<PAGE>
As filed with the Securities and Exchange Commission on May 26, 1999
Registration No. 333-
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- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NetIQ Corporation
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7372 77-0405505
(State or other jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------
NetIQ Corporation
5410 Betsy Ross Drive
Santa Clara, California 95054
(408) 330-7000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Ching-Fa Hwang
President and Chief Executive Officer
NetIQ Corporation
5410 Betsy Ross Drive
Santa Clara, California 95054
(408) 330-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Thomas C. DeFilipps, Esq. William D. Sherman, Esq.
Wilson Sonsini Goodrich & Rosati Morrison & Foerster LLP
Professional Corporation 755 Page Mill Road
650 Page Mill Road Palo Alto, California 94304
Palo Alto, California 94304 (650) 813-5600
(650) 493-9300 ---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class of Securities to be Aggregate Amount of
Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $0.001 par value................. $46,000,000 $12,778
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) promulgated under the Securities
Act of 1933, as amended.
---------------
NetIQ hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until NetIQ shall file a further
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 it is not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 26, 1999
Shares
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $ and $ per
share. We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "NTIQ."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Price Discounts
to and Proceeds
Public Commissions to NetIQ
------ ------------ --------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
BancBoston Robertson Stephens
Hambrecht & Quist
This prospectus is dated , 1999.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 6
Forward-Looking Statements............................................... 16
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Consolidated Financial Statements............................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 32
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 45
Certain Transactions....................................................... 55
Principal Stockholders..................................................... 56
Description of Capital Stock............................................... 58
Shares Eligible for Future Sale............................................ 61
Underwriting............................................................... 63
Notice to Canadian Residents............................................... 65
Legal Matters.............................................................. 66
Experts.................................................................... 66
Where To Find Other NetIQ Documents........................................ 66
Index to Consolidated Financial Statements................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only where it is
legal to sell these securities. The information in this prospectus is accurate
only on the date of this document.
------------
Unless otherwise indicated, all references to "NetIQ" and "we" refer to
NetIQ Corporation and its subsidiaries, including subsidiaries that may be
acquired or formed in the future.
NetIQ, AppManager, Knowledge Scripts and Work Smarter are registered United
States trademarks of NetIQ. NetIQ Partner Network and the NetIQ logo are also
trademarks of NetIQ. This prospectus also contains trademarks and tradenames
of other companies.
------------
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to their unsold allotments or
subscriptions.
3
<PAGE>
[Inside gatefold: Descriptive text accompanying graphic depiction of computer
console screen, computers and servers.
Performance and Availability Management Solutions for Windows NT Environments
. Centrally manages the performance of distributed Windows NT-based systems
and applications
. Helps ensure the availability of systems and applications through automated
problem detection and correction
. Leverages Windows NT technology by using de-facto Microsoft standards
. Integrates with leading systems management frameworks for best-of-breed
Windows NT monitoring
NetIQ's Comprehensive Approach
NetIQ believes that the combination of AppManager's comprehensive functionality
together with its use of familiar and native Microsoft technology and standards
provide a unique solution for managing systems and applications in distributed
Windows NT environments.
Comprehensive and Easy to Use
The NetIQ AppManager Suite is a management solution that gives an organization a
consolidated view of their entire Windows NT environment from a central, easy-
to-use console.
Scalable and Reliable
The NetIQ AppManager Suite's highly scalable architecture lets organizations
centrally manage their entire Windows NT environment in an efficient and
reliable manner, even when their server and workstation deployment numbers are
in the hundreds.
Extensive and Interoperable
The NetIQ AppManager Suite can be easily extended to monitor an organization's
custom applications without having to learn proprietary languages. And IT
personnel can easily integrate the NetIQ AppManager Suite with network and
systems management frameworks right "out-of-the-box."]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in our common stock. You should read this
entire prospectus carefully.
Except as otherwise indicated, all references to the number of outstanding
shares of common stock are based on shares outstanding as of March 31, 1999 and
assume no exercise of the underwriters' over-allotment option and the
conversion of each outstanding share of convertible preferred stock into one
share of common stock immediately prior to the closing of this offering . In
addition, the information in this prospectus assumes that the initial public
offering price will be $ per share, the midpoint of the range disclosed on
the cover of this prospectus.
NetIQ Corporation
We are a leading provider of performance and availability management software
for Microsoft Windows NT-based systems and applications. As use of the Windows
NT platform in distributed computing and Internet environments continues to
expand, organizations are increasingly relying on this platform to deploy
business-critical applications such as Microsoft Exchange Server, Lotus
Domino/Notes, Oracle, Citrix WinFrame, Microsoft Internet Information Server
and Microsoft SQL Server. As a result, organizations are facing new challenges
in managing their distributed Windows NT environments. Our NetIQ AppManager
Suite enables organizations to address these challenges by providing a
comprehensive and automated solution that helps optimize the performance and
availability of business-critical Windows NT-based systems and applications and
reduce associated support costs. AppManager's scalable, multi-tier architecture
supports rapid growth in the number of servers and applications deployed in
organizations' distributed Windows NT environments and provides close
integration with existing system, network and hardware management solutions. We
believe that AppManager's comprehensive functionality, coupled with its ease of
use resulting from its utilization of familiar Microsoft technology and
standards, offers a superior solution for managing systems and applications in
distributed Windows NT environments.
Our products are used by organizations in a wide variety of industries and
computing environments. As of March 31, 1999, we licensed our AppManager
products to more than 375 customers, including AT&T, Charles Schwab & Co.,
Countrywide Home Loans, Dell Computer, EDS, General Electric, Georgia-Pacific,
Glaxo Wellcome, MCI, Microsoft, Nasdaq, NationsBank, Nordstrom Information
Systems, Pfizer, Salomon Smith Barney, Shell Services International, Southern
Company Services, the Department of Veterans Affairs and Wells Fargo Bank N.A.
