o Kenneth A. Eldred, CFO
1075 Westridge Drive
Portola Valley, California 94028
S-2
<PAGE>
NAME AND ADDRESS OF INVESTOR
A. Brooke Seawell
1245 San Mateo Drive
Menlo Park, California 94025
TCV II, V.O.F.
Technology Crossover Ventures II, L.P.
TCV II (Q), L.P.
TCV II Strategic Partners, L.P.
Technology Crossover Ventures II, C.V.
56 Main Street, Suite 210
Millburn, New Jersey 07041
Attention: Robert C. Bensky, CFO
Hatim A. Tyabji
c/o VeriFone
4988 Great America Parkway
Santa Clara, California 95054-1200
Van Wagoner Capital Management
345 California Street, Suite 2450
San Francisco, California 94104
Visa International Service Association
900 Metro Center Boulevard
M/S M1-12th Floor
Foster City, California 94404
Attention: Todd Chaffee
Visa U.S.A. Inc.
900 Metro Center Boulevard
Foster City, California 94404
Attention: Beth Masegian, Vice President, Finance
Sarah L. Gordon Wild
43 West 84th Street, #2
New York, New York 10024
S-3
<PAGE>
SCHEDULE B
SCHEDULE OF FOUNDERS
Rob DeSantis
105 Kennedy Court
Los Gatos, California 95032
Paul Hegarty
538 Sullivan Drive
Mountain View, California 94041
Edward P. Kinsey
100 Dundee Lane
San Carlos, California 94070
Keith J. Krach
16520 South Kennedy Road
Los Gatos, California 95032
Robert Lent
2010 Broadway
Burlingame, California 94010
Boris Putanec
1175 Laurel Street
Menlo Park, California 94025
Paul Touw
220 Miramonte Avenue
Palo Alto, California 94306
S-4
<PAGE>
Exhibit 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of
___________, 199_ by and between Ariba, Inc., a Delaware corporation ("the
Company"), and _____________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company;
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law");
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors;
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in order to induce Indemnitee to continue to serve as an
officer or director of the Company, the Company has determined and agreed to
enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's service as an officer
or director after the date hereof, the parties hereto agree as follows:
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to hold
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and
Article VII, Section 6 of the Bylaws, as such may be amended. In furtherance of
the foregoing indemnification, and without limiting the generality thereof:
(a) PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 1(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the
<PAGE>
Company and, with respect to any criminal Proceeding, had no reasonable cause to
believe his conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware shall determine that such indemnification may
be made.
(c) INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL. Notwithstanding any other provision of this Agreement, to
the extent that Indemnitee is, by reason of his Corporate Status, a party to and
is successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. ADDITIONAL INDEMNITY. In addition to, and without regard to any
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall
exist upon the Company's obligations pursuant to this Agreement shall be that
the Company shall not be obligated to make any payment to Indemnitee that is
finally determined (under the procedures, and subject to the presumptions, set
forth in Sections 6 and 7 hereof) to be unlawful under Delaware law.
3. CONTRIBUTION IN THE EVENT OF JOINT LIABILITY.
(a) Whether or not the indemnification provided in Sections 1
and 2 hereof is available, in respect of any threatened, pending or completed
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding), Company shall pay,
in the first instance, the entire amount of any judgment or settlement of such
action, suit or proceeding without requiring Indemnitee to contribute to such
2
<PAGE>
payment and Company hereby waives and relinquishes any right of contribution it
may have against Indemnitee. Company shall not enter into any settlement of any
action, suit or proceeding in which Company is jointly liable with Indemnitee
(or would be if joined in such action, suit or proceeding) unless such
settlement provides for a full and final release of all claims asserted against
Indemnitee.
(b) Without diminishing or impairing the obligations of the
Company set forth in the preceding subparagraph, if, for any reason, Indemnitee
shall elect or be required to pay all or any portion of any judgment or
settlement in any threatened, pending or completed action, suit or proceeding in
which Company is jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), Company shall contribute to the amount of expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred and paid or payable by Indemnitee in proportion
to the relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. ADVANCEMENT OF EXPENSES. Notwithstanding any other provision of
this Agreement, the Company shall advance all Expenses incurred by or on behalf
of Indemnitee in connection with any Proceeding by reason of Indemnitee's
Corporate Status within ten (10) days after the receipt by the Company of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that
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Indemnitee is not entitled to be indemnified against such Expenses. Any
advances and undertakings to repay pursuant to this Section 5 shall be unsecured
and interest free. Notwithstanding the foregoing, the obligation of the Company
to advance Expenses pursuant to this Section 5 shall be subject to the condition
that, if, when and to the extent that the Company determines that Indemnitee
would not be permitted to be indemnified under applicable law, the Company shall
be entitled to be reimbursed, within thirty (30) days of such determination, by
Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee should be indemnified under applicable
law, any determination made by the Company that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any advance of
Expenses until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
6. PROCEDURES AND PRESUMPTIONS FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION. It is the intent of this Agreement to secure for Indemnitee
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to,
the advancement of Expenses and contribution by the Company) under this
Agreement, Indemnitee shall submit to the Company a written request, including
therein or therewith such documentation and information as is reasonably
available to Indemnitee and is reasonably necessary to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board of Directors in writing that Indemnitee has requested
indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case by one of the following three methods, which
shall be at the election of Indemnitee: (1) by a majority vote of the
disinterested directors, even though less than a quorum, or (2) by independent
legal counsel in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors). Indemnitee or the Company,
as the case may be, may, within 10 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 13 of this Agreement, and the
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objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If a written objection is made and substantiated,
the Independent Counsel selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a
written request for indemnification pursuant to Section 6(a) hereof, no
Independent Counsel shall have been selected and not objected to, either the
Company or Indemnitee may petition the Court of Chancery of the State of
Delaware or other court of competent jurisdiction for resolution of any
objection which shall have been made by the Company or Indemnitee to the other's
selection of Independent Counsel and/or for the appointment as Independent
Counsel of a person selected by the court or by such other person as the court
shall designate, and the person with respect to whom all objections are so
resolved or the person so appointed shall act as Independent Counsel under
Section 6(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 6(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
6(c), regardless of the manner in which such Independent Counsel was selected or
appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act,
of any director, officer, agent or employee of the Enterprise shall not be
imputed to Indemnitee for purposes of determining the right to indemnification
under this Agreement. Whether or not the foregoing provisions of this
Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee
has at all times acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company. Anyone seeking to
overcome this presumption shall have the burden of proof and the burden of
persuasion, by clear and convincing evidence.
(f) If the person, persons or entity empowered or selected under
Section 6 to determine whether Indemnitee is entitled to indemnification shall
not have made a determination within thirty (30) days after receipt by the
Company of the request therefor, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statement not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law; provided, however, that such 30 day period may be
5
<PAGE>
extended for a reasonable time, not to exceed an additional fifteen (15) days,
if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 6(g) shall
not apply if the determination of entitlement to indemnification is to be made
by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other
disposition short of final judgment may be successful if it permits a party to
avoid expense, delay, distraction, disruption and uncertainty. In the event
that any action, claim or proceeding to which Indemnitee is a party is resolved
in any manner other than by adverse judgment against Indemnitee (including,
without limitation, settlement of such action, claim or proceeding with or
without payment of money or other consideration) it shall be presumed that
Indemnitee has been successful on the merits or otherwise in such action, suit
or proceeding. Anyone seeking to overcome this presumption shall have the
burden of proof and the burden of persuasion, by clear and convincing evidence.
7. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or
(v) payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to
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<PAGE>
indemnification or such determination is deemed to have been made pursuant to
Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification. Indemnitee
shall commence such proceeding seeking an adjudication within 180 days following
the date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 7(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a DE NOVO trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding
commenced pursuant to this Section 7, absent a prohibition of such
indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7,
seeks a judicial adjudication of his rights under, or to recover damages for
breach of, this Agreement, or to recover under any directors' and officers'
liability insurance policies maintained by the Company the Company shall pay on
his behalf, in advance, any and all expenses (of the types described in the
definition of Expenses in Section 13 of this Agreement) actually and reasonably
incurred by him in such judicial adjudication, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advancement of
expenses or insurance recovery.
(e) The Company shall be precluded from asserting in any
judicial proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
8. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement
or of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy
7
<PAGE>
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other right or
remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. EXCEPTION TO RIGHT OF INDEMNIFICATION. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. DURATION OF AGREEMENT. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is an
officer or director of the Company (or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 7 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or any
other Enterprise at the Company's request.
11. SECURITY. To the extent requested by the Indemnitee and approved
by the Board of Directors of the Company, the Company may at any time and from
time to time provide
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security to the Indemnitee for the Company's obligations hereunder through an
irrevocable bank line of credit, funded trust or other collateral. Any such
security, once provided to the Indemnitee, may not be revoked or released
without the prior written consent of the Indemnitee.
12. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve as an officer or director of the Company,
and the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
13. DEFINITIONS. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a person who is
or was a director, officer, employee or agent or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in
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representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees to pay the
reasonable fees of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all Expenses, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
(f) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he 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; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. SEVERABILITY. If any provision or provisions of this Agreement
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, each portion of any section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and shall remain enforceable to the fullest extent
permitted by law; and (b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.
15. MODIFICATION AND WAIVER. No supplement, modification,
termination or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
16. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The
failure to so notify the Company shall not relieve the Company of any obligation
which it may have to the Indemnitee under this Agreement or otherwise unless and
only to the extent that such failure or delay materially prejudices the Company.
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17. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
(i) delivered by hand and receipted for by the party to whom said notice or
other communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to the address set forth below Indemnitee
signature hereto.
(b) If to the Company, to:
Ariba, Inc.
1585 Charleston Road
Mountain View, CA 94043
Attention: Chief Financial Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
19. HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
ARIBA, INC.
By:____________________________________
Name:_____________________________
Title:____________________________
_______________________________________
Name: ________________________________
Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
<PAGE>
Exhibit 10.2
ARIBA, INC.
1996 STOCK PLAN
ADOPTED ON NOVEMBER 15, 1996
(AS AMENDED JULY 30, 1997)
(AS AMENDED OCTOBER 5, 1998)
(AS AMENDED MARCH 15, 1999)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE. . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. ADMINISTRATION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(a) Committees of the Board of Directors . . . . . . . . . . . . . . . . . . .1
(b) Authority of the Board of Directors. . . . . . . . . . . . . . . . . . . .1
SECTION 3. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(a) General Rule.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(b) Ten-Percent Stockholders.. . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 4. STOCK SUBJECT TO PLAN. . . . . . . . . . . . . . . . . . . . . . . . . .2
(a) Basic Limitation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
(b) Additional Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES. . . . . . . . . . . . . . . . .2
(a) Stock Purchase Agreement.. . . . . . . . . . . . . . . . . . . . . . . . .2
(b) Duration of Offers and Nontransferability of Rights. . . . . . . . . . . .2
(c) Purchase Price.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
(d) Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
(e) Restrictions on Transfer of Shares.. . . . . . . . . . . . . . . . . . . .3
(f) Accelerated Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS. . . . . . . . . . . . . . . . . . . . .3
(a) Stock Option Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . .3
(b) Number of Shares.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
(c) Exercise Price.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(d) Withholding Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(e) Exercisability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(f) Accelerated Exercisability . . . . . . . . . . . . . . . . . . . . . . . .4
(g) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(h) Nontransferability.. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
(i) Termination of Service (Except by Death).. . . . . . . . . . . . . . . . .5
(j) Leaves of Absence. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
(k) Death of Optionee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
(l) No Rights as a Stockholder.. . . . . . . . . . . . . . . . . . . . . . . .6
(m) Modification, Extension and Assumption of Options. . . . . . . . . . . . .6
(n) Restrictions on Transfer of Shares and Minimum Vesting.. . . . . . . . . .6
(o) Accelerated Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
i
<PAGE>
SECTION 7. PAYMENT FOR SHARES.. . . . . . . . . . . . . . . . . . . . . . . . . . .6
(a) General Rule.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
(b) Surrender of Stock.. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
(c) Services Rendered. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(d) Promissory Note. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(e) Exercise/Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(f) Exercise/Pledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 8. ADJUSTMENT OF SHARES.. . . . . . . . . . . . . . . . . . . . . . . . . .7
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
(b) Mergers and Consolidations.. . . . . . . . . . . . . . . . . . . . . . . .7
(c) Reservation of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 9. SECURITIES LAWS REQUIREMENTS.. . . . . . . . . . . . . . . . . . . . . .8
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
(b) Financial Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 10. NO RETENTION RIGHTS.. . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 11. DURATION AND AMENDMENTS.. . . . . . . . . . . . . . . . . . . . . . . .9
(a) Term of the Plan.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(b) Right to Amend or Terminate the Plan.. . . . . . . . . . . . . . . . . . .9
(c) Effect of Amendment or Termination.. . . . . . . . . . . . . . . . . . . .9
SECTION 12. DEFINITIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
</TABLE>
ii
<PAGE>
ARIBA, INC. 1996 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory
Options as well as ISOs intended to qualify under Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered by
one or more Committees. Each Committee shall consist of one or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it. If no Committee has been appointed, the
entire Board of Directors shall administer the Plan. Any reference to the Board
of Directors in the Plan shall be construed as a reference to the Committee (if
any) to whom the Board of Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion to take
any actions it deems necessary or advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Board of Directors shall
be final and binding on all Purchasers, all Optionees and all persons deriving
their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Options or the direct award or sale of Shares.
Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT STOCKHOLDERS. An individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for designation as
an Optionee or Purchaser unless (i) the Exercise Price is at least 110% of the
Fair Market Value of a Share on the date of grant, (ii) the Purchase Price (if
any) is at least 100% of the Fair Market Value of a Share and (iii) in the case
of an ISO, such ISO by its terms is not exercisable after the expiration of five
years from the date of grant. For purposes of this Subsection (b), in
determining stock ownership, the attribution rules of Section 424(d) of the Code
shall be applied.
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<PAGE>
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan may be authorized but
unissued Shares or treasury Shares. The aggregate number of Shares that may be
issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 8,522,200(1) Shares, subject to adjustment pursuant to
Section 8. The number of Shares that are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued
under the Plan are reacquired by the Company pursuant to any forfeiture
provision, right of repurchase or right of first refusal, such Shares shall
again be available for the purposes of the Plan, except that the aggregate
number of Shares which may be issued upon the exercise of ISOs shall in no event
exceed 8,358,450(2) Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Purchaser and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Board of Directors deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within 30 days after the grant of such right
was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under the
Plan shall not be less than 85% of the Fair Market Value of such Shares, and a
higher percentage may be required by Section 3(b). Subject to the preceding
sentence, the Purchase Price shall be
__________________________
(1) Reflects the 1,196,100-share increase by the Board of Directors and
approved by the stockholders on July 30, 1997, and the 1,150,000-share
increase authorized by the Board of Directors on October 5, 1998 and approved
by the stockholders on November 5, 1998. Also reflects the 1,100,000-share
increase authorized by the Board of Directors on March 15, 1999, subject to
stockholder approval, and the 2-for-1 stock split effective March 19, 1999.
(2) As of March 19, 1999.
2
<PAGE>
determined by the Board of Directors at its sole discretion. The Purchase Price
shall be payable in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall
be set forth in the applicable Stock Purchase Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally. Any
right to repurchase a Purchaser's Shares at the original Purchase Price (if any)
upon termination of the Purchaser's Service shall lapse at least as rapidly as
the following schedule:
<TABLE>
<CAPTION>
Anniversary of Date Percentage of
of Sale or Award Shares Vested
------------------- -------------
<S> <C>
First 20%
Second 40%
Third 60%
Fourth 80%
Fifth 100%
</TABLE>
Any such repurchase right may be exercised only within 90 days after the
termination of the Purchaser's Service for cash or for cancellation of
indebtedness incurred in purchasing the Shares.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase Agreement
provides otherwise, any right to repurchase a Purchaser's Shares at the original
Purchase Price (if any) upon termination of the Purchaser's Service shall lapse
and all of such Shares shall become vested if (i) the Company is subject to a
Change in Control and (ii) the repurchase right is not assigned to the entity
that employs the Purchaser immediately after the Change in Control or to its
parent or subsidiary.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Board of Directors deems appropriate for inclusion
in a Stock Option Agreement. The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in
3
<PAGE>
accordance with Section 8. The Stock Option Agreement shall also specify
whether the Option is an ISO or a Nonstatutory Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, and a higher percentage may
be required by Section 3(b). The Exercise Price of a Nonstatutory Option shall
not be less than 85% of the Fair Market Value of a Share on the date of grant,
and a higher percentage may be required by Section 3(b). Subject to the
preceding two sentences, the Exercise Price under any Option shall be determined
by the Board of Directors at its sole discretion. The Exercise Price shall be
payable in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. An Option
shall become exercisable at least as rapidly as set forth in the following
schedule:
<TABLE>
<CAPTION>
Anniversary of Percentage of Shares
Date of Option Grant Exercisable
-------------------- --------------------
<S> <C>
First 20%
Second 40%
Third 60%
Fourth 80%
Fifth 100%
</TABLE>
Subject to the preceding sentence, the exercisability provisions of any Stock
Option Agreement shall be determined by the Board of Directors at its sole
discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control, (ii)
such Options do not remain outstanding, (iii) such Options are not assumed by
the surviving corporation or its parent and (iv) the surviving corporation or
its parent does not substitute options with substantially the same terms for
such Options.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and a
shorter term may be required by Section 3(b). Subject to the preceding
sentence, the Board of Directors at its sole discretion shall determine when an
Option is to expire.
4
<PAGE>
(h) NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(i) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's Service
terminates for any reason other than the Optionee's death, then the Optionee's
Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (g)
above;
(ii) The date three months after the termination of the
Optionee's Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Disability.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Options, all or part of such Options may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Options directly from the Optionee by
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated (or
became exercisable as a result of the termination) and the underlying Shares had
vested before the Optionee's Service terminated (or vested as a result of the
termination).
(j) LEAVES OF ABSENCE. For purposes of Subsection (i) above, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if continued
crediting of Service for this purpose is expressly required by the terms of such
leave or by applicable law (as determined by the Company).
(k) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (g)
above; or
(ii) The date 12 months after the Optionee's death.
5
<PAGE>
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death or became exercisable as a result of the death. The
balance of such Options shall lapse when the Optionee dies.
(l) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
(n) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall
be set forth in the applicable Stock Option Agreement and shall apply in
addition to any restrictions that may apply to holders of Shares generally. Any
right to repurchase an Optionee's Shares at the original Exercise Price upon
termination of the Optionee's Service shall lapse at least as rapidly as the
schedule set forth in Subsection (e) above. Any such repurchase right may be
exercised only within 90 days after the termination of the Optionee's Service
for cash or for cancellation of indebtedness incurred in purchasing the Shares.
(o) ACCELERATED VESTING. Unless the applicable Stock Option Agreement
provides otherwise, any right to repurchase an Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse and all of
such Shares shall become vested if (i) the Company is subject to a Change in
Control and (ii) the repurchase right is not assigned to the entity that employs
the Optionee immediately after the Change in Control or to its parent or
subsidiary.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with Shares owned by the Optionee
or the Optionee's representative. Such Shares shall be surrendered to the
Company in good form for transfer and
6
<PAGE>
shall be valued at their Fair Market Value on the date when the Option is
exercised. This Subsection (b) shall not apply to the extent that acceptance of
Shares in payment of the Exercise Price would cause the Company to recognize
compensation expense with respect to the Option for financial reporting
purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note. The par value of the Shares, if newly
issued, shall be paid in cash or cash equivalents. The Shares shall be pledged
as security for payment of the principal amount of the promissory note and
interest thereon. The interest rate payable under the terms of the promissory
note shall not be less than the minimum rate (if any) required to avoid the
imputation of additional interest under the Code. Subject to the foregoing, the
Board of Directors (at its sole discretion) shall specify the term, interest
rate, amortization requirements (if any) and other provisions of such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party
to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
7
<PAGE>
(i) The continuation of such outstanding Options by the Company
(if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by
the surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent
of options with substantially the same terms for such outstanding
Options; or
(iv) The cancellation of such outstanding Options without
payment of any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) GENERAL. Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company's securities may then be traded.
(b) FINANCIAL REPORTS. The Company each year shall furnish to Optionees,
Purchasers and stockholders who have received Stock under the Plan its balance
sheet and income statement, unless such Optionees, Purchasers or stockholders
are key Employees whose duties with the Company assure them access to equivalent
information. Such balance sheet and income statement need not be audited.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan shall
confer upon the Purchaser or Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Company (or any Parent or Subsidiary employing or retaining
the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are
hereby expressly reserved by each, to terminate his or her Service at any time
and for any reason, with or without cause.
8
<PAGE>
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan became effective when adopted by the Board
of Directors on November 15, 1996 and was approved by the Company's stockholders
on January 15, 1997. On July 30, 1997 the Board of Directors adopted and the
stockholders approved an increase in the number of shares issuable over the term
of the Plan from 1,365,000 to 2,561,100 shares. On October 5, 1998 the Board of
Directors adopted an increase in the number of shares issuable over the term of
the Plan from 2,561,100 shares to 3,711,100 shares. The stockholders approved
the 1,150,000-share increase on November 5, 1998. On March 15, 1999 the Board
of Directors adopted and the stockholders approved an increase in the number of
shares issuable over the term of the Plan from 3,711,100 shares to 4,261,100
shares. On March 19, 1999 the Company effected a 2-for-1 split of the Company's
Common Stock. All share numbers reflected above are pre-split numbers. The
Plan shall terminate automatically 10 years after its adoption by the Board of
Directors and may be terminated on any earlier date pursuant to Subsection (b)
below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 8), or
which materially changes the class of persons who are eligible for the grant of
ISOs, shall be subject to the approval of the Company's stockholders.
Stockholder approval shall not be required for any other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if more than 50% of the combined voting power of the
continuing or surviving entity's securities outstanding immediately
after such merger, consolidation or other reorganization is owned by
persons who were not stockholders of the Company immediately prior to
such merger, consolidation or other reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially
9
<PAGE>
the same proportions by the persons who held the Company's securities
immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean Ariba, Inc., a Delaware corporation.
(f) "CONSULTANT" shall mean an individual who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(g) "DISABILITY" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(k) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(l) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(m) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(n) "OPTIONEE" shall mean an individual who holds an Option.
(o) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who
is not an Employee.
(p) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent commencing
as of such date.
10
<PAGE>
(q) "PLAN" shall mean this Ariba, Inc. 1996 Stock Plan.
(r) "PURCHASE PRICE" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Board of Directors.
(s) "PURCHASER" shall mean an individual to whom the Board of Directors
has offered the right to acquire Shares under the Plan (other than upon exercise
of an Option).
(t) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(u) "SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
(v) "STOCK" shall mean the Common Stock of the Company, with a par value
of $.002 per Share.
(w) "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
(x) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(y) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
11
<PAGE>
Exhibit 10.6
INDUSTRIAL COMPLEX LEASE
(California)
Industrial Complex: Caribbean Corporate Center
Landlord: MP Caribbean, Inc.
Tenant: Ariba Technologies, Inc.
Reference Date: August 11, 1997
INDEX TO LEASE
<TABLE>
<CAPTION>
TITLE PAGE
<S> <C>
ARTICLE 1.
DEFINITIONS AND CERTAIN BASIC PROVISIONS . . . . . . . . . . . . . . . 1
ARTICLE 2.
GRANTING CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3.
DELIVERY OF DEMISED PREMISES . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 4.
RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 5.
FINANCIAL REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 6.
TENANT'S RESPONSIBILITY FOR TAXES, OTHER
REAL ESTATE CHARGES AND INSURANCE EXPENSES . . . . . . . . . . . . . . 4
ARTICLE 7.
COMMON AREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 8.
[INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 9.
USE AND CARE OF DEMISED PREMISES . . . . . . . . . . . . . . . . . . . 7
ARTICLE 10.
MAINTENANCE AND REPAIR OF DEMISED PREMISES . . . . . . . . . . . . . . 7
ARTICLE 11.
ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 12.
LANDLORD'S RIGHT OF ACCESS . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 13.
SIGNS; STORE FRONTS . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 14.
UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE 15.
INSURANCE COVERAGES . . . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE 16.
WAIVER OF LIABILITY; MUTUAL WAIVER OF SUBROGATION . . . . . . . . . . .11
<PAGE>
ARTICLE 17.
DAMAGES BY CASUALTY . . . . . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE 18.
EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE 19.
ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE 20.
SUBORDINATION; ATTORNMENT; ESTOPPELS . . . . . . . . . . . . . . . . .15
ARTICLE 21.
TENANT'S INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE 22.
DEFAULT BY TENANT AND REMEDIES . . . . . . . . . . . . . . . . . . . .16
ARTICLE 23
[INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . . . .19
ARTICLE 24.
HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
ARTICLE 25.
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE 26.
COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE 27.
REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE 28.
HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . .21
ARTICLE 29.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
</TABLE>
EXHIBIT "A" DEMISED PREMISES
EXHIBIT "B" CONSTRUCTION: TENANT ACCEPTANCE OF SPACE "AS IS"
EXHIBIT "C" TENANT CONSTRUCTION RULES AND REGULATIONS
EXHIBIT "D" RIGHT OF FIRST OPPORTUNITY
2
<PAGE>
INDUSTRIAL COMPLEX LEASE
(California)
ARTICLE 1.
DEFINITIONS AND CERTAIN BASIC PROVISIONS
1.1 The following list sets out certain defined terms and certain
financial and other information pertaining to this lease:
(a) "Landlord": MP Caribbean, Inc., a Delaware corporation,
whose taxpayer identification number is 94-3226570.
(b) Landlord's address: c/o GE Capital Investment Advisors,
Inc., 444 Market Street, Suite 2100, San Francisco, California 94111, Attention:
Asset Management and Legal Department
(c) "Tenant": Ariba Technologies, Inc., a Delaware
corporation, whose taxpayer identification number is 77-0439730.
(d) Tenant's address:
Prior to Commencement Date: 1870 Plymouth Street,
Suite 103
Mountain View, CA 94043
Upon Commencement Date: 1314 Chesapeake Terrace
Sunnyvale, CA 94089
(See also section 25.1)
(e) Tenant's trade name: Ariba Technologies
(f) Tenant's Guarantor: N/A
(g) "Agent": South Bay Development Company, whose address is
511 Division Street, Campbell, California 95008, Attention: James D. Mair.
(h) "Industrial Complex": Landlord's property in the City of
Sunnyvale, Santa Clara County, California, which property is commonly known as:
1310-1327 Chesapeake Terrace, Caribbean Corporate Center, Sunnyvale, California.
(i) "Demised Premises": that certain area in the Industrial
Complex located at 1314 Chesapeake Terrace, Sunnyvale, California and being
described or shown cross-hatched on the floor plan(s) attached hereto as EXHIBIT
"A" which Landlord and Tenant acknowledge and agree to contain 32,576 square
feet of rentable area.
(j) "Commencement Date": the later of September 14, 1997, or
that date upon which Landlord has completed all of the Landlord's Improvements
as provided in Article IV of EXHIBIT "B" attached hereto.
(k) "Lease Term": commencing on the Commencement Date and
continuing for seven (7) years and no months after the Commencement Date;
provided that if the Commencement Date is a date other than the first day of a
calendar month, the lease term shall be extended by the number of days remaining
in the calendar month in which the Commencement Date occurs. See EXHIBIT "D".
(l) Minimum guaranteed rental: $57,008.00, subject to Section
4.1 below.
(m) Prepaid rental: $57,008.00, being an estimate of the
initial minimum guaranteed rental, for the first month of the lease term, such
prepaid rental being due and payable upon execution of this lease.
(n) Security deposit: $76,396.00, such security deposit being
due and payable upon execution of this lease.
(o) Permitted use: General office and software development,
and for no other purpose whatsoever.
(p) Tenant's maximum insurance deductible: $5,000.00.
(q) "Tenant's Broker": Cushman & Wakefield of California,
Inc.
1
<PAGE>
(r) (i) "Tenant's Proportionate Share of Building Basic
Costs": 44.89%
(ii) "Tenant's Proportionate Share of Industrial
Complex Basic Costs": 12.85%
(iii) "Tenant's Proportionate Share of Parcel Basic
Costs": 22.09%.
ARTICLE 2.
GRANTING CLAUSE
2.1 Landlord leases the Demised Premises to Tenant, and Tenant leases
the Demised Premises from Landlord, upon the terms and conditions set forth in
this lease.
ARTICLE 3.
DELIVERY OF DEMISED PREMISES
3.1 Except to the extent modified by Landlord's express assumption of
construction obligations, if any, in EXHIBIT "B" attached to this lease, the
Demised Premises is being leased "AS IS," with Tenant accepting all defects, if
any; and Landlord makes no warranty of any kind, express or implied, with
respect to the Demised Premises (without limitation, Landlord makes no warranty
as the habitability, fitness or suitability of the Demised Premises for a
particular purpose nor as to the absence of any toxic or otherwise hazardous
substances). This Section 3.1 is subject to any contrary requirements under
applicable law; however, in this regard Tenant acknowledges that it has been
given the opportunity to inspect the Demised Premises and to have qualified
experts inspect the Demised Premises prior to the execution of this lease.
3.2 Notwithstanding the foregoing, Landlord warrants for a period of
ninety (90) days following the Commencement Date that the roof, mechanical,
electrical and plumbing systems serving the Demised Premises shall be in proper
working order. Landlord shall repair any defective or malfunctioning component
of the foregoing building systems about which Landlord has received written
notice from Tenant describing the failure or malfunction within ninety (90) days
of the Commencement Date.
3.3 Notwithstanding anything to the contrary in this Lease, Tenant
may, prior to the Commencement Date, enter the Demised Premises for the purpose
of installing telephones, electronic communication or related equipment,
fixtures, furniture and equipment, provided that Tenant shall be solely
responsible for any of such equipment, fixtures, furniture or material and for
any loss or damage thereto from any cause whatsoever, excluding only the gross
negligence or willful misconduct of Landlord. Such early access to the Demised
Premises and such installation shall be permitted only to the extent that
Landlord determines that such early access and installation activities will not
delay Landlord's completion of the Landlord Improvements. Landlord and Tenant
shall cooperate in the scheduling of Tenant's early access to the Demised
Premises and of Tenant's installation activities. The provisions of Articles 15,
16 and 21 below shall expressly apply in full during the period of any such
early entry, and Tenant shall (i) provide certificates of insurance evidencing
the existence and amounts of liability insurance carried by Tenant and its
agents and contractors, reasonably satisfactory to Landlord, prior to such early
entry, and (ii) comply with all applicable laws, regulations, permits and other
approvals applicable to such early entry work in the Demised Premises. No rent
shall be due for such early access period.
ARTICLE 4.
RENT
4.1 The minimum guaranteed rental shall be subject to periodic
increases based upon the following schedule and which increases shall become
effective automatically and without further notice as of the first day of the
specified lease month:
<TABLE>
<CAPTION>
Lease Months Monthly Rental
------------ --------------
<S> <C>
Months 1 -12 $57,008.00
Months 13-24 $59,858.00
Months 25 -36 $62,851.00
Months 37 -48 $65,994.00
Months 49 -60 $69,294.00
Months 61 -72 $72,758.00
Months 73 -84 $76,396.00
</TABLE>
2
<PAGE>
Notwithstanding anything to the contrary contained herein, Tenant shall be
credited for the amount of minimum guaranteed rental for months one (1) and two
(2) of the lease term in the total amount of $114,016.00. Tenant acknowledges
that in no way shall this minimum guaranteed rental credit apply to any other
period of the lease term or in any way relieve Tenant of its responsibility to
pay all other charges due under this lease, including without limitation,
Tenant's obligation to pay Tenant's pro rata share of real estate charges,
insurance expenses and common area expenses. In the event Tenant is in default
of any of its obligations set forth in this lease beyond any applicable notice
and cure period at any time during the term of this lease, and Landlord elects
to pursue its remedies under Section 22.2(c) below ("Landlord's Recovery
Action"), in addition to any other fights or remedies Landlord may have as a
result of such default in such Landlord's Recovery Action, the entire
$114,016.00 amount of the minimum guaranteed rental credit hereinabove
referenced shall be due and payable by Tenant to Landlord.
4.2 Rental shall accrue from the Commencement Date, and shall be
payable to Landlord at Agent's address specified in Section 1.1(g) above or at
such other address as Landlord shall so notify Tenant from time to time.
4.3 Tenant shall pay to Landlord minimum guaranteed rental in monthly
installments in the amounts specified in Section 1.1(l) and Section 4.1 of this
lease. The first such monthly installment shall be due and payable on or before
the Commencement Date, and subsequent installments shall be due and payable on
or before the first day of each succeeding calendar month during the lease term;
provided that if the Commencement Date is a date other than the first day of a
calendar month, there shall be due and payable on or before such date as minimum
guaranteed rental for the balance of such calendar month a sum equal to that
proportion of the rent specified for the first full calendar month as herein
provided, which the number of days from the Commencement Date to the end of the
calendar month during which the Commencement Date shall fall bears to the total
number of days in such month. Tenant agrees to pay to Landlord, if assessed by
the jurisdiction in which the Industrial Complex is located, any sales, excise
or other tax imposed, assessed or levied in connection with Tenant's payment of
rents.
4.4 It is understood that the minimum guaranteed rental is payable on
or before the first day of each calendar month (in accordance with Section 4.2
above), without offset or deduction of any nature. In the event any rental is
not received within five (5) days after its due date for any reason whatsoever,
or if any rental payment is by check which is returned for insufficient funds,
then in addition to the past due amount Tenant shall pay to Landlord one of the
following (the choice to be at the sole option of Landlord unless one of the
choices is improper under applicable law, in which event the other alternative
will automatically be deemed to have been selected): (a) a late charge in an
amount equal to six percent (6%) of the rental then due, in order to compensate
Landlord for its administrative and other overhead expenses; or (b) interest on
the rental then due at the maximum contractual rate which could legally be
charged in the event of a loan of such rental to Tenant (but in no event to
exceed 1-1/2% per month), such interest to accrue continuously on any unpaid
balance due to Landlord by Tenant during the period commencing with the rental
due date and terminating with the date on which Tenant makes full payment of all
amounts owing to Landlord at the time of said payment. Any such late charge or
interest payment shall be payable as additional rental under this lease, shall
not be considered a waiver by Landlord of any default by Tenant hereunder, and
shall be payable immediately on demand.
4.5 If Tenant fails in two (2) consecutive months to make rental
payments within five (5) days after it is due, Landlord, in order to reduce its
administrative costs, may require, by giving written notice to Tenant (and in
addition to any late charge or interest accruing pursuant to Section 4.4 above,
as well as any other rights and remedies accruing pursuant to Article 22 or
Article 23 below, or any other provision of this lease or at law), that minimum
guaranteed rentals are to be paid quarterly in advance instead of monthly, and
that all future rental payments are to be made on or before the due date by
cash, cashier's check, or money order and that the delivery of Tenant's
personal or corporate check will no longer constitute a payment of rental as
provided in this lease. Any acceptance of a monthly rental payment or of a
personal or corporate check thereafter by Landlord shall not be construed as a
subsequent waiver of said rights.
4.6 Tenant shall pay when due any and all sales taxes levied, imposed
or assessed by the United States of America, the State of California, or any
political subdivision thereof or other taxing authority upon the minimum
guaranteed rental, additional rent and all other sums payable hereunder.
ARTICLE 5.
FINANCIAL REPORTS
5.1 From time to time during the lease term, Tenant shall, within
fifteen (15) days of Landlord's request therefor, furnish a true and accurate
statement of its financial condition prepared in conformity with recognized
accounting principles and in a form reasonably satisfactory to Landlord.
3
<PAGE>
Landlord shall use reasonable efforts to maintain the confidentiality of such
financial reports; provided, however, that Landlord may disclose such financial
reports to individuals within its legal, real estate and accounting departments
who have a reasonable need to know the information contained in such financial
reports. Landlord and Tenant agree that Landlord may disclose Tenant's financial
statements to potential purchasers of, or lenders on, the Industrial Complex
only with Tenant's prior written consent, which consent shall not be
unreasonably withheld or delayed.
ARTICLE 6.
TENANT'S RESPONSIBILITY FOR TAXES, OTHER
REAL ESTATE CHARGES AND INSURANCE EXPENSES
6.1 Tenant shall be liable for all taxes levied against personal
property and trade fixtures placed by Tenant in the Demised Premises which taxes
shall be paid when due and before any delinquency. If any such taxes are levied
against Landlord or Landlord's property and if Landlord elects to pay the same
or if the assessed value of Landlord's property is increased by inclusion of
personal property and trade fixtures placed by Tenant in the Demised Premises
and Landlord elects to pay the taxes based on such increase, Tenant shall pay to
Landlord upon demand that part of such taxes for which Tenant is primarily
liable hereunder.
6.2 Tenant shall also be liable for Tenant's Proportionate Share (as
specified in Section 1.1(r) above and determined in accordance with Section 7.5
below) of all "real estate charges" (as defined below) and "insurance expenses"
(as defined below) related to the Industrial Complex or Landlord's ownership of
the Industrial Complex. Tenant's obligations under this Section 6.2 shall be
prorated during any partial year (i.e., the first year and the last year of the
lease term). Tenant's Proportionate Share shall be adjusted as reasonably
determined by Landlord in the event that the total rentable area of the
buildings in the Industrial Complex shall change after the date hereof. "Real
estate charges" shall include ad valorem taxes, general and special assessments,
parking surcharges, any tax or charge for governmental services (such as street
maintenance or fire protection) which are attributable to the transfer or
transaction directly or indirectly represented by this Lease, by any sublease or
assignment hereunder or by other Leases in the Industrial Complex or by any
document to which Tenant is a party creating or transferring (or reflecting the
creation or transfer) or any interest or an estate in the Demised Premises and
any tax or charge which replaces or is in addition to any of such
above-described "real estate charges"; real estate charges shall also include
any fees, expenses or costs (including attorney's fees, expert fees and the
like) incurred by Landlord in protesting or contesting any assessments levied or
the tax rate. "Real estate charges" shall not be deemed to include sales tax
payable by Tenant pursuant to Section 4.6 above and any franchise, estate,
inheritance or general income tax. "Insurance expenses" shall include all
premiums and other expenses incurred by Landlord for liability insurance and
fire and extended coverage property insurance (plus whatever endorsements or
special coverages which Landlord, in Landlord's sole discretion, may consider
appropriate) business interruption, and rent loss, earthquake and any other
insurance policy which may be carried by Landlord insuring the Demised Premises,
the Common Area, the Industrial Complex, or any improvements.
6.3 At Landlord's sole option, Landlord and Tenant shall attempt to
obtain separate assessments for Tenant's obligations pursuant to Section 6.1
and, with respect to Section 6.2, for such of the "real estate charges" as are
readily susceptible of separate assessment. To the extent of a separate
assessment, Tenant agrees to pay such assessment before it becomes delinquent
and to keep the Demised Premises free from any lien or attachment; moreover, as
to all periods of time during the lease term, this covenant of Tenant shall
survive the termination of the lease. With regard to the calendar year during
which the lease term expires, Landlord at its option either may bill Tenant when
the charges become payable or may charge the Tenant an estimate of Tenant's pro
rata share of whichever charges have been being paid directly by Tenant (based
upon information available for the current year plus, if current year
information is not adequate in itself, information relating to the immediately
preceding year).
6.4 At such time as Landlord has reason to believe that at some time
within the immediately succeeding twelve (12) month period Tenant will owe
Landlord any amounts pursuant to one or more of the preceding sections of this
Article 6, Landlord may direct that Tenant prepay monthly a pro rata portion of
the prospective future payment (i.e., the prospective future payment divided by
the number of months before the prospective future payment will be due). Tenant
agrees that any such prepayment directed by Landlord shall be due and payable
monthly on the same day that minimum guaranteed rental is due. Any amounts paid
by Tenant under this Section 6.4 shall be subject to reconciliation at the end
of the tax year or calendar year, at Landlord's option, on the basis of the
actual costs for such period, with Tenant to be credited with any overpayments
made.
6.5 In the event that any payment due from Tenant to Landlord is
not received within ten (10) days after its due date for any reason
whatsoever, or if any such payment is by check which is returned for
insufficient funds, then in addition to the amount then due, Tenant shall pay
to Landlord interest on
4
<PAGE>
the amount then due at the maximum contractual rate which could legally be
charged in the event of a loan of such amount to Tenant (but in no event to
exceed 1-1/2% per month), such interest to accrue continuously on any unpaid
balance until paid.
ARTICLE 7.
COMMON AREA
7.1 The term "Common Area" is defined for all purposes of this lease
as that part of the Industrial Complex intended for the common use of all
tenants, including among other facilities (as such may be applicable to the
Industrial Complex), parking areas, private streets and alleys, landscaping,
curbs, loading areas, sidewalks, recreation/picnic areas, malls and promenades
(enclosed or otherwise), lighting facilities, drinking fountains, meeting rooms,
public toilets, and the like, but excluding (i) space in buildings (now or
hereafter existing) designated for rental for commercial purposes, as the same
may exist from time to time; (ii) streets and alleys maintained by a public
authority; (iii) areas within the Industrial Complex which may from time to time
not be owned by Landlord (unless subject to a cross-access agreement benefiting
the area which includes the Demised Premises); and (iv) areas leased to a
single-purpose user where access is restricted. In addition, although the
roof(s) of the building(s) in the Industrial Complex are not literally part of
the Common Area, they will be deemed to be so included for purposes of (i)
Landlord's ability to prescribe rules and regulations regarding same, and (ii)
their inclusion for purposes of common area maintenance reimbursements. Landlord
reserves the right to change from time to time the dimensions and location of
the Common Area, as well as the dimensions, identities, locations and types of
any buildings, signs or other improvements in the Industrial Complex; provided,
however, that Landlord's actions pursuant to this sentence shall not
unreasonably interfere with Tenant's access to or use of the Demised Premises.
For example, and without limiting the generality of the immediately preceding
sentence, Landlord may from time to time substitute for any parking area other
areas reasonably accessible to the tenants of the Industrial Complex, which
areas may be elevated, surface or underground.
7.2 Tenant, and its employees and customers, and when duly authorized
pursuant to the provisions of this lease, its subtenants, licensees and
concessionaires, shall have the nonexclusive right to use the Common Area
(excluding roofs of buildings in the Industrial Complex) as constituted from
time to time, such use to be in common with Landlord, other tenants in the
Industrial Complex and other persons permitted by Landlord to use the same,
including the nonexclusive right to use not more than 130 of the parking spaces
in the Common Area as designated by Landlord from time to time, and subject to
rights of governmental authorities, easements, other restrictions of record, and
such reasonable rules and regulations governing use as Landlord may from time to
time prescribe. For example, and without limiting the generality of Landlord's
ability to establish rules and regulations governing all aspects of the Common
Area, Tenant agrees as follows:
(a) Landlord may from time to time designate specific areas
within the Industrial Complex or in reasonable proximity thereto in which
automobiles owned by Tenant, its employees, subtenants, licensees, and
concessionaires shall be parked; and in this regard, Tenant shall furnish to
Landlord upon request a complete list of license numbers of all automobiles
operated by Tenant, its employees, its subtenants, its licensees or its
concessionaires, or their employees; and Tenant agrees that if any automobile or
other vehicle owned by Tenant or any of its employees, its subtenants, its
licensees or its concessionaires, or their employees, shall at any time be
parked in any part of the Industrial Complex other than the specified areas
designated for employee parking, Tenant shall pay to Landlord as additional rent
upon demand an amount equal to the daily rate or charge for such parking as
established by Landlord from time to time for each day, or part thereof, that
such automobile or other vehicle is so parked.
(b) Tenant shall not solicit business within the Common Area
nor take any action which would interfere with the rights of other persons to
use the Common Area.
(c) Landlord may temporarily close any part of the Common
Area for such periods of time as may be necessary to make repairs or alterations
or to prevent the public from obtaining prescriptive rights.
(d) With regard to the roof(s) of the building(s) in the
Industrial Complex, use of the roof(s) is reserved to Landlord, or with regard
to any tenant demonstrating to Landlord's satisfaction a need to use same, to
such tenant after receiving prior written consent from Landlord.
7.3 Landlord shall be responsible for the operation, management and
maintenance of the Common Area, the manner of maintenance and the expenditures
therefor to be in the sole discretion of Landlord, but to be generally in
keeping with similar industrial centers within the same geographical area as the
Industrial Complex. Landlord shall be the sole determinant of the type and
amount of security services to be provided, if any. Landlord shall not be liable
to Tenant, and Tenant hereby waives any
5
<PAGE>
claim against Landlord for (i) any unauthorized or criminal entry of third
parties into the Demised Premises or Industrial Complex, (ii) any damage to
persons or property, except to the extent caused by the gross negligence or
willful misconduct of Landlord, or (iii) any loss of property in and about the
Demised Premises or Industrial Complex from any unauthorized or criminal acts of
third parties, regardless of any action, inaction, failure, breakdown or
insufficiency of security.
7.4 In addition to the rentals and other charges prescribed in this
lease, Tenant shall pay to Landlord Tenant's Proportionate Share (as determined
in Section 7.5 below) of the cost of operation and maintenance of the Common
Area which may be incurred by Landlord in its discretion, including, among other
costs, those for lighting, painting, cleaning, policing, inspecting, repairing,
replacing, and, if there is an enclosed mall or promenade in the Industrial
Complex, heating and cooling; Tenant's Proportionate Share of capital
expenditures and expenses incurred by Landlord to increase the operating
efficiency of the Industrial Complex or to cause the Common Area to comply with
applicable Regulations (as such term is defined in Section 27.1), it being
agreed that the cost of such capital expenditures and installation shall be
amortized over the reasonable life of the capital expenditure, with the
reasonable life and amortization schedule being determined in accordance with
generally accepted accounting principles consistently applied; a reasonable
portion of whatever management fee Landlord pays to the property manager for the
Industrial Complex; a reasonable allowance for Landlord's overhead costs and the
cost of any insurance for which Landlord is not reimbursed pursuant to Section
6.2 but specifically excluding all expenses paid or reimbursed pursuant to
Article 6. In addition, although the roof(s) of the buildings(s) in the
Industrial Complex are not literally part of the Common Area, Landlord and
Tenant agree that roof maintenance, repair and replacement shall be included as
a common area maintenance item to the extent not specifically allocated to
Tenant under this lease nor to another tenant pursuant to its lease. With regard
to capital expenditures other than the capital expenditures contemplated by the
first sentence of this Section, (i) the original investment in capital
improvements, i.e., upon the initial construction of the Industrial Complex,
shall not be included, and (ii) improvements and replacements, to the extent
capitalized on Landlord's records, shall be included only to the extent of a
reasonable depreciation or amortization (including interest accruals
commensurate with Landlord's interest costs). If this lease should commence on a
date other than the first day of a calendar year or terminate on a date other
than the last day of a calendar year, Tenant's reimbursement obligations under
this Section 7.4 shall be prorated based upon Landlord's expenses for the entire
calendar year. Tenant shall make such payment to Landlord on demand, at
intervals not more frequent than monthly. Landlord may, at its option, make
monthly or other periodic charges based upon the estimated annual cost of
operation and maintenance of the Common Area, payable in advance but subject to
adjustment after the end of the year on the basis of the actual cost for such
year. Landlord has the right to establish as a reserve, such amounts as Landlord
deems reasonable for the maintenance, repair and restoration of the roof and
parking of the Industrial Complex. In the event that any payment due from Tenant
to Landlord is not received within ten (10) days after its due date for any
reason whatsoever, or if any such payment is by check which is returned for
insufficient funds, then, in addition to the amount then due, Tenant shall pay
to Landlord interest on the amount then due at the maximum contractual rate
which could legally be charged in the event of a loan of such amount to Tenant
(but in no event to exceed 1-1/2% per month), such interest to accrue
continuously on any unpaid balance until paid. Any delay or failure of Landlord
in delivering any estimate or statement described in this Section 7.4 or in
computing or billing Tenant's Proportionate Share of the foregoing costs shall
not constitute a waiver of Landlord's right to require an increase in rent as
provided herein or in any way impair the continuing obligations of Tenant under
this Section.
7.5 "Basic Costs" shall mean the cost of (i) operation and
maintenance of the common area for which Tenant is responsible to pay Tenant's
Proportionate Share pursuant to Section 7.4; and (ii) real estate charges and
insurance expenses for which Tenant is responsible to pay Tenant's Proportionate
Share pursuant to Section 6.2. Basic Costs shall be comprised of "Building Basic
Costs", "Industrial Complex Basic Costs", and "Parcel Basic Costs". "Building
Basic Costs" shall consist of those Basic Costs which Landlord determines
pertains exclusively to the building in which the Demised Premises are located
(the "Building"). "Industrial Complex Basic Costs" shall consist of those Basic
Costs which Landlord determines shall be shared among all buildings at the
Industrial Complex. "Parcel Basic Costs" shall consist of those Basic Costs
which Landlord determines shall be shared among the Building and the other free
standing building contained on the same legal parcel as the Building (the
"Parcel"). For purposes of determining Tenant's Proportionate Share of Basic
Costs in accordance with this Article 7, (i) Tenant's Proportionate Share of
Building Basic Costs shall equal a fraction, the numerator of which shall be the
rentable area of the Demised Premises and the denominator of which shall be the
rentable area of the Building; (ii) Tenant's Proportionate Share of Industrial
Complex Basic Costs shall equal a fraction, the numerator or which shall be the
rentable area of the Demised Premises and the denominator of which shall be the
rentable area of all buildings (including the Building) at the Industrial
Complex; and (iii) Tenant's Proportionate Share of Parcel Basic Costs shall
equal a fraction the numerator of which shall be the rentable area of the
Demised Premises and the denominator of which shall be the rentable area of the
two buildings (including the Building) located on the Parcel.
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ARTICLE 8.
[INTENTIONALLY OMITTED]
ARTICLE 9.
USE AND CARE OF DEMISED PREMISES
9.1 The Demised Premises shall be used and occupied by Tenant solely
for the permitted use specified in Section 1.1.(o) above and for no other
purpose. Tenant, at its sole cost and expense, shall obtain and keep in effect
during the term, all permits, licenses and other authorizations necessary to
permit Tenant to use and occupy the Demised Premises for the permitted use.
Without limiting the generality of the foregoing, Tenant shall not use or store
any gasoline, flammable or so called "Red Label" materials in or about the
Demised Premises. All equipment used within the Demised Premises shall be
subject to approval by Landlord's insurance carriers and shall be Underwriters
Laboratory or Factory Mutual approved for the uses intended, evidence of which
shall be furnished to Landlord upon request. Tenant shall not operate any
machinery or equipment in the Demised Premises which, in Landlord's sole
discretion, shall cause any excessive noise, vibration or damage or disturbance
to the other tenants in the Industrial Complex.
9.2 Tenant shall take good care of the Demised Premises and keep the
same free from waste at all times. Tenant shall not overload the floors in the
Demised Premises, nor deface or injure the Demised Premises. Tenant shall keep
the Demised Premises and sidewalks, service-ways and loading areas adjacent to
the Demised Premises neat, clean and free from dirt, rubbish, ice or snow at all
times. Tenant shall store all trash and garbage within the Demised Premises or
in a trash dumpster or similar container approved by Landlord as to type,
location and screening; and Tenant shall arrange for the regular pick-up of such
trash and garbage at Tenant's expense (unless Landlord finds its necessary to
furnish such a service, in which event Tenant shall be charged an equitable
portion of the total of the charges to all tenants using the service). Receiving
and delivery of goods and merchandise and removal of garbage and trash shall be
made only in the manner and areas prescribed by Landlord. Tenant shall not
operate an incinerator or burn trash or garbage within the Industrial Complex.
ARTICLE 10.
MAINTENANCE AND REPAIR OF DEMISED PREMISES
10.1 Landlord shall keep the foundation, the exterior walls (except
plate glass; windows, doors and other exterior openings; window and door frames,
molding, closure devices, locks and hardware; special store fronts; lighting,
heating, air conditioning, plumbing and other electrical, mechanical and
electromotive installation, equipment and fixtures; signs, placards, decorations
or other advertising media of any type; and interior painting or other treatment
of exterior walls) and roof (subject to the second sentence in Section 7.4
above) of the Demised Premises in good repair. Landlord, however, shall not be
required to make any repairs occasioned by the act or negligence of Tenant, its
agents, contractors, employees, subtenants, invitees, customers, licensees and
concessionaires (including, but not limited to, roof leaks resulting from
Tenant's installation of air conditioning equipment or any other roof
penetration or placement); and the provisions of the previous sentence are
expressly recognized to be subject to the provisions of Article 17 and Article
18 of this lease. In the event that the Demised Premises should become in need
of repairs required to be made by Landlord hereunder, Tenant shall give
immediate written notice thereof to Landlord and Landlord shall have a
reasonable time after receipt by Landlord of such written notice in which to
make such repairs. Landlord shall not be liable to Tenant for any interruption
of Tenant's business or inconvenience caused due to any work performed in the
Demised Premises or in the Industrial Complex pursuant to Landlord's rights and
obligations under the Lease, so long as the work is performed without gross
negligence or willful misconduct.
10.2 Tenant shall keep the Demised Premises in good, clean and
habitable condition and shall at its sole cost and expense keep the Demised
Premises free of insects, rodents, vermin and other pests and make all needed
repairs and replacements, including replacement of cracked or broken glass,
except for repairs and replacements required to be made by Landlord under the
provisions of Section 10.1, Article 17 and Article 18 and except to the extent
any such repairs are necessitated by the gross negligence or willful misconduct
of Landlord. Without limiting the coverage of the previous sentence, it is
understood that Tenant's responsibilities therein include the repair and
replacement in accordance with all applicable Regulations of all lighting,
heating, air conditioning, plumbing and other electrical, mechanical and
electromotive installation, equipment and fixtures and also include all utility
repairs in ducts, conduits, pipes and wiring, and any sewer stoppage located in,
under and above the Demised Premises, regardless of when or how the defect or
other cause for repair or replacement occurred or became apparent; provided,
however, that as to the maintenance and repair of the HVAC equipment in the
Demised Premises, Landlord shall have the option of contracting directly with an
HVAC servicing company for all such work and charging Tenant for all costs
thereof. If any repairs required to be made by Tenant hereunder are not made
within ten (10) days after written notice delivered to Tenant by
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Landlord, Landlord may at its option make such repairs without liability to
Tenant for any loss or damage which may result to its stock or business by
reason of such repairs and Tenant shall pay to Landlord upon demand, as
additional rental hereunder, the cost of such repairs plus interest at the
maximum contractual rate which could legally be charged in the event of a loan
of such payment to Tenant (but in no event to exceed 1-1/2% per month), such
interest to accrue continuously from the date of payment by Landlord until
repayment by Tenant. At the expiration of this lease, Tenant shall surrender the
Demised Premises in good condition, excepting reasonable wear and tear and
losses required to be restored by Landlord in Section 10.1, Article 17 and
Article 18 of this lease.
10.3 Tenant waives the right to make repairs at Landlord's expense
under Section 1941 and 1942 of the California Civil Code and all other laws now
or hereafter in effect.
ARTICLE 11.
ALTERATIONS
11.1 Tenant shall not make any alterations, additions or improvements
to the Demised Premises (collectively, the "Alterations") without the prior
written consent of Landlord, except for the installation of unattached, movable
trade fixtures which may be installed without drilling, cuffing or otherwise
defacing the Demised Premises. Tenant shall furnish complete plans and
specifications to Landlord at the time it requests Landlord's consent to any
Alterations if the desired Alterations (i) will affect the Industrial Complex's
mechanical, electrical, plumbing, or life safety systems or services, or (ii)
will affect any structural component of the Demised Premises or the Industrial
Complex, or (iii) will require the filing of plans and specifications with any
governmental or quasi-governmental agency or authority, or (iv) will cost in
excess of Twenty-Five Thousand Dollars ($25,000.00). Subsequent to obtaining
Landlord's consent and prior to commencement of the Alterations, Tenant shall
deliver to Landlord any building permit required by applicable law and a copy of
the executed construction contract(s). Tenant shall reimburse Landlord within
ten (10) days after the rendition of a bill for all of Landlord's actual
out-of-pocket costs incurred in connection with any Alterations, including,
without limitation, all management, engineering, outside consulting, and
construction fees incurred by or on behalf of Landlord for the review and
approval of Tenant's plans and specifications and for the monitoring of
construction of the Alterations. If Landlord consents to the making of any
Alteration, such Alteration shall be made by Tenant at Tenant's sole cost and
expense by a contractor approved in writing by Landlord. Tenant shall give
Landlord not less than ten (10) days advance written notice of the commencement
of Tenant's Alterations to enable Landlord to post and record notices of
nonresponsibility. Tenant shall require its contractor to maintain insurance in
such amounts and in such form as Landlord may require. Any construction,
alteration, maintenance, repair, replacement, installation, removal or
decoration undertaken by Tenant in connection with the Demised Premises shall be
completed in accordance with plans and specifications which must be approved by
Landlord, shall be carried out in a good, workmanlike and prompt manner and in
accordance with the provisions of EXHIBIT "C" annexed hereto, shall comply with
all applicable Regulations of the authorities having jurisdiction thereof, and
shall be subject to supervision by Landlord or its employees, agents or
contractors. Without limiting the generality of the immediately preceding
sentence, any installation or replacement of Tenant's heating or air
conditioning equipment must be effected strictly in accordance with Landlord's
instructions, the Clean Air Act and all other applicable Regulations. Without
Landlord's prior written consent, Tenant shall not use any portion of the Common
Areas either within or without the Industrial Complex in connection with the
making of any Alterations. If the Alterations which Tenant causes to be
constructed result in Landlord being required to make any alterations and/or
improvements to other portions of the Industrial Complex in order to comply with
any applicable Regulations, then Tenant shall reimburse Landlord upon demand for
all costs and expenses incurred by Landlord in making such alterations and/or
improvements. Any Alterations made by Tenant shall become the property of
Landlord upon installation and shall remain on and be surrendered with the
Demised Premises upon the expiration or sooner termination of this lease, except
Tenant shall upon demand by Landlord, at Tenant's sole cost and expense,
forthwith and with all due diligence remove all or any portion of any
Alterations made by Tenant which are designated by Landlord to be removed and
repair and restore the Demised Premises in a good and workmanlike manner to
their original condition, reasonable wear and tear excepted. Notwithstanding the
foregoing, prior to commencing any Alterations, Tenant may request Landlord's
waiver of the restoration obligation with respect to specified Alterations,
which waiver may be granted or withheld by Landlord in its sole discretion.
11.2 All construction work done by Tenant within the Demised Premises
shall be performed in a good and workmanlike manner with new materials of
first-class quality, lien-free and in compliance with all governmental
requirements and Regulations, and in such manner as to cause a minimum of
interference with other construction in progress and with the transaction of
business in the Industrial Complex. Tenant agrees to indemnify Landlord and hold
Landlord harmless against any loss, liability or damage resulting from such
work, and Tenant shall, if requested by Landlord, furnish a bond or other
security satisfactory to Landlord against any such loss, liability or damage.
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11.3 In the event Tenant uses a general contractor to perform
construction work within the Demised Premises, Tenant shall, prior to the
commencement of such work, require said general contractor to execute and
deliver to Landlord a waiver and release of any and all claims against Landlord
and liens against the Industrial Complex to which such contractor might at any
time be entitled. The delivery of the waiver and release of lien within the time
period set forth above shall be a condition precedent to Tenant's ability to
enter on and begin its construction work at the Demised Premises and, if
applicable, to any reimbursement from Landlord for its construction work.
11.4 Nothing contained in this lease shall be construed as
constituting the consent or request of Landlord, express or implied, to or for
the performance by any contractor, laborer, materialman or vendor of any labor
or services or for the furnishing of any materials for any construction,
alteration, addition, repair or demolition of or to the Demised Premises or any
part thereof. All materialmen, contractors, artisans, mechanics, laborers and
any other persons now or hereafter furnishing any labor, services, materials,
supplies or equipment to Tenant with respect to any portion of the Demised
Premises are hereby charged with notice that they must look exclusively to
Tenant to obtain payment for same. Tenant and any subtenants shall have no power
to do any act or make any contract which may create or be the foundation of any
lien, mortgage or other encumbrance upon the reversionary or other estate of
Landlord, or any interest of Landlord in the Demised Premises. NOTICE IS HEREBY
GIVEN THAT LANDLORD IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR
MATERIALS FURNISHED OR TO BE FURNISHED TO TENANT OR TO ANYONE HOLDING THE
DEMISED PREMISES OR ANY PART THEREOF, AND THAT NO MECHANICS' OR OTHER LIENS FOR
ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF
LANDLORD IN AND TO THE DEMISED PREMISES.
11.5 In the event that Landlord elects to remodel all or any portion
of the Industrial Complex, Tenant will cooperate with such remodeling, including
Tenant's tolerating temporary inconveniences (and even the temporary removal of
Tenant's signs in order to facilitate such remodeling, as it may relate to the
exterior of the Demised Premises).
ARTICLE 12.
LANDLORD'S RIGHT OF ACCESS
12.1 Landlord and Landlord's agents and representatives shall have the
right to enter the Demised Premises at any time in case of an emergency, and
otherwise at all reasonable times upon reasonable advance oral or written notice
for any purpose permitted pursuant to the terms of this lease, including, but
not limited to, examining the Demised Premises; making such repairs or
alterations therein as may be necessary or appropriate in Landlord's sole
judgment for the safety and preservation thereof; erecting, installing,
maintaining, repairing or replacing wires, cables, conduits, vents, ducts,
risers, pipes, HVAC equipment or plumbing equipment running in, to, or through
the Demised Premises; showing the Demised Premises to prospective purchasers or
mortgagees and during the last year of this lease, prospective tenants; and
posting notices of nonresponsibility. Except in the event of an emergency,
Landlord's agents and representatives shall be accompanied by a representative
of Tenant whenever they enter the Demised Premises. Tenant shall use reasonable
efforts to accommodate Landlord's requests for accompanied entry of the Demised
Premises.
12.2 If requested in writing by Landlord, Tenant shall give Landlord a
key for all of the doors for the Demised Premises, excluding Tenant's vaults,
safes and files. Landlord shall have the right to use any and all means to open
the doors to the Demised Premises in an emergency in order to obtain entry
thereto without liability to Tenant therefor. Any entry to the Demised Premises
by Landlord by any of the foregoing means, or otherwise, shall not be construed
or deemed to be a forcible or unlawful entry into or a detainer of the Demised
Premises, or an eviction, partial eviction or constructive eviction of Tenant
from the Demised Premises or any portion thereof, and shall not relieve Tenant
of its obligations hereunder.
ARTICLE 13.
SIGNS; STORE FRONTS
13.1 Tenant shall not place or permit to be placed any signs upon (i)
the roof of the Demised Premises, or (ii) the Common Areas or any exterior area
of the Industrial Complex without Landlord's prior written approval which
approval shall not be unreasonably withheld or delayed provided any proposed
sign is placed only in those locations as may be designated by Landlord, and
complies with the sign criteria promulgated by Landlord from time to time. Upon
request of Landlord, Tenant shall immediately remove any sign, advertising
material or lettering which Tenant has placed or permitted to be placed upon the
exterior or interior surface of any door or window or at any point inside the
Demised Premises, on the exterior of the Industrial Complex if required in
connection with any cleaning, maintenance or repairs to the Industrial Complex
or which, in Landlord's reasonable opinion, is of such
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a nature as to not be in keeping with the standards of the Industrial Complex
and if Tenant fails to do so, Landlord may without liability remove the same at
Tenant's expense. Tenant shall comply with such regulations as may from time to
time be promulgated by Landlord governing signs, advertising material or
lettering of all tenants in the Industrial Complex.
ARTICLE 14.
UTILITIES
14.1 Tenant shall obtain all water, electricity, sewerage, gas,
telephone and other utilities directly from the public utility company
furnishing same. Any meters required in connection therewith shall be installed
at Tenant's sole cost. Tenant shall pay all utility deposits and fees, and all
monthly service charges for water, electricity, sewage, gas, telephone and any
other utility services furnished to the Demised Premises during the term of this
lease. In the event any such utilities are not separately metered on the
Commencement Date, then until such time as such services are separately metered,
Tenant shall pay Landlord Tenant's equitable share of the cost of such services,
as determined by Landlord. If for any reason the use of any utility is measured
on a meter(s) indicating the usage of Tenant and other tenants of the Industrial
Complex, Tenant and such other tenants shall allocate the cost of such utility
amongst themselves and shall each be responsible for the payment of its
allocable share. Landlord shall furnish and install all piping, feeders, risers
and other connections necessary to bring utilities to the perimeter walls of the
Demised Premises. Anything to the contrary notwithstanding, Tenant shall remain
obligated for the payment of Tenant's pro rata share of any heating costs and/or
other utilities or services furnished to the Common Areas pursuant to Section
7.4.
14.2 Tenant shall have the right to use the existing heating, air
conditioning and ventilation equipment in the Demised Premises, if any. All such
equipment shall be maintained, repaired and replaced, as necessary, by Tenant in
its sole expense and shall be surrendered by Tenant to Landlord at the end of
the term of this lease together with the Demised Premises. Subject to Section
3.2, Landlord makes no representation or warranty as to the condition or
capacity of such equipment. Landlord shall have no obligation whatsoever to
provide the Demised Premises with any additional heat, air conditioning,
ventilation or hot water.
14.3 Landlord shall not be liable for any interruption whatsoever, nor
shall Tenant be entitled to an abatement or reduction of rent on account
thereof, in utility services not furnished by Landlord, nor for interruptions in
utility services furnished by Landlord which are due to fire, accident, strike,
acts of God or other causes beyond the control of Landlord or which are
necessary or useful in connection with making any alterations, repairs or
improvements. Notwithstanding the foregoing, if such interruption or failure in
utility services (i) is caused by Landlord or Landlord's authorized agent; (ii)
can be repaired at the Industrial Complex; and (iii) continues for more than
sixty (60) consecutive days, then Tenant shall be entitled to a proportionate
abatement of all rental charges due hereunder, effective on the sixtieth day of
such utility service failure.
14.4 Tenant shall not install any equipment which exceeds or overloads
the capacity of the utility facilities serving the Demised Premises.
ARTICLE 15.
INSURANCE COVERAGES
15.1 Landlord shall procure and maintain throughout the term of this
lease a policy or policies of insurance, at its sole cost and expense (but
subject to Article 6 above), causing the Industrial Complex to be insured under
standard fire and extended coverage insurance (excluding hurricane and storm
insurance unless readily obtainable at commercially reasonable rates) and
liability insurance (plus whatever endorsements or special coverages Landlord,
in its sole discretion, may consider appropriate), to the extent necessary to
comply with Landlord's obligations pursuant to other provisions of this lease.
15.2 Tenant shall procure and maintain throughout the term of this
lease, at its sole cost and expense, the following insurance:
(i) Comprehensive General Liability Insurance
providing coverage for bodily injury (including death), property
damage and products liability insurance (where such exposure
exists). This policy shall contain a broad form contractual
liability endorsement under which the insurer agrees to insure
Tenant's obligations under Article 21 hereof. Such insurance
shall have a combined single limit of not less than Two Million
Dollars ($2,000,000) per occurrence, or such greater amount as
Landlord may from time to time require;
(ii) Fire and extended coverage insurance covering
Tenant's personal property, fixtures, improvements, wall
coverings, floor coverings, window coverings, alterations,
furniture,
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equipment, lighting, ceilings, heating, ventilation and air
conditioning equipment, interior plumbing and plate glass against
loss or damage by fire, flood, windstorms, hail, earthquakes,
explosion, riot, damage from aircraft and vehicles, smoke damage,
vandalism and malicious mischief and such other risks as are from
time to time covered under "extended coverage" endorsements and
special extended coverage endorsements commonly known as "all
risks" endorsements, containing the waiver of subrogation
required in Section 16.3 of this lease and in an amount equal to
the greater of the full replacement value or the amount required
by the holder of any mortgage from time to time placed upon the
Industrial Complex or a portion of the Industrial Complex
containing the Demised Premises;
(iii) State Worker's Compensation Insurance in the
statutorily mandated limits and Employers Liability Insurance
with limits of not less than Five Hundred Thousand Dollars
($500,000), or such greater amount as Landlord may from time to
time require; and
(iv) Such other insurance as Landlord may reasonably
require from time to time.
It is expressly understood and agreed that the foregoing minimum limits
of insurance coverage shall not limit the liability of Tenant for its acts or
omissions as provided in this lease. All of the foregoing insurance policies
(with the exception of Worker's Compensation Insurance to the extent not
available under statutory law) shall name Landlord, any mortgagee, any managing
agent for the Industrial Complex and such other parties as Landlord shall from
time to time designate as an additional insured as their respective interests
may appear, and shall provide that any loss shall be payable to Landlord and any
other additional insured parties as their respective interests may appear. All
insurance required hereunder shall be placed with companies which are rated
A:VII or better by Best's Insurance Guide and licensed to do business in the
State of California. All such policies shall be written as primary policies with
deductibles not to exceed the amount specified in Section 1.1(p) above. Any
other policies, including Landlord's policy, will serve as excess coverage.
Tenant shall deliver duplicate original copies of all such policies and all
endorsements thereto, prior to the Commencement Date, or, in the case of
renewals thereto, fifteen (15) days prior to the expiration of the prior
insurance policy, together with evidence that such policies are fully paid for,
and that no cancellation, material change or non-renewal thereof shall be
effective except upon thirty (30) days' prior written notice from the insurer to
Landlord, as well as to Landlord's agent (at the address for the payment of rent
set forth in Section 4.2 above). If Tenant should fail to comply with the
foregoing requirement relating to insurance, Landlord may obtain such insurance
and Tenant shall pay to Landlord on demand as additional rental hereunder the
premium cost thereof plus interest at the maximum contractual rate (but in no
event to exceed 1-1/2% per month) from the date of payment by Landlord until
repaid by Tenant.
ARTICLE 16.
WAIVER OF LIABILITY; MUTUAL WAIVER OF SUBROGATION
16.1 Landlord and Landlord's agents and employees shall not be liable
to Tenant, nor to Tenant's employees, agents or visitors, nor to any other
person whomsoever, for any injury to person or damage to property caused by the
Demised Premises or other portions of the Industrial Complex becoming out of
repair or by defect or failure of any structural element of the Demised Premises
or of any equipment, pipes or wiring, or broken glass, or by the backing up of
drains, or by gas, water, steam, electricity, or oil leaking, escaping or
flowing into the Demised Premises (except where due to Landlord's willful
failure to make repairs required to be made by Landlord hereunder, after the
expiration of a reasonable time after written notice to Landlord of the need for
such repairs), nor shall Landlord be liable to Tenant, nor to Tenant's
employees, agents or visitors, nor to any other person whomsoever, for any loss
or damage that may be occasioned by or through the acts or omissions of other
tenants of the Industrial Complex or of any other persons whomsoever, excepting
only duly authorized employees and agents of Landlord. Landlord shall not be
held responsible in any way on account of any construction, repair or
reconstruction (including widening) of any private or public roadways, walkways
or utility lines.
16.2 Landlord shall not be liable to Tenant or to Tenant's employees,
agents, contractors, or to any other person whomsoever, for any injury to person
or damage to property on or about the Demised Premises or the Common Area caused
by the negligence or misconduct of Tenant, its employees, agents, subtenants,
invitees, customers, licensees or concessionaires, or of any other person
entering the Industrial Complex under express or implied invitation of Tenant
(with the exception of customers in the Common Area), or arising out of the use
of the Demised Premises by Tenant and the conduct of its business therein, or
arising out of any breach or default by Tenant in the performance of its
obligations under this lease; and Tenant hereby agrees to indemnify Landlord and
hold Landlord harmless from any loss, expense or claims arising out of such
damage or injury. Furthermore, Tenant agrees to indemnify Landlord and hold
Landlord harmless from and against any and all liability, claims, demands,
causes of action of any kind and nature arising or growing out of or in any way
connected with Tenant's use, occupancy, management or control of the Demised
Premises and Tenant's operations or activities in the Industrial Complex.
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16.3 Landlord and Tenant each hereby release the other from any and
all liability or responsibility to the other, or to any other party claiming
through or under them by way of subrogation or otherwise, for any loss or damage
to property caused by a casualty which is insurable under standard fire and
extended coverage insurance; provided, however, that this mutual waiver shall be
applicable only with respect to a loss or damage occurring during the time when
property insurance policies, which are readily available in the marketplace,
contain a clause or permit an endorsement to the effect that any such release
shall not adversely affect or impair the policy or the right of the insured
party to receive proceeds under the policy; provided, further, that this release
shall not be applicable to the portion of any damage which is not reimbursed by
the damaged party's insurer because of the "deductible" in the damaged party's
insurance coverage. The release specified in this Section 16.3 is cumulative
with any releases or exculpations which may be contained in other provisions of
this lease. Landlord and Tenant agree that all policies of insurance obtained by
them pursuant to the terms of this lease shall contain provisions or
endorsements thereto waiving the insurer's rights of subrogation with respect to
claims against the other, and, unless the policies permit waiver of subrogation
without notice to the insurer, each shall notify its insurance companies of the
existence of the waiver and indemnity provisions set forth in this lease.
ARTICLE 17.
DAMAGES BY CASUALTY
17.1 Tenant shall give immediate written notice to Landlord of any
damage caused to the Demised Premises by fire or other casualty.
17.2 In the event that the Demised Premises shall be damaged or
destroyed by fire or other casualty insurable under standard fire and extended
coverage insurance and Landlord does not elect to terminate this lease as
hereinafter provided, Landlord shall proceed with reasonable diligence and at
its sole cost and expense to rebuild and repair the Demised Premises. In the
event (a) the building in which the Demised Premises are located is destroyed or
substantially damaged by a casualty not covered by Landlord's insurance, or (b)
such building is destroyed or rendered untenantable to an extent in excess of
fifty percent (50%) of the first floor area by a casualty covered by Landlord's
insurance, or (c) the holder of a mortgage, deed of trust or other lien on such
building at the time of the casualty elects, pursuant to such mortgage, deed of
trust or other lien, to require the use of all or part of Landlord's insurance
proceeds in satisfaction of all or part of the indebtedness secured by the
mortgage, deed of trust or other lien, or (d) the Demised Premises shall be
damaged to the extent of fifty percent (50%) or more of the cost of replacement,
then Landlord may elect either to terminate this lease or to proceed to rebuild
and repair the Demised Premises. Landlord shall give written notice to Tenant of
such election within sixty (60) days after the occurrence of such casualty and,
if it elects to rebuild and repair, shall proceed to do so with reasonable
diligence and at its sole cost and expense.
17.3 Landlord's obligation to rebuild and repair under this Article 17
shall in any event be limited to restoring one of the following (as may be
applicable): (a) if this lease does not include an attached exhibit describing
Landlord's initial construction responsibility ("Landlord's Work"), restoring
the Demised Premises to substantially the condition in which the same existed
prior to such casualty, exclusive of any alterations, additions, improvements,
fixtures and equipment installed by Tenant; or (b) restoring Landlord's Work, as
described in the applicable exhibit attached to this lease (if such an exhibit
is attached), to substantially the same condition in which the same existed
prior to the casualty. Tenant agrees that promptly after completion of such work
by Landlord, Tenant will proceed with reasonable diligence and at Tenant's sole
cost and expense to restore, repair and replace all alterations, additions,
improvements, fixtures, signs and equipment installed by Tenant, and, if an
exhibit describing Tenant's Work is attached hereto, all items of Tenant's Work
as described in such exhibit.
17.4 Notwithstanding anything to the contrary in this Article 17, if
the casualty should occur during the last six (6) months of the term, and at
least fifty percent (50%) of the Demised Premises has been damaged thereby,
either party may, upon ten (10) days notice to the other party given within
fifteen (15) days of the date of the casualty, terminate this lease.
17.5 Tenant agrees that during any period of reconstruction or repair
of the Demised Premises, it will continue the operation of its business within
the Demised Premises to the extent practicable. During the period from the
occurrence of the casualty until Landlord's repairs are completed, the minimum
guaranteed rental and additional rental charges shall be proportionately reduced
hereunder.
17.6 Tenant hereby waives the provisions of California Civil Code
Sections 1932(2) and 1933(4) and the provisions of any successor or other law of
like import.
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ARTICLE 18.
EMINENT DOMAIN
18.1 If more than thirty percent (30%) of the floor area of the
Demised Premises should be taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain or by
private purchase in lieu thereof, this lease shall terminate and the rent shall
be abated during the unexpired portion of this lease, effective on the date
physical possession is taken by the condemning authority.
18.2 If less than thirty percent (30%) of the floor area of the
Demised Premises should be taken as aforesaid, this lease shall not terminate;
however, the minimum guaranteed rental payable hereunder during the unexpired
portion of this lease shall be reduced in proportion to the area taken,
effective on the date physical possession is taken by the condemning authority.
Following such partial taking, Landlord shall make all necessary repairs or
alterations to the remaining premises or, if an exhibit describing Landlord's
Work is attached to this lease, all necessary repairs within the scope of
Landlord's Work as described in such exhibit, as the case may be, required to
make the remaining portions of the Demised Premises an architectural whole, but
in no event shall Landlord be required to expend an amount greater than the
award actually received by Landlord in connection with such taking.
18.3 If any part of the Common Area should be taken as aforesaid, this
lease shall not terminate, nor shall the rent payable hereunder be reduced,
except that either Landlord or Tenant may terminate this lease if the area of
the Common Area remaining following such taking plus any additional parking area
provided by Landlord in reasonable proximity to the Industrial Complex shall be
less than seventy percent (70%) of the area of the Common Area immediately prior
to the taking. Any election to terminate this lease in accordance with this
provision shall be evidenced by written notice of termination delivered to the
other party within thirty (30) days after the date physical possession is taken
by the condemning authority.
18.4 All compensation awarded for any taking (or the proceeds of
private sale in lieu thereof) of the Demised Premises or Common Area shall be
the property of Landlord, and Tenant hereby assigns its interest in any such
award to Landlord; provided, however, Landlord shall have no interest in any
award made to Tenant for Tenant's moving and relocation expenses or for the loss
of Tenant's fixtures and other tangible personal property if a separate award
for such items is made to Tenant as long as such separate award does not reduce
the amount of the award that would otherwise be awarded to Landlord.
18.5 The rights contained in this Article 18 shall be Tenant's sole
and exclusive remedy in the event of a taking or condemnation. Each party waives
the provisions of Sections 1265.130 and 1265.150 of the California Code of Civil
Procedure and the provisions of any successor or other law of like import.
18.6 Notwithstanding anything to the contrary, Landlord may terminate
this lease with no further liability to Tenant if (i) fifty percent (50%) or
more of the gross leasable area of the Industrial Complex is taken or (ii) if
following any taking, Landlord's mortgagee elects to require Landlord to apply
all or a portion of such award to the outstanding indebtedness.
ARTICLE 19.
ASSIGNMENT AND SUBLETTING
19.1 Tenant shall not assign or in any manner transfer this lease or
any estate or interest therein, or sublet the Demised Premises or any part
thereof, or grant any license, concession or other right of occupancy of any
portion of the Demised Premises without the prior written consent of Landlord.
Landlord agrees that it will not withhold consent in a wholly unreasonable and
arbitrary manner (as further explained in Section 29.4 of this lease); however,
in determining whether or not to grant its consent, Landlord shall be entitled
to take into consideration factors such as Landlord's desired tenant mix, the
reputation and net worth of the proposed transferee, and the then current market
conditions (including market rentals). In addition, Landlord shall also be
entitled to charge Tenant a reasonable fee for processing Tenant's request.
Consent by Landlord to one or more assignments or sublettings shall not operate
as a waiver of Landlord's rights as to any subsequent assignments and
sublettings. In all events, Landlord can refuse to consent to an assignment or
sublease if there shall exist any uncured default of Tenant or a matter which
will become a default with the passage of time.
19.2 If Tenant is a corporation, partnership or other entity and if at
any time during the term of this lease the person or persons who own a majority
of either the outstanding voting rights or the outstanding ownership interests
of Tenant at the time of the execution of this lease cease to own a majority of
such voting rights or ownership interests (except as a result of transfers by
devise or descent), the loss of a majority of such voting rights or ownership
interests shall be deemed an assignment of this lease by Tenant and, therefore,
subject in all respects to the provisions of Section
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19.1 above. The previous sentence shall not apply, however, if at the time of
the execution of this lease, (i) Tenant is a corporation and the outstanding
voting shares of capital stock of Tenant are listed on a recognized security
exchange or over-the-counter market or (ii) Tenant is a privately held,
corporation which subsequently elects to offer shares of stock in the
corporation to the public through a "public offering". Further, any sale or
transfer of all or substantially all of the stock or assets of Tenant shall not
be deemed an assignment hereunder, provided that the successor entity expressly
assumes the obligations of Tenant hereunder in an agreement whose form and
content is satisfactory to Landlord in its sole discretion.
19.3 Notwithstanding anything to the contrary contained herein, and
without prejudice to Landlord's right to require a written assumption from each
assignee, any person or entity to whom this lease is assigned including, without
limitation, assignees pursuant to the provisions of the Bankruptcy Code, 11
U.S.C. paragraph 101, ET SEQ. (the 'Bankruptcy Code"), shall automatically be
deemed, by acceptance of such assignment or sublease or by taking actual or
constructive possession of the Demised Premises, to have assumed all obligations
of Tenant arising under this lease effective as of the earlier of the date of
such assignment or sublease or the date on which the assignee or sublessee
obtains possession of the Demised Premises. In the event this lease is assigned
to any person or entity pursuant to the provisions of the Bankruptcy Code, any
and all monies or other consideration payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to Landlord and shall
remain the exclusive property of Landlord and not Constitute the property of
Tenant or Tenant's estate within the meaning of the Bankruptcy Code. All such
money or other consideration not paid or delivered to Landlord shall be held in
trust for the benefit of Landlord and shall be promptly paid or delivered to
Landlord.
19.4 Notwithstanding any assignment or subletting, Tenant and any
guarantor of Tenant's obligations under this lease shall at all times remain
fully responsible and liable for the payment of the rent herein specified and
for compliance with all of its other obligations under this lease (even if
future assignments and sublettings occur subsequent to the assignment or
subletting by Tenant, and regardless of whether or not Tenant's approval has
been obtained for such future assignments and sublettings). Moreover, in the
event that the rental due and payable by a sublessee (or a combination of the
rental payable under such sublease plus any bonus or other consideration
therefor or incident thereto) exceeds the rental payable under this lease, or if
with respect to a permitted assignment, permitted license or other transfer by
Tenant permitted by Landlord, the consideration payable to Tenant by the
assignee, licensee or other transferee exceeds the rental payable under this
lease, then Tenant shall be bound and obligated to pay Landlord fifty percent
(50%) of all such excess rental and other excess consideration within ten (10)
days following receipt thereof by Tenant from such sublessee, assignee, licensee
or other transferee, as the case may be. Finally, in the event of an assignment
or subletting, it is understood and agreed that all rentals paid to Tenant by an
assignee or sublessee (other than the fifty percent (50%) of excess rental or
other consideration resulting from such assignment or sublease) shall be
received by Tenant in trust for Landlord, to be forwarded immediately to
Landlord without offset or reduction of any kind; and upon election by Landlord
such rentals shall be paid directly to Landlord as specified in Section 4.2 of
this lease (to be applied as a credit and offset to Tenant's rental obligation).
19.5 Tenant shall not mortgage, pledge or otherwise encumber its
interest in this lease or in the Demised Premises;
19.6 In the event of the transfer and assignment by Landlord of its
Interest in this lease and in the building containing the Demised Premises to a
person expressly assuming Landlord's obligations under this lease, Landlord
shall thereby be released from any further obligations hereunder, and Tenant
agrees to look solely to such successor in interest of the Landlord for
performance of such obligations. Any security given by Tenant to secure
performance of Tenant's obligations hereunder may be assigned and transferred by
Landlord to such successor in interest and Landlord shall thereby be discharged
of any further obligation relating thereto.
19.7 Notwithstanding anything to the contrary contained herein,
Landlord shall have the option, in its sole discretion, in the event of any
proposed subletting or assignment, to terminate this Lease, or in the case of a
proposed subletting of less than the entire Demised Premises for substantially
all of the remaining term of this lease, to recapture the portion of the Demised
Premises to be sublet, as of the date the subletting or assignment is to be
effective. The option shall be exercised by Landlord giving Tenant written
notice ("Landlord's Recapture Notice") within twenty (20) days following
Landlord's receipt of Tenant's written notice as required above. If this Lease
shall be terminated with respect to the entire Demised Premises, the Term shall
end on the date stated in Tenant's notice as the effective date of the sublease
or assignment as if that date had been originally fixed in this Lease for the
expiration of the Term. If Landlord recaptures only a portion of the Demised
Premises, the minimum guaranteed rental during the unexpired Term shall abate,
proportionately, based on the minimum guaranteed rental due as of the date
immediately prior to such recapture. Notwithstanding the foregoing, Tenant shall
have the right to withdraw its request to assign or sublet within three (3)
business days of delivery of Landlord's
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Recapture Notice, in which event, this Lease shall continue unaffected and
Landlord's Recapture Notice shall be null and void.
19.8 Tenant hereby waives any suretyship defenses it may now or
hereafter have to an action brought by Landlord including those contained in
Sections 2787 through 2856, Inclusive, 2899 and 3433 of the California Civil
Code, as now or hereafter amended, or similar laws of like import.
ARTICLE 20.
SUBORDINATION; ATTORNMENT; ESTOPPELS
20.1 Tenant accepts this lease subject and subordinate to any
mortgage, deed of trust or other lien presently existing upon the Industrial
Complex or any portion of the Industrial Complex which includes the Demised
Premises, and to any renewals, modifications and extensions thereof and this
subordination shall be self operative and no further instrument of
subordination is needed. Tenant agrees that any mortgagee shall have the
right at any time to subordinate its mortgage, deed of trust or other lien to
this lease; provided, however, notwithstanding that this lease may be (or is
made to be) superior to a mortgage, deed of trust or other lien, the
mortgagee shall not be liable for prepaid rentals, security deposits and
claims accruing during or with respect to Landlord's ownership, any amendment
or modification made to this lease without its prior written consent or any
offsets or claims against Landlord; further provided that the provisions of a
mortgage, deed of trust or other lien relative to the right of the mortgagee
with respect to proceeds arising from an eminent domain taking (including a
voluntary conveyance by Landlord) and provisions relative to proceeds arising
from insurance payable by reason of damage to or destruction of the Demised
Premises shall be prior and superior to any contrary provisions contained in
this instrument with respect to the payment or usage thereof. Landlord shall
have the right to require Tenant to subordinate this lease to any mortgage,
deed of trust or other lien hereafter placed upon the Demised Premises or the
Industrial Complex as a whole, and Tenant agrees upon demand to execute an
instrument subordinating this lease as Landlord may request; provided,
however, that Tenant's obligation to execute such a subordination (and
attornment) instrument shall be conditioned on Tenant's receipt from the
lender of a nondisturbance agreement in the form typically utilized by such
lender. If the holder of any mortgage, indenture or deed of trust or similar
instrument (each a "Mortgagee") succeeds to Landlord's interest in the
Demised Premises, Tenant shall, upon request of any such Mortgagee,
automatically become the tenant of and attorn to and recognize such Mortgagee
as the landlord under this lease and will pay to it all rents and other
amounts payable by Tenant under this lease, in accordance with the applicable
terms of this lease.
20.2 Tenant may not exercise any remedies for default by Landlord
hereunder unless and until Landlord and the holder(s) of any indebtedness
secured by mortgage, deed of trust or other lien on the Demised Premises shall
have received written notice of such default and a reasonable time (not less
than 45 days) shall thereafter have elapsed without the default having been
cured.
20.3 Tenant agrees that it will from time to time upon request by
Landlord execute and deliver to Landlord a written statement addressed to
Landlord (and to a party[ies] designated by Landlord), which statement shall
identify Tenant and this lease, shall certify that this lease is unmodified and
in full force and effect (or if there have been modifications, that the same is
in full force and effect as so modified), shall confirm that Landlord is not in
default as to any obligations of Landlord under this lease (or if Landlord is in
default, specifying any default), shall confirm Tenant's agreements contained
above in this Article 20, and shall contain such other information or
confirmations as Landlord may reasonably require. Landlord is hereby irrevocably
appointed and authorized as the agent and attorney-in-fact of Tenant to execute
and deliver any such written statement on Tenant's behalf if Tenant fails to do
so within seven (7) days after the delivery of a written request from Landlord
to Tenant.
ARTICLE 21.
TENANT'S INDEMNIFICATION
21.1 Tenant shall indemnify, defend and hold harmless Landlord,
Landlord's asset manager, Landlord's subasset manager, Landlord's partners, any
subsidiary or affiliate of Landlord and the officers, directors, shareholders,
partners, employees, managers, independent contractors, attorneys and agents of
any of the foregoing (collectively, the "lndemnitees") from and against any and
all claims, demands, causes of action, judgments, costs and expenses, and all
losses and damages (including consequential and punitive damages) arising from
Tenant's use of the Demised Premises or from the conduct of its business or from
any activity, work, or other acts or things done, permitted or suffered by
Tenant in or about the Demised Premises, and shall further indemnify, defend and
hold harmless the Indemnitees from and against any and all claims arising from
any breach or default in the performance of any obligation on Tenant's part to
be performed under the terms of this lease, or arising from any act, omission or
negligence or willful or criminal misconduct of Tenant, or any officer, agent,
employee, independent contractor, guest, or invitee thereof, and from all costs,
attorneys' fees and disbursements,
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and liabilities incurred in the defense of any such claim or any action or
proceeding which may be brought against, out of or in any way related to this
lease, except, in each Instance, to the extent caused by the gross negligence or
willful misconduct of Landlord. Upon notice from Landlord, Tenant shall defend
any such claim, demand, cause of action or suit at Tenant's expertise by counsel
satisfactory to Landlord in its sole discretion. As a material part of the
consideration to Landlord for this lease, Tenant hereby assumes all risk of
damage to property or injury to persons in, upon or about the Demised Premises
from any cause, except to the extent caused by the gross negligence or willful
misconduct of Landlord, and Tenant hereby waives all claims with respect thereto
against Landlord. Tenant shall give immediate notice to Landlord in case of
casualty or accidents in the Demised Premises. The provisions of this Article 21
shall survive the expiration or sooner termination of this lease.
21.2 All personal property of Tenant, including goods, wares,
merchandise, inventory, trade fixtures and other personal property of Tenant,
shall be stored at the sole risk of Tenant. Landlord or its agents shall not
be liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak from any part of the Industrial Complex or from the pipes, appliances or
plumbing works therein or from the roof, street or subsurface or from any
other places resulting from dampness or any other cause whatsoever, or from
the act or negligence of any other tenant or any officer, agent, employee,
contractor or guest of any such tenant, except personal injury caused by or
due to the gross negligence or willful misconduct of Landlord. Landlord or
its agents shall not be liable for interference with the electrical service,
ventilation, or for any latent defect in the Demised Premises.
21.3 The parties hereto acknowledge that all or a part of the Demised
Premises may be used for the storage and shipment of goods not owned by Tenant,
and Landlord is not willing to enter into this lease unless Tenant indemnifies
the Indemnitees to Landlord's satisfaction from any liability on the part of the
Indemnitees to the owner(s) of such goods for damage to the same arising out of
any acts or omissions of the Indemnitees. As a material inducement to Landlord
to enter into this lease, Tenant agrees to defend, indemnify and hold the
Indemnitees harmless from and against any and all losses, claims, liabilities,
obligations and damages imposed upon or incurred or asserted against the
Indemnitees by reason of damage to goods of persons storing such goods with
Tenant, notwithstanding the fact that such losses, claims, liabilities,
obligations or damages may have been caused by the acts or omissions of
Landlord, except to the extent caused by the gross negligence or willful
misconduct of Landlord. Tenant agrees that at all times during which it shall
store goods not owned by it in the Demised Premises, it shall insure the
indemnity described under this Section 21.3 in a manner reasonably satisfactory
to Landlord. Landlord shall not be deemed a bailee, consignee, or warehouseman
(or responsible for the standard of care incidental thereto) with respect to any
goods stored or shipped to or from the Demised Premises for consignment or
bailment and Tenant shall insert a clause to that effect in all warehouse
receipts or consignment agreements for the storage or shipment of goods to or
from the Demised Premises.
ARTICLE 22.
DEFAULT BY TENANT AND REMEDIES
22.1 The following events shall be deemed to be events of default by
Tenant under this lease:
(a) Tenant shall fail to pay any installment of rental or any
other obligation under this lease involving the payment of money and such
failure shall continue for a period of ten (10) days after such payment shall
become due and payable after written notice thereof to Tenant; provided,
however, that for each calendar year during which Landlord has already given
Tenant one (1) written notice of the failure to pay an installment of rental, no
further notice shall be required (i.e., the event of default will automatically
occur on the tenth (10th) day after the day upon which the rental was due; and
provided further that any such notice shall be in lieu of, and not in addition
to, any notice required under Section 1161, ET SEQ., of the California Code of
Civil Procedure).
(b) Tenant shall fail to comply with any provision of this
lease, other than as described in subsection (a) above, and either shall not
cure such failure within fifteen (15) days after written notice thereof to
Tenant, or shall cure that particular failure but shall again fail to comply
with the same provision of this lease within three (3) months after Landlord's
written notice; provided, however, that any such notice shall be in lieu of, and
not in addition to, any notice required under Section 1161 ET SEQ. of the
California Code of Civil Procedure; provided further, however, that if the
noticed failure cannot reasonably be cured within fifteen (15) days, Tenant
shall not be deemed in default hereunder if Tenant commences to cure the default
within such fifteen (15) day period, and thereafter diligently prosecutes such
cure to completion.
(c) Tenant or any guarantor of Tenant's obligations under
this lease shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
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(d) Tenant or any guarantor of Tenant's obligations under
this lease shall file a petition under any section or chapter of the federal
Bankruptcy Code, as amended, or under any similar law or statue of the United
States or any state thereof; or Tenant or any guarantor of Tenant's obligations
under this lease shall be adjudged bankrupt or insolvent in proceedings filed
against Tenant or any guarantor of Tenant's obligations under this lease
thereunder.
(e) A receiver or Trustee shall be appointed for the Demised
Premises or for all or substantially all of the assets of Tenant or any
guarantor of Tenant's obligations under this lease.
(f) Tenant shall desert or vacate or shall commence to desert
or vacate the Demised Premises or any substantial portion of the Demised
Premises or at any time prior to the last month of the lease term shall remove
or attempt to remove, without the prior written consent of Landlord, all or a
substantial amount of Tenant's goods, wares, equipment, fixtures, furniture, or
other personal property.
(g) Tenant shall do or permit to be done anything which
creates a lien upon the Demised Premises or upon all or any part of the
Industrial Complex.
(h) Any transfer of a substantial portion of the assets of
Tenant, or any incurrence of a material obligation by Tenant, unless such
transfer or obligation is undertaken or incurred in the ordinary course of
Tenant's business or in good faith for equivalent consideration, or with
Landlord's consent.
(i) The default of any guarantors of Tenant's obligations
hereunder under any guaranty of this Lease, or the attempted repudiation or
revocation of any such guaranty.
22.2 Upon the occurrence of any such event of default, Landlord shall
have the option to pursue any one or more of the following remedies to the
extent permitted by law:
(a) Without any further notice or demand whatsoever, Tenant
shall be obligated to reimburse Landlord for the damages suffered by Landlord as
a result of the event of default, plus interest on such amount at the maximum
contractual rate which could legally be charged in the event of a loan of such
amount to Tenant (but in no event to exceed 1-1/2% per month); and Landlord may
pursue a monetary recovery from Tenant.
(b) Without any further notice or demand whatsoever,
Landlord may take any one or more of the actions permissible at law to insure
performance by Tenant of Tenant's covenants and obligations under this lease.
In this regard, and without limiting the generality of the immediately
preceding sentence, it is agreed that if Tenant fails to open for business as
required in this lease or, having opened for business, deserts or vacates the
Demised Premises, Landlord may enter upon and take possession of such
premises in order to protect them from deterioration and continue to demand
from Tenant the monthly rentals and other charges provided in this lease,
without any obligation to relet; however, if Landlord does, at its sole
discretion, elect to relet the Demised Premises, such action by Landlord
shall not be deemed as an acceptance of Tenant's surrender of the Demised
Premises unless Landlord expressly notifies Tenant of such acceptance in
writing pursuant to this subsection (b), Tenant hereby acknowledging that
Landlord shall otherwise be reletting as Tenant's agent and Tenant
furthermore hereby agreeing to pay to Landlord on demand any deficiency that
may arise between the monthly rentals and other charges provided in this
lease and that actually collected by Landlord. In the event that Landlord
shall elect to relet, then rentals received by Landlord from such reletting
shall be applied: first, to the payment of any indebtedness (other than rent)
due hereunder from Tenant to Landlord; second, to the payment of any cost of
such reletting (including brokerage commissions); third, to the payment of
the cost of any alterations and repairs to the Demised Premises; fourth, to
the payment of rent due and unpaid hereunder; and the residue, if any, shall
be held by Landlord and applied in payment of future rent as the same may
become due and payable hereunder. Should reletting, during any month to which
such rent is applied, result in the actual payment of rentals at less than
the rent payable during that month by Tenant hereunder, then Tenant shall pay
such deficiency to Landlord immediately upon demand therefor by Landlord.
Such deficiency shall be calculated and paid monthly. Tenant shall also pay
to Landlord as soon as ascertained, any costs and expenses incurred by
Landlord in such reletting or in making such alterations and repairs not
covered by the rentals received from such reletting. Finally, it is agreed
that in the event of any default described in subsection (g) of Section 22.1
of this lease, Landlord may pay or bond around such lien, whether or not
contested by Tenant; and in such event Tenant agrees to reimburse Landlord on
demand for all costs and expenses incurred in connection with any such
action, with Tenant further agreeing that Landlord shall in no event be
liable for any damages or claims resulting from such action. No action or
inaction by Landlord including, without limitation, the re-entry or taking of
possession of the Demised Premises by Landlord pursuant to this Section
22.2(b) shall be construed as an election to terminate this lease or as
interference with Tenant's rights of possession, assignment or subletting
unless a written notice of such election shall be given to Tenant or unless
the termination thereof be decreed by a court of competent jurisdiction.
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Notwithstanding any reletting without termination by Landlord, Landlord may, at
any time after such reletting, elect to terminate this lease for any such
default.
(c) Landlord may terminate this lease by written notice to
Tenant, in which event Tenant shall immediately surrender the Demised Premises
to Landlord. In the event that Landlord shall elect to so terminate this lease,
then Landlord may recover from Tenant:
(i) The worth at the time of award of any unpaid rent
which had been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by
which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such
rental loss Tenant proves reasonably could have been avoided;
plus
(iii) The worth at the time of award of the amount by
which the unpaid rent for the balance of the Term after the time
of award exceeds the amount of such rental loss that Tenant
proves reasonably could be avoided; plus
(iv) Any other amount necessary to compensate Landlord
for all detriment proximately caused by Tenant's failure to
perform its obligations under this lease or which in the ordinary
course would be likely to result therefrom, plus
(v) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from
time to time by applicable California law.
As used in subparagraphs (i) and (ii) above, the "worth at the
time of award" is computed by allowing interest at the maximum
rate permitted by law. As used in subparagraph (iii) above, the
"worth at the time of award" is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).
Forbearance by Landlord to enforce one or more of the remedies herein provided
upon an event of default shall not be deemed or construed to constitute a waiver
of such default. Tenant hereby waives for Tenant and for all those claiming
under Tenant all right now or hereafter existing to redeem by order or judgment
of any court or by any legal process or writ, Tenant's right of occupancy of the
Demised Premises after any termination of this lease.
(d) In addition to all other rights and remedies provided
Landlord in this lease and by law, Landlord shall have the remedy described in
California Civil Code Section 1951.4 (Landlord may continue the lease in effect
after Tenant's breach and abandonment and recover rent as it becomes due if
Tenant has the right to sublet or assign the lease, subject to reasonable
limitations).
22.3 It is expressly agreed that in determining "the unpaid rent" as
that term is used throughout subsections 22.2(c)(i) and 22.2(c)(ii) above, there
shall be added to the minimum guaranteed rental (as specified in Sections 1.1(l)
and 4.1 of this lease) a sum equal to the charges for maintenance of the Common
Area (as specified in Section 7.4 of this lease), and the payments for taxes,
charges and insurance (as specified in Article 6 of this lease).
22.4 It is further agreed that, in addition to payments required
pursuant to subsections 22.2(b) and 22.2(c) above, Tenant shall compensate
Landlord for all expenses incurred by Landlord in repossession (including, among
other expenses, any increase in insurance premiums caused by the vacancy of the
Demised Premises), all expenses incurred by Landlord in reletting (including,
among other expenses, repairs, remodeling, replacements, advertisements and
brokerage fees), all concessions granted to a new tenant upon reletting
(including, among other concessions, renewal options), all losses incurred by
Landlord as a direct or indirect result of Tenant's default (including, among
other losses, any adverse reaction by Landlord's mortgagee or by other tenants
or potential tenants of the Industrial Complex) and a reasonable allowance for
Landlord's administrative efforts, salaries and overhead attributable directly
or indirectly to Tenant's default and Landlord's pursuing the rights and
remedies provided herein and under applicable law.
22.5 Landlord may restrain or enjoin any breach or threatened breach
of any covenant, duty or obligation of Tenant herein contained without the
necessity of proving the inadequacy of any legal remedy or irreparable harm. The
remedies of Landlord hereunder shall be deemed cumulative and not exclusive of
each other.
22.6 If on account of any breach or default by Tenant in its
obligations hereunder, Landlord shall employ an attorney to present, enforce or
defend any of Landlord's rights or remedies hereunder, Tenant agrees to pay any
reasonable attorneys' fees incurred by Landlord in such connection.
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22.7 Tenant acknowledges its obligation to deposit with Landlord the
sum stated in Section 1.1(n) above, to be held by Landlord without interest as
security for the performance by Tenant of Tenant's covenants and obligations
under this lease. Tenant agrees that such deposit may be commingled with
Landlord's other funds and that such security deposit is not an advance payment
of rental or a measure of Landlord's damages in case of default by Tenant. Upon
the occurrence of any event of default by Tenant, Landlord may, from time to
time, without prejudice to any other remedy provided herein or provided by law,
use such funds to the extent necessary to make good any arrears of rentals and
any other damage, injury, expense or liability caused to Landlord by such event
of default, and Tenant shall pay to Landlord on demand the amount so applied in
order to restore the security deposit to its original amount. If Tenant is not
then in default hereunder, any remaining balance of such security deposit shall
be returned by Landlord to Tenant within thirty (30) days of termination of this
lease and Tenant's vacating of the Demised Premises (subject to the provisions
of Section 19.6 above).
22.8 (a) In the event of any default described in subsection (d)
of Section 22.1 of this lease, any assumption and assignment must conform with
the requirements of the Bankruptcy Code and, in order to provide Landlord with
the assurances contemplated by the Bankruptcy Code, Tenant must fulfill the
following obligations, in addition to any other reasonable obligations that
Landlord may require, before any assumption of this lease is effective: (i) all
defaults under subsection (a) of Section 22.1 of this lease must be cured within
ten (10) days after the date of assumption; (ii) all other defaults under
Section 22.1 of this lease other than under subsection (d) of Section 22.1 must
be cured within fifteen (15) days after the date of assumption; (iii) all actual
monetary losses incurred by Landlord (including, but not limited to, reasonable
attorneys' fees) must be paid to Landlord within ten (10) days after the date of
assumption; and (iv) Landlord must receive within ten (10) days after the date
of assumption a security deposit in the amount of six (6) months minimum
guaranteed rent (using the minimum guaranteed rent in effect for the first full
month immediately following the assumption) and an advance prepayment of minimum
guaranteed rent in the amount of three (3) months minimum guaranteed rent (using
the minimum guaranteed rent in effect for the first full month immediately
following the assumption), both sums to be held by Landlord in accordance with
Section 22.7 above and deemed to be rent under this lease for the purposes of
the Bankruptcy Code as amended and from time to time in effect.
(b) In the event this lease is assumed in accordance with the
requirements of the Bankruptcy Code and this lease, and is subsequently
assigned, then, in addition to any other reasonable obligations that Landlord
may require and in order to provide Landlord with the assurances contemplated by
the Bankruptcy Code, Landlord shall be provided with (i) a financial statement
of the proposed assignee prepared in accordance with generally accepted
accounting principles consistently applied, though on a cash basis, which
reveals a net worth in an amount sufficient, in Landlord's reasonable judgment,
to assure the future performance by the proposed assignee of Tenant's
obligations under this lease; or (ii) a written guaranty by one or more
guarantors with financial ability sufficient to assure the future performance of
Tenant's obligations under this lease, such guaranty to be in form and content
satisfactory to Landlord and to cover the performance of all of Tenant's
obligations under this lease.
ARTICLE 23.
[INTENTIONALLY OMITTED]
ARTICLE 24.
HOLDING OVER
24.1 In the event Tenant remains in possession of the Demised Premises
after the expiration of this lease and without the execution of a new lease or
an amendment hereto, it shall be deemed to be occupying said premises as a
tenant from month to month at a rental equal to the rental herein provided plus
(i) fifty percent (50%) of such amount for the first ninety (90) days of the
holdover period and (ii) one hundred percent (100%) of such amount thereafter,
and otherwise subject to all the conditions, provisions and obligations of this
lease insofar as the same are applicable to a month-to-month tenancy. Neither
any provision hereof nor acceptance by Landlord of rent after such expiration or
earlier termination shall be deemed a consent to a holdover hereunder or result
in a renewal of this lease or an extension of the Term. Notwithstanding any
provision to the contrary contained herein, (i) Landlord expressly reserves the
right to require Tenant to surrender possession of the Demised Premises upon the
expiration of the Term of this lease or upon the earlier termination hereof, the
right to reenter the Demised Premises, and the right to assert any remedy at law
or in equity to evict Tenant and collect damages in connection with any such
holding over, and (ii) Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all claims, demands, actions, losses, damages,
obligations, costs and expenses, including, without limitation, attorneys' fees
incurred or suffered by Landlord by reason of Tenant's failure to surrender the
Demised Premises on the expiration or earlier termination of this Lease in
accordance with the provisions of this lease.
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ARTICLE 25.
NOTICES
25.1 Wherever any notice is required or permitted hereunder, such
notice shall be in writing. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered when actually received by
the designated addressee or, if earlier and regardless of whether actually
received or not, when deposited in the United States mail, postage prepaid,
certified mail, return receipt requested, addressed to the parties hereto at the
respective addresses set out in Section 1.1 above (or at Landlord's option, to
Tenant at the Demised Premises), or at such other addresses as they have
theretofore specified by written notice. Copies of all notices to Tenant shall
concurrently be delivered to Thomas B. Jacob, Thoits, Love, Hershberger &
McLean, 245 Lytton Avenue, Palo Alto, California 94301.
25.2 If and when included within the term "Landlord" as used in this
instrument there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such notice
specifying some individual at some specific address for the receipt of notices
and payments to the Landlord; if and when included within the term "Tenant" as
used in this instrument there are more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of such a
notice specifying some individual at some specific address for the receipt of
notices and payment to Tenant. All parties included within the terms "Landlord"
and "Tenant," respectively, shall be bound by notice and payments given in
accordance with the provisions of this Article to the same effect as if each had
received such notice or payment. In addition, Tenant agrees that actions by
Landlord and notices to Tenant hereunder may be taken or given by Agent,
Landlord's attorney, or any other property manager or agent.
25.3 A copy of any notice or document required or permitted to be
delivered hereunder to Landlord shall simultaneously be delivered to Agent.
ARTICLE 26.
COMMISSIONS
26.1 Tenant and Landlord warrant that they have had no dealings with
any broker or agent in connection with this lease, other than Agent and Tenant's
Broker. Landlord shall be responsible for the payment of a commission to Agent
pursuant to a separate agreement between Landlord and Agent. Landlord and Tenant
covenant to pay, hold harmless and indemnify each other from and against any and
all cost, expense or liability for any compensation, commissions or charges
claimed by any other broker or agent utilized by the indemnitor with respect to
this lease or the negotiation hereof.
ARTICLE 27.
REGULATIONS
27.1 Landlord and Tenant acknowledge that there are now in effect and
may hereafter be enacted or go into effect federal, state, county and municipal
laws, orders, rules, directives and regulations relating to or affecting the
Demised Premises or the Industrial Complex, concerning the impact on the
environment of construction, land use, maintenance and operation of structures,
toxic or otherwise hazardous substances, and the conduct of business, including,
without limitation, the Americans With Disabilities Act of 1990 and the Clean
Air Act and regulations issued thereunder (all of the foregoing, as amended from
time to time, being herein called the "Regulations"). Tenant will not cause or
permit to be caused, any act or practice, by negligence, omission or otherwise,
that would adversely affect the environment or do anything or permit anything to
be done that would violate any of said Regulations. Moreover, Tenant shall have
no claim against Landlord by reason of any changes Landlord may make in the
Industrial Complex or the Demised Premises pursuant to said Regulations or any
charges imposed upon Tenant, Tenant's customers or other invitees pursuant to
same.
27.2 If, by reason of any Regulations, the payment to, or collection
by, Landlord of any rental or other charge (collectively referred to hereinafter
as "Lease Payments") payable by Tenant to Landlord pursuant to the provisions of
this lease is in excess of the amount (the "Maximum Charge") permitted thereof
by the Regulations, then Tenant, during the period (the "Freeze Period") when
the Regulations shall be in force and effect shall not be required to pay, nor
shall Landlord be permitted to collect, any sum in excess of the Maximum Charge.
Upon the earlier of (i) the expiration of the Freeze Period, or (ii) the
issuance of a final order or judgment of a court of competent jurisdiction
declaring the Regulations to be invalid or not applicable to the provisions of
this lease, Tenant, to the extent not then proscribed by law, and commencing
with the first day of the month immediately following, shall pay to Landlord as
additional rental, in equal monthly installments during the balance of the term
of this lease, a sum equal to the cumulative difference between the Maximum
Charges and the Lease Payments during the Freeze
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Period. If any provisions of this Section, or the application thereof, shall to
any extent be declared to be invalid and unenforceable, the same shall not be
deemed to affect any of the other provisions of this section or of this lease,
all of which shall be deemed valid and enforceable to the fullest extent
permitted by law.
27.3 Tenant acknowledges that it will be wholly responsible for any
accommodations or alterations which need to be made to the Demised Premises to
accommodate disabled employees and customers of Tenant, including without
limitation, the requirements under the Americans with Disabilities Act and any
equivalent California law. Any alterations made to the Demised Premises in order
to comply with either statute must be made solely at Tenant's expense and in
compliance with all terms and requirements of this lease. Landlord agrees to
make reasonable efforts to ensure that the Common Area is in compliance with the
applicable disability access laws as of the date hereof. If a complaint is
received by Landlord from either a private or government source regarding
disability access to the Common Area of the Industrial Complex, Landlord
reserves the right to mediate, contest, comply with or otherwise respond to such
complaint as Landlord deems to be reasonably prudent under the circumstances. If
Landlord decides to make alterations to the Common Area of the Industrial
Complex in response to any such complaints or in response to legal requirements
Landlord considers to be applicable to the Common Area of the Industrial
Complex, the cost of such alterations shall be included in the Common Area
maintenance charge under this lease. Landlord and Tenant agree that so long as
the governmental entity or entities charged with enforcing such statutes have
not expressly required Landlord to take specific action to effectuate compliance
with such statutes, Landlord shall be conclusively deemed to be in compliance
with such statutes. Tenant agrees to provide Landlord with written notice should
Tenant become aware of a violation of such statutes with respect to the Common
Area. In the event either Landlord or Tenant is required to take action to
effectuate compliance with such statutes, Landlord or Tenant, as applicable,
shall have a reasonable period of time to make the improvements and alterations
necessary to effectuate such compliance, hich period of time shall be extended
by any time necessary to cause, any necessary improvements and alterations to be
made.
ARTICLE 28.
HAZARDOUS MATERIALS
28.1 During the term of this lease, Tenant shall comply with all
Environmental Laws and Environmental Permits (each as defined in Section 28.7
hereof) applicable to the operation or use of the Demised Premises, will cause
all other persons occupying or using the Demised Premises to comply with all
such Environmental Laws and Environmental Permits, will immediately pay or cause
to be paid all costs and expenses incurred by reason of such compliance, and
will obtain and renew all Environmental Permits required for operation or use of
the Demised Premises.
28.2 Tenant shall not generate, use, treat, store, handle, release or
dispose of, or permit the generation, use, treatment, storage, handling, release
or disposal of Hazardous Materials (as defined in Section 28.7 hereof) on the
Demised Premises, or the Industrial Complex, or transport or permit the
transportation of Hazardous Materials to or from the Demised Premises or the
Industrial Complex except for limited quantities used or stored at the Demised
Premises and required in connection with the routine operation and maintenance
of the Demised Premises, and then only upon the written consent of Landlord and
in compliance with all applicable Environmental Laws and Environmental Permits.
28.3 At any time and from time to time during the term of this lease,
Landlord may perform, at Tenant's sole cost and expense, an environmental site
assessment report concerning the Demised Premises, prepared by an environmental
consulting firm chosen by Landlord, indicating the presence or absence of
Hazardous Materials caused or permitted by Tenant and the potential cost of any
compliance, removal or remedial action in connection with any such Hazardous
Materials on the Demised Premises. Tenant shall grant and hereby grants to
Landlord and its agents access to the Demised Premises and specifically grants
Landlord an irrevocable non-exclusive license to undertake such an assessment;
and the cost of such assessment shall be immediately due and payable on demand.
28.4 Tenant will immediately advise Landlord in writing of any of the
following: (1) any pending or threatened Environmental Claim (as defined in
section 28.7 hereof) against Tenant relating to the Demised Premises or the
Industrial Complex; (2) any condition or occurrence on the Demised Premises or
the Industrial Complex that (a) results in noncompliance by Tenant with any
applicable Environmental Law, or (b) could reasonably be anticipated to form the
basis of an Environmental Claim against Tenant or Landlord or the Demised
Premises; (3) any condition or occurrence on the Demised Premises or any
property adjoining the Demised Premises that could reasonably be anticipated to
cause the Demised Premises to be subject to any restrictions on the ownership,
occupancy, use or transferability of the Demised Premises under any
Environmental Law; and (4) the actual or anticipated taking of any removal or
remedial action by Tenant in response to the actual or alleged presence of any
Hazardous Material on the Demised Premises or the Industrial Complex. All such
notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and Tenant's
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response thereto. In addition, Tenant will provide Landlord with copies of all
communications regarding the Demised Premises with any government or
governmental agency relating to Environmental Laws, all such communications with
any person relating to Environmental Claims, and such detailed reports of any
such. Environmental Claim as may reasonably be requested by Landlord.
28.5 Tenant will not change or permit to be changed the present use of
the Demised Premises unless Tenant shall have notified Landlord thereof in
writing and Landlord shall have determined, in its sole and absolute discretion,
that such change will not result in the presence of Hazardous Materials on the
Demised Premises except for those described in Section 28.2 above.
28.6 (a) Tenant agrees to defend, indemnify and hold harmless the
Indemnitees (as defined in Section 21.1) from and against all obligations
(including removal and remedial actions), losses, claims, suits, judgments,
liabilities, penalties, damages (including consequential and punitive damages),
costs and expenses (including attorneys' and consultants' fees and expenses) of
any kind or nature whatsoever that may at any time be incurred by, imposed on or
asserted against such Indemnitees directly or indirectly based on, or arising or
resulting from (a) the actual or alleged presence of Hazardous Materials on the
Industrial Complex which is caused or permitted by Tenant and (b) any
Environmental Claim relating in any way to Tenant's operation or use of the
Demised Premises (the "Hazardous Materials Indemnified Matters"). The provisions
of this Article 28 shall survive the expiration or sooner termination of this
lease.
(b) To the extent that the undertaking in the preceding
paragraph may be unenforceable because it is violative of any law or public
policy, Tenant will contribute the maximum portion that it is permitted to pay
and satisfy under applicable law to the payment and satisfaction of all
Hazardous Materials Indemnified Matters incurred by the Indemnitees.
(c) All sums paid and costs incurred by Landlord with respect
to any Hazardous Materials Indemnified Matter shall bear interest at the lesser
of (i) eighteen (18%) percent per annum, or (ii) the maximum legal rate of
interest allowed in the State of California, from the date so paid or incurred
until reimbursed by Tenant, and all such sums and costs shall be immediately due
and payable on demand.
28.7 (a) "Hazardous Materials" means (i) petroleum or petroleum
products, natural or synthetic gas, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and radon gas; (ii) any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants," or words of similar import, under any applicable Environmental
Law; and (iii) any other substance exposure which is regulated by any
governmental authority; (b) "Environmental Law" means any federal, state or
local statute, law, rule, regulation, ordinance, code, policy or rule of common
law now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.
Sections 9601 ET SEQ.; the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901 ET SEQ.; the Hazardous Materials Transportation Act, 49 U.S.C.
Sections 1801 ET SEQ.; the Clean Water Act, 33 U.S.C. Sections 1251 ET SEQ.; the
Toxic Substances Control Act, 15 U.S.C. Sections 2601 ET SEQ.; the Clean Air
Act, 42 U.S.C. Sections 7401 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C.
Sections 300f ET SEQ.; the Atomic Energy Act, 42 U.S.C. Sections 2011 ET SEQ.;
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 ET
SEQ.; the Occupational Safety and Health Act, 29 U.S.C. Sections 651 ET SEQ.;
(c) "Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations, proceedings, consent orders or
consent agreements relating in any way to any Environmental Law or any
Environmental Permit, including without limitation (i) any and all Environmental
Claims by governmental or regulatory authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (ii) any and all Environmental Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment;
(d) "Environmental Permits" means all permits, approvals, identification
numbers, licenses and other authorizations required under any applicable
Environmental Law.
28.8 Landlord hereby represents to its actual knowledge without
investigation that there are no Hazardous Materials in the Demised Premises in
violation of any applicable Environmental Law.
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ARTICLE 29.
MISCELLANEOUS
29.1 Nothing in this lease shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or of joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of rent, nor any
other provision contained herein, nor any acts of the parties hereto, shall be
deemed to create any relationship between the parties hereto other than the
relationship of landlord and tenant.
29.2 Tenant shall not for any mason withhold or reduce Tenant's
required payments of rentals and other charges provided in this lease, it being
agreed that the obligations of Landlord under this lease are independent of
Tenant's obligations except as may be otherwise expressly provided. The
immediately preceding sentence shall not be deemed to deny Tenant the ability of
pursuing all rights granted it under this lease or at law; however, at the
direction of Landlord, Tenant's claims in this regard shall be litigated in
proceedings different from any litigation involving rental claims or other
claims by Landlord against Tenant (i.e., each party may proceed to a separate
judgment without consideration, counterclaim or offset as to the claims asserted
by the other party).
29.3 The liability of Landlord, any agent of Landlord, or any of their
respective officers, directors, shareholders, or employees to Tenant for or in
respect of any default by Landlord under the terms of this lease or in respect
of any other claim or cause of action shall be limited to the interest of
Landlord in the Industrial Complex, and Tenant agrees to look solely to
Landlord's interest in the Industrial Complex for the recovery and satisfaction
of any judgment against Landlord, any agent of Landlord, or any of their
respective officers, directors, shareholders, and employees.
29.4 In all circumstances under this lease where the prior consent of
one party (the "consenting party"), whether it be Landlord or Tenant, is
required before the other party (the "requesting party") is authorized to take
any particular type of action, such consent shall not be withheld in a wholly
unreasonable and arbitrary manner; however, the requesting party agrees that its
exclusive remedy if it believes that consent has been withheld improperly
(including, but not limited to, consent required from Landlord pursuant to
Section 19.1) shall be to Institute litigation either for a declaratory judgment
or for a mandatory injunction requiring that such consent be given (with the
requesting party hereby waiving any claim for damages, attorneys' fees or any
other remedy unless the consenting party refuses to comply with a court order or
judgment requiring it to grant its consent).
29.5 Whenever a period of time is herein prescribed for action to be
taken by either Landlord or Tenant, such party shall not be liable or
responsible for, and there shall be excluded from the computation of any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations or restrictions or any
other causes of any kind whatsoever which are beyond the reasonable control of
such party; provided, however, that this provision shall NOT apply to Tenant's
obligation to pay rent or any other sums due hereunder.
29.6 If any provision of this lease should be held to be Invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this lease shall not be affected thereby.
29.7 [INTENTIONALLY OMITTED]
29.8 The laws of the State of California shall govern the
interpretation, validity, performance and enforcement of this lease. Venue for
any action under this lease shall be the county in which rentals are due
pursuant to Section 4.2 and Section 1.1 of this lease.
29.9 The captions used herein are for convenience only and do not
limit or amplify the provisions hereof.
29.10 Whenever herein the singular number is used, the same shall
include the plural, and words of any gender shall include each other gender.
29.11 All covenants and obligations contained within this lease shall
bind and inure to the benefit of Landlord, its successors and assigns, and shall
be binding upon Tenant, its permitted successors and assigns.
29.12 This lease contains the entire agreement between the parties, and
no rights are created in favor of either party other than as specified or
expressly contemplated in this lease. No brochure, rendering, information or
correspondence shall be deemed to be a part of this agreement unless
specifically incorporated herein by reference. In addition, no agreement shall
be effective to change, modify or terminate this lease in whole or in part
unless such is in writing and duly signed by the party against whom enforcement
of such change, modification or termination is sought.
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29.13 LANDLORD AND TENANT HEREBY ACKNOWLEDGE THAT THEY ARE NOT RELYING
UPON ANY BROCHURE, RENDERING, INFORMATION, REPRESENTATION OR PROMISE OF THE
OTHER, OR OF THE AGENT, EXCEPT AS MAY BE EXPRESSLY SET FORTH IN THIS LEASE.
29.14 No waiver of any of the terms, covenants, provisions, conditions,
rules and regulations imposed by this lease, and no waiver of any legal or
equitable relief or remedy, shall be implied by the failure of Landlord to
assert any rights, declare any forfeiture, or for any other reason. No waiver of
any of the terms, provisions, covenants, conditions, rules and regulations shall
be valid unless it shall be in writing signed by Landlord. No waiver by Landlord
or forgiveness of performance by Landlord for one or more tenants shall
constitute a Waiver or forgiveness of performance in respect to Tenant.
Landlord's consent to or approval of any act by Tenant requiring Landlord's
consent or approval under this Lease shall not be deemed to render unnecessary
the obtaining of Landlord's consent to or approval of any subsequent act of
Tenant. No act or thing done by Landlord or Landlord's agents during the Term
of this lease shall be deemed an acceptance of a surrender of the Demised
Premises, unless in writing signed by Landlord. The delivery of the keys to any
employee or agent of Landlord shall not operate as a termination of this lease
or a surrender of the Demised Premises. The acceptance of any rent by Landlord
following a breach of this lease by Tenant shall not constitute a waiver by
Landlord of such breach or any other breach unless such waiver is expressly
stated in a writing signed by Landlord.
29.15 Tenant shall deliver and surrender to Landlord possession of the
Demised Premises (including all of Tenant's permanent work upon and to the
Demised Premises, all replacements and all fixtures permanently attached to the
Demised Premises) immediately upon the expiration of the Term or the termination
of this lease in as good condition and repair as the same were on the delivery
date (loss by any insured casualty and ordinary wear and tear only excepted),
and deliver the keys at the office of Landlord or Landlord's agent; provided,
however, that upon Landlord's request made at least thirty (30) days prior to
the end of the Term, or the date Tenant is otherwise required to vacate the
Demised Premises, Tenant shall remove all fixtures and equipment affixed to the
Demised Premises by Tenant, and repair and restore the Demised Premises to their
condition on the delivery date (loss by any insured casualty and ordinary wear
and tear only excepted), at Tenant's sole expense. The removal shall be
performed prior to the earlier of the end of the Term or the date Tenant is
required to vacate the Demised Premises.
29.16 Tenant shall not record this lease. Without the prior written
consent of Landlord, Tenant shall not record any memorandum of this lease, short
form or other reference to this lease.
29.17 The submission of this lease for examination does not constitute
a reservation of or option for the Demised Premises or any other space in the
Industrial Complex, and shall not vest any right in Tenant. This lease shall
become effective as a lease only upon its execution and delivery by the parties.
29.18 LANDLORD AND TENANT HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS LEASE OR ANY
DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
EITHER PARTY ARISING OUT OF OR RELATED IN ANY MANNER WITH THE DEMISED PREMISES
(INCLUDING WITHOUT LIMITATION, ANY ACTION TO RESCIND OR CANCEL THIS LEASE OR ANY
CLAIMS OR DEFENSES ASSERTING THAT THIS LEASE WAS FRAUDULENTLY INDUCED OR IS
OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A MATERIAL INDUCEMENT FOR LANDLORD
TO ENTER AND ACCEPT THIS LEASE.
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29.19 This lease consists of twenty-nine Articles and Exhibits "A"
through "D". With the exception of Article 7, in the event any provision of an
exhibit shall be inconsistent with a provision in the body of the lease, the
provision as set forth in the exhibit shall be deemed to control.
EXECUTED as of the latest date accompanying a signature by Landlord or
Tenant below.
LANDLORD: MP CARIBBEAN, INC.,
a Delaware corporation
By: GE CAPITAL INVESTMENT ADVISORS, INC.,
its agent
By: /s/ [ILLEGIBLE]
-------------------------------------
Name: [ILLEGIBLE]
------------------------------
Title: [ILLEGIBLE]
-----------------------------
Date of Signature: 8-22-97
---------------------
TENANT: ARIBA TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Edward P. Kinsey
-------------------------------------
Name: Edward P. Kinsey
------------------------------
Title: Vice President - Finance
Chief Financial Officer
-----------------------------
Date of Signature: 8-22-97
---------------------
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EXHIBIT "A"
DEMISED PREMISES
[FLOOR PLAN]
26
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EXHIBIT "B"
CONSTRUCTION: TENANT ACCEPTANCE OF SPACE "AS IS"
ARTICLE I. GENERAL
Tenant hereby accepts the Demised Premises "as is" and "ready for occupancy."
Except as provided herein, Landlord shall have no obligation to make or pay for
any improvements, renovations or alterations in or to the Demised Premises to
prepare or make ready the Demised Premises for Tenant's occupancy as of the
Commencement Date. Prior to any modification of the existing premises, Tenant
shall adhere to the following as well as the provisions contained in Article 11
and EXHIBIT "C" of the lease.
ARTICLE II. PRE-CONSTRUCTION OBLIGATIONS
A. Plans, diagrams, schedules and other data relating to work to
be performed by Tenant must be furnished by Tenant to Landlord
complete, sufficient to obtain a building permit, and ready
for Landlord's consideration and final approval within fifteen
(15) days after execution of this lease (or at such other time
as may be specified by this exhibit). Without limiting the
generality of the immediately preceding sentence, Tenant's
submissions must include a floor plan, a reflected ceiling
plan, a plumbing plan, elevations of walls and a fixture plan.
All drawings shall be at scale of either 1/8" or 1/4" Tenant
shall reimburse Landlord for any loss or extra cost which may
result to Landlord by reason of failure on the part of Tenant
to submit any such plans, diagrams, schedules, specifications
and/or other data within said period of time.
B. Tenant shall secure Landlord's written approval of all
designs, plans, specifications, materials, contractors and
contracts for work to be performed by Tenant before beginning
the work (including following whatever "work letter"
instructions, if any, which Landlord may deliver to Tenant in
connection with the work), and shall secure all necessary
licenses and permits to be used in performing the work.
Tenant's finished work shall be subject to Landlord's approval
and acceptance.
C. The insurance requirements under Article 15 of this lease and
the indemnity requirements under Article 16 of this lease
shall apply during the construction contemplated in this
exhibit, and Tenant shall provide evidence of appropriate
insurance coverage prior to beginning any of Tenant's work.
Tenant shall provide Landlord with evidence of insurance
covering both Tenant and Tenant's contractor against damage to
their personal property, as well as against third-party
liability and workers' compensation claims arising out of all
construction and associated activities. All policies of
insurance shall be subject to Landlord's prior approval and
shall be endorsed showing Landlord as an additional named
insured (or if permitted by Landlord, may provide a waiver of
subrogation against Landlord).
ARTICLE III. DESCRIPTION OF TENANT'S WORK
A. Signs: Tenant shall pay for all signs and the installation
thereof, including the electrical hook-up, subject to the
provisions of Section 13.1 of this lease.
B. Utilities: All meters or other measuring devices in connection
with utility services shall be provided by Tenant. All service
deposits shall be made by Tenant at Tenant's expense.
C. All work undertaken by Tenant shall be at Tenant's expense and
shall not damage the building or any part thereof. Any roof
penetration shall be performed by Landlord's roofer or, at
Landlord's option, by a bonded roofer approved in advance by
Landlord. The work shall be begun only after Landlord has
given consent, which consent shall in part be conditioned upon
Tenant's plans, to include materials acceptable to Landlord,
in order to prevent injury to the roof and to spread the
weight of the equipment being installed. Tenant shall also be
responsible for obtaining and paying for professional
inspections of any structural work (including, without
limitation, any roof work or concrete work).
1
<PAGE>
D. All work undertaken by Tenant shall be awarded to Landlord's
contractor unless, before any construction begins, Tenant
chooses and receives Landlord's written approval for another
contractor to complete Tenant's work.
E. All work performed by or at the behest of Tenant shall be in
compliance with all applicable Regulations.
ARTICLE IV. DESCRIPTION OF LANDLORD'S WORK
Landlord shall cause the roof, mechanical, electrical and plumbing systems
serving the Demised Premises to be in proper working order as of the
Commencement Date ("Landlord's Improvements").
INITIALED:
LANDLORD:
--------------------
TENANT:
--------------------
2
<PAGE>
EXHIBIT "C"
TENANT CONSTRUCTION RULES AND REGULATIONS
1. All demolition, removals and other categories of work that may
inconvenience other tenants or disturb building operations must be
scheduled and performed before or after normal working hours, and the
property manager for the Industrial Complex (the "Property Manager")
shall be provided with at least twenty-four (24) hours notice prior to
proceeding with such work.
2. All structural and floor loading requirements shall be subject to the
prior approval of the Industrial Complex's structural engineer. Approval
shall be obtained by Tenant and any fees shall be at Tenant's sole
expense.
3. All mechanical (HVAC, plumbing and sprinkler) and electrical
requirements shall be subject to the prior approval of Landlord's
mechanical and electrical engineers. When necessary, Property Manager
will require engineering and shop drawings, which drawings must be
approved by Property Manager before the work is started. Drawings shall
be prepared by Tenant and all approvals shall be obtained by Tenant.
4. If the shutdown of risers and mains for electrical, HVAC, sprinkler
and/or plumbing work is required, such work shall be supervised by a
representative of Landlord at Tenant's sole expense at a time approved
in advance by Property Manager.
5. Tenant's general contractor is responsible to do all of the following:
(a) Properly supervise construction at the Demised Premises at all
times.
(b) Police the work at all times, continually keeping the affected
space(s) safe and orderly.
(c) Maintain the cleanliness and protection of all affected areas.
(d) Avoid and prevent the disturbance of other tenants.
6. If Tenant's general contractor is negligent in any of its
responsibilities, Tenant shall be charged for the corrective work done
by Landlord's personnel.
7. No electrical cords are to be stretched across any walkways or public
areas in any manner that would cause any safety hazard.
8. Radios may not be played if the sound can be heard in the Common Area or
in other tenant suites.
9. Electrical rooms may not be used to store any materials, fixtures, etc.
10. All sprinkler shut downs, draining or filling shall be scheduled and
coordinated with the Landlord's chief engineer or his delegate.
11. Bracing, soldering or welding shall be scheduled in advance with
Property Manager.
12. Dust shall be kept at a minimum to avoid smoke detector activation.
13. If requested by Tenant, Property Manager shall provide space in the
parking lot at a location to be determined by Landlord for a trash and
debris bin during construction of the tenant improvements.
14. Damage to ANY pre-installed fixtures (E.G., water fountains, sinks,
lights, commodes, signage, etc.) shall be repaired at Tenant's sole
expense.
15. Tenant's general contractor shall coordinate the keying, schedule,
Tenant's key requirements and cylinder installation with Landlord's
designated locksmith.
16. Where appropriate, Tenant shall submit to Property Manager a final
"as-built" set of drawings showing all items of work in full detail.
"As-builts" shall be sepias or vellums.
1
<PAGE>
17. Throughout the construction period and upon conclusion of the work,
Tenant's general contractor shall cause the work areas and all other
affected areas to be clear and free of debris.
2
<PAGE>
EXHIBIT "D"
RIGHT OF FIRST OPPORTUNITY
Tenant shall have a one-time right of first opportunity ("Right of First
Opportunity") to lease all, but not less than all, of the adjacent space in the
Industrial Complex known as 1310 Chesapeake Terrace, Sunnyvale, California,
containing approximately 40,000 square feet (the "First Opportunity Space"), at
such time as the First Opportunity Space becomes "available for lease" (as
defined below) during the lease term provided that Tenant is not then in default
hereunder beyond any applicable notice and cure period. If the existing lease of
the First Opportunity Space should expire or be terminated, the First
Opportunity Space shall be deemed "available for lease" and, at such time,
Landlord shall give written notice thereof to Tenant ("Landlord's Notice"). Upon
receipt of Landlord's Notice, Tenant shall have the opportunity to inspect the
First Opportunity Space and conduct reasonable non-invasive investigations
therein for the purpose of determining whether Tenant wishes to lease the First
Opportunity Space (the "Tenant Inspection"). If Tenant in response to Landlord's
Notice elects to lease the First Opportunity Space, Tenant shall so notify
Landlord in writing (the "Election Notice"). If Tenant does not deliver to
Landlord the Election Notice within the later of (i) ten (10) days after
Landlord's delivery of the Landlord's Notice or (ii) three (3) days after
Landlord has provided Tenant with the opportunity to conduct the Tenant
Inspection, Landlord shall be relieved of its obligation to make available for
lease to Tenant the First Opportunity Space and the provisions of this paragraph
shall be of no further force or effect. Without limiting the foregoing, upon the
non-delivery of the Election Notice by Tenant, Landlord shall be entitled to
grant options and rights free and clear of Tenant's Right of First Opportunity
under this paragraph to other tenants or prospective tenants of the Industrial
Complex. Upon Tenant's TIMELY delivery of the Election Notice with respect to
the First Opportunity Space ("Tenant's Timely Notice Delivery Date"), Landlord
and Tenant shall promptly enter into an amendment of this lease adding the First
Opportunity Space to the Demised Premises on all the terms and conditions set
forth in this lease as to the Demised Premises, except that (i) the term of the
lease to Tenant of the First Opportunity Space shall commence (the "ROFO
Commencement Date") upon the later of (a) the actual availability date of the
First Opportunity Space or (b) Tenant's Timely Notice Delivery Date, and shall
be coterminous with the remainder of the Demised Premises, (ii) Tenant shall
take the First Opportunity Space in its then "AS-IS" condition (except that the
First Opportunity Space shall be delivered to Tenant broom-clean and subject to
the same warranty by Landlord as is set forth in Section 3.2 of this lease, with
the ninety (90) day period to commence as of the ROFO Commencement Date;
provided that in no event shall Landlord be required to expend in excess of
$25,000.00 to repair any defective or malfunctioning component(s) of any of the
building systems enumerated in said Section 3.2) and Landlord shall neither
provide nor pay for any interior improvement work or services related to the
First Opportunity Space, (iii) the minimum guaranteed rental per rentable square
foot payable by Tenant for the First Opportunity Space shall be equal to the
minimum guaranteed rental per rentable square foot then payable by Tenant under
the lease for the original Demised Premises (with scheduled increases), which
minimum guaranteed rental shall commence as of the ROFO Commencement Date, and
(iv) Tenant's Proportionate Share shall be increased to reflect the addition of
the First Opportunity Space to the Demised Premises.
Notwithstanding anything to the contrary contained in this EXHIBIT
"D", in the event that Landlord does not deliver a Landlord's Notice to Tenant
on or before August 31, 2002, then Tenant shall have the right to terminate this
lease upon thirty (30) days notice to Landlord ("Tenant's Termination Notice")
provided that (i) the Right of First Opportunity has not previously been
relinquished due to Tenant's default under this lease beyond any applicable
notice and cure period, and (ii) Tenant's Termination Notice is delivered no
later than September 30, 2002. In the event Tenant is entitled to and timely
elects to exercise this early termination right, the lease shall terminate
thirty (30) days following Landlord's receipt of Tenant's Termination Notice,
subject to Tenant's obligations under Section 29.15 of the lease. If Tenant is
entitled to exercise this early termination right, but does not timely do so,
the lease shall continue in full force and effect through the scheduled
expiration of the lease term, and Tenant's Right of First Opportunity under this
EXHIBIT "D" shall be null and void and of no further force or effect.
<PAGE>
Exhibit 10.7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH DESCRIPTION PAGE
- -------------------------------------------------------------------------------------
<S> <C> <C>
BASIC LEASE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
1. OCCUPANCY AND USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. TERMS AND POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. RENT; RENT ADJUSTMENTS; ADDITIONAL CHARGES FOR EXPENSES AND TAXES . . . . . . .2
(A) MONTHLY BASE RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
(B) ADJUSTMENTS IN BASE RENT . . . . . . . . . . . . . . . . . . . . . . . . .2
(C) ADDITIONAL CHARGES FOR EXPENSES AND TAXES . . . . . . . . . . . . . . . . .2
(1) DEFINITIONS OF ADDITIONAL CHARGES: . . . . . . . . . . . . . . . . . .2
(A) "TAX YEAR" . . . . . . . . . . . . . . . . . . . . . . . . . . .2
(B) "TENANT'S SHARE" . . . . . . . . . . . . . . . . . . . . . . . .2
(C) "REAL ESTATE TAXES" . . . . . . . . . . . . . . . . . . . . . . .2
(D) "EXPENSES" . . . . . . . . . . . . . . . . . . . . . . . . . . .3
(E) "EXPENSE YEAR" . . . . . . . . . . . . . . . . . . . . . . . . .4
(2) PAYMENT OF REAL ESTATE TAXES: . . . . . . . . . . . . . . . . . . . .4
(3) PAYMENT OF EXPENSES: . . . . . . . . . . . . . . . . . . . . . . . . .4
(4) OTHER: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(5) AUDIT: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(D) LATE CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4. RESTRICTIONS ON USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6. ADDITIONAL ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
7. REPAIR AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
8. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
9. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . .8
10. INSURANCE AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . .9
11. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12. SERVICES AND UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. TENANT'S CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
15. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
16. RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
17. RE-ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
18. INSOLVENCY OR BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . . . 12
19. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
20. DAMAGE BY FIRE, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
21. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
22. SALE BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
23. RIGHT OF LANDLORD TO PERFORM . . . . . . . . . . . . . . . . . . . . . . . . 14
24. SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
i
<PAGE>
32. SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
33. CORPORATE AUTHORITY; FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . 14
34. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
35. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
36. TENANT'S REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
37. REAL ESTATE BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
38. LEASE EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
39. HAZARDOUS SUBSTANCE LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . 14
40. ARBITRATION OF DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
41. SIGNAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
42. OPTION TO RENEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
43. RENT DURING EXTENSION TERM . . . . . . . . . . . . . . . . . . . . . . . . . 16
44. RIGHT OF NOTICE PRIOR TO SALE . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
EXHIBIT "A" PREMISES
EXHIBIT "B" WORKLETTER
EXHIBIT "C" RULES AND REGULATIONS
EXHIBIT "D" FORM OF TENANT ESTOPPEL CERTIFICATE
EXHIBIT "E" DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS
EXHIBIT "F" SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
EXHIBIT "G" ENVIRONMENTAL REPORTS
ii
<PAGE>
BASIC LEASE INFORMATION
- --------------------------------------------------------------------------------
LEASE DATE: JUNE 12, 1996
LANDLORD: CHARLESTON PLACE ASSOCIATES
A CALIFORNIA LIMITED PARTNERSHIP
MANAGING AGENT: THE MOZART DEVELOPMENT COMPANY
LANDLORD'S AND MANAGING AGENT'S ADDRESS:
C/O THE MOZART DEVELOPMENT COMPANY
1068 EAST MEADOW CIRCLE
PALO ALTO, CA 94303
TENANT: U.S. ROBOTICS ACCESS CORP.
TENANT'S ADDRESS: FOR NOTICE FOR BILLING
C/O REAL ESTATE DEPARTMENT SAME AS FOR NOTICE
8100 N. MCCORMICK BLVD.
SKOKIE, IL 60076
BUILDINGS: 1585 & 1565 CHARLESTON ROAD, MOUNTAIN VIEW,
CALIFORNIA
SUITE: ENTIRE BUILDINGS
RENTABLE AREA OF THE PREMISES: 75,780 (1585) + 55,800 (1565) = 131,580 SQUARE
FEET.
RENTABLE AREA OF THE BUILDINGS: 131,580 SQUARE FEET
PARKING SPACES: APPROXIMATELY 471 SPACES
TENANT'S USE OF THE PREMISES: GENERAL OFFICE, ADMINISTRATION, RESEARCH AND
DEVELOPMENT
LEASE TERM: TEN (10) YEARS.
EARLY OCCUPANCY DATE: OCTOBER 15, 1996
SCHEDULED COMMENCEMENT DATE: NOVEMBER 1, 1996.
SCHEDULED EXPIRATION DATE: OCTOBER 31, 2006.
TENANT ALLOWANCE: $460,530.00 - SEE EXHIBIT B
TENANT'S PLAN DELIVERY DATE: SEE EXHIBIT B
OUTSIDE DELIVERY DATE: JANUARY 31, 1997
<TABLE>
<CAPTION>
RENT: MONTHLY BASE RENT ANNUAL BASE RENT
PSF/MONTH TOTAL TOTAL
---------- ----- -----
<S> <C> <C> <C>
YEAR 1: $2.15 $282,897.00 $3,394,764.00
YEAR 2: $2.20 $289,476.00 $3,473,712.00
YEAR 3: $2.25 $296,055.00 $3,552,660.00
YEAR 4: $2.30 $302,634.00 $3,631,608.00
YEAR 5: $2.35 $309,213.00 $3,710,556.00
YEAR 6: $2.40 $315,792.00 $3,789,504.00
YEAR 7: $2.45 $322,371.00 $3,868,452.00
YEAR 8: $2.50 $328,950.00 $3,947,400.00
YEAR 9: $2.55 $335,529.00 $4,026,348.00
YEAR 10: $2.60 $342,108.00 $4,105,296.00
</TABLE>
BASE RENT ADJUSTMENT: SEE ABOVE
TENANT'S SHARE OF EXPENSES AND TAXES ("ADDITIONAL CHARGES"): 100.0%
SECURITY DEPOSIT: NONE
GUARANTOR OF LEASE: U.S. ROBOTICS CORPORATION
BROKER: CB COMMERCIAL (DREW ARVAY/MIKE GRADO)
BROKER'S FEE OR COMMISSION, IF ANY, PAID BY: LANDLORD
The foregoing Basic Lease Information is hereby incorporated into and made a
part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective information hereinabove set forth and
shall be construed to incorporate all of the terms provided under the particular
paragraph pertaining to such information. In the event of any conflict between
any Basic Lease Information and the Lease, the latter shall control.
iii
<PAGE>
LANDLORD:
CHARLESTON PLACE ASSOCIATES
a California General Partnership
By: CHARLESTON VENTURE I LIMITED PARTNERSHIP
a California Limited Partnership
Its: General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: General Partner
-----------------------------------
By: COMPETROL REAL ESTATE LIMITED
a British Virgin Islands private company
Its: General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: Executive Vice President
-----------------------------------
/s/ [ILLEGIBLE]
-----------------------------------
Vice President
-----------------------------------
TENANT:
U.S. ROBOTICS ACCESS CORP.
a Delaware Corporation
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: Treasurer
-----------------------------------
iv
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into as of June 12, 1996, by and
between CHARLESTON PLACE ASSOCIATES a California general partnership, (herein
called "Landlord"), and U.S. ROBOTICS ACCESS CORP., a Delaware corporation,
(herein called "Tenant").
Upon and subject to the terms, covenants and conditions hereinafter set
forth, Landlord hereby leases to Tenant and Tenant hereby hires from Landlord
those premises (the "Premises") comprising the area substantially as outlined in
red on the attached EXHIBIT "A", in the buildings (hereinafter referred to as
the "Building") specified in the Basic Lease Information attached hereto. The
number of square feet designated as Rentable Area of the Premises on the Basic
Lease Information may include portions of the Building Common Area attributed to
the Premises and not located within the area outlined on EXHIBIT A. The
Building, together with the associated land and improvements is referred to as
"Project." The term "Common Area" shall mean all areas and facilities within the
Project that are not designated by Landlord for the exclusive use of Tenant or
any other tenant or other occupant of the Project, including the parking areas,
access and perimeter roads, pedestrian sidewalks, landscaped areas, trash
enclosures, recreation areas and the like.
1. OCCUPANCY AND USE. Tenant may use and occupy the Premises for the
purpose specified in the Basic Lease Information and for no other use or purpose
without the prior written consent of Landlord. Landlord shall have the right to
grant or withhold consent to a proposed change of use in its sole discretion.
Notwithstanding the above, Tenant understands and agrees that a Declaration of
Covenants, Conditions and Restrictions ("CC&R's")encumbers the Land and Project
and that Tenant's Occupancy and Use of the Premises may be restricted by such
encumbrance. If necessary, Tenant shall execute such documents as are reasonably
necessary to cause this Lease to become subordinate to such CC&R's (see the
attached EXHIBIT E).
2. TERMS AND POSSESSION.
(a) The term of this Lease (the "Term") shall be for the period
specified in the Basic Lease Information (or until sooner terminated as herein
provided). If Landlord, for any reason whatsoever, cannot deliver possession of
the Premises to Tenant on the date specified in the Basic Lease Information for
the commencement of the Term, this Lease shall not be void or voidable, nor
shall Landlord be liable to Tenant for any loss or damage resulting therefrom.
In that event, however, the Term of the Lease shall not commence until such
commencement date as is determined pursuant to EXHIBIT B. In such event, the
scheduled commencement date and scheduled expiration date shall be adjusted
accordingly. Payment of Rent and Additional Charges by Tenant due to delay in
delivery of the Premises caused by Tenant shall also be governed by EXHIBIT B
hereof. Notwithstanding the provisions above and of EXHIBIT B, if the delivery
of the Premises is delayed beyond Outside Delivery Date, as set forth in the
Basic Lease Information, Tenant shall have the right to terminate this Lease by
notifying Landlord in writing of its intent to do so no later than five (5)
business days after the Outside Delivery Date. The Outside Delivery Date shall
be extended one day for each day of delay caused by (i) Tenant as more
particularly set forth in EXHIBIT B hereof and (ii) acts of God, acts of the
Government, a shortage of material or labor or other causes beyond the
reasonable control of Landlord. The dates upon which the Term shall actually
commence and terminate pursuant to this Paragraph 2(a) are herein called the
"Commencement Date" and the "Expiration Date," respectively.
(b) Completion of the improvements to the Premises and Building shall
be governed by the terms and conditions of the separate work letter ("Work
Letter"), attached hereto as EXHIBIT "B".
(c) The Premises shall be deemed "delivered" and the Term shall
commence as defined in EXHIBIT B.
(d) Tenant shall, no later than ninety (90) days after the date of
issuance by the appropriate governmental agency of a Certificate of Occupancy or
its equivalent concerning the Improvements, occupy at least a portion of the
Premises. Time is of essence. This subparagraph 2(d) shall not be construed as
an obligation of Tenant to continuously occupy the Premises.
3. RENT; RENT ADJUSTMENTS; ADDITIONAL CHARGES FOR EXPENSES AND TAXES.
(a) MONTHLY BASE RENT. Commencing on the Commencement Date, except to
the extent otherwise provided for in Paragraph 2(c), Tenant shall pay to
Landlord throughout the Term the annual rental specified in the Basic Lease
Information ("Rent"), which sum shall be payable by Tenant in equal monthly
installments on, or, at Tenant's election, before, the first day of each month,
in advance, with the first month's rent due upon execution of this Lease
Agreement, in lawful money of the United States (without any prior demand
therefor and without deduction or offset whatsoever, except as expressly
provided for in Paragraphs 20 & 21) to Landlord or its managing agent at the
address specified in the Basic Lease Information or to such other firm or to
such other place as Landlord or its Managing Agent may from time to time
designate in writing. Tenant shall pay to Landlord all charges and other amounts
whatsoever as provided in this Lease ("Additional Charges") at the place where
the Rent is payable and Landlord shall have the same remedies for a default in
the payment of
1
<PAGE>
Additional Charges as for a default in the payment of Rent. If the Commencement
Date should occur on a day other than the first day of a calendar month, or the
Expiration Date should occur on a day other than the last day of a calendar
month, then the Rent and Additional Charges for such fractional month shall be
prorated on a daily basis.
(b) ADJUSTMENTS IN BASE RENT. The monthly base rent under Paragraph
3(a) shall be adjusted as provided in the Basic Lease Information.
(c) ADDITIONAL CHARGES FOR EXPENSES AND TAXES.
(1) DEFINITIONS OF ADDITIONAL CHARGES: For purposes of this
Paragraph 3(c), the following terms shall have the meanings hereinafter set
forth:
(A) "TAX YEAR" shall mean each twelve (12) consecutive month
period commencing January 1st of the calendar year during which the
Commencement Date of this Lease occurs, provided that if the taxing
authority levies taxes on other than a Calendar year, Landlord, upon notice
to Tenant, may change the Tax Year from time to time to any other twelve
(12) consecutive month period and, in the event of any such change,
Tenant's Share of Real Estate Taxes (as hereinafter defined) shall be
equitably adjusted for the Tax Years involved in any such change.
(B) "TENANT'S SHARE" shall mean the percentage figure so
specified in the Basic Lease Information.
(C) "REAL ESTATE TAXES" shall mean all taxes, assessments
and charges levied upon or with respect to the Project or any personal
property of Landlord used in the operation of thereof, or Landlord's
interest in the Project or such personal property. Real Estate Taxes shall
include, without limitation, all general real property taxes and general
and special assessments, charges, fees or assessments for transit, housing,
police, fire or other governmental services or purported benefits to the
Building (provided, however, that any refunds of Real Estate Taxes paid by
Tenant (as part of Tenant's Share of Real Estate Taxes) shall be credited
against Tenant's further obligation to pay Real Estate Taxes during the
Term), service payments in lieu of taxes, and any tax, fee or excise on the
act of entering into this Lease, or any other lease of space in the
Building, or on the use or occupancy of the Building or any part thereof,
or on the rent payable under any lease or in connection with the business
of renting space in the Building, that are now or hereafter levied or
assessed against Landlord by the United States of America, the State of
California, or any political subdivision, public corporation, district or
any other political or public entity, and shall also include any other tax,
fee or other excise, however described, that may be levied or assessed as a
substitute for, or as an addition to, in whole or in part, any other Real
Estate Taxes, whether or not now customary or in the contemplation of the
parties on the date of this Lease. Real Estate Taxes shall not include
franchise, transfer, inheritance or capital stock taxes or income taxes
measured by the net income of Landlord from all sources unless, due to a
change in the method of taxation, any of such taxes is levied or assessed
against Landlord as a substitute for, or as an addition to, in whole or in
part, any other tax that would otherwise constitute a Real Estate Tax.
Additionally, Real Estate Taxes shall not include any assessments or like
charges to pay for any remediation o contamination from any Hazardous
Substance (defined in Paragraph 39 hereof) existing as of the Commencement
Date unless introduced in, on, under or about the Premises by Tenant or
Tenant's employees, agents, contractors or invitees. Real Estate Taxes
shall also include reasonable legal fees, costs and disbursements incurred
in connection with proceedings to contest, determine or reduce Real Estate
Taxes; provided that such fees, costs and disbursements do not exceed the
actual savings in Real Estate Taxes obtained by Tenant over the Term of the
Lease. In the event that Tenant desires to contest on its own behalf the
assessed value of the property as determined by the applicable taxing
authority (e.g. the County of Santa Clara), Landlord shall not unreasonably
withhold its approval. If any assessments are levied on the Project, Tenant
shall have no obligation to pay more than that amount of annual
installments of principal and interest that would become due during the
Lease Term had Landlord elected to pay the assessment in installment
payments, even if Landlord pays the assessment in full.
(D) "EXPENSES" shall mean the total costs and reasonable
expenses paid or incurred by Landlord in connection with the management,
operation, maintenance and repair of the Building, including, without
limitation (i) the cost of air conditioning, electricity, steam, heating,
mechanical, ventilating, elevator systems and all other utilities and the
cost of supplies and equipment and maintenance and service contracts in
connection therewith; (ii) the cost of repairs and general maintenance and
cleaning; (iii) the cost of fire, extended coverage, boiler, sprinkler,
public liability, property damage, rent, earthquake (if available at
commercially reasonable rates) and other insurance; (iv) fees, charges and
other costs, including management fees, consulting fees, legal fees (which
are allowed elsewhere in the Lease) and accounting fees, fees of all
independent contractors engaged by Landlord directly related to the
operation of the Building or reasonably charged by Landlord if Landlord
performs management services in connection with the Building, (though the
management fee shall not exceed the cap noted in the following paragraph);
(v) the cost of any capital improvements made to the Building after the
Commencement Date (a) as a labor saving device or to effect other economies
in the operation or maintenance of the Building (from which a reasonable
person would anticipate that savings
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would actually result), (b) to repair or replace capital items which are no
longer capable of providing the services required of them, or (c) that are
made to the Building after the date of this Lease and are required under
any governmental law or regulation that was not required to be completed in
respect of the Building prior to the date the Lease was executed. The cost
of the foregoing capital improvements and any other capital improvements in
excess of $2,500 per month ($30,000 per year), the cost of which is the
responsibility of Tenant pursuant to this Lease, shall be amortized over
the useful life of the capital item in question as determined in accordance
with generally accepted accounting principles ("GAAP"), together with
interest on the unamortized balance at the rate paid by Landlord on funds
borrowed for the purpose of constructing such capital improvements;
however, in the event that Landlord is not able to borrow said funds on a
nonrecourse basis, then the rate shall be 10% per annum; and (vi) any other
reasonable expenses of any other kind whatsoever reasonably incurred in
managing, operating, maintaining and repairing the Building, including, but
not limited to, costs incurred pursuant to any CC&R's and/or ground lease
identified in EXHIBIT E. Any "deductible" amounts relating to capital
improvements required to be paid by Tenant hereunder in connection with any
casualty policy carried by Landlord shall be amortized over the useful life
of the restoration work in accordance with GAAP.
Notwithstanding anything to the contrary herein contained, Expenses shall
not include, and in no event shall Tenant have any obligation to pay for
pursuant to this Paragraph 3 or Paragraph 7(b), (aa) the initial
construction cost of the Project or real property on which the Building is
located; (bb) the cost of providing tenant improvements to any other
tenant; (cc) debt service (including, but without limitation, interest,
principal and any impound payments) required to be made on any mortgage or
deed of trust recorded with respect to the Building and/or the real
property on which the Building is located other than debt service and
financing charges imposed pursuant to Paragraph 3(c)(1)(D)(v) above; (dd)
the cost of special services, goods or materials provided to any tenant;
(ee) depreciation; (ff) the portion of a management fee paid to Landlord or
affiliate in excess of two percent (2%) of Rent and Additional Charges
(excluding the management fee); (gg) costs occasioned by Landlord's fraud
or willful misconduct under applicable laws; (hh) costs for which Landlord
has a right of and has received reimbursement from others; (ii) costs to
correct any construction or design defects in the original construction of
the Premises, the Building or the Project; (jj) costs arising from a
disproportionate use of any utility or service supplied by Landlord to any
other occupant of the Building to the extent that Landlord has the ability
to charge such other tenant for said costs under the terms of a lease
comparable to terms governing said costs in this Lease; (kk) repairs,
replacement and upgrades to the structural elements of the Building; (ll)
environmental pollution remediation related costs for which Landlord has
indemnified Tenant pursuant to Paragraph 39; (mm) advertising or
promotional costs; and (nn) leasing commissions. All costs and expenses
shall be determined in accordance with generally accepted accounting
principles which shall be consistently applied (with accruals appropriate
to Landlord's business). Expeses shall not include specific costs incurred
for the account of, separately billed to and paid by specific tenants.
(E) "EXPENSE YEAR" shall mean each twelve (12) consecutive
month period commencing January 1 of the calendar year during which the
Commencement Date of the Lease occurs, provided that Landlord, upon notice
to Tenant, may change the Expense Year from time to time to any other
twelve (12) consecutive month period, and, in the event of any such change,
Tenant's Share of Expenses shall be equitably adjusted for the Expense
Years involved in any such change.
(2) PAYMENT OF REAL ESTATE TAXES: With reasonable promptness
after Landlord has received the tax bills for any Tax Year, Landlord shall
furnish Tenant with a statement (herein called "Landlord's Tax Statement")
setting forth the amount of Real Estate Taxes for such Tax Year, and Tenant's
Share thereof. Unless otherwise required in Paragraph 3(c)4 below, Tenant shall
pay to Landlord actual Real Estate Taxes no later than twenty (20) days prior to
the due date of such Real Estate Tax installment.
(3) PAYMENT OF EXPENSES: Commencing on the Commencement Date,
unless otherwise provided for in Paragraph 3(a), Tenant shall pay to Landlord as
Additional Charges one-twelfth (1/12th) of Tenant's Share of the Expenses for
each Expense Year on or before the first day of each month of such Expense Year,
in advance, in an amount reasonably estimated by Landlord and billed by Landlord
to Tenant, and Landlord shall have the right initially to determine monthly
estimates and to revise such estimates from time to time. With reasonable
promptness after the expiration of each Expense Year, Landlord shall furnish
Tenant with a statement (herein called "Landlord's Expense Statement"), setting
forth in reasonable detail the Expenses for such Expense Year and Tenant's Share
thereof. If the actual Expenses for such Expense Year exceed the estimated
Expenses paid by Tenant for such Expense Year, Tenant shall pay to Landlord the
difference between the amount paid by Tenant and the actual Expenses within
thirty (30) days after the receipt of Landlord's Expense Statement, and if the
total amount paid by Tenant for any such Expense Year shall exceed the actual
Expenses for such Expense Year, such excess shall be credited against the next
installment of the estimated Expenses due from Tenant to Landlord hereunder or
if the Term has ended it shall be returned to Tenant within thirty (30) days.
Any utility rebates for the Project which Landlord receives for payments made by
Tenant (as part of Tenant's Share of Expenses) shall be forwarded to Tenant so
long as such rebate is received within one year following the Expiration Date or
sooner termination of the Lease. If it has been determined that Tenant has
overpaid Expenses during the last year of the Lease Term (including rebates of
utilities applicable to Tenant), then Landlord shall reimburse Tenant for such
overage on or before the thirtieth (30th) day following the Expiration Date.
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(4) OTHER: To the extent any item of Real Estate Taxes or
Expenses is payable by Landlord in advance of the period to which it is
applicable (e.g. insurance and tax escrows required by Landlord's Lender), or to
the extent that prepayment is customary for the service or matter, Landlord may
(i) include such items in Landlord's estimate for periods prior to the date such
item is to be paid by Landlord and (ii) to the extent Landlord has not collected
the full amount of such item prior to the date such item is to be paid by
Landlord, Landlord may include the balance of such full amount in a revised
monthly estimate for Additional Charges. If the Commencement Date or Expiration
Date shall occur on a date other than the first day of a Tax Year and/or Expense
Year, Tenant's share of Real Estate Taxes and Expenses, for the Tax Year and/or
Expense Year in which the Commencement Date occurs shall be prorated.
(5) AUDIT: Within ninety (90) days after receipt of any Expense
Statement or Tax Statement from Landlord, Tenant shall have the right to examine
Landlord's books and records relating to such Expense Statements and Tax
Statements, or cause an independent audit thereof to be conducted by an
accounting firm to be selected by Tenant and subject to the reasonable approval
of Landlord. If the audit conclusively proves that Tenant has overpaid either
Expenses or Real Estate Taxes, then Landlord shall promptly reimburse Tenant for
such overage, and if such overage exceeds five percent (5%) of the actual
amount of Expenses or Real Estate Taxes paid by Landlord for the Tax or Expense
Year covered by such audit, then Landlord shall bear the cost of such audit, up
to a maximum cost of $5,000. If Tenant fails to object to any such Expense
Statement or Tax Statement or request an independent audit thereof within such
ninety (90) day period, such Expense Statement and/or Tax Statement shall be
final and shall not be subject to any audit, challenge or adjustment.
(d) LATE CHARGES. Tenant recognizes that late payment of any Rent or
Additional Charges will result in administrative expenses to Landlord, the
extent of which additional expense is extremely difficult and economically
impractical to ascertain. Tenant therefore agrees that if any Rent or Additional
Charges remain unpaid ten (10) days after such amount is due, the amount of such
unpaid Rent or Additional Charges shall be increased by a late charge to be paid
to Landlord by Tenant in an amount equal to four percent (4%) of the amount of
the delinquent Rent or Additional Charges. Tenant shall be excused once each
twelve (12) month period of the Term from the application of a late fee to any
Rent or Additional Charge which became delinquent without a prior written
invoice or other notice of Landlord; provided, however, the late fee shall
nevertheless be payable if Tenant does not cure the delinquency within ten (10)
days after written notice from Landlord. In addition, any outstanding Rent,
Additional Charges, late charges and other outstanding amounts shall accrue
interest at an annualized rate of the greater of, 10% or The Federal Reserve
Discount Rate plus 5%, until paid to Landlord. Tenant agrees that such amount
is a reasonable estimate of the loss and expense to be suffered by Landlord as a
result of such late payment by Tenant and may be charged by Landlord to defray
such loss and expense. The provisions of this Paragraph 3(d) in no way relieve
Tenant of the obligation to pay Rent or Additional Charges on or before the date
on which they are due, nor do the terms of this Paragraph 3(d) in any way affect
Landlord's remedies pursuant to Paragraph 19 in the event any Rent or Additional
Charges are unpaid after the date due.
4. RESTRICTIONS ON USE. Tenant shall not do or permit anything to be
done in or about the Premises which will obstruct or interfere with the rights
of other tenants or occupants of the Building or the Project or injure or annoy
them, nor use or allow the Premises to be used for any unlawful purpose, nor
shall Tenant cause or maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer the commission of any waste in, on
or about the Premises.
5. COMPLIANCE WITH LAWS. Tenant shall not use the Premises or permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, ordinance or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated. Tenant shall not do or permit
anything to be done in or about the Premises or bring or keep anything therein
which will in any way increase the rate of any insurance upon the Project or any
of its contents (unless Tenant agrees to pay for such increase) or cause a
cancellation of such insurance or otherwise affect such insurance in any manner,
and Tenant shall at its sole cost and expense promptly comply with all laws,
statutes, ordinances and governmental rules, regulations or requirements now in
force or which may hereafter be in force and with the requirements of any board
of fire underwriters or other similar body now or hereafter constituted relating
to or affecting the condition, use or occupancy of the Premises, to the extent
required because of (i) Tenant's unique use of the Premises, (ii) alterations or
improvements made by or for Tenant, or (iii) Tenant's negligence or willful
misconduct. In the event of a conflict between the provisions this Paragraph 5
and Paragraph 3 of the Lease, Paragraph 3 shall control. The judgment of any
court of competent jurisdiction or the admission of Tenant in an action against
Tenant, whether Landlord be a party thereto or not, that Tenant has so violated
any such law, statute, ordinance, rule, regulation or requirement, shall be
conclusive of such violation as between Landlord and Tenant.
6. ADDITIONAL ALTERATIONS. Tenant shall not make or suffer to be made
any additional alterations, additions or improvements ("Alterations") in, on or
to the Premises or any part thereof without the prior written consent of
Landlord. Failure of Landlord to give its disapproval within fifteen (15)
calendar days after receipt of Tenant's written request for approval shall
constitute approval by Landlord, unless Landlord shall
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make a reasonable request for additional information. Tenant's written request
shall include the following information, (a) 1/8' scale plans and engineering
drawings noting the improvements, (b) specifications and finish schedule, (c)
contractor information, (d) other information that Landlord may reasonably
require. In the event Landlord disapproves of an alteration, addition or
improvement which requires Landlord's consent hereunder, such disapproval shall
be in writing and shall state Landlord's reasons therefor with reasonable
specificity. Landlord shall not unreasonably withhold it approval to such
request. Any alterations in, on or to the Premises, except for Tenant's movable
furniture and equipment, shall be the property of Tenant during the Term and
shall become Landlord's property at the end of the Term without compensation to
Tenant. Landlord shall not unreasonably withhold its consent to Alterations that
(i) do not materially and adversely affect the structure of the Building or its
electrical, plumbing, HVAC, security or other systems, (ii) are not visible from
the exterior of the Premises, and (iii) are consistent with Tenant's permitted
use hereunder and (iv) are of the same general character as the tenant
improvements existing when the Premises were delivered to Tenant. In the event
Landlord consents to the making of any Alterations by Tenant, the same shall be
made by Tenant, at Tenant's sole cost and expense, in accordance with plans and
specifications reasonably approved by Landlord, and any contractor or person
selected by Tenant to make the same must first be reasonably approved in writing
by Landlord or, at Landlord's option, the Alterations shall be made by Landlord
(substantially in accordance with the terms of the Work Letter attached hereto
to the extent applicable to such alterations) for Tenant's account and Tenant
shall reimburse Landlord for the cost thereof (including a reasonable charge for
Landlord's overhead) within twenty (20) days after receipt of a statement from
Landlord therefor. Upon the expiration or sooner termination of the Term, Tenant
shall upon demand by Landlord, at Landlord's election either (i) at Tenant's
sole cost and expense, forthwith and with all due diligence remove any
Alterations made by or for the account of Tenant, designated by Landlord to be
removed (provided, however, that upon the written request of Tenant prior to
installation of such Alterations, Landlord shall advise Tenant at that time
whether or not such Alterations must be removed upon the expiration or sooner
termination of this Lease), and restore the Premises to its original condition
as of the Commencement Date, subject to normal wear and tear and the rights and
obligations of Tenant concerning casualty damage pursuant to Paragraph 20 or
(ii) pay Landlord the reasonable estimated cost thereof.
7. REPAIR AND MAINTENANCE.
(a) Landlord shall be responsible for the following repair and
maintenance obligations: (i) maintenance and repair of the exterior, roof and
structural portions of the Building, (ii) repairs and maintenance of the
Building systems for electrical, mechanical, HVAC or plumbing and all controls
appurtenant thereto, and (iii) parking areas, courtyards, sidewalks, entry ways,
lawns, landscaping and other similar facilities of the Project. In the event
that Tenant desires to directly manage the maintenance of the mechanical and
HVAC systems or the plumbing and all controls appurtenant thereto (though Tenant
shall have the option to be responsible for these items, so long as Tenant
complies with Landlord's reasonable requests concerning the management thereof),
then Landlord agrees to not unreasonably withhold its approval so long as Tenant
adequately maintains such equipment, as reasonably determined by Landlord.
Tenant shall have the authority to communicate directly with Landlord's roof
maintenance company. In emergency situations, Tenant shall have the authority to
contact directly any venders approved by Landlord and order repairs. In the
event that Landlord fails to pursue its duties as noted above within thirty (30)
days of written request from Tenant, excepting structural changes, then Tenant
shall have the right to contact any venders approved by Landlord and directly
contract for said repairs and maintenance provided that Tenant agrees to pay for
the cost of said repairs and maintenance. Tenant shall have the right to request
that Landlord reimburse Tenant for said costs pursuant to the provisions of
Paragraph 3. In the event of disagreement between Landlord and Tenant over the
matter, Tenant shall have the right to utilize the arbitration provisions of
Paragraph 40. In the event that arbitration is pursued and it is determined that
Landlord shall reimburse Tenant for such costs, then Tenant shall have the right
to offset such costs against payments of Expenses due under the Lease.
(b) Tenant shall maintain and repair the interior portion of the
Premises and any additional tenant improvements, alterations or additions
installed by or on behalf of Tenant within the Premises, however, excluding any
portions thereof which are structural in nature or which are the obligation of
Landlord under Paragraph 7(a) Tenant shall be responsible for the expense of
installation, operation, and maintenance of its telephone and other
communications cabling from the point of entry into the Building to the Premises
and throughout the Premises; though Landlord shall have the right to perform
such work on behalf of Tenant in Common Areas. Tenant hereby waives and releases
its right to make repairs at Landlord's expense under Sections 1941 and 1942 of
the California Civil Code or under any similar law, statute or ordinance now or
hereafter in effect. In addition, Tenant hereby waives and releases its right to
terminate this Lease under Section 1932(1) of the California Civil Code or under
any similar law, statute or ordinance now or hereafter in effect. If Tenant
fails after thirty (30) days' written notice by Landlord to proceed with due
diligence to make repairs required to be made by Tenant, the same may be made by
Landlord at the expense of Tenant and the expenses thereof incurred by Landlord
shall be reimbursed immediately as Additional Rent within thirty (30) days after
submission of a bill or statement therefor.
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(c) The purpose of Paragraph 7(a) and 7(b) is to define the
obligations of Landlord and Tenant to perform various repair and maintenance
functions; the allocation of the costs therefor are covered under this Paragraph
7(c) and Paragraph 3. Tenant shall bear the full cost of repairs or maintenance
interior or exterior, structural or otherwise, to preserve the Premises and the
Building in good working order and condition, arising out of (i) the performance
or existence of any alteration or modification to the Premises made by Tenant;
(ii) the installation, use or operation of Tenant's property or fixtures; (iii)
the moving of Tenant's property or fixtures in or out of the Building or in and
about the Premises; or (iv) except to the extent any claims arising from any of
the foregoing are reimbursed by insurance carried by Landlord, are covered by
the waiver of subrogation in Paragraph 11 or are otherwise provided for in
Paragraph 20, the acts, omissions or negligence of Tenant, or any of its
servants, employees, contractors, agents, visitors, or licensees, or the
particular use or particular occupancy or manner of use or occupancy of the
Premises by Tenant or any such person.
(d) Except to the extent any claims arising from any of the foregoing
are reimbursed by insurance carried by Landlord, are covered by the waiver of
subrogation in Paragraph 11 or are otherwise provided for in Paragraph 20, there
shall be no abatement of Rent with respect to, and except for Landlord's active
negligence or willful misconduct, Landlord shall not be liable for any injury to
or interference with Tenant's business arising from, any repairs, maintenance,
alteration or improvement in or to any portion of the Building, including the
Premises, or in or to the fixtures, appurtenances and equipment therein.
(e) When feasible, Landlord will give Tenant reasonable prior notice
of its intent to construct capital improvements in excess of $30,000 per year
and Tenant shall have the right to contest such capital improvements so long as
Tenant agrees to indemnify and defend Landlord from costs and other liabilities
arising out of not immediately pursuing such capital improvements.
8. LIENS. Tenant shall keep the Premises free from any liens arising out
of any work performed, material furnished or obligations incurred by Tenant. In
the event that Tenant shall not, within ten (10) days following the imposition
of any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the 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 Landlord and all expenses
incurred by it in connection therewith shall be considered Additional Charges
and shall be payable to it by Tenant on demand with interest at the maximum rate
permitted by law. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Premises, the
Building and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give notice to Landlord at least five (5)
business days' prior notice of commencement of any construction on the Premises.
9. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not directly or indirectly, voluntarily or by
operation of law, sell, assign, encumber, pledge or otherwise transfer or
hypothecate all or any part of the Premises or Tenant's leasehold estate
hereunder (collectively, "Assignment"), or permit the Premises to be occupied by
anyone other than Tenant or sublet the Premises (collectively, "Sublease") or
any portion thereof without Landlord's prior written consent in each instance,
which consent shall not be unreasonably withheld by Landlord. Without otherwise
limiting the criteria upon which Landlord may withhold its consent to any
proposed Sublease or Assignment, if Landlord withholds its consent where either
(i) the creditworthiness of the proposed Sublessee or Assignee is not reasonably
acceptable to Landlord or, (ii) the proposed Sublessee's or Assignee's use of
the Premises is not in compliance with the allowed Tenant's Use of the Premises
as described in the Basic Lease Information, such withholding of consent shall
be presumptively reasonable. If Landlord consents to the Sublease or Assignment,
Tenant may thereafter enter into a valid Sublease or Assignment upon the terms
and condition set forth in this Paragraph 9.
(b) If Tenant desires at any time to enter into an Assignment of this
Lease or a Sublease of the Premises or any portion thereof, it shall first give
written notice to Landlord of its desire to do so, which notice shall contain
(i) the name of the proposed assignee, subtenant or occupant; (ii) the name of
the proposed assignee's, subtenant, or occupant's business to be carried on in
the Premises; (iii) the terms and provisions of the proposed Assignment or
Sublease; and (iv) such financial information as Landlord may request concerning
the proposed assignee, subtenant or occupant.
(c) At any time within fifteen (15) days after Landlord's receipt of
the notice specified in Paragraph 9(b), Landlord may by written notice to Tenant
elect to (i) sublease itself the portion of the Premises specified in Tenant's
notice (so long as Tenant requests a sublease of more than 80% of the Premises);
(ii) take an Assignment of Tenant's leasehold estate specified in Tenant's
notice hereunder (so long as Tenant requests an assignment of more than 80% of
the Premises); (iii) terminate this Lease as to the portion of the Premises that
is specified in Tenant's notice (so long as the portion of the Premises involved
constitutes more than 80% of the
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Premises), with a proportionate abatement in Rent and Additional Charges; (iv)
consent to the Sublease or Assignment; or (v) disapprove the Sublease or
Assignment. Notwithstanding anything in this Paragraph 9(c) to the contrary,
Landlord shall not have the rights set forth in (i), (ii) and (iii) of this
Paragraph 9(c) unless (A) Tenant, in its notice to Landlord, states that it
desires to sublease or assign the Lease with respect to all of the Premises for
substantially all of the unexpired term of the Lease (meaning that less than one
year remains on the initial Term after the end of the applicable sublease or
assignment term), (B) the sublease or assignment is not to an "affiliate"
(hereinafter defined) or made in connection with a "Permitted Transfer"
(hereinafter defined), and (C) Landlord relieves and releases Tenant from any
obligations under the Lease accruing after the effective date of such assignment
or sublease. In the event Landlord elects to Sublease or take an Assignment from
Tenant as described in clauses (i) and (ii) above, the rent payable by Landlord
shall be the lower of that set forth in Tenant's notice or the Rent payable by
Tenant under this Lease at the time of the Assignment or Sublease (or a
proportionate amount thereof representing the portion of the Premises subject to
the Assignment or Sublease if less than the entire Premises is subject to the
Assignment or Sublease). In the event Landlord elects any of the options set
forth in clauses (i), (ii), or (iii) above, with respect to a portion of the
Premises, Tenant shall at all times provide reasonable and appropriate access to
such portion of the Premises and use of any common facilities, and Landlord
shall have the right to use such portion of the Premises for any legal purpose
in its sole discretion and the right to further assign or sublease the portion
of the Premises subject to Landlord's election without the consent of Tenant. If
Landlord consents to the Sublease or Assignment within said fifteen (15) day
period, Tenant may thereafer within one hundred twenty (120) days after
Landlord's consent, but not later than the expiration of said one hundred twenty
(120) days, enter into such Assignment or Sublease of the Premises or portion
thereof upon the terms and conditions set forth in the notice furnished by
Tenant to Landlord pursuant to Paragraph 9(b). Additionally, Tenant shall be
allowed to retain sublease profits in the event Landlord consents to a sublease.
Failure by Landlord to either consent or refuse such consent to a proposed
assignment, encumbrance or sublease within the fifteen (15) day time period
specified above shall be deemed to be Landlord's consent thereto. In the event
that Landlord disapproves of a proposed assignment, encumbrance or sublease
which requires Landlord's consent hereunder, such disapproval shall be in
writing and state Landlord's reasons therefor with reasonable specificity.
(d) Except as otherwise provided to the contrary in Paragraph 9(c)
clause (A), (B) and (C) hereof in connection with Landlord's recapture rights,
no consent by Landlord to any Assignment or Sublease by Tenant shall relieve
Tenant of any obligation to be performed by Tenant under this Lease, whether
arising before or after the Assignment or Sublease. The consent by Landlord to
any Assignment or Sublease shall not relieve Tenant from the obligation to
obtain Landlord's express written consent to any other Assignment or Sublease.
Any Assignment or Sublease that is not in compliance with this Paragraph 9 shall
be void and, at the option of Landlord, shall constitute a material default by
Tenant under this Lease. The acceptance of Rent or Additional Charges by
Landlord from a proposed assignee or sublessee shall not constitute the consent
to such Assignment or Sublease by Landlord.
(e) The following shall be deemed a voluntary assignment of Tenant's
interest in this Lease: (i) any dissolution, merger, consolidation, or other
reorganization of Tenant; and (ii) if the capital stock of Tenant is not
publicly traded, the sale or transfer to one person or entity stock possessing
more than fifty percent (50%) of the total combined voting power of all classes
of Tenant's stock issued, outstanding and entitled to vote for the election of
directors. Notwithstanding anything to the contrary contained in this Paragraph
9, Tenant may enter into any of the following transfers (a "Permitted Transfer")
without Landlord's prior written consent: (1) Tenant may assign its interest in
the Lease to a corporation which results from a merger, consolidation or other
reorganization, so long as the surviving corporation has a net worth immediately
following such transaction that is equal to or greater than the net worth of
Tenant as of the date immediately prior to such transaction; and (2) Tenant may
assign this Lease to a corporation which purchases or otherwise acquires all or
substantially all of the assets of Tenant, so long as such acquiring corporation
has a net worth immediately following such transaction that is equal to or
greater than the net worth of Tenant as of the date immediately prior to such
transaction.
(f) Each assignee, sublessee or other transferee, other than
Landlord, shall assume, as provided in this Paragraph 9(f), all obligations of
Tenant under this Lease and shall be and remain liable jointly and severally
with Tenant for the payment of Rent and Additional Charges, and for the
performance of all the terms, covenants, conditions and agreements herein
contained on Tenant's part to be performed for the Term; provided, however, that
the assignee, sublessee, mortgagee, pledgee or other transferee shall be liable
to Landlord for rent only in the amount set forth in the Assignment or Sublease
and shall only be required to perform those obligations under the Lease to the
extent that they relate to the portion of the Premises subleased or interest in
the Lease assigned. No Assignment shall be binding on Landlord unless the
assignee or Tenant shall deliver to Landlord a counterpart of the Assignment and
an instrument in recordable form that contains a covenant of assumption by the
assignee satisfactory in substance and form to Landlord, consistent with the
requirements of this Paragraph 9(f), but the failure or refusal of the assignee
to execute such instrument of assumption shall not release or discharge the
assignee from its liability as set forth above.
(g) Landlord will approve within ten (10) days of receipt of written
notice the assignment of Tenant's interest in the lease or sublease of the
Premises by Tenant to an affiliate provided that (i) the affiliate delivers to
the Landlord concurrent with such assignment a written notice of the assignment
and an assumption agreement whereby the affiliate assumes and agrees to perform,
observe and abide by the terms, conditions, obligations, and provisions of this
lease, and (ii) the entity remains an affiliate. No subletting or assignment by
Tenant made pursuant to this Paragraph shall relieve Tenant of Tenant's
obligations under this Lease. As used
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herein, the term "affiliate" shall mean and collectively refer to a corporation
or other entity which controls, is controlled by or is under common control with
Tenant, by means of an ownership of more than fifty percent (50%) of the
outstanding voting shares of stock.
10. INSURANCE AND INDEMNIFICATION.
(a) Landlord shall indemnify and hold Tenant harmless from and
against any and all claims or liability for any injury or damage to any person
or property including any reasonable attorney's fees (but excluding any
consequential damages or loss of business) occurring in, on, or about the
Project to the extent such injury or damage is caused by the negligence or
willful misconduct of Landlord, its agents, servants, contractors, employees
(collectively, including Landlord, "Landlord Parties").
(b) Landlord shall not be liable to Tenant, and Tenant hereby waives
all claims against Landlord Parties for any injury or damage to any person or
property in or about the Premises by or from any cause whatsoever (other than
the negligence or willful misconduct of Landlord Parties, including Landlord's
negligence or willful misconduct as related to construction or property
management), and without limiting the generality of the foregoing, whether
caused by water leakage of any character from the roof, walls, basement, or
other portion of the Premises or the Building, or caused by gas, fire, oil,
electricity, or any cause whatsoever, in, on, or about the Premises, the
Building or any part thereof (other than that caused by the negligence or
willful misconduct of Landlord Parties). Tenant acknowledges that any casualty
insurance carried by Landlord will not cover loss of income to Tenant or damage
to the alterations in the Premises installed by Tenant or Tenant's personal
property located within the Premises. Tenant shall be required to maintain the
insurance described in Subparagraph 10(d) below during the Term.
(c) Except to the extent caused by the negligence or willful
misconduct of Landlord Parties, Tenant shall indemnify and hold Landlord
harmless from and defend Landlord against any and all claims or liability for
any injury or damage to any person or property whatsoever: (i) occurring in or
on the Premises; or (ii) occurring in, on, or about any other portion of the
Project to the extent such injury or damage shall be caused by the negligence or
willful misconduct by Tenant, its agents, servants, employees, or invitees
(collectively, including Tenant, "Tenant Parties"). Tenant further agrees to
indemnify and hold Landlord harmless from, and defend Landlord against, any and
all claims, losses, or liabilities (including damage to Landlord's property)
arising from (x) any breach of this Lease by Tenant and/or (y) the conduct of
any work or business of Tenant Parties in or about the Project, including, but
not limited to any release, discharge, storage or use of any hazardous
substance, hazardous waste, toxic substance, oil, explosives, asbestos, or
similar material. In the event of a discrepancy between the terms of this
paragraph and the terms of Paragraph 39 of the Lease concerning Hazardous
Substance liability, the latter shall control.
(d) Tenant shall procure at its cost and expense and keep in effect
during the Term the following insurance: (i) commercial general liability
insurance including contractual liability with a minimum combined single limit
of liability of Three Million Dollars ($3,000,000). Such insurance shall name
Landlord as an additional insured, shall specifically include the liability
assumed hereunder by Tenant, and shall provide that it is primary insurance, and
not excess over or contributory with any other valid, existing, and applicable
insurance in force for or on behalf of Landlord, and shall provide that Landlord
shall receive thirty (30) days' written notice from the insurer prior to any
cancellation or change of coverage; (iii) "all risk" property insurance
(including, without limitation, boiler and machinery (if applicable); sprinkler
damage, vandalism and malicious mischief) on all leasehold improvements
installed in the Premises by Tenant at its expense (if any), and on all Tenant's
personal property. Tenant shall be allowed to have reasonable deductibles under
its insurance coverage. Such insurance shall be an amount equal to full
replacement cost of the aggregate of the foregoing and shall provide coverage
comparable to the coverage in the standard ISO All Risk form, when such form is
supplemented with the coverages required above; (iv) worker's compensation
insurance; and (v) such other insurance as may be required by the law. Tenant
shall deliver certificates thereof to Landlord on or before the Commencement
Date, and thereafter at least thirty (30) days before the expiration dates of
expiring policies; and, in the event Tenant shall fail to procure such
insurance, or to deliver certificates, Landlord may, at its option, procure same
for the account of Tenant, and the cost thereof shall be paid to Landlord as
Additional Charges within five (5) days after delivery to Tenant of bills
therefor.
(e) The provisions of this paragraph 10 shall survive the expiration
or termination of this Lease with respect to any claims or liability occurring
prior to such expiration or termination.
(f) Landlord shall maintain insurance on the Project against fire and
risks covered by "all risk" (excluding earthquake and flood, though Landlord, at
its option, may include this coverage) on a 100% of "replacement cost" basis
(though reasonable deductibles may be included under such coverage - excepting
earthquake coverage, such deductibles shall not exceed 10% or replacement cost).
Landlord's insurance shall also cover the improvements installed by Landlord
prior to the commencement of the Term, shall have a building ordinance
provision, and shall provide for rental interruption insurance covering a period
of twelve (12) full
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months. In no event shall Landlord be deemed a co-insurer under such policy.
Landlord shall also maintain contractual liability coverage (or with contractual
liability endorsement) on an occurrence basis in amounts not less than Three
Million Dollars ($3,000,000) per occurrence with respect to bodily injury or
death and property damage. Notwithstanding the foregoing obligations of Landlord
to carry insurance, Landlord may modify the foregoing coverages if and to the
extent it is commercially reasonable to do so.
11. WAIVER OF SUBROGATION. Notwithstanding anything to the contrary in
this Lease, to the extent that this waiver does not invalidate or impair their
respective insurance policies, the parties hereto release each other and their
respective agents, employees, successors, assignees and subtenants from all
liability for injury to any person or damage to any property that is caused by
or results from a risk (i) which is actually insured against, to the extent of
receipt of payment under such policy (unless the failure to receive payment
under any such policy results from a failure of the insured party to comply with
or observe the terms and conditions of the insurance policy covering such
liability, in which event, such release shall not be so limited), (ii) which is
required to be insured against under this Lease, or (iii) which would normally
be covered by the standard form of "all risk-extended coverage" casualty
insurance, without regard to the negligence or willful misconduct of the entity
so released. Landlord and Tenant shall each obtain from their respective
insurers under all policies of fire, theft, and other property insurance
maintained by either of them at any time during the Term insuring or covering
the Project or any portion thereof of its contents therein, a waiver of all
rights of subrogation which the insurer of one party might otherwise, if at all,
have against the other party, and Landlord and Tenant shall each indemnify the
other against any loss or expense, including reasonable attorneys' fees,
resulting from the failure to obtain such waiver.
12. SERVICES AND UTILITIES.
(a) Landlord shall provide the maintenance and repairs described in
paragraph 7(a), except for damage occasioned by the act of Tenant, which damage
shall be repaired by Landlord at Tenant's expense.
(b) Subject to the provisions elsewhere herein contained and to the
rules and regulations of the Building, Tenant shall be responsible for arranging
for, and direct payment of the cost of, garbage pickup, janitorial, water,
electricity, gas, telephone and any and all other utilities and services; and,
Landlord shall cooperate with Tenant's efforts to arrange such services. Tenant
agrees at all times to cooperate fully with Landlord and to abide by all the
reasonable regulations and requirements which Landlord may prescribe for the
proper functioning and protection of the heating, ventilating and air
conditioning system.
(c) Tenant will not without the written consent of Landlord, which
consent shall not be unreasonably withheld or delayed, use any apparatus or
device in the Premises which, when used, puts an excessive load on the Building
or its structure or systems.
(d) Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the rental herein
reserved be abated by reason of (i) the installation, use or interruption of use
of any equipment in connection with the foregoing utilities and services; (ii)
failure to furnish or delay in furnishing any services to be provided by
Landlord when such failure or delay is caused by Acts of God or the elements,
labor disturbances of any character, any other accidents or other conditions
beyond the reasonable control of Landlord, or by the making of repairs or
improvements to the Premises or to the Building; or (iii) the limitation,
curtailment, rationing or restriction on use of water or electricity, gas or any
other form of energy or any other service or utility whatsoever serving the
Premises or the Building. Furthermore, Landlord shall be entitled to cooperate
voluntarily in a reasonable manner with the efforts of national, state or local
governmental agencies or utilities suppliers in reducing energy or other
resources consumption.
13. TENANT'S CERTIFICATES. Tenant, at any time and from time to time,
within twenty (20) days from receipt of written notice from Landlord, will
execute, acknowledge and deliver to Landlord and, at Landlord's request, to any
prospective tenant, purchaser, ground or underlying lessor or mortgagee of any
part of the Building or the land upon which the Building is located or any other
party acquiring an interest in Landlord, a certificate of Tenant substantially
in the form attached as EXHIBIT "D" and also containing any other information
that may reasonably be required by any of such persons. It is intended that any
such certificate of Tenant delivered pursuant to this Paragraph 13 may be relied
upon by Landlord and any prospective tenant, purchaser, ground or underlying
lessor or mortgagee of any part of the Building or the land upon which the
Building is located, or such other party. If requested by Tenant, Landlord shall
provide Tenant with a similar certificate.
14. HOLDING OVER. Any holding over after the expiration of the Term with
the consent of Landlord shall be construed to be a tenancy from month to month
at one hundred twenty-five percent (125%) of the Rent herein specified together
with an amount estimated by Landlord for the monthly Rent and Additional Charges
payable under this Lease, and shall otherwise be on the terms and conditions
herein specified so far as applicable. Any holding over without Landlord's
consent shall constitute a default by Tenant and entitle Landlord to re-enter
the Premises as provided in Paragraph 19.
15. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, this Lease
shall be subject and subordinate at all times to: (i) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Building or the land upon which the Building is situated or both; and (ii) the
lien of any mortgage or deed of trust which may now exist or hereafter be
executed in any amount for which the Building, land, ground leases or underlying
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leases, or Landlord's interest or estate in any of said items, is specified as
security. Notwithstanding the foregoing, Landlord shall have the right to
subordinate or cause to be subordinated any such ground leases or underlying
leases or any such liens to this Lease. In the event that any ground lease or
underlying lease terminates for any reason or any mortgage or deed of trust is
foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant
shall, notwithstanding any subordination, attorn to and become the Tenant of the
successor in interest to Landlord at the option of such successor in interest.
Notwithstanding anything to the contrary contained herein, this Lease shall not
be subject or subordinate to any ground or underlying lease or to any lien,
mortgage, deed of trust or other security interest affecting the Premises,
unless the ground lessor, lender or other holder of the interest to which this
lease would be subordinated executes a reasonable recognition and
non-disturbance agreement which provides that Tenant shall be entitled to
continue in possession of the Premises on the terms and conditions of this Lease
if and for so long as Tenant fully performs all of its obligations hereunder.
Tenant covenants and agrees to execute and deliver upon demand by Landlord and
in the form requested by Landlord and reasonably acceptable to Tenant (Tenant
has approved the form of the subordination, non-disturbance and attornment
agreement attached as EXHIBIT F), any additional documents evidencing the
priority or subordination of this Lease with respect to any such ground leases
or underlying leases or the lien of any such mortgage or deed of trust. Tenant
shall execute, deliver and record any such documents within twenty (20) days
after Landlord's written request.
16. RULES AND REGULATIONS. Tenant shall faithfully observe and comply
with the rules and regulations attached to this Lease as EXHIBIT "C" and all
reasonable modifications thereof and additions thereto from time to time put
into effect by Landlord. Landlord shall not be responsible for the
nonperformance by any other Tenant or occupant of the Building or the Project of
any said rules and regulations. In the event of an express and direct conflict
between the terms, covenants, agreements and conditions of this Lease and those
set forth in the rules and regulations, as modified and amended from time to
time by Landlord, this Lease shall control.
17. RE-ENTRY BY LANDLORD. Landlord reserves and shall at all reasonable
times, upon reasonable prior notice (except in the case of an emergency), and
subject to Tenant's reasonable security precautions and the right of Tenant to
accompany Landlord at all times, have the right to re-enter the Premises to
inspect the same, to supply janitor service and any other service to be provided
by Landlord to Tenant hereunder (unless Tenant is supplying such service), to
show the Premises to prospective purchasers, mortgagees or tenants (as to
prospective tenants, only during the last twelve (12) months of the Lease Term),
to post notices of nonresponsibility or as otherwise required or allowed by this
Lease or by law, and to alter, improve or repair the Premises and any portion of
the Building and may for that purpose erect, use, and maintain scaffolding,
pipes, conduits, and other necessary structures in and through the Premises
where reasonably required by the character of the work to be performed. Landlord
shall not be liable in any manner for any inconvenience, disturbance, loss of
business, nuisance or other damage arising from Landlord's entry and acts
pursuant to this Paragraph and Tenant shall not be entitled to an abatement or
reduction of rent or Additional Charges if Landlord exercises any rights
reserved in this paragraph. Tenant hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned
thereby, except for Landlord's negligence or willful misconduct. For each of the
aforesaid purposes, Landlord shall at all times have and retain a key with which
to un-lock all of the doors in, upon and about the Premises, excluding Tenant's
vaults and safes, or special security areas (designated in advance), and
Landlord shall have the right to use any and all means which Landlord may deem
necessary or proper to open said doors in an emergency, in order to obtain entry
to any portion of the Premises, and any entry to the Premises, or portion
thereof obtained by Landlord by any of said means, or otherwise, shall not under
any emergency circumstances be construed or deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or an eviction, actual or
constructive, of Tenant from the Premises or any portions thereof. Landlord
shall use best efforts during re-entry to not unreasonably interfere with
Tenant's use of the Premises or its business conducted therein.
18. INSOLVENCY OR BANKRUPTCY. The appointment of a receiver to take
possession of all or substantially all of the assets of Tenant, or an assignment
of Tenant for the benefit of creditors, or any action taken or suffered by
Tenant under any insolvency, bankruptcy, reorganization or other debtor relief
proceedings, whether now existing or hereafter amended or enacted, shall at
Landlord's option constitute a breach of this Lease by Tenant unless a petition
in bankruptcy, or receiver attachment, or other remedy pursued by a third party
is discharged within sixty (60) days. Upon the happening of any such event or at
any time thereafter, this Lease shall terminate five (5) days after written
notice of termination from Landlord to Tenant. In no event shall this Lease be
assigned or assignable by operation of law or by voluntary or involuntary
bankruptcy proceedings or otherwise and in no event shall this Lease or any
rights or privileges hereunder be an asset of Tenant under any bankruptcy,
insolvency, reorganization or other debtor relief proceedings.
19. DEFAULT.
(a) The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a "default" hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of three (3) days from the date of written notice
from Landlord within which to cure any default in the payment of Rent or
Additional Charges. Tenant shall have a period of thirty (30) days from the date
of written notice from Landlord within which to cure any other default under
this Lease; provided, however, that with respect to any default other than the
payment of Rent or Additional Charges that cannot reasonably be cured within
thirty (30) days, the default shall not be deemed to be uncured if Tenant
commences to cure within thirty (30) days from Landlord's notice and continues
to prosecute diligently the curing
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thereof. Upon an uncured default of this Lease by Tenant, Landlord shall have
the following rights and remedies in addition to any other rights or remedies
available to Landlord at law or in equity:
(i) The rights and remedies provided by California Civil Code,
Section 1951.2, including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid Rent and Additional Charges for the
balance of the Term after the time of award exceeds the amount of rental loss
for the same period that the Tenant proves could be reasonably avoided, as
computed pursuant to subsection (b) of said Section 1951.2;
(ii) The rights and remedies provided by California Civil Code,
Section 1951.4, that allows Landlord to continue this Lease in effect and to
enforce all of its rights and remedies under this Lease, including the right to
recover Rent and Additional Charges as they become due, for so long as Landlord
does not terminate Tenant's right to possession; provided, however, if Landlord
elects to exercise its remedies described in this Paragraph 19(a)(ii) and
Landlord does not terminate this Lease, and if Tenant requests Landlord's
consent to an assignment of this Lease or a sublease of the Premises at such
time as Tenant is in default, Landlord shall not unreasonably withhold its
consent to such assignment or sublease. Acts of maintenance or preservation,
efforts to relet the Premises or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not constitute a
termination of Tenant's rights to possession;
(iii) The right to terminate this Lease by giving notice to
Tenant in accordance with applicable law;
(iv) If Landlord elects to terminate this Lease, the right and
power to enter the Premises and remove therefrom all persons and property and,
to store such property in a public warehouse or elsewhere at the cost of and for
the account of Tenant, and to sell such property and apply such proceeds
therefrom pursuant to applicable California law.
(b) Landlord shall have a period of thirty (30) days from the date of
written notice from Tenant within which to cure any default under this Lease;
provided, however, that with respect to any default that cannot reasonably be
cured within thirty (30) days, the default shall not be deemed to be uncured if
Landlord commences to cure within thirty (30) days from Tenant's notice and
continues to prosecute diligently the curing thereof. Tenant agrees to give any
Mortgagee and/or Trust Deed Holders ("Mortgagee"), by Registered Mail, a copy of
any Notice of Default served upon the Landlord, provided that prior to such
notice Tenant has been notified in writing, (by way of Notice of Assignment of
Rents and Leases, or otherwise) of the address of such Mortgagee. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the Mortgagee shall have an additional thirty
(30) days (provided that Tenant notifies Mortgagee concurrently with Tenant's
notice to Landlord at the beginning of Landlord's thirty (30) day period;
otherwise Mortgagee shall have sixty days from the date on which it is noticed)
within which to cure such default or if such default cannot be cured within that
time, then such additional time as may be necessary to cure such default shall
be granted if within such applicable period Mortgagee has commenced and is
diligently pursuing the remedies necessary to cure such default, in which event
the Lease shall not be terminated while such remedies are being so diligently
pursued.
20. DAMAGE BY FIRE, ETC. If the Premises or the Building are damaged by
fire or other casualty, Landlord shall forthwith repair the same, provided that
such repairs can be made within one hundred eighty (180) days after the date of
such damage under the laws and regulations of the federal, state and local
governmental authorities having jurisdiction thereof. In such event, this Lease
shall remain in full force and effect except that Tenant shall be entitled to a
proportionate reduction of Rent and Additional Charges while such repairs to be
made hereunder by Landlord are being made. Such reduction of rent, if any, shall
be based upon the greater of (i) the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises; or
(ii) the extent to which such damage and the making of such repairs by Landlord
shall interfere with the business carried on by Tenant in the Premises, where
clause (ii) is limited to the extent of rental abatement insurance allowed by
Landlord's casualty insurance policy. Within twenty (20) days after the date of
such damage, Landlord shall notify Tenant whether or not in Landlord's
reasonable opinion such repairs can be made within one hundred eighty (180) days
after the date of such damage and Landlord's determination thereof shall be
binding on Tenant. If such repairs cannot be made within one hundred eighty
(180) days from the date of such damage, Landlord shall have the option within
thirty (30) days after the date of such damage either to: (i) notify Tenant of
Landlord's intention to repair such damage and diligently prosecute such
repairs, in which event this Lease shall continue in full force and effect and
the Rent and Additional Charges shall be reduced as provided herein; or (ii)
notify Tenant of Landlord's election to terminate this Lease as of a date
specified in such notice, which date shall not be less than thirty (30) days nor
more than sixty (60) days after notice is given. In the event that such notice
to terminate is given by Landlord, this Lease shall terminate on the date
specified in such notice. In the event that Landlord notifies Tenant that
restoration or repair of the Premises will take more than one hundred and eighty
(180) days, Tenant shall have a right to terminate the Lease within fifteen (15)
days following receipt of Landlord's notice, by providing Landlord with written
notice of its election to do so - in such event (and also in the event Landlord
terminates the lease pursuant to the immediately preceding sentence), Tenant
shall have no liability for payment of the deductible under Landlord's insurance
relating to such damage. In the event this Lease is no terminated by Tenant, as
provided for in the immediately preceding sentence, or by Landlord as provided
above, Landlord shall proceed diligently to restore the Premises to a condition
at least comparable to that existing immediately prior to such damage, and
Tenant shall have the additional right to terminate this Lease if
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Landlord has not completed such restoration within one hundred and eighty (180)
days after the date of such damage by providing written notice to Landlord of
its election to do so within five (5) days of the passing of the one hundred and
eighty (180) period. Except in the cases of termination by Landlord or Tenant,
the payment of any cost for repairs in excess of the applicable insurance
proceeds shall be governed by Paragraph 3 of the Lease. In case of termination
by either Tenant or Landlord, the Rent and Additional Charges shall be reduced
by a proportionate amount based upon the extent to which such damage interfered
with the business carried on by Tenant in the Premises, and Tenant shall pay
such reduced Rent and Additional Charges up to the date of termination. Landlord
agrees to refund to Tenant any Rent and Additional Charges previously paid for
any period of time subsequent to such date of termination. The repairs to be
made hereunder by Landlord shall not include, and Landlord shall not be required
to repair, any damage by fire or other cause to the property of Tenant or any
repairs or replacements of any paneling, decorations, railings, floor coverings
or any alterations, additions, fixtures or improvements installed on the
Premises by or at the expense of Tenant (excluding the initial Tenant
Improvements constructed by Landlord). Tenant hereby waives the provisions of
Section 1932.2, and Section 1933.4, of the Civil Code of California.
Notwithstanding anything contained herein to the contrary, if a Major Casualty
occurs with respect to any portion of the Building, and the net cost to restore,
rebuild or replace the Building and Premises not covered by insurance proceeds
is in excess of $1,000,000, then Landlord shall not be obligated to undertake
such restoration, rebuilding or replacement unless (a) Landlord elects to do so
in writing or (b) Tenant agrees to directly fund (regardless of the provisions
of Paragraph 3) such shortfall. For the purpose of this Lease, a "Major
Casualty" shall mean an earhquake related casualty that renders unusable twenty
percent (20%) or more of the Net Rentable Area of the Building or which
materially adversely affects the use of such Building.
21. EMINENT DOMAIN. If any part over 15 % of the Premises shall be taken
or appropriated under the power of eminent domain or conveyed in lieu thereof,
Tenant shall have the right to terminate this Lease at its option. If any part
of the Building shall be taken or appropriated under power of eminent domain or
conveyed in lieu thereof and such taking is so extensive that it renders the
remaining portion of the Building unsuitable for the use being made of the
Building on the date immediately preceding such taking, Landlord may terminate
this Lease at its option. In either of such events, Landlord shall receive (and
Tenant shall assign to Landlord upon demand from Landlord) any income, rent,
award or any interest therein which may be paid in connection with the exercise
of such power of eminent domain, and Tenant shall have no claim against Landlord
for any part of sum paid by virtue of such proceedings, whether or not
attributable to the value of the unexpired term of this Lease except that Tenant
shall be entitled to petition the condemning authority for the following: (i)
the then unamortized cost of any Alterations of tenant improvements paid for by
Tenant from its own funds (as opposed to any allowance provided by Landlord);
(ii) the value of Tenant's trade fixtures; (iii) Tenant's relocation costs; (vi)
Tenant's goodwill, loss of business and business interruption; and (v) one-half
of the amount which is the lesser of (a) the bonus value of this lease, or (b)
the amount of the award in excess of the sum of amounts payable to Landlord's
ground lessor (if any) and any holder of a mortgage or other third party lien
encumbering Landlord's groundlease estate or fee simple ownership in the
Property. If a part of the Premises shall be so taken or appropriated or
conveyed and neither party hereto shall elect to terminate this Lease and the
Premises have been damaged as a consequence of such partial taking or
appropriation or conveyance, Landlord shall restore the Premises continuing
under this Lease at Landlord's cost and expense; provided, however, that
Landlord shall not be required to repair or restore any injury or damage to the
property of Tenant or to make any repairs or restoration of any Alterations
installed on the Premises by or at the expense of Tenant. Thereafter, the Rent
and Additional Charges to be paid under this Lease for the remainder of the Term
shall be proportionately reduced, such that thereafter the amounts to be paid by
Tenant shall be in the ratio that they are of the portion of the Premises not so
taken bears to the total area of the Premises prior to such taking.
Notwithstanding anything to the contrary contained in this Paragraph 21, if the
temporary use or occupancy of any part of the Premises shall be taken or
appropriated under power of eminent domain during the Term, this Lease shall be
and remain unaffected by such taking or appropriation and Tenant shall continue
to pay in full all Rent and Additional Charges payable hereunder by Tenant
during the Term; in the event of any such temporary appropriation or taking,
Tenant shall be entitled to receive that portion of any award which represents
compensation for the use of or occupancy of the Premises during the Term, and
Landlord shall be entitled to receive that portion of any award which represents
the cost of restoration of the Premises and the use and occupancy of the
Premises after the end of the Term. If such temporary taking is for a period
longer than two hundred and seventy (270) days and unreasonably interferes with
Tenant's use of the Premises or the Project Common Areas, then Tenant shall have
the right to terminate the Lease.
22. SALE BY LANDLORD. If Landlord sells or otherwise conveys its
interest in the Premises, Landlord shall be relieved of its obligations under
the Lease from and after the date of sale or conveyance (including the
obligations of Landlord under Section 39), only when Landlord transfers any
security deposit of Tenant to its successor and the successor assumes in writing
the obligations to be performed by Landlord on and after the effective date of
the transfer (including the obligations of Landlord under Section 39), whereupon
Tenant shall attorn to such successor.
23. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be performed by
Tenant at Tenant's sole cost and expense and without any abatement of Rent or
Additional Charges. If Tenant shall default in the payment of any sum of money,
other than Rent or Additional Charges, required to be paid by it hereunder or
shall fail to perform any other act on its part to be performed hereunder, and
such failure shall continue for ten (10) days after notice
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by Landlord (or such longer period as noted in Paragraph ___, Landlord may, but
shall not be obligated so ________ without waiving or releasing Tenant from any
obligation of Tenant, make any such payment or perform any such act on Tenant's
part to be made or performed as provided in this Lease. All sums so paid by
Landlord and all necessary incidental costs together with interest thereon at
the maximum rate permitted by law, from the date of such payment by Landlord
shall be payable as Additional Charges to Landlord on demand.
24. SURRENDER OF PREMISES.
(a) At the end of the Term or any renewal thereof or other sooner
termination of this Lease, Tenant will peaceably deliver to Landlord possession
of the Premises, together with all improvements or additions upon or belonging
to Landlord, by whomsoever made, in the same condition as received, or first
installed, subject to the terms of Paragraphs 39 & 21, subject to normal wear
and tear and the rights and obligations of Tenant concerning casualty damage
pursuant to Paragraph 20, damage by fire, earthquake, Act of God, or the
elements alone excepted. Tenant may, upon the termination of this Lease, remove
all movable furniture and equipment belonging to Tenant, at Tenant's sole cost,
provided that Tenant repairs any damage caused by such removal. Property not so
removed shall be deemed abandoned by Tenant, and title to the same shall
thereupon pass to Landlord. Upon request by Landlord, and unless otherwise
agreed to in writing by Landlord, Tenant shall remove, at Tenant's sole cost,
any or all Alterations to the Premises installed by or at the expense of Tenant
and all movable furniture and equipment belonging to Tenant which may be left by
Tenant and repair any damage resulting from such removal.
(b) The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not work a merger, and shall, at the option
of Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to it of any or all such
subleases or subtenancies.
25. WAIVER. If either Landlord or Tenant waives the performance of any
term, covenant or condition contained in this Lease, such waiver shall not be
deemed to be a waiver of any subsequent breach of the same or any other term,
covenant or condition contained herein. Furthermore, the acceptance of Rent or
Additional Charges by Landlord shall not constitute a waiver of any preceeding
breach by Tenant of any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time Landlord accepted such
Rent or Additional Charges. Failure by Landlord to enforce any of the terms,
covenants or conditions of this Lease for any length of time shall not be deemed
to waive or to decrease the right of Landlord to insist thereafter upon strict
performance by Tenant. Waiver by Landlord of any term, covenant or condition
contained in this Lease may only be made by a written document signed by
Landlord.
26. NOTICES. Except as otherwise expressly provided in this Lease, any
bills, statements, notices, demands, requests or other communications given or
required to be given under this Lease shall be effective only if rendered or
given in writing, sent by certified mail, return receipt requested, reputable
overnight carrier, or delivered personally, (i) to Tenant (A) at Tenant's
address set forth in the Basic Lease Information, if sent prior to Tenant's
taking possession of the Premises, or (B) at the Premises, with a copy sent
simultaneously to Tenant at the address set forth in the Basic Lease
Information, if sent subsequent to Tenant's taking possession of the Premises,
or (C) at any place where Tenant may be found if sent subsequent to Tenant's
vacating, deserting, abandoning or surrendering the Premises; or (ii) to
Landlord at Landlord's address set forth in the Basic Lease Information; or
(iii) to such other address as either Landlord or Tenant may designate as its
new address (or such purpose by notice given to the other in accordance with the
provisions of this Paragraph 27. Any such bill, statement, notice, demand,
request or other communication shall be deemed to have been rendered or given on
the date the return receipt indicates delivery of or refusal of delivery if sent
by certified mail, the day upon which recipient accepts and signs for delivery
from a reputable overnight carrier, or on the date a reputable overnight carrier
indicates refusal of delivery, or upon the date personal delivery is made. If
Tenant is notified in writing of the identity and address of Landlord's
mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or
ground or underlying lessor notice of any default by Landlord under the terms of
this Lease in writing sent by registered or certified mail, and such mortgagee
or ground or underlying lessor shall be given the opportunity to cure such
default (as defined in Paragraph 19 (b)) prior to Tenant exercising any remedy
available to it.
27. TAXES PAYABLE BY TENANT.
At least ten (10) days prior to delinquency Tenant shall pay all taxes
levied or assessed upon Tenant's equipment, furniture, fixtures and other
personal property located in or about the Premises. If the assessed value of
Landlord's property is increased by the inclusion therein of a value placed upon
Tenant's equipment, furniture, fixtures or other personal property, Tenant shall
pay to Landlord, upon written demand, the taxes so levied against Landlord, or
the proportion thereof resulting from said increase in assessment.
28. ABANDONMENT. Tenant shall not abandon the Premises and cease
performing its financial and maintenance obligations under this Lease at any
time during the Term, and if Tenant shall abandon and cease performing its
financial and maintenance obligations under this Lease, or surrender the
Premises or be dispossessed by process of law, or otherwise, any personal
property belonging to Tenant and left on the Premises shall, at the option of
Landlord, be deemed to be abandoned and title thereto shall thereupon pass to
Landlord. Notwithstanding anything to the contrary contained herein, Tenant
shall not be allowed to vacate the Premises if such would result in a
termination of Landlord's insurance. Upon Tenant's request, Landlord will ask
its insurer if such vacation of the Premises would result in termination of its
current insurance policy. For purposes of this Paragraph 28, the Tenant shall
not be deemed to have abandoned the Premises solely because the Tenant is not
occupying the Premises.
29. SUCCESSORS AND ASSIGNS. Subject to the provisions of Paragraph 9, the
terms, covenants and conditions contained herein shall be binding upon and inure
to the benefit of the parties hereto and their respective legal and personal
representatives, successors and assigns.
30. ATTORNEY'S FEES. If Tenant or Landlord brings any action for any
relief against the other, declaratory or otherwise, arising out of this Lease,
including any suit by Landlord for the recovery of Rent or Additional Charges or
possession of the Premises, the losing party shall pay to the prevailing party a
reasonable sum for attorney's fees, which shall be deemed to have accrued on the
commencement of such action and shall be paid whether or not the action is
prosecuted to judgment.
31. LIGHT AND AIR. Tenant covenants and agrees that no diminution of
light, air or view by any structure which may hereafter be erected (whether or
not by Landlord) shall entitle Tenant to any reduction of rent under this Lease,
result in any liability of Landlord to Tenant, or in any other way affect this
Lease or Tenant's obligations hereunder.
32. SECURITY DEPOSIT. [Intentionally Omitted]
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by Landlord which are not controlled by Landlord's lender and any rights of
indemnity owed to Landlord by any insurance company.
37. REAL ESTATE BROKERS. Each party represents that it has not had
dealings with any real estate broker, finder or other person with respect to
this Lease in any manner, except for any broker named in the Basic Lease
Information, whose fees or commission, if earned, shall be paid as provided in
the Basic Lease Information. Each party shall hold harmless the other party from
all damages resulting from any claims that may be asserted against the other
party by any other broker, finder or other person with whom the other party has
or purportedly has dealt.
38. LEASE EFFECTIVE DATE. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant.
39. HAZARDOUS SUBSTANCE LIABILITY. Tenant has received from Landlord a
copy of the reports noted in EXHIBIT G (the "Environmental Reports"). Except as
noted in the Environmental Reports, Landlord represents and warrants that to the
best of its knowledge, the Premises and Project are presently free of asbestos,
toxic waste, underground storage tanks and other Hazardous Substances in amounts
exceeding legally established maximum thresholds. Additionally, except as noted
in the Environmental Reports, Landlord represents that it has received no
written notice of any violation or claimed violation with respect to the
presence of toxic or Hazardous Substances on, in or under the Project or of any
pending or contemplated investigation or other action relating thereto.
(a) DEFINITION OF HAZARDOUS SUBSTANCES. For the purpose of this Lease,
"Hazardous Substances" shall be defined, collectively, as oil, flammable
explosives, asbestos, radioactive materials, hazardous wastes, toxic or
contaminated substances or similar materials, including, without limitation, any
substances which are "hazardous substances," "hazardous wastes," "hazardous
materials" or "toxic substances" under applicable environmental laws, ordinance
or regulation.
(b) TENANT INDEMNITY. Tenant releases Landlord from any liability for,
waives all claims against Landlord and shall indemnify, defend and hold harmless
Landlord, its employees, partners, agents, subsidiaries and affiliate
organizations against any and all claims, suits, loss, costs (including costs of
investigation, clean up, monitoring, restoration and reasonably attorney fees),
damage or liability, whether foreseeable or unforeseeable, by reason of property
damage (including diminution in the value of the property of Landlord), personal
injury or death directly arising from or related to Hazardous Substances
released, manufactured, discharged, disposed, used or stored on, in, or under
the Property or Premises during the initial Term and any extensions of this
Lease, by Tenant or its employees, invitees, agents or contractors, except for
Hazardous Substance (i) (A) originating on property which is not leased, owned
or otherwise used or controlled by Tenant and (B) which migrates through the
air, groundwater or otherwise to the Premises, or (ii) which was present on the
Premises immediately prior to Tenant's first occupancy of the Premises and was
not caused by Tenant, its employees, invitees, subtenants, agents, assignees,
licensees or servants. The provisions of this Tenant Indemnity regarding
Hazardous Substances shall survive the termination of the Lease.
(c) LANDLORD INDEMNITY. Landlord releases Tenant from any liability for,
waives all claims against Tenant and shall indemnify, defend and hold harmless
Tenant, its officers, employees, and agents to the extent of Landlord's interest
in the Project, against any and all actions by any governmental agency for clean
up of Hazardous Substances on or under the Property, including costs of legal
proceedings, investigation, clean up, monitoring, and restoration, including
reasonable attorney fees, if, and to the extent, the Hazardous Substances occur
on the Property or Premises under the following circumstances: (i) the Hazardous
Substance was released or disposed of on property which is not leased, owned or
otherwise used or controlled by Tenant and such Hazardous Substance migrated
through the air or groundwater to the Project; (ii) Hazardous Substances were
released or disposed of on, in, or about the Premises immediately prior to
Tenant's first occupancy unless caused by Tenant, its employees, invitees,
subtenants, agents, assigns, licensees or servants, or; (iii) the contamination
of the Property was caused by the release, disposal, use or storage of Hazardous
Substances in, on or about the Premises by Landlord, its employees, agents,
licensees or servants. The provisions of this Landlord Indemnity regarding
Hazardous Substances shall survive the termination of the Lease. Additionally,
Landlord shall be responsible for the cost to contain or remove friable asbestos
within the Buildings if so required by applicable laws.
Tenant has informed Landlord, that except for very immaterial amounts of toxic
materials incidental to its office use (e.g. copier toner), Tenant will not use
and Hazardous Substances in material amounts within the Building and shall
comply with any applicable laws to the extent that it does.
40. ARBITRATION OF DISPUTES.
ANY CONTROVERSY OR CLAIM ARISING OUT OF THIS LEASE OR A BREACH OF THIS
LEASE SOLELY BETWEEN LANDLORD AND TENANT RELATING TO A MONETARY DEFAULT IN AN
AMOUNT OF LESS THAN TWENTY-FIVE THOUSAND DOLLARS ($25,000), BUT NOT INCLUDING A
DEFAULT WITH RESPECT TO THE TIMELY PAYMENT OF RENT AND ADDITIONAL CHARGES, SHALL
BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION, AND JUDGMENT ON THE AWARD RENDERED BY THE ARBITRATOR(S)
MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
NOTICE: BY INITIALLY IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF
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DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW
AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP
YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE
TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED
TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR
AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT
DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.
CONSENT TO NEUTRAL ARBITRATION BY: [ILLEGIBLE](LANDLORD):
[ILLEGIBLE] (TENANT).
41. SIGNAGE. Tenant shall be allowed its name on the Building monument
signage located around the perimeter of the Project. Tenant shall be responsible
for the costs related to such signage. Such sign shall be subject to approval
from Landlord and applicable governing entities, including but not limited to,
cities, C,C&R's, ground lessor, etc.
42. OPTION TO RENEW. Upon condition that (i) no event of default is
continuing under this Lease at the time of exercise or at the commencement of
the option term, and (ii) Tenant or its affiliate continues to physically occupy
the Premises, then Tenant shall have the right to extend the Term for two (2)
period(s) of seven (7) years ("Extension Term(s)") following the initial
Expiration Date, by giving written notice ("Exercise Notice") to Landlord at
least eighteen (18) months prior to the Expiration of the Term.
43. RENT DURING EXTENSION TERM. The Monthly Base Rent during the seven (7)
year Extension Terms shall be the greater of the Monthly Base Rent paid during
the first full month of the previous Term (e.g. $282,897.00 would be the minimum
Monthly Base Rent during the first extension) or the Fair Market Rental Value
for the Premises as of the commencement of the option term, as determined below:
(a) Within thirty (30) days after receipt of Tenant's Exercise Notice,
Landlord shall notify Tenant of Landlord's estimate of the Fair Market Rental
Value for the Premises, as determined below, for determining Monthly Base Rent
during the ensuing Extension Term; provided, however, if Tenant's Exercise
Notice is given more than eighteen (18) months before the Expiration Date,
Landlord's estimate of Fair Market Rental Value may, but need not be given more
than eighteen (18) months before the Expiration Date. Within fifteen (15) days
after receipt of such notice from Landlord, Tenant shall notify Landlord in
writing that it (i) agrees with such rental rate or (ii) disagrees with such
rental rate. No response shall constitute agreement. In the event that Tenant
disagrees with Landlord's estimate of Fair Market Rental Value for the Premises,
then the parties shall meet and endeavor to agree within fifteen (15) days after
Landlord receives Tenant's notice described in the immediately preceding
sentence. If the parties cannot agree upon the Fair Market Rental Value within
said fifteen (15) day period, then the parties shall submit the matter to
binding appraisal in accordance with the following procedure except that in any
event neither party shall be obligated to start such procedure sooner than
eighteen (18) months before the expiration of the Lease Term. Within fifteen
(15) days of the conclusion of the period during which the two parties fail to
agree (but not sooner than eighteen (18) months before the expiration of the
Lease Term), the parties shall either (i) jointly appoint an appraiser for this
purpose or (ii) failing this joint action, each separately designate a
disinterested appraiser. No person shall be appointed or designated an appraiser
unless such person has at least five (5) years experience in appraising major
commercial property in Santa Clara County and is a member of a recognized
society of real estate appraisers. If within thirty (30) days after the
appointment, the two appraisers reach agreement on the Fair Market Rental Value
for the Premises, that value shall be binding and conclusive upon the parties.
If the two appraisers thus appointed cannot reach agreement on the Fair Market
Rental Value for the Premises within thirty (30) days after their appointment,
then the appraisers thus appointed shall appoint a third disinterested appraiser
having like qualifications within five (5) days. If within thirty (30) days
after the appointment of the third appraiser a majority of the appraisers agree
on the Fair Market Rental Value of the Premises, that value shall be binding and
conclusive upon the parties. If within thirty (30) days after the appointment of
the third appraiser a majority of the appraisers cannot reach agreement on the
Fair Market Rental Value for the Premises, then the three appraisers shall each
simultaneously submit their independent appraisal to the parties, the appraisal
farthest from the median of the three appraisals shall be disregarded, and the
mean average of the remaining two appraisals shall be deemed to be the Fair
Market Rental Value for the Premises and shall be binding and conclusive upon
the parties. Each party shall pay the fees and expenses of the appraiser
appointed by it and shall share equally the fees and expenses of the third
appraiser. If the two appraisers appointed by the parties cannot agree on the
appointment of the third appraiser, they or either of them shall give notice of
such failure to agree to the parties and if the parties fail to agree upon the
selection of such third appraiser within ten (10) days after the appraisers
appointed by the parties give such notice, then either of the parties, upon
notice to the other party, may request such appointment by the American
Arbitration Association or, on it failure, refusal or inability to act, may
apply for such appointment to the presiding judge of the Superior Court of Santa
Clara County, California.
(b) Wherever used throughout this Paragraph (Rent during Extension Term)
the term "Fair Market Rental Value" shall mean the fair market rental value of
the Premises, using as a guide the rate of monthly base rent which would be
charged during the Extension Term (including periodic increases during the
Extension Term, if any) in the Shoreline Business Park area of Mountain View
area for comparable steel/frame, single tenant, Class A office space in
comparable quality, as of the time that the Extension Term
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commences, with appropriate adjustments regarding taxes, insurance and operating
expenses as necessary to insure comparability to this Lease, as the case may be,
and also taking into consideration amount and type of parking, location,
leasehold improvements, proposed term of lease, amount of space leased, extent
of service provided or to be provided, and any other relevant terms or
conditions (including consideration of whether or not the monthly base rent is
fixed).
(c) In the event of a failure, refusal or inability of any appraiser to
act, his successor shall be appointed by the party who originally appointed him,
but in the case of the third appraiser, his successor shall be appointed in the
same manner as provided for appointment of the third appraiser.
(d) The appraisers shall render their appraisals in writing with
counterpart copies to Landlord and Tenant. The appraisers shall have no power to
modify the provisions of this Lease.
(e) To the extent that binding appraisal has not been completed prior to
the expiration of any preceding period for which Monthly Base Rent has been
determined, Tenant shall pay Monthly Base Rent at the rate estimated by
Landlord, with an adjustment to be made once Fair Market Rental Value is
ultimately determined by binding appraisal. In no event shall any such
adjustment result in a decrease of the Monthly Base Rent for the Premises below
the average Monthly Base Rent during the immediately preceding term.
(f) From and after the commencement of each Extension Term, all of the
other terms, covenants and conditions of the Lease shall also apply; provided,
however, that Tenant shall have no further rights to extend the Term.
44. RIGHT OF NOTICE PRIOR TO SALE. Prior to selling the property, Landlord
will give Tenant written notice of its intent to do so. If within ten (10) days
of receipt of said written notice, Tenant shall make a good faith offer to
Landlord for the purchase of the Property, then Landlord shall refrain from
closing on the sale of the Property to another party during the thirty (30) day
period immediately following the date of Landlord's notice to Tenant noted in
the first sentence of this Paragraph 44 ("Notice of Sale Period"). Landlord
shall be under no obligation to accept an offer from Tenant for any reason and
may sell the property to any party it elects following such Notice of Sale
Period.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
LANDLORD:
CHARLESTON PLACE ASSOCIATES
a California General Partnership
By: CHARLESTON VENTURE I LIMITED PARTNERSHIP
a California Limited Partnership
Its: General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: General Partner
-----------------------------------
By: COMPETROL REAL ESTATE LIMITED
a British Virgin Islands private company
Its: General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: Executive Vice President
-----------------------------------
/s/ [ILLEGIBLE]
-----------------------------------
Vice President
-----------------------------------
TENANT:
U.S. ROBOTICS ACCESS CORP.
a Delaware Corporation
By: /s/ C. David Hall
-----------------------------------
Its: Treasurer
-----------------------------------
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EXHIBIT "A"
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PREMISES
[MAP]
EXHIBITS - PAGE 1 OF 15
<PAGE>
EXHIBIT "B"
- --------------------------------------------------------------------------------
WORK LETTER
1. LANDLORD'S WORK: Landlord shall furnish and install the Base Building
provided for in Paragraph 2 at Landlord's expense, the delivery of which shall
be subject to the Building Availability Conditions noted below.
2. BUILDING AVAILABILITY CONDITIONS: Landlord shall notify Tenant in
writing (the "Building Availability Notice") no less than ten (10) days prior to
the date on which Landlord anticipates that the Building will meet the following
conditions: (i) the Premises will be vacated by the previous tenant; (ii) all
furniture, fixtures, equipment and other personal property of such tenant will
have been removed (excepting those which Tenant is purchasing from the previous
tenant); and (iii) that the building will be delivered in a clean condition,
with all carpets shampooed, walls patched and painted where necessary, all
ceiling tiles and light fixtures in good repair and generally fully janitorized
condition (such conditions (i) through (iii) referred to as the "Building
Availability Conditions"). When these conditions have been met (and Tenant shall
have been given an opportunity, upon no less than three (3) days notice, to
walk-through the Premises to verify that the Building Availability Conditions
have been met and/or to create a punch list of those items still needing to be
met), then Tenant shall accept the Premises and Building in an "as-is"
condition. Additionally, Landlord has provided to Tenant a letter from ACCO
dated July 25, 1995 which details the primary specifications of the HVAC
equipment in the Buildings and a letter from Frank Electric dated June 10, 1996
which details the primary specifications of electrical power provided to the
Buildings.
3. COMMENCEMENT DATE: Fifteen (15) days after the date that Tenant so
accepts the Premises pursuant to the preceding sentence shall be deemed the
Commencement Date. However, in no event shall Tenant be obligated to accept the
Premises prior to the Early Occupancy Date noted in the Basic Lease Information
and have the Term commence prior to the Commencement Date noted in the Basic
Lease Information. By occupying the Premises, Tenant shall be deemed to have
accepted the same as suitable for the purpose herein intended and to have
acknowledged that the same comply fully with Landlord's obligations, except for
any "punch list" type items which Tenant and Landlord have agreed that Landlord
will repair. Notwithstanding the foregoing, acceptance of the space by Tenant
shall not relieve Landlord of its obligation to complete outstanding punch-list
items which are Landlord's responsibility. Within five (5) days after written
request of Landlord and in the event that the Building Availability Conditions
have been met, Tenant agrees to execute for Landlord a letter confirming the
Commencement Date and certifying that Tenant has accepted delivery of the
Premises.
4. TENANT'S WORK: Tenant shall bear the cost of Tenant Improvements and
any modifications requested by Tenant to the Buildings after the Building
Availability Conditions have been met shall be at Tenant's expense.
Additionally, Cable TV connections, telephone equipment and wiring and office
equipment wiring, shall be installed by Tenant. The cost of space planning and
preparing the working drawings (including the drawings noted below) for Tenant
Improvements or any changes to the original instruction and/or plans and
specifications shall be paid by Tenant. Tenant's architect and/or engineers
shall prepare complete architectural, mechanical, electrical, plumbing, and
other plans and specifications for any changes to the Premises. Tenant shall use
its own unionized general contractor for the construction of its tenant
improvements and shall contract directly with such contractor. Such contractor
shall be subject to Landlord's approval, which will not be unreasonably
withheld.
5. SHELL AND TENANT IMPROVEMENT PLANS: Landlord shall provide Tenant with
its most recent architectural drawings for the Buildings. However, Landlord
shall not be responsible for any subsequent changes to, omissions from, or
errors in such drawings. Tenant shall be responsible for preparing the necessary
plans and specifications for any changes to the interiors of the Buildings
desired by Tenant. All such plans and specifications shall be performed by
Tenant's architect and engineers and shall be subject to approval by Landlord,
which approval shall not be unreasonably withheld or delayed. It is agreed that
the suitability of the improvements for the uses specified in the Lease shall be
a reasonable condition to withhold approval.
5. EXECUTION OF TENANT'S WORK: Tenant shall engage reputable, unionized
general contractors who will complete the work in a good and workmanlike manner
and in accordance with relevant laws and codes.
6. PAYMENTS TO LANDLORD: Tenant shall pay to Landlord all amounts payable
by Tenant, if any, within twenty (20) days after billing by Landlord. Bills may
be rendered during the progress of the work so as to enable Landlord to pay its
general contractor, architect or engineers without advancing Landlord's funds
for Tenant Improvements though such progress billings shall only be based on the
extent to which the work is completed.
7. TENANT ALLOWANCE: Landlord shall provide Tenant an allowance as set
for in the Basic Lease Information ("Tenant Allowance") for the cost of the
following items in respect of the Tenant Improvements: Architectural and
engineering fees, space planning, building permits or other governmental fees,
cost of labor materials and other charges included in the construction contract
for construction of Tenant Improvements. Tenant shall be allowed to request
monthly draws against such allowance. Such requests shall include the following
items: (a) copy of contract (each contract need be submitted only once), (b)
invoice reflecting no more than the portion of the cost which has been
completed, less a 10% holdback/retention, (c) conditional lien releases from the
general
EXHIBITS - PAGE 2 OF 15
<PAGE>
contractor and subcontractors. Landlord shall hold back the last 10% of the
Tenant Allowance until Tenant has delivered the following items to Landlord: (a)
final punch list signed off by both Tenant and Landlord and/or their architects,
(b) written certification from Tenant's architect and contractor that the work
is complete and meets all applicable building codes, and (c) a final conditional
lien release (IE. the final amount due to all of Tenant's contractor) reflecting
an amount of no more than the amount to be paid by Landlord. Tenant shall
cooperate with the schedule of Landlord' s construction lender and Landlord
shall use reasonable efforts to insure that such amounts are paid promptly.
EXHIBITS - PAGE 3 OF 15
<PAGE>
EXHIBIT "C"
- --------------------------------------------------------------------------------
RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators
and stairways shall not be obstructed by Tenant or used by Tenant for any
purpose other than for ingress to and egress from the Premises. The halls,
passages, exits, entrances, elevators and stairways are not for the use of the
general public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence, in the judgment of
Landlord, shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom Tenant
normally deals in the ordinary course of Tenant's business unless such persons
are engaged in illegal activities. Tenant, and Tenant's employees or invitees,
shall not go upon the roof of the Building, except as authorized by Landlord and
except as necessary for Tenant to perform its obligations under the Lease.
2. No sign, placard, picture, name, advertisement or notice visible from
the exterior of the Premises shall be inscribed, painted, affixed, installed or
otherwise displayed by Tenant either on the Premises or any part of the Building
without the prior written consent of Landlord, and Landlord shall have the right
to remove any such sign, placard, picture, name, advertisement or notice without
notice to and at the expense of Tenant.
If Landlord shall have given such consent to Tenant at any time,
whether before or after the execution of the Lease, such consent shall not in
any way operate as a waiver or release of any of the provisions hereof or of the
Lease, and shall be deemed to relate only to the particular sign, placard,
picture, name, advertisement or notice so consented to by Landlord and shall not
be construed as dispensing with the necessity of obtaining the specific written
consent of Landlord with respect to any other such sign, placard, picture, name,
advertisement or notice. All approved signs or lettering on doors and walls
shall be printed, painted, affixed or inscribed at the expense of Tenant by a
person approved by Landlord.
3. The bulletin board or directory of the Building will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to exclude any other names therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations shall be attached to, hung or placed
in, or used in connection with, any window, door or patio on the Premises
without the prior written consent of Landlord. In any event with the prior
written consent of Landlord, all such items shall be installed inboard of
Landlord's window coverings and shall not in any way be visible from the
exterior of the Building. No articles shall be placed or kept on the window
sills so as to be visible from the exterior of the Building. No articles shall
be placed against glass partitions or doors which might appear unsightly from
outside the Building.
5. During the continuance of any invasion, mob, riot, public excitement
or other extreme and emergency circumstance rendering such action advisable in
Landlord's reasonable opinion, Landlord reserves the right to prevent access to
the Building by closing the doors, or otherwise, for the safety of tenants and
protection of the Building and property in the Building.
6. [Intentionally Omitted]
7. [Intentionally Omitted]
8. Tenant shall see that the doors of the Premises are closed and
securely locked and must observe strict care and caution that all water faucets
or water apparatus are entirely shut off before Tenant or its employees leave
such Premises, and that all utilities shall likewise be carefully shut off, so
as to prevent waste or damage, and for any default or carelessness the Tenant
shall make good all injuries sustained by other tenants or occupants of the
Building or Landlord. On multiple-tenancy floors, all tenants shall keep the
door or doors to the Building corridors closed at all times except for ingress
and egress.
9. As more specifically provided in the Lease, Tenant shall not waste
electricity, water or air conditioning and agrees to cooperate fully with
Landlord to assure the most effective operation of the Building's heating and
air conditioning, and shall refrain from attempting to adjust any controls other
than room thermostats installed for Tenant's use.
10. Tenant shall keep and cause to be kept closed all window coverings
when necessary because of the sun's position.
11. Tenant shall not alter any lock or access device or install a new or
additional lock or access device or any bolt on any door of the Premises without
the prior written consent of Landlord. If Landlord shall give its consent,
Tenant shall in each case furnish Landlord with a key for any such lock.
12. Tenant shall not make or have made additional copies of any keys or
access devices provided by Landlord. Tenant, upon the termination of the
tenancy, shall deliver to Landlord all the keys or access devices for the
Building, offices, rooms and toilet rooms which shall have been furnished to
Tenant or which Tenant shall have
EXHIBITS - PAGE 4 OF 15
<PAGE>
had made. In the event of the loss of any keys or access devices so furnished by
Landlord, Tenant shall pay Landlord therefor.
13. The toilet rooms, toilets, 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 by Tenant or Tenant's employees or invitees shall be
borne by Tenant.
14. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material other than
limited quantities necessary for the operation or maintenance of office or
office equipment. Tenant shall not use any method of heating or air conditioning
other than supplied by Landlord.
15. Tenant shall not use, keep or permit to be used or kept in the
Premises any foul or noxious gas or substance or permit or suffer the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors and/or vibrations or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought or kept in or about the Premises or the
Building.
16. [Intentionally omitted]
17. Except with the prior written consent of Landlord, Tenant shall not
sell, or permit the sale, at retail, of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises, nor
shall Tenant carry on, or permit or allow any employee or other person to carry
on, the business of stenography, typewriting or any similar business in or from
the Premises for the service or accommodation of occupants of any other portion
of the Building, nor shall the Premises be used for the storage of merchandise
or for manufacturing of any kind, or the business of a public barber shop or
beauty parlor, nor shall the Premises be used for any improper, immoral or
objectionable purpose, or any business or activity other than that specifically
provided for in Tenant's Lease.
18. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain and comply with Landlord's reasonable
instructions in their installation.
19. Landlord will direct electricians as to where and how telephone,
telegraph and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of Landlord.
The location of burglar alarms, telephones, call boxes and other office
equipment affixed to the Premises shall be subject to the written approval of
Landlord, which shall not be unreasonably withheld.
20. Tenant shall not install any radio or television antenna, loudspeaker
or any other device on the exterior walls or the roof of the Building without
first obtaining Landlord's approval, which shall not be unreasonably withheld,
and approvals from applicable regulatory bodies (e.g. the City of Mountain
View). Tenant shall not interfere with radio or television broadcasting or
reception from or in the Building or elsewhere.
21. Tenant shall not lay linoleum, tile, carpet or any other floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved in writing by Landlord. The expense of repairing any
damage resulting from a violation of this rule by Tenant or Tenant's
contractors, employees or invitees or the removal of any floor covering shall be
borne by Tenant. Tenant shall use chair pads if needed to avoid excess wear and
tear to the floor coverings.
22. No furniture, freight, equipment, materials, supplies, packages,
merchandise or other property will be carried up or down the elevators without
appropriate protection of the elevators finishes.
Landlord shall have the right to prescribe the weight, size, and
position of all safes, furniture or other heavy equipment brought into the
Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on wood strips of such thickness as determined by Landlord to be
necessary to properly distribute the weight thereof. Landlord will not be
responsible for loss of or damage to any such safe, equipment or property from
any cause, and all damage done to the Building by moving or maintaining any such
safe, equipment or other property shall be repaired at the expense of Tenant.
Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord.
23. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Tenant shall not mark, use double-sided adhesive tape
on, or drive nails, screw or drill into, the partitions, woodwork or plaster or
in any way deface the Premises or any part thereof. Tenant may hang pictures on
walls in the Premises. Any damage to the walls caused by Molly bolts, or like
hanging materials, will be repaired by Tenant.
EXHIBITS - PAGE 5 OF 15
<PAGE>
24. [Intentionally Omitted]
25. There shall not be used in any space, or in the public areas of the
Building, either by Tenant or others, any hand trucks except those equipped with
rubber tires and side guards or such other material-handling equipment as
Landlord may approve. No other vehicles of any kind shall be brought by Tenant
into or kept in or about the Premises.
26. Tenant shall store all trash and garbage within the interior of the
Premises. No material shall be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed of in the ordinary and
customary manner of removing and disposing of trash and garbage in the
jurisdiction in which the Premises is located, without violation of any law or
ordinance governing such disposal. All trash, garbage and refuse disposal shall
be made only through entryways and elevators provided for such purposes and at
such times as Landlord shall designate.
27. Canvassing, soliciting, distribution of handbills or any other written
material and peddling in the Building are prohibited, and Tenant shall cooperate
to prevent the same. Tenant shall not make room-to-room solicitation of business
from other tenants in the Building.
28. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and address of the Building. In such
event, Landlord shall reimburse Tenant for the reasonable costs incurred by
Tenant in reprinting stationery and other office materials and providing notice
of such change of name or address.
29. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the rules or regulations of the
Building.
30. Without the prior written consent of Landlord, Tenant shall not use
the name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address. Tenant may use Project's name on
its stationery and business cards.
31. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
32. Tenant assumes any and all responsibility for protecting the Premises
from theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed, unless caused by the gross negligence or
willful misconduct of Landlord, its agents, servants, or employees ("Landlord
Parties").
33. [Intentionally Omitted]
34. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all tenants of the Building.
35. Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the preservation
of good order therein. Tenant agrees to abide by all such Rules and Regulations
hereinafter stated and any additional rules and regulations which are adopted.
No new Rule or Regulation shall be designed to discriminate solely against
Tenant.
36. Tenant shall be responsible for the observance of all of the foregoing
Rules and Regulations by Tenant's employees, agents, clients, customers,
invitees and guests.
37. Unless otherwise defined, terms used in these Rules and Regulations
shall have the same meaning as in the Lease.
EXHIBITS - PAGE 6 OF 15
<PAGE>
EXHIBIT "D"
- --------------------------------------------------------------------------------
FORM OF TENANT ESTOPPEL CERTIFICATE
FORM OF TENANT ESTOPPEL CERTIFICATE
TO: ________________, OR ASSIGNEE ("LENDOR"), AND/OR WHOM ELSE IT MAY CONCERN:
THIS IS TO CERTIFY THAT:
1. The undersigned is the lessee ("Tenant") under that certain lease dated
__________,19__, ("Lease"), by and between _________________ as lessor
("Landlord") and _____________________ as Tenant, covering those certain
premises commonly known and designated as __________________ ("Premises").
2. The Lease has not been modified, changed, altered, assigned, supplemented
or amended in any respect (except as indicated below; if none, state
"none"). The Lease is not in default and is valid and in full force and
effect on the date hereof. The Lease is the only Lease or agreement
between the Tenant and the Landlord affecting or relating to the
Premises. _____________________.
3 The Tenant is not entitled to, and has made no agreement(s) with the
Landlord or its agents or employees concerning free rent, partial rent,
rebate of rent payments, credit or offset or deduction in rent, or, except
as set forth in the Lease, any other type of rental concession, including,
without limitation, lease support payments or lease buy-outs (except as
indicated below; if none, state "none"). _________________________________
______________________________________________________.
4. The Tenant has accepted and now occupies the ________________________.
The Lease term began _______,19__. The termination date of the present
term of the Lease, excluding unexercised renewals, is __________________.
5. The Tenant has paid rent for the Premises for the period up to and
including _______________________,. The fixed minimum rent and any
additional rent (including the Tenant's share of tax increases and cost of
living increases) payable by the Tenant presently is $ _________ per month.
No such rent has been paid more than two (2) months in advance of its due
date, except as indicated below or except as required under the Lease (if
none, state "none"). The Tenant's security deposit is $ ____________.
____________________________________.
6. No event has occurred and no condition exists which, with the giving notice
or the lapse of time or both, will constitute a default under the Lease.
The Tenant has no existing defenses or offsets against the enforcement of
this Lease by the Landlord.
7. The Tenant has received or will receive payment or credit for tenant
improvement work in the total amount of $ ________________ (or if other
than cash, describe below; if none, state "none"). All conditions under
this Lease to be performed by the Landlord as of the date hereof have been
satisfied. All required contributions by the Landlord to the Tenant on
account of the Tenant's tenant improvements have been received by the
Tenant. _______________________________________________________________
_______________________________________.
8. The Lease contains, and the Tenant has, no outstanding options or rights of
first refusal to purchase the Premises or any part thereof or all or any
part of the real property of which the Premises are a part.
9. No actions, whether voluntary or otherwise, are pending against the Tenant
or any general partner of the Tenant under the bankruptcy laws of the
United States or any state thereof.
10. The Tenant has not sublet the Premises to any sublessee and has not
assigned any of its rights under the Lease, except as indicated below (if
none, state "none"). No one except the Tenant and its employees occupies
the Premises. ________________________________________.
11. The address for notices to be sent to the Tenant is as set forth in the
Lease.
12. To the best of Tenant's knowledge, the use, maintenance or operation of the
Premises by Tenant complies with, and will at all times comply with, all
applicable federal, state, county or local statutes, laws, rules and
regulations of any governmental authorities relating to environmental,
health or safety matters (being hereinafter collectively referred to as the
Environmental Laws).
EXHIBITS - PAGE 7 OF 15
<PAGE>
13. The Premises have not been used by Tenant and the Tenant does not plan to
use the Premises for any activities which, directly or indirectly, involve
the use, generation, treatment, storage, transportation or disposal of any
petroleum product or any toxic or hazardous chemical, material, substance,
pollutant or waste.
14. Tenant has not received any notices, written or oral, of violation of any
Environmental Law or of any allegation which, if true, would contradict
anything contained herein and there are not writs, injunctions, decrees,
orders or judgements outstanding, no lawsuits, claims, proceedings or
investigations pending or threatened, relating to the use, maintenance or
operation of the Premises by Tenant, nor is Tenant aware of a basis for any
such proceeding.
15. (INCLUDE THIS PARAGRAPH FOR LOAN TRANSACTIONS.) The Tenant has been advised
that all the interest of the Landlord in and to the Lease is being duly
assigned to Lendor, and that pursuant to the terms thereof, all rent
payments under the Lease shall continue to be paid to the Landlord in
accordance with the terms of the Lease unless and until the Tenant is
notified otherwise in writing by Lendor or its successors or assigns.
Tenant has been advised further:
(a) Under the provisions of this assignment, the Lease cannot be
terminated (either directly or by the exercise of any option which
could lead to termination) or modified in any of its terms, or consent
be given to the release of any party having liability thereon, without
the prior written consent of Lendor or it successors or assigns, and
without such consent, no rent may be collected or accepted more than
two (2) months in advance. Except as otherwise may be required under
the Lease.
(b) The interest of the Landlord in the Lease has been assigned to Lendor
for the purposes specified in the assignment. Lendor, or its
successors or assigns, assumes no duty, liability or obligation
whatsoever under the Lease or any extension or renewal thereof.
(c) Any notices sent to Lendor or its affiliates should be sent by
registered mail and addressed as follows: ________________________.
16. Tenant agrees to give any Mortgagee and/or Trust Deed Holders
("Mortgagee"), by registered mail, a copy of any notice of default served
upon the Landlord, provided that prior to such notice Tenant has been
notified in writing (by way of Notice of Assignment of Rents and Leases, or
otherwise), of the address of such Mortgagee. Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided
for in this Lease, then the Mortgagee shall have an additional sixty (60)
days within which to cure such default of it such default cannot be cured
within that time, then such additional time as may be necessary to cure
such default shall be granted if within such sixty (60) days Mortgagee has
commenced and is diligently pursuing the remedies necessary to cure such
default, in which event the Lease shall not be terminated while such
remedies are being so diligently pursued.
17. This certification is made knowing that Lendor relies upon the truth of
this certification in disbursing certain funds to or on behalf of Landlord.
18. The undersigned is authorized to execute this Tenant Estoppel Certificate
on behalf of the Tenant.
DATED THIS _____________ DAY OF ___________,19__.
---------------------------------------------
(Tenant)
By:
----------------------------------------
Its:
-----------------------------------
Date:
-----------------------------------
THE UNDERSIGNED HEREBY CERTIFIES THAT THE CERTIFICATIONS SET FORTH ABOVE ARE
TRUE AS OF THE DATE HEREOF.
---------------------------------------------
(Owner/Landlord)
By:
----------------------------------------
Its:
-----------------------------------
Date:
-----------------------------------
EXHIBITS - PAGE 8 OF 15
<PAGE>
EXHIBIT "E"
- --------------------------------------------------------------------------------
DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS
("CC&R'S") CHARLESTON PLACE
See CC&R's dated July 16, 1991 and entitled
"DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS FOR CHARLESTON PLACE"
a copy of which has been provided separately to Tenant and which were recorded
in the records of Santa Clara County, Document #10989807.
EXHIBITS - PAGE 9 OF 15
<PAGE>
EXHIBIT "F"
- --------------------------------------------------------------------------------
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
FORM OR SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT PROVIDED BY
CHEMICAL BANK, BASE FORM DATED SEPTEMBER 14, 1993 AND AS FURTHER AMENDED BY
MUTUAL AGREEMENT BETWEEN JASON PETERS, REPRESENTING U.S. ROBOTICS, AND MIRIAM
KULNIS, REPRESENTING CHEMICAL BANK.
EXHIBITS - PAGE 10 OF 15
<PAGE>
EXHIBIT "G"
- --------------------------------------------------------------------------------
ENVIRONMENTAL REPORTS
1. Report to Sun Microsystems from Wahler Associates regarding N. Bayshore
Area Environment Risk Assessment dated 12/9/86.
2. Report to Adobe Systems from SRM Applied Environmental Research on Toxic
Contamination in the Immediate Vicinity of Subject Property, dated February
25, 1987.
3. Canonie Environmental, Report on Existing Ground Water Assessment dated
March 19, 1987.
4. Wahler Associates, Environmental Assessment: Potential Health Affects of
Exposure to Chemicals in Ground Water and Soil Vapor dated March, 1987.
5. Levine Fricke, Computer Modeling of Recommended Alternative for the North
Bayshore Area, dated July 29, 1987.
6. Short Form of License Agreement between Spectra-Physics, Inc., and Teledyne
Semiconductor and Charleston Associates dated February 4, 1988.
7. Agreement between Spectra-Physics, Inc. and Teledyne Semiconductor and
Charleston Associates, dated February 4, 1988.
8. Report to Sun Microsystems from Wahler Associates regarding N. Bayshore
Area Environment Risk Assessment dated 12/9/86.
9. Report to Adobe Systems from SRM Applied Environmental Research on Toxic
Contamination in the Immediate Vicinity of Subject Property, dated February
25, 1987.
10. Canonie Environmental, Report on Existing Ground Water Assessment dated
March 19, 1987.
l1. Wahler Associates, Environmental Assessment: Potential Health Affects of
Exposure to Chemicals in Ground Water and Soil Vapor dated March, 1987.
12. Levine Fricke, Computer Modeling of Recommended Alternative for the North
Bayshore Area, dated July 29, 1987.
13. Short Form of License Agreement between Spectra-Physics, Inc., and Teledyne
Semiconductor and Charleston Associates dated February 4, 1988.
14. Agreement between Spectra-Physics, Inc. and Teledyne Semiconductor and
Charleston Associates, dated February 4, 1988.
15. Earth Metrics Incorporated, Soils and Groundwater Contamination
Investigation for the Proposed Nine Acre Site in Mountain View, California,
dated April 7, 1988.
16. Earth Metrics Incorporated, Soils and Groundwater Contamination
Investigation for the Proposed Nine Acre Site in Mountain View, California,
dated April 25, 1988.
17. Earth Metrics Incorporated, Draft Work Plan for Underground Tank Removal
and Clean-Up of Minor Oil and Grease Surface Spills in the Southeast
Quadrant, of Charleston/Huff, in Mountain View, California, dated
September, 1988.
18. Agreement between Spectra-Physics, Inc., and Teledyne Semiconductor and
Charleston Road Venture I and Charleston Road Venture II, dated September
14, 1988.
19. Short Form of License Agreement between Spectra-Physics, Inc., and Teledyne
Semiconductor and Charleston Road Venture I, Charleston Road Venture II and
Mozart-Travis Venture I dated September 14, 1988.
20. Earth Metrics Incorporated, Summary of Closure and Remediation of Southeast
Quadrant of Charleston/Huff in Mountain View, California, Final Document
dated January 25, 1989, Updated May 19, 1989.
21. Service Agreement between Riedel Environmental Services, Inc., and
Charleston Road Venture I and II dated March 27, 1989.
EXHIBITS - PAGE 11 OF 15
<PAGE>
22. Earth Metrics Incorporated, Final Environmental Site Assessment for Parcels
116-09-32/33/34/35/36, Alta, Avenue, Mountain View, California, dated May
5, 1989.
23. Earth Metrics Incorporated, Report to all concerned parties from Marc
Papineau regarding Knoebel Property Historic Tank Investigation and
Knoebel, Schrader, Perino Property Volatile Organics Investigation dated
May 31, 1989.
24. Earth Metrics Incorporated, Work Plan for Immediate Source Excavation at
1029 Alta Avenue, Mountain View, California, dated June 16, 1989.
25. Earth Metrics Incorporated, Results of Immediate Source Excavation at 1029
Alta Avenue, Mountain View, California, dated June 30, 1989.
26. Earth Metrics Incorporated, Backfill Test Results for Alta Avenue, Mountain
View, California, dated December 1, 1989.
27. Memo to Kevin Cuccias, Tom Grandsaert, Donna Pecorino of Benham Capital
Management Group, Bruce Nakao of Adobe Systems, Brian Tjader of Bank of
America, John Mozart of The Mozart Development Company and John Travis from
Michael Wilson of The Mozart Development Company regarding Charleston Road
Venture I and II North Bayshore Groundwater Extraction System. Also
attached a report from Earth Metrics Incorporated, regarding the same,
dated April 9, 1990.
28. Letter to Gary S. Winer of Alza Corporation from Rebecca Sterbentz of
Aquifer Sources, Inc., regarding site M-3, monitoring well installation and
testing of 1029 Alta Avenue, Mountain View, California. Also attached,
various back-up reports/information pertaining to contents of letter.
29. Letter to Michael Wilson of The Mozart Development Company from Marc
Papineau of Earth Metrics Incorporated, dated June 26, 1990, regarding
Quarterly Groundwater Monitoring Report, Spectra-Physics and Teledyne
Semiconductor, Mountain View, California (March 9, 1990) and Quarterly and
Semi-annual Groundwater Monitoring Report, January through March 31, 1990,
Spectra-Physics and Teledyne Semiconductor, Mountain View, California (May
15, 1990).
30. Letter to Janet Hagihara of The Mozart Development Company from Pat
Broderick of Ferma Corporation regarding Tank Removal along with Test Data
supplied from Sequoia Laboratory and a Memorandum from Santa Clara County
Health Department dated February 12, 1986.
31. Earth Metrics Incorporated, Soils and Groundwater Contamination
Investigation for the Proposed Nine Acre Site in Mountain View, California,
dated April 7, 1988.
32. Earth Metrics Incorporated, Soils and Groundwater Contamination
Investigation for the Proposed Nine Acre Site in Mountain View, California,
dated April 25, 1988.
33. Earth Metrics Incorporated, Draft Work Plan for Underground Tank Removal
and Clean-Up of Minor Oil and Grease Surface Spills in the Southeast
Quadrant, of Charleston/Huff, in Mountain View, California, dated
September, 1988.
34. Agreement between Spectra-Physics, Inc., and Teledyne Semiconductor and
Charleston Road Venture I and Charleston Road Venture II, dated September
14, 1988.
35. Short Form of License Agreement between Spectra-Physics, Inc., and Teledyne
Semiconductor and Charleston Road Venture I, Charleston Road Venture II and
Mozart-Travis Venture I dated September 14, 1988.
36. Earth Metrics Incorporated, Summary of Closure and Remediation of Southeast
Quadrant of Charleston/Huff in Mountain View, California, Final Document
dated January 25, 1989, Updated May 19, 1989.
37. Service Agreement between Riedel Environmental Services, Inc., and
Charleston Road Venture I and II dated March 27, 1989.
38. Earth Metrics Incorporated, Final Environmental Site Assessment for Parcels
116-09-32/33/34/35/36, Alta Avenue, Mountain View, California, dated May 5,
1989.
39. Earth Metrics Incorporated, Report to all concerned parties from Marc
Papineau regarding Knoebel Property Historic Tank Investigation and
Knoebel, Schrader, Perino Property Volatile Organics Investigation dated
May 31, 1989.
40. Earth Metrics Incorporated, Work Plan for Immediate Source Excavation at
1029 Alta Avenue, Mountain View, California, dated June 16, 1989.
EXHIBITS - PAGE 12 OF 15
<PAGE>
41. Earth Metrics Incorporated, Results of Immediate Source Excavation at 1029
Alta Avenue, Mountain View, California, dated June 30, 1989.
42. Earth Metrics Incorporated, Backfill Test Results for Alta Avenue, Mountain
View, California, dated December 1, 1989.
43 Memo to Kevin Cuccias, Tom Grandsaert, Donna Pecorino of Benham Capital
Management Group, Bruce Nakao of Adobe Systems, Brian Tjader of Bank of
America, John Mozart of The Mozart Development Company and John Travis from
Michael Wilson of The Mozart Development Company regarding Charleston Road
Venture I and II North Bayshore Groundwater Extraction System. Also
attached a report from Earth Metrics Incorporated, regarding the same,
dated April 9, 1990.
44. Letter to Gary S. Winer of Alza Corporation from Rebecca Sterbentz of
Aquifer Sources, Inc., regarding site M-3, monitoring well installation and
testing of 1029 Alta Avenue, Mountain View, California. Also attached,
various back-up reports/information pertaining to contents of letter.
45. Letter to Michael Wilson of The Mozart Development Company from Marc
Papineau of Earth Metrics Incorporated, dated June 26, 1990, regarding
Quarterly Groundwater Monitoring Report, Spectra-Physics and Teledyne
Semiconductor, Mountain View, California (March 9, 1990) and Quarterly and
Semi-annual Groundwater Monitoring Report, January through March 31, 1990,
Spectra-Physics and Teledyne Semiconductor, Mountain View, California (May
15, 1990).
46. Letter to Janet Hagihara of The Mozart Development Company from Pat
Broderick of Ferma Corporation regarding Tank Removal along with Test Data
supplied from Sequoia Laboratory and a Memorandum from Santa Clara County
Health Department dated February 12, 1986.
EXHIBITS - PAGE 13 OF 15
<PAGE>
EXHIBIT "H"
- --------------------------------------------------------------------------------
GUARANTY OF LEASE
The undersigned, U.S. ROBOTICS CORPORATION, a Delaware corporation, whose
address is 8100 McCormick Boulevard, Skokic, Illinois, 60076, in consideration
of leasing of the premises described in that certain lease, dated June 12,1996,
(the "Lease"), between, CHARLESTON PLACE ASSOCIATES, a California general
partnership, as landlord ("Landlord"), and U.S. ROBOTICS ACCESS CORP., a
Delaware corporation, as tenant ("Tenant"), does hereby covenant and agree as
follows:
1. The undersigned does hereby absolutely and unconditionally guarantee
to Landlord the timely payment of all amounts that Tenant may at any time owe
under the Lease, or any extensions, renewals or modifications of the Lease, and
further guarantees to Landlord the full, faithful and timely performance by
Tenant of all of the covenants, terms and conditions of the Lease, or any
extensions, renewals or modifications of the Lease. If (i) Tenant shall default
at any time in the payment of any rent or any other sums, costs or charges
whatsoever, or in the performance of any of the other covenants and obligations
of Tenant under the Lease, (ii) Landlord shall have provided notice thereof as
provided in the Lease (unless Landlord is barred from providing such notice
because of the tendency of any insolvency proceeds in respect of the Tenant),
and (iii) Tenant shall have failed to cure such default within the time provided
therefor in the Lease, then the undersigned, at its expense, shall on demand by
Landlord fully and promptly pay all rents, sums, costs and charges to be paid
and perform all other covenants and obligations to be performed by Tenant under
or pursuant to the Lease, and in addition shall on demand by Landlord pay to
Landlord any an all sums due to Landlord, including, without limitation, all
interest on past due obligations of Tenant, costs advanced by Landlord, damages
and all expenses (including, without limitation, court costs and reasonable
counsel fees) that may arise in consequence of Tenant's default.
2. The undersigned authorizes Landlord, without notice or demand and
without affecting its liability hereunder, from time to time to: (i) consent to
any extensions, accelerations or other charges in the time for any payment
provided for in the Lease, or consent to any other alteration of any covenant,
term or condition of the Lease in any respect, and to consent to any assignment,
subletting or reassignment of the Lease; (ii) take and hold security for any
payment provided for in the Lease or for the performance of any covenant, term
or condition of the Lease, or exchange, waive or release any such security; and
(iii) apply such security and direct the order or manner of sale thereof as
Landlord in its discretion may determine. Notwithstanding any termination,
renewal, extension or holding over of the Lease, this Guaranty of Lease shall
continue until all of the covenants and obligations on the part of Tenant to be
performed have been fully and completely performed by Tenant and the undersigned
shall not be released of any obligation or liability hereunder so long as there
is any claim against Tenant arising out of the Lease that has not been settled
or discharged in full.
3. The obligations of the undersigned hereunder are independent of, and
may exceed, the obligations of Tenant. A separate action or actions may, at
Landlord's option, be brought and prosecuted against the undersigned, whether or
not any action is first or subsequently brought against Tenant, or whether or
not Tenant is joined in any such action, and the undersigned may be joined in
any action or proceeding commenced by Landlord against Tenant arising out of, in
connection with or based upon the Lease. The undersigned waives any right to:
(i) require Landlord to proceed against Tenant or any other person or entity or
pursue any other remedy in Landlord's power whatsoever; (ii) complain of delay
in the enforcement of Landlord's rights under the Lease; and (iii) require
Landlord to proceed against or exhaust any security held from Tenant or the
undersigned. The undersigned waives defense arising by reason of any disability
or other like defense of Tenant or by reason of the cessation from any cause
whatsoever of the liability of Tenant. The undersigned waives all demands upon
and notices to Tenant (except notices which are expressly required under the
Lease, provided however that such notices under the Lease shall not be required
in the event that Landlord is barred from providing such notices due to the
pending bankruptcy, reorganization, or other insolvency proceedings in respect
of Tenant) and to the undersigned, including, without limitation, demands for
performance, notices of nonperformance, notices of nonpayment and defense
arising by reason of any disability or other defense of Tenant or by reason of
the cessation from any cause whatsoever of the liability of Tenant. The
undersigned waives notices of acceptance of this Guaranty of Lease.
4. For purposes of this Guaranty of Lease and the obligations and
liabilities of the undersigned hereunder, the term "Tenant" shall be deemed to
include any and all concessionaires, licensees, franchisees, department
operators, assignees, subtenants or others directly or indirectly leasing or
occupying the premises leased under the Lease or operating or conducting a
business in or from such premises.
5. The undersigned assumes full responsibility for keeping fully informed
of the financial condition of Tenant and all other circumstances affecting
Tenant's ability to perform its obligations under the Lease, and agrees that
Landlord will have no duty to report to the undersigned any information that
Landlord receives about Tenant's financial condition or any circumstances
bearing on its ability to perform such obligations.
6. This Guaranty of Lease shall remain in full force and effect
notwithstanding the appointment of a receiver to take possession of all or
substantially all of the assets of Tenant, or an assignment by Tenant for the
benefit of creditors, or any action taken or suffered by Tenant under any
EXHIBITS - PAGE 14 OF 15
<PAGE>
insolvency, bankruptcy, reorganization, moratorium or other debtor relief act or
statute, whether now existing or hereafter amended or enacted, or the
disaffirmance of the Lease in any such action or otherwise.
7. If this Guaranty of Lease is signed, or if the obligations of Tenant
are otherwise guaranteed, by more than one party, their obligations shall be
joint and several, and the release or limitation of liability of any one or more
of such guarantors shall not release or limit the liability of any other of such
guarantors.
8. This Guaranty of Lease shall be binding upon the undersigned and the
undersigned's heirs, administrators, personal and legal representatives,
successors and assigns, and shall inure to the benefit of Landlord and its
successors and assigns. Landlord may, without notice, assign this Guaranty of
Lease, the Lease or the rents and other sums payable thereunder, in whole or in
part.
9. In addition to the amounts guaranteed hereunder, the undersigned
agrees to pay reasonable counsel fees and all other costs and expenses incurred
by Landlord in enforcing this Guaranty of Lease or in any action or proceeding
arising out of, or relating to, this Guaranty of Lease.
10. This Guaranty of Lease shall be deemed to be made under and shall be
governed by the laws of the State of California in all respects, including
matters of construction, validity and performance, and the terms and provisions
hereunder may not be waived, altered, modified or amended except in a writing
duly signed by an authorized officer of Landlord and by the undersigned.
11. If any of the provisions of this Guaranty of Lease shall contravene or
be held invalid under the laws of any jurisdiction, this Guaranty of Lease shall
be construed as if not containing those provisions, and the rights and
obligations of the parties hereto shall be construed and enforced accordingly.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty of Lease on
this 19th of June, 1996.
U.S. ROBOTICS CORPORATION
a Delaware Corporation
By: /s/ C. David Hall
------------------------------------
Its: Treasurer
------------------------------------
EXHIBITS - PAGE 15 OF 15
<PAGE>
CONSENT TO SUBLEASE
AGREEMENT, made as of this _____ day of ____________,19__ by and among
_________________________ ("Landlord"), and _______________ (hereinafter
"Tenant"), the Tenant under a lease dated as of _____________ (which lease as
heretofore or hereafter amended is hereinafter called the "Master Lease"), under
which the Landlord is leasing to Tenant approximately ____________ square feet
of space in the building known as ______________________________ (hereinafter
"Premises"), and _____________________, a _______________________ (hereinafter
"Subtenant"). Landlord hereby consents to the subletting by the Tenant to the
Subtenant, pursuant to a sublease (hereinafter "Sublease") dated as of
____________, a copy of which is attached hereto, the Premises as shown and
marked on the floor plan attached to the Master Lease, such consent being
subject to and upon the following terms and conditions, to each of which Tenant
and Subtenant expressly agree:
1. Nothing contained in this agreement shall either:
(a) operate as a consent to or approval or ratification by the
Landlord of any of the provisions of the Sublease or as a
representation or warranty by Landlord and Landlord shall not be bound
or estopped in any way by the provisions of the Sublease, or
(b) be construed to modify, waive or affect (i) any of the provisions,
covenants or conditions in the Master Lease, (ii) any of Tenant's
obligations under the Master Lease, or (iii) any rights or remedies of
Landlord under the Master Lease, or otherwise, or to enlarge or
increase Landlord's obligations or Tenant's rights under the Master
Lease, or otherwise, or
(c) be construed to waive any present or future breach or default on
the part of Tenant under the Master Lease.
In case of any conflict between the provisions of this agreement and
the provisions of the Sublease, the provisions of this agreement shall
prevail unaffected by the Sublease.
2. The Sublease shall be subject and subordinate at all times to the
Master Lease and all of its provisions, covenants and conditions. In
case of any conflict between the provisions of the Master Lease and
the provisions of the Sublease, the provisions of the Master Lease
shall prevail unaffected by the Sublease.
3. Neither the Sublease nor this consent thereto shall release or
discharge the Tenant from any liability under the Master-Lease and
Tenant shall remain liable and responsible for the full performance
and observance of all of the provisions, covenants and conditions set
forth in the Master Lease on the part of Tenant to be performed and
observed. Any breach or violation of any provisions of the Master
Lease by Subtenant shall be deemed to be and shall constitute a
default by Tenant in fulfilling such provision.
4. This consent by Landlord shall not be construed as a consent by
Landlord to any further subletting either by Tenant or Subtenant. The
Sublease may not be assigned, renewed or extended nor shall the
Premises, or any part thereof be further sublet without the prior
written consent of the Landlord thereto in each instance.
5. Upon the expiration or any earlier termination of the term of the
Master Lease, or in case of surrender of the Master Lease by Tenant to
Landlord, the Sublease and its term shall expire and come to an end
as of the effective date of such expiration, termination, or
surrender.
1
<PAGE>
Consent to Sublease (Continued)
6. Both the Tenant and Subtenant shall be and continue to be liable for
all bills rendered by Landlord for charges incurred by or imposed upon
Subtenant for services rendered and materials supplied to the Premises
pursuant to the terms of the Master Lease.
7. Any notice or communication which ally party hereto may desire or be
required to give any other party under or with respect to this
agreement shall be given by prepared certified mail addressed to such
other party, in the case of Landlord at _____________________________
and in the case of Tenant at ________________________________________
and in the case of Subtenant at ____________________________________,
or in any case at such other address as such other party may have
designated by notice given in accordance with the provisions of this
Article 7. The time when such notice or communication shall be
deemed to have been given shall be the time same shall be so mailed.
8. This agreement shall be construed in accordance with the laws of the
State of California and contains the entire agreement of the parties
hereto with respect to the subject matter hereof and may not be
changed or terminated orally or by course of conduct.
9. This Sublease and Consent by Landlord shall be attached to and
incorporated in the Master Lease identified in the Sublease.
10. Notwithstanding anything to the contrary contained herein, Landlord
acknowledges that the Sublease has been entered into in accordance
with Paragraph 9 of the Master Lease and Landlord hereby permits
Tenant to sublet the Premises pursuant to the Sublease for the use set
forth therein.
Exhibit A is attached hereto and made a part thereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this agreement as of
the day and year first above written.
- -------------------------- ---------------------------------
(Landlord) (Tenant)
By By
--------------------- ----------------------------
Authorized Agent
---------------------------------
(Subtenant)
By
----------------------------
2
<PAGE>
COMMENCEMENT DATE MEMORANDUM
LANDLORD: Charleston Place Associates
-----------------------------------------------------------------
TENANT: U.S. Robotics Access corp.
-----------------------------------------------------------------
LEASE DATE: June 12, 1996
-----------------------------------------------------------------
PREMISES: 1585 Charleston Road
-----------------------------------------------------------------
Mountain View, CA 94043
-----------------------------------------------------------------
Pursuant to the above referenced Lease, Tenant has accepted the 1585 Charleston
Road building as of October 14, 1996 and the Commencement Date of November 1,
1996 for 1585 Charleston Road is hereby confirmed. Any and all punch list items
previously left as a condition to the Commencement Date Memorandum have been
met.
LANDLORD:
CHARLESTON PLACE ASSOCIATES
a California General Partnership
By: CHARLESTON VENTURE I LIMITED
PARTNERSHIP,
a California Limited Partnership
Its: General Partner
By: /s/ John Mozart
-----------------------------------
John Mozart
Its: General Partner
-----------------------------------
By: COMPETROL REAL ESTATE LIMITED
a British Virgin Island private company
Its: General Partner
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: Executive Vice President
-----------------------------------
By: /s/ [ILLEGIBLE]
-----------------------------------
Its: Vice President
-----------------------------------
TENANT:
U.S. ROBOTICS ACCESS CORP.
a Delaware Corporation
By: /s/ C. David Hall
-----------------------------------
C. David Hall
Its: Treasurer
-----------------------------------
<PAGE>
AMENDMENT ONE TO LEASE AGREEMENT
This Lease Amendment One dated September 16, 1996 forms an integral part of
the Lease Agreement dated June 12, 1996 (the "Lease"), by and between Charleston
Place Associates, a California partnership, (herein called "Landlord") and U.S.
Robotics Access Corp. a Delaware corporation, (herein called "Tenant") as fully
as if this Amendment One were incorporated into said Lease Agreement.
WITNESSETH
WHEREAS, TENANT and LANDLORD did make and execute a Lease Agreement, dated
June 12, 1996 for those certain premises consisting of approximately 131,580
square feet of rentable area, commonly known as 1565 and 1585 Charleston Road,
Mountain View, California.
WHEREAS, the parties hereto desire to alter and modify said Lease in the
manner hereinafter set forth.
NOW, THEREFORE, Tenant and Landlord hereby agree that said Lease described
above shall be modified in the following particulars:
1) EARLY OCCUPANCY DATE: The Premises shall be delivered to Tenant as
follows:
1565 Charleston Road: September 16, 1996
1585 Charleston Road:
First Floor: A date between October 1 and October 14, 1996
Second Floor: A date between October 7 and October 14, 1996
2) COMMENCEMENT DATE: The Commencement Date of the Lease shall be set as
follows:
1565 Charleston Road: October 1, 1996
1585 Charleston Road: November 1, 1996
3) EXPIRATION DATE AND TERM: The Expiration Date shall be October 31,
2006. This shall override the length of Term noted in the Basic Lease
Information.
4) CONDITION OF PREMISES AT DELIVERY: The 1565 Charleston Road building
has been accepted in "as-is" condition with no further obligation from Landlord.
The 1585 Charleston Road building shall be accepted by Tenant in the condition
noted in the letter agreement between Tim McChesney of U.S. Robotics and Roger
Van Overbook of Adobe Systems, Inc. dated September 16, 1996.
5) SUBLEASE RENT - OCTOBER 1996: In the event that a subtenant occupies
the 1585 Charleston Road building during the month of October 1996, and so long
as the lease between Adobe Systems, Inc. and Landlord has terminated, then
Tenant shall pay to Landlord Rent equal to $2.15 per square foot per month
(prorated for a partial month) on all such space so subleased. For example, if
the entire first floor is subleased, the daily Rent to be paid Landlord shall
equal $2,627.85.
All of the provisions of the Lease affected by this Amendment One shall be
deemed amended whether or not actually specified herein in order to effectuate
the interest of the parties to amend the Lease as herein specified. Except as
expressly provided herein, the terms and conditions of the Lease shall remain in
full force and effect. In the event of a conflict between the terms of the Lease
and the terms of this Amendment One, the terms of this Amendment One shall
control.
LANDLORD: TENANT:
Charleston Place Associates, U.S. Robotics Access Corp.
a California partnership a Delaware corporation
By: /s/ [ILLEGIBLE] By: /s/ C. David Hall
-------------------------- -------------------------------
Its: AGENT Its: TREASURER
-------------------------- -------------------------------
Date: 9/17/96 Date: 9/16/96
-------------------------- -------------------------------
GUARANTOR:
U.S. Robotics Corporation
a Delaware corporation
By: /s/ C. David Hall
-------------------------------
Its: TREASURER
-------------------------------
Date: 9/16/96
-------------------------------
<PAGE>
Exhibit 10.8
SUBLEASE
This Sublease (the "Sublease") is made and entered into as of the ___ day
of February, 1999, by and between 3Com Corporation, a Delaware corporation
("3Com"), and Ariba Technologies, Inc., a Delaware corporation ("Ariba").
RECITALS
A. 3Com, successor in interest to U.S. Robotics Access Corp., as
"Tenant," and TriNet Essential Facilities XXV, Inc., successor in interest to
Charleston Place Associates, as "Landlord" (herein also called "Landlord"),
previously entered into a Charleston Place Lease Agreement, dated June 12, 1996
(the "Master Lease"), a copy of which is attached hereto as EXHIBIT "A."
Pursuant to the Master Lease, the Landlord has leased to 3Com certain premises
consisting of the buildings commonly known as 1565 Charleston Road and
1585 Charleston Road, Mountain View, California, and more fully described in the
Master Lease (the "Premises").
B. 3Com desires to sublease to Ariba, and Ariba desires to sublease from
3Com, all of the Premises on the terms and conditions set forth herein (the
"Premises").
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, 3Com and Ariba agree as follows:
AGREEMENT
1. DEFINED TERMS. Terms used in this Sublease as defined terms and not
otherwise defined herein shall have the same meanings as in the Master Lease.
2. DEMISE OF PREMISES. 3Com hereby subleases and demises to Ariba, and
Ariba hereby accepts from 3Com, on the terms and conditions hereinafter set
forth, the Premises. 3Com and Ariba agree that the Premises contain a rentable
area of one hundred thirty-one thousand five hundred eighty (131,580) square
feet.
3. RENT.
(a) During the Term of this Sublease, Ariba shall pay to 3Com in
equal monthly installments the following sums, in advance, beginning on the
Commencement Date (as defined in Paragraph 5 below) and continuing on the first
day of each calendar month during the Term thereafter, monthly installments of
rent as provided below ("Base Rent"):
<TABLE>
<CAPTION>
Monthly
Period of Term Base Rent
-------------- ---------
<S> <C>
05/01/1999
through $189,450
07/31/1999
-------------- ---------
1
<PAGE>
<CAPTION>
Monthly
Period of Term Base Rent
-------------- ---------
<S> <C>
08/01/1999
through $279,729
10/31/1999
-------------- ---------
11/01/1999
through $283,518
04/30/2000
-------------- ---------
05/01/2000
through $355,266
04/30/2002
-------------- ---------
05/01/2002
through $368,424
04/30/2003
-------------- ---------
05/01/2003
through $381,582
04/30/2005
-------------- ---------
05/01/2005
through $394,740
10/31/2006
-------------- ---------
</TABLE>
(b) The Base Rent and all other sums payable hereunder (such other
sums being referred to herein as "Additional Rent") shall be paid to 3Com
without deduction, set off, prior notice or demand, in lawful money of the
United States of America, at 3Com's office at 3Com Corporation, 5400 Bayfront
Plaza, Santa Clara, California, 95057, attention: Corporate Real Estate, or at
such other place as 3Com may specify from time to time by written notice to
Ariba. Base Rent and Additional Rent collectively are referred to herein as
"Rent."
(c) Notwithstanding Paragraph 3(a) hereof, Ariba shall pay 3Com the
first installment of Base Rent concurrently with the execution and delivery of
this Sublease. If the Commencement Date should occur on a day other than the
first day of a calendar month, or if the last day of the Term should occur on a
day other than the last day of a calendar month, then the Base Rent and
Additional Rent payable for such fractional month shall be prorated on a daily
basis.
4. OPERATING COSTS.
(a) In addition to the Base Rent provided for in Paragraph 3 above,
and in addition to any other Additional Rent payable by Ariba hereunder, Ariba
shall reimburse 3Com for all of the costs required to be paid by 3Com as the
Tenant under the Master Lease which accrue or are incurred during the Term,
directly or indirectly, in managing, repairing, maintaining, operating and
insuring the Premises, including Real Estate Taxes, Expenses and
2
<PAGE>
other Additional Charges (as those terms are defined in the Master Lease) paid
or required to be paid to the Landlord (collectively, "Operating Costs").
(b) Ariba shall pay 3Com the Operating Costs for each calendar year
or part thereof during the Term on the same terms and conditions as are required
of 3Com under the Master Lease. 3Com shall furnish Ariba with all notices and
statements received from Landlord and Ariba shall be entitled to exercise the
audit rights provided in Section 3(c)(5) of the Master Lease.
5. TERM AND POSSESSION.
(a) Subject to the terms hereof, the term of this Sublease ("Term")
shall begin on May 1, 1999 (the "Commencement Date') and shall end on October
31, 2006 (the "Termination Date"), unless sooner terminated in accordance with
the terms of this Sublease. 3Com shall deliver the Premises to Ariba on or
before March 1, 1999, and Ariba shall be entitled to prepare the Premises for
its possession thereof and to construct its improvements therein (subject to the
terms hereof) during the period following said delivery until the Commencement
Date (the "Early Occupancy Period"). Provided that Ariba does not commence
using the Premises during the Early Occupancy Period for any of the purposes
described in Paragraph 7 below, Ariba shall not be required to pay rent during
the Early Occupancy Period, but Ariba shall be required to establish and pay for
its own separate utility services to the Premises and all other terms and
conditions of this Sublease shall be applicable during such period, including,
without limitation, the insurance and indemnification provisions hereof. Ariba
acknowledges that 3Com shall terminate all of its utility services to the
Premises as of the date possession thereof is delivered to Ariba. If Ariba
commences using the Premises or any portion thereof for its business purposes
permitted hereunder, then the Early Occupancy Period shall terminate and the
Term hereof and Ariba's obligation to pay Base Rent and Additional Rent
hereunder shall commence as of the date Ariba first uses the Premises for its
business purposes. If 3Com, despite its exercise of commercially reasonable
efforts, cannot deliver possession of the Premises to Ariba by April 1, 1999,
3Com shall not be liable to Ariba for any loss or damage resulting therefrom,
but in such event Ariba shall be entitled to terminate this Sublease by
delivering written notice to 3Com prior to the date on which possession of the
Premises has been delivered to Ariba.
(b) Notwithstanding the foregoing paragraph 5(a), 3Com shall deliver
the Premises to Ariba, during the Early Occupancy Period only, subject to the
rights of Minerva Systems, Inc. ("Minerva") under the terms of that Holdover
Agreement (the "Holdover Agreement") dated January 22, 1999. The Holdover
Agreement affects approximately 19,205 square feet of space on the second floor
of the building located at 1585 Charleston Road. 3Com shall be entitled to
collect all sums payable under the Holdover Agreement as rent or otherwise until
the Commencement Date hereof. 3Com shall terminate the Holdover Agreement
effective April 30, 1999 and deliver to Ariba possession of the space currently
occupied by Minerva on May 1, 1999, unless Ariba enters into a separate
Sub-Sublease with Minerva as provided in the following sentence. Ariba shall be
entitled to enter into a separate Sub-Sublease with Minerva
3
<PAGE>
following the termination of the Holdover Agreement, subject to Landlord's
approval rights pursuant to the terms of the Master Lease.
6. CONDITION OF PREMISES.
(a) 3Com shall deliver the Premises to Ariba in their "AS IS"
condition, without warranty or representation of any kind except that (i) all of
the following described components and systems of the Premises shall be in good
working order as of the delivery of possession to Ariba: HVAC system, roof
structure, landscaping, parking lot, building fire and life safety systems,
plumbing and electrical systems and (ii) 3Com shall, at its sole cost, remove
all personal property and unattached cafeteria trade fixtures and equipment from
the cafeteria area of the Premises. Except as may be required by the foregoing
sentence, Ariba acknowledges that 3Com is under no obligation to make any
alterations, repairs, replacements or improvements to the Premises and that 3Com
has made no representation or warranty concerning the Premises or their
suitability for Ariba's proposed use.
(b) To the best of 3Com's actual knowledge, without investigation,
(i) 3Com has not caused the Premises to become contaminated with Hazardous
Substances (as defined in the Master Lease) and (ii) the Premises, in their
current condition and configuration, contain no Hazardous Materials which are
harmful to the occupants thereof.
7. USE. Ariba shall use the Premises for general office, administration
and research, development and marketing, assembly, storage and distribution and
legal uses reasonably incidental thereto, and for no other purpose, without the
prior written consent of 3Com and the Landlord.
8. ALTERATIONS AND IMPROVEMENTS. Ariba shall not make any Alterations to
the Premises without the prior written consent of the Landlord, as provided in
Section 6 of the Master Lease, and the prior written consent of 3Com which shall
not be withheld for any Alterations to which Landlord consents. 3Com agrees
that 3Com will not unreasonably withhold or delay its consent to a proposed
Alteration and that 3Com will cooperate with Ariba to a reasonable extent in
seeking approval of the Landlord to any Alteration proposed by Ariba which 3Com
has approved. 3Com may condition its consent to a particular Alteration upon
(i) Ariba's agreement to remove such Alteration and to restore the Premises to
their condition prior to the construction of such Alteration, all at Ariba's
sole expense, and (ii) with respect to Alterations which 3Com reasonably
estimates would cost more than One Hundred Thousand Dollars ($100,000) to
remove, Ariba's delivery to 3Com of a cash deposit or other security, in an
amount equal to the estimated cost of such removal and restoration, as
reasonably determined by 3Com, unless the Landlord waives its right to require
said removal and restoration as provided in Section 6 of the Master Lease in
which event 3Com shall have no right to require said removal and restoration.
Such removal and restoration, if required hereunder, shall be completed no later
than the last day of the Term.
9. INITIAL IMPROVEMENTS/ALLOWANCE. 3Com acknowledges that Ariba intends
to construct certain improvements (the "Initial Improvements") within the
Premises at the outset of the term of this Sublease. Provided that Ariba spends
at least One Million Three Hundred
4
<PAGE>
Fifteen Thousand Eight Hundred Dollars ($1,315,800) (the "Required Expenditure")
in constructing the Initial Improvements, 3Com shall contribute the sum of Six
Hundred Fifty-Seven Thousand Nine Hundred Dollars ($657,900) ("3Com's
Contribution") toward the costs thereof. 3Com shall pay the amount of 3Com's
Contribution to Ariba within 30 days following completion of the Initial
Improvements and receipt by 3Com of written notice thereof together with
(i) evidence acceptable to 3Com that the total amount of construction costs paid
by Ariba equals or exceeds the Required Expenditure and (ii) full and
unconditional lien waivers with respect to the Initial Improvements evidencing
full payment of all sums owed in connection therewith. The amount of 3Com's
Contribution shall be amortized over the then remaining term of this Sublease
together with interest thereon at nine percent (9%) per annum and Ariba shall
pay to 3Com said amortized amount together with payments of Base Rent hereunder.
If this Sublease terminates prior to the expiration hereof for any reason other
that a default hereunder by 3Com, Ariba shall pay the then unamortized balance
of 3Com's Contribution to 3Com on or prior to said termination date. 3Com shall
not be required to make any contribution toward the cost of the Initial
Improvements unless Ariba spends the Required Expenditure or more in
constructing the Initial Improvements.
10. PARKING. Ariba shall have the right to use the parking spaces to
which 3Com is entitled on the same basis as such are made available to 3Com
under the Master Lease.
11. SIGNS. Any signs installed by Ariba at the Premises shall be
installed at Ariba's sole expense, in a good and workman-like manner and in
strict compliance with all applicable laws including applicable ordinances of
the City of Mountain View, all terms and conditions of the Master Lease and all
terms of the Landlord's approval thereof. Ariba shall remove all signs and
repair any damage caused thereby, all at Ariba's expense, on or prior to
expiration of the Term if required under the terms of the Master Lease or as
provided by the terms of Landlord's consent thereto.
12. BROKERAGE COMMISSIONS. Each party represents and warrants to the
other that it has engaged no real estate brokers or finders in connection with
the transactions contemplated by this Sublease, except that (a) 3Com advises
Ariba that 3Com has agreed to pay Wayne Mascia Associates ("Wayne Mascia") a
commission pursuant to a separate agreement between 3Com and Wayne Mascia,
payment of which shall be 3Com's sole responsibility, and (b) Ariba has retained
Cushman & Wakefield of California ("Cushman"), who shall be compensated pursuant
to a separate agreement between Wayne Mascia and Cushman.
13. MASTER LEASE.
(a) As applied to this Sublease, the words "Landlord" and "Tenant" as
used in the Master Lease (to the extent incorporated herein) shall be deemed to
refer to 3Com and Ariba, respectively. Ariba and this Sublease shall be subject
in all respects to the terms of, and the rights of Landlord under, the Master
Lease. Except as otherwise expressly provided in Paragraph 13(b) hereof, the
covenants, agreements, terms, provisions and conditions of the Master Lease
insofar as they are not inconsistent with the terms of this Sublease are made a
part of and incorporated into this Sublease as if recited herein in full, and
the rights and obligations of
5
<PAGE>
the Landlord and the Tenant under the Master Lease shall be deemed the rights
and obligations of 3Com and Ariba, respectively, hereunder and shall be
binding upon and inure to the benefit of 3Com and Ariba, respectively. As
between the parties hereto only, in the event of a conflict between the terms
of the Master Lease and the terms of this Sublease, the terms of this
Sublease shall control. 3Com represents and warrants to Ariba that the Master
Lease is in full force and effect, 3Com has neither given nor received a
written notice of default under the Master Lease, and 3Com is not aware of
any default by any party under the Master Lease or of any circumstance which
with the passage of time would be a default under the Master Lease. 3Com
agrees not to terminate the Master Lease voluntarily, or modify the Master
Lease in a manner that adversely affects Ariba's rights under this Sublease.
3Com will refrain from any act or omission that would result in the failure
or breach of any of the covenants, provisions, or conditions of the Master
Lease on the part of the Tenant under the Master Lease.
(b) The following provisions of the Master Lease are not incorporated
herein and shall not apply to this Sublease, or are only incorporated herein to
the extent, or for the purpose specified below:
(i) The Basic Lease Information is not incorporated herein;
(ii) The Term of this Sublease and delivery of possession of the
Premises shall be governed by Paragraph 5 of this Sublease, and Ariba shall have
no rights or obligations under Section 2 of the Master Lease;
(iii) The payment by Ariba of Base Rent shall be governed by
Paragraph 3 of this Sublease, and Ariba shall have no rights or obligations with
respect to paragraphs (a) and (b) of Section 3 of the Master Lease;
(iv) Service and delivery of notices shall be governed by
Paragraph 17 of this Sublease, and Section 26 of the Master Lease shall not
apply thereto;
(v) For purposes of this Sublease, with respect to those
provisions incorporated from the Master Lease, all references to the "Lease"
shall be deemed to be references to this "Sublease;"
(vi) 3Com makes no representations or warranties regarding the
Premises or the Project, including without limitation any representations or
warranties regarding hazardous materials, zoning, or the suitability of the
Premises for Ariba's intended use.
(vii) The provisions of Sections 32, 37, 42, 43 and 44 of the
Master Lease and the provisions of EXHIBITS B and H of the Master Lease are not
incorporated in and shall not apply to this Sublease, and Ariba shall have no
rights or obligations thereunder.
(c) Notwithstanding the forgoing, 3Com and Ariba agree that 3Com
shall not be responsible to Ariba for furnishing any repairs to or maintenance
on the Premises which are the obligation of Landlord under the Master Lease, it
being understood that such obligations are solely those of Landlord pursuant to
the Master Lease. The failure of Landlord to fulfill its
6
<PAGE>
obligations under the Master Lease or the exercise by Landlord of any rights
specified in the Master Lease shall not (i) entitle Ariba to any allowance,
reduction or adjustment of Rent, (ii) make 3Com liable to Ariba, (iii) excuse or
impair the obligation of Ariba to perform or observe any of the terms or
conditions of this Sublease, or (iv) entitle Ariba to any claim of constructive
eviction against 3Com. 3Com shall take such action as is commercially
reasonable to (a) cause Landlord's compliance with the terms and provisions of
the Master Lease (including, without limitation, Landlord's obligation
thereunder to provide services to the Premises) and (b) obtain Landlord's
consent or approval on behalf of Ariba where necessary to permit Ariba's
exercise of its rights hereunder. If, following the exercise of such
commercially reasonable attempts Landlord still has not, in Ariba's judgment,
complied with the terms of the Master Lease, then Ariba (i) shall be subrogated
to the rights of 3Com to enforce the rights of the Tenant under the Master
Lease, and (ii) to the extent 3Com would have the right, either pursuant to the
terms of the Master Lease or under applicable law, to terminate the Master Lease
or exercise other remedies thereunder as a result of such non-compliance, Ariba
shall have the right to terminate the Master Lease or to pursue such other
remedies, provided Ariba indemnifies, defends and holds 3Com harmless from and
against any costs, expenses, claims, liabilities or damages in connection with
the exercise or attempted exercise of said remedies.
(d) This Sublease is subordinate to all of the terms and conditions
of the Master Lease and to the matters to which the Master Lease by its terms is
subordinate. Ariba acknowledges that the Master Lease and this Sublease may be
further made subordinate to, among other things, the terms, provisions and liens
of ground leases, mortgages and other financing affecting the Premises and the
Project. In the event the Master Lease is terminated for any reason, then, on
the date of such termination, this Sublease automatically shall terminate and be
of no further force or effect. If the termination of the Master Lease (and the
resulting termination of this Sublease) occurs through no breach or default of
this Sublease or of the Master Lease by 3Com, 3Com shall have no liability
therefor to Ariba.
(e) Ariba agrees that it will not take or permit any action or fail
to perform or observe any obligation, which causes an event of default under the
Master Lease and/or causes the Master Lease to be terminated or forfeited, and
Ariba shall indemnify, defend, protect and hold harmless 3Com from and against
any and all claims, demands, suits, costs, expenses, damages and liabilities,
including reasonable attorneys' fees, arising by reason of any act or omission
on the part of Ariba which is in breach of this Paragraph 13(e).
(f) 3Com agrees that it will not take or permit any action or fail to
perform or observe any obligation, which causes an event of default under the
Master Lease and/or causes the Master Lease to be terminated or forfeited, and
3Com shall indemnify, defend, protect and hold harmless Ariba from and against
any and all claims, demands, suits, costs, expenses, damages and liabilities,
including reasonable attorneys' fees, arising by reason of any act or omission
on the part of 3Com which is in breach of this Paragraph 13(f). Notwithstanding
the foregoing, 3Com shall have no liability hereunder for the failure to perform
its obligations under the Master Lease to the extent said obligations have been
delegated to Ariba under the terms of this Sublease.
7
<PAGE>
(g) Notwithstanding any provision of the Master Lease that is
incorporated by reference into this Sublease to the contrary, if by the terms of
such incorporated provision Landlord must approve, disapprove, or otherwise
respond to Ariba within a specified time period, 3Com shall have an additional
ten (10) business days after expiration of such time period to approve,
disapprove, or otherwise respond to Ariba with respect to such matter.
14. EVENTS OF DEFAULT.
(a) In addition to the occurrence of any default (as defined in the
Master Lease), each of the following shall constitute an event of default by
Ariba under this Sublease and shall entitle 3Com to exercise any and all
remedies available to the Landlord under the Master Lease and/or available to
3Com by operation of law:
(i) Ariba shall fail to pay when due any monthly installment of
Base Rent or Operating Costs, or shall fail to pay when due any other sum
payable hereunder, and such failure shall continue for three (3) days after
delivery to Ariba of 3Com's written notice thereof,
(ii) Ariba shall fail in any material respect to observe or
perform any other material term or condition to be observed or performed by
Ariba hereunder or under the provisions of the Master Lease which are
incorporated in this Sublease under Paragraph 13 hereof, and such failure shall
continue for 30 days after delivery to Ariba of 3Com's written notice thereof,
unless such failure of performance, by its nature, cannot be cured within 30
days, in which event, such failure of performance shall be deemed cured if Ariba
commences to cure the same within such 30 day period and completes such cure as
soon as reasonably practicable; and
(iii) Ariba shall file a petition in bankruptcy or avail
itself of any other state or federal law providing for the relief of debtors.
(b) Notwithstanding any provision of this Paragraph 14 or Section 19
of the Master Lease to the contrary, in the event that during any twelve (12)
month period (i) Ariba fails twice to pay Rent, Operating Costs or other sums
required to be paid by Ariba hereunder, or (ii) any other default or event of
default of the same or similar nature occurs twice, Ariba shall not be entitled
to any grace period to cure subsequent defaults or events of default which occur
thereafter during said twelve (12) month period.
15. CONSENT OF LANDLORD; APPROVALS.
(a) Ariba acknowledges that, under the terms of the Master Lease,
this Sublease requires the prior written consent of the Landlord (the
"Landlord's Consent"). 3Com agrees to use reasonable efforts to obtain
Landlord's Consent, promptly upon delivery to 3Com of at least three
counterparts of this Sublease, duly executed by Ariba. If 3Com has not received
Landlord's Consent within 15 days after receipt of such executed counterparts of
this Sublease from Ariba, then either 3Com or Ariba shall have the right, by
written notice to the other party, to elect to terminate this Sublease. Ariba
acknowledges that the Landlord has heretofore
8
<PAGE>
furnished to 3Com a form of consent, a copy of which is attached hereto as
EXHIBIT "B", and Ariba and 3Com agree that it shall be sufficient for the
Landlord to give the Landlord Consent in substantially such form.
(b) Ariba acknowledges that as to certain matters set forth in this
Sublease, 3Com has rights of approval or disapproval. In addition, Ariba
acknowledges that as to certain matters set forth in the Master Lease, Landlord
has rights of approval or disapproval. If any matter requires Landlord's
approval under the Master Lease (irrespective of whether such matter also
requires 3Com's consent under this Sublease), 3Com shall submit the same to
Landlord for approval within ten (10) business days after 3Com's receipt of
written request from Ariba, and provided 3Com approves such matter 3Com shall
use reasonable efforts to obtain Landlord's approval of such matter. If
Landlord disapproves any such matter, 3Com shall have no liability to Ariba by
reason of such refusal.
16. ASSIGNMENT AND SUBLEASING. Ariba shall not enter into any Assignment
or Sublease (as those terms are defined in Section 9(a) of the Master Lease),
except with the written consent of Landlord and 3Com, it being understood that
3Com's consent shall not be unreasonably withheld. All terms and conditions of
Section 9 of the Master Lease are hereby incorporated herein by reference,
except that in the event of any Sublease or Assignment done with the consent of
3Com, 3Com shall be entitled to fifty percent (50%) of the amount by which the
rent and other consideration paid or received by Ariba under such Assignment or
Sublease exceeds the Base Rent, Operating Costs and other sums required to be
paid by Ariba under this Sublease, after first deducting Ariba's brokerage
commissions and other reasonable costs directly related and incurred to procure
such Assignment or Sublease.
17. NOTICES. All notices or demands required or permitted under this
Sublease shall be in writing and shall be addressed as set forth herein below or
to such other address as either party may, by written notice to the other,
specify in writing from time to time. All notices shall be deemed served upon
delivery, if hand-delivered, or 24 hours after delivery to Federal Express or
another recognized overnight courier with charges prepaid, if served by
overnight courier, or three business days after deposited in the United States
mail, with postage prepaid, registered or certified mail, return receipt
requested, if served by mail. Notices hereunder may also be served by
facsimile, with a copy sent by United States mail postage prepaid, and shall be
deemed served when received by the recipient's facsimile machine. Ariba and
3Com each agree to furnish the other with copies of any written notices received
from Landlord promptly upon receipt thereof.
9
<PAGE>
Notices to 3Com shall be addressed as follows:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95057
Attn: Legal Department
With a copy to:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, CA 95057
Attn: Corporate Real Estate
Notices to Ariba shall be addressed as set forth on the signature page
hereof, below Ariba's signature. Copies of any notices sent to Ariba shall be
sent to:
Thoits, Love, Hershberger & McLean
245 Lytton Avenue, Suite 300
Palo Alto, CA 94301
Attn: Thomas B. Jacob, Esq.
18. INSURANCE; WAIVER OF SUBROGATION.
(a) Throughout the Term, Ariba, at Ariba's sole expense, shall obtain
and maintain in effect, with respect to the Premises, for the benefit of Ariba,
3Com and the Landlord, the policies of insurance described in Section 10(d) of
the Master Lease and shall otherwise comply with all requirements of such
Section 10(d). 3Com shall be named as an insured, in addition to the Landlord,
under any of such policies which, under the terms of the Master Lease, are
required to name the Landlord as an insured. Ariba shall deliver certificates
of such insurance to 3Com prior to commencement of the Early Occupancy Period.
(b) Notwithstanding any provision to the contrary in the Master
Lease, 3Com, Ariba, and (to the extent agreed to by Landlord) Landlord each
(i) hereby waives all claims such party may have against the other to the extent
such claims are covered by insurance carried or required to be carried under the
Master Lease, and (ii) shall cause their respective insurers to similarly waive
all rights of recovery against the others, and against the officers, employees,
partners, agents and representatives of the others, for loss of or damage to the
property of the waiving party or the property of others under its control, to
the extent such loss or damage is (or would have been) insured against under any
insurance policy carried (or required to be carried)
10
<PAGE>
by Landlord, 3Com, or Ariba hereunder. Each of Ariba, 3Com, and (to the extent
agreed to by Landlord pursuant to its consent hereto or otherwise) Landlord
shall obtain a clause or endorsement to the applicable insurance policies
carried by such party denying its insurer any rights of subrogation against the
other parties.
19. CERTAIN UTILITIES AND SERVICES. Without limiting the generality of
Ariba's obligations under Paragraph 4 hereof with respect to payment of
Operating Costs or the provisions of Paragraph 13 hereof, concerning observance
and performance of the Master Lease, 3Com and Ariba agree as follows with
respect to certain utilities and services:
(a) TELECOMMUNICATIONS. Ariba shall contract directly with the
providers thereof for all telecommunications services required by Ariba at the
Premises and shall install or cause to be installed, at Ariba's sole expense,
all equipment and facilities required therefor.
(b) SECURITY. Ariba shall cause any security systems installed by
Ariba to be installed in a good and workman-like manner, in strict compliance
with all applicable laws and shall furnish sufficient information about such
systems to 3Com to enable 3Com to enter the Premises in cases of emergency and
otherwise to exercise 3Com's rights under this Sublease. If required by
Landlord pursuant to the Master Lease, Ariba shall remove all security systems
installed by Ariba and repair any damage caused thereby, all at Ariba's sole
expense, prior to expiration of the Term.
(c) REPAIR AND MAINTENANCE OF THE PREMISES. Ariba, at Ariba's sole
expense, shall maintain the interior of the Premises in good condition and
repair, in the manner provided in Section 7(b) of the Master Lease.
20. SECURITY DEPOSIT.
(a) Within three (3) business days following Ariba's receipt of
written notice that Landlord has executed Landlord's Consent but in all events
prior to Ariba taking possession of the Premises, Ariba shall deposit with 3Com
an irrevocable letter of credit (the "Letter of Credit") in form and issued by
an institutional lender reasonably acceptable to 3Com in the amount of Eight
Hundred Thousand Dollars ($800,000) as security for the prompt and complete
performance by Ariba of all of the obligations and terms of this Sublease to be
performed by Ariba, and not as prepayment of Rent. The Letter of Credit shall
(i) show 3Com as the account party, (ii) have a term of not less than twelve
(12) months, (iii) be automatically renewed from time to time throughout the
term of this Sublease not later than thirty (30) days prior to its expiration
(such renewals to be for periods of not less than twelve (12) months and in the
amounts required hereby), (iv) require written notice to 3Com at least 30 days
prior to non-renewal if for any reason the Letter of Credit will not be renewed,
and (v) allow for partial draws thereon. The term "Letter of Credit" shall, for
the purposes of this Sublease, include any replacement or renewal Letter of
Credit.
(b) Upon the successful completion of an initial public offering by
Sublessee and provided Sublessee has not defaulted hereunder and is not then in
default hereunder (beyond any applicable grace or cure period), the amount of
the Letter of Credit required to be maintained
11
<PAGE>
hereunder shall be reduced to Four Hundred Dollars ($400,000). If Ariba has
defaulted or is in default hereunder at the time it completes its initial public
offering, then the Letter of Credit will be reduced as provided above upon the
second anniversary of the date on which said default (or the most recent default
if there have been more than one) has been cured, provided that no subsequent
defaults have occurred prior to said second anniversary.
(c) Upon the occurrence of an event of default by Ariba under the
terms of this Sublease, 3Com may upon demand draw upon the Letter of Credit, and
3Com may apply such portion or portions of the Letter of Credit as are
reasonably necessary for the following purposes: (i) to remedy any default by
Ariba in the payment of Rent under this Sublease; (ii) to clean and restore and
repair the Premises following their surrender to 3Com, if not surrendered in the
condition required pursuant to this Lease, (iii) to remedy any other default of
Ariba hereunder, including, without limitation, the failure by Ariba to renew
the Letter of Credit as required hereby. 3Com shall limit the amounts drawn
from the Letter of Credit to the amounts it reasonably deems necessary to cure
defaults hereunder by Ariba, provided that if Ariba fails to renew the Letter of
Credit as required hereby 3Com shall draw the entire amount thereof which shall
thereafter be held as the L-C Security Deposit (defined below). Any amount of
the Letter of Credit that is drawn upon by 3Com but not applied by 3Com shall be
held by 3Com as a security deposit (the "L-C Security Deposit") which may be
applied by 3Com for the purposes described in this paragraph. In the event the
Letter of Credit or any portion thereof is drawn upon by 3Com, Ariba shall,
within five (5) days after demand by 3Com, either (i) deposit cash with 3Com in
an amount that, when added to the amount remaining under the Letter of Credit
and the amount of any L-C Security Deposit, shall equal the original amount of
the Letter of Credit, or (ii) deliver written documentation executed by the
issuer of the Letter of Credit and reasonably acceptable to 3Com confirming that
the Letter of Credit has been reinstated to its original amount. Following a
partial draw on the Letter of Credit and Ariba's reinstatement of the Letter of
Credit to its original amount, 3Com shall return to Ariba any portion of the L-C
Security Deposit which has not been applied to cure the default. If 3Com draws
the total amount of the Letter of Credit for a failure by Ariba to renew it as
required hereby, then the L-C Security Deposit shall serve as security hereunder
for the balance of the Term and Ariba shall maintain the L-C Security Deposit in
the amount required hereunder. 3Com shall not be deemed a trustee of the L-C
Security Deposit. 3Com may use the L-C Security Deposit in 3Com's ordinary
business and shall not be required to segregate it from 3Com's general accounts.
Ariba shall not be entitled to any interest on the L-C Security Deposit. The
L-C Security Deposit, less any portion thereof which 3Com is entitled to retain,
shall be returned to Ariba (or at 3Com's option to the last assignee, if any, of
Ariba's interest hereunder) within thirty (30) days after the later of the
expiration of the term hereof or the date on which Ariba vacates the Premises.
21. GENERAL PROVISIONS.
(a) The waiver by either party hereto of a breach of any covenant,
obligation or condition set forth herein to be performed or observed by the
other party hereto shall not be deemed to be a waiver of any subsequent breach
of the same or of any other covenant, obligation or condition of this Sublease
to be performed or observed by such party.
12
<PAGE>
(b) This Sublease shall be governed by and construed in accordance
with the laws of the State of California.
(c) If any term, covenant or condition of this Sublease or the
application thereof to any person or circumstance shall be held to be or
rendered invalid, unenforceable or illegal, then such term, covenant or
condition shall be considered separate and severable from the remainder of this
Sublease, shall not affect, impair or invalidate the remainder of this Sublease,
and shall continue to be applicable to and enforceable to the fullest extent
permitted by law against any person or circumstances other than those as to
which it has been held or rendered invalid, unenforceable or illegal.
(d) This Sublease may be executed in one or more counterparts, each
of which shall constitute an original but all of which together shall constitute
one and the same instrument.
(e) This Sublease sets forth all the covenants, promises, agreements,
conditions or understandings between the parties hereto concerning the Premises
and the subject matter of this Sublease. No alteration, amendment or change of,
or addition to this Sublease shall be binding upon the parties hereto unless in
writing and signed by 3Com and Ariba.
(f) The captions and Paragraph numbers appearing in this Sublease are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or intent of any of the provisions hereof nor in any way
affect this Sublease.
(g) The words "hereof," "herein," "hereunder" and similar expressions
used in any provision of this Sublease relate to the whole of this Sublease and
not to such provision alone, unless otherwise expressly provided, and whenever
the singular number of a gender is used herein the same shall be construed as
including the plural and the masculine, feminine and neuter respectively where
the fact or context so requires.
(h) Time is of the essence of this Sublease and of every part hereof.
(i) Each party to this Sublease represents and warrants to the other
party hereto that the execution, delivery and performance of this Sublease by
the representing and warranting party has been authorized by all necessary
corporate action of such party and that the officer or officers executing this
Sublease on behalf of such party have full power and authority to do so and to
bind such party hereto.
13
<PAGE>
IN WITNESS WHEREOF, 3Com and Ariba have duly executed this Sublease as of
the day and year first above written.
3COM:
3Com Corporation, a Delaware corporation
By: /s/ [ILLEGIBLE]
--------------------------------------
Its:
--------------------------------------
ARIBA:
Ariba Technologies, Inc., a Delaware corporation
By: /s/ Edward P. Kinsey
--------------------------------------
Its:
--------------------------------------
Address for Service of Notices
prior to the Commencement Date:
Ariba Technologies, Inc.
1314 Chesapeake Terrace
Sunnyvale, CA 94089
Attn: Chief Financial Officer
after the Commencement Date:
Ariba Technologies, Inc.
1585 Charleston Road
Mountain View, CA
Attn: Chief Financial Officer
14
<PAGE>
EXHIBIT A
MASTER LEASE
<PAGE>
EXHIBIT B
CONSENT OF LANDLORD
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1998 AND MARCH 31, 1999 AND
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS) FOR
THE YEAR ENDED SEPTEMBER 30, 1998 AND THE SIX MONTHS ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001084755
<NAME> ARIBA, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1999
<PERIOD-START> OCT-01-1997 OCT-01-1998
<PERIOD-END> SEP-30-1998 MAR-31-1999
<CASH> 8,305 15,415
<SECURITIES> 5,627 6,818
<RECEIVABLES> 2,600 6,316
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 16,787 30,602
<PP&E> 2,973 5,327
<DEPRECIATION> (756) (1,251)
<TOTAL-ASSETS> 19,242 35,055
<CURRENT-LIABILITIES> 8,636 26,759
<BONDS> 0 0
0 0
9 9
<COMMON> 38 39
<OTHER-SE> 9,912 7,602
<TOTAL-LIABILITY-AND-EQUITY> 19,242 35,055
<SALES> 6,040 10,500
<TOTAL-REVENUES> 8,363 16,338
<CGS> 165 250
<TOTAL-COSTS> 1,538 2,759
<OTHER-EXPENSES> 18,346 21,894
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17 65
<INCOME-PRETAX> (10,953) (8,128)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10,953) (8,128)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (10,953) (8,128)
<EPS-PRIMARY> (1.90) (0.84)
<EPS-DILUTED> (1.90) (0.84)
</TABLE>