We sell our products through our sales force, which includes our field and
inside sales personnel, as well as through indirect channels, such as
distributors, value-added resellers and original equipment manufacturers. We
have established product-based relationships with Citrix, Compaq, Computer
Associates, Dell Computer, Hewlett-Packard, IBM, including both its Lotus and
Tivoli subsidiaries, Microsoft and Oracle. As part of these relationships, we
often develop joint marketing programs with these software and hardware
vendors.
Our objective is to be the leading provider of performance and availability
management software for Windows NT-based systems and applications. Key elements
of our strategy include enhancing our technology leadership position, targeting
enterprise-wide deployment of our AppManager products within our substantial
customer base, expanding our distribution channels, increasing our
international presence and expanding our relationships with Microsoft.
We were incorporated in California in June 1995 and expect to complete a
reincorporation into Delaware in June 1999. Our principal executive offices are
located at 5410 Betsy Ross Drive, Santa Clara, California 95054, and our
telephone number is (408) 330-7000. Our Web address is www.netiq.com.
Information contained on our Web site does not constitute part of this
prospectus.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered........................ shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds............................. For working capital, capital
expenditures, repayment of
certain indebtedness and
potential strategic investments
or acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol...... NTIQ
</TABLE>
Please see "Capitalization" for a more complete discussion regarding the
outstanding shares of common stock, securities to purchase common stock and
other related matters.
Summary Consolidated Financial Information
The pro forma consolidated balance sheet data summarized below gives effect
to the conversion of outstanding preferred stock into common stock upon
completion of this offering. The pro forma consolidated balance sheet data also
reflects the repayment of a $5.0 million promissory note plus accrued interest
and the application of the net proceeds received in connection with the
presumed exercise of a warrant. See "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Description
of Capital Stock" for further information regarding this warrant and the
promissory note. The pro forma as adjusted consolidated balance sheet data
summarized below reflects the application of the net proceeds from the sale of
the shares of common stock offered by NetIQ at the initial public
offering price of $ and after deducting the underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
Nine Months
Year Ended June 30, Ended March 31,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenue.......................... $ -- $ 388 $ 7,070 $ 3,420 $15,109
Gross profit..................... -- 333 6,428 3,058 13,683
Loss from operations............. (1,006) (2,397) (3,373) (3,081) (590)
Net loss......................... (909) (2,281) (3,111) (2,866) (501)
Basic and diluted net loss per
share........................... $ (1.03) $ (1.07) $ (0.89) $ (0.87) $ (0.10)
Shares used to compute basic and
diluted net loss per share...... 881 2,122 3,496 3,299 4,993
Pro forma basic and diluted net
loss per share.................. $ (0.21) $ (0.03)
Shares used to compute pro forma
basic and diluted net loss per
share........................... 14,596 16,093
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........................ $11,565 $ $
Working capital.................................. 5,076
Total assets..................................... 17,613
Long term obligations, less current portion...... 241
Total stockholders' equity....................... 5,971
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially adversely affect our business, operating
results and financial condition and could result in a complete loss of your
investment.
We have a history of losses, we expect losses in the future and we may not ever
become profitable.
We were founded in June 1995, and our limited operating history makes it
difficult to forecast our future operating results. We have not been profitable
in any quarter since inception and we incurred net losses of $0.9 million for
the period from inception through June 30, 1996, $2.3 million for fiscal 1997,
$3.1 million for fiscal 1998 and $0.5 million for the nine months ended March
31, 1999. As of March 31, 1999, we had an accumulated deficit of $6.8 million.
We expect to continue to incur net losses in the near future and possibly
longer. If we do achieve profitability in any period, we cannot be certain that
we will sustain or increase such profitability on a quarterly or annual basis.
For more detailed information regarding our operating results and financial
condition, please see "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Although our revenue has grown very substantially in recent quarters, we do
not expect our revenue to grow at such a rapid rate in the future, and our
revenue could in fact decline. Any failure to increase our revenue as we
implement initiatives to expand our business could materially affect our
business, quarterly and annual operating results and financial condition. We
anticipate that our expenses will increase substantially in the foreseeable
future as we develop our technology, including continuing to integrate features
of Windows NT and third-party systems, network and hardware management products
with AppManager, expand our distribution channels and increase our sales and
marketing activities. Moreover, these efforts may prove more expensive than we
currently anticipate and we may not succeed in increasing our revenue
sufficiently to offset these higher expenses.
There are many factors, including some beyond our control, that may cause
fluctuations in our quarterly operating results.
Our quarterly operating results have varied substantially in the past and may
vary substantially in the future depending upon a number of factors described
below and elsewhere in this "Risk Factors" section of the prospectus, including
many that are beyond our control. As a result, we believe that quarter-to-
quarter comparisons of our financial results are not necessarily meaningful,
and you should not rely on them as an indication of our future performance.
These factors include:
. Changes in demand for AppManager or for performance and availability
management software solutions generally, including any changes in
customer purchasing patterns relating to year 2000 concerns
. Changes in demand for Windows NT-based systems and applications
. Increased competition in general and any changes in our pricing policies
that may result from increased competitive pressures
. Varying budgeting cycles of our customers and potential customers
. Varying size, timing and contractual terms of enterprise-wide orders for
our products
. Our ability to develop and introduce on a timely basis new or enhanced
versions of our products
. Potential downturns in our customers' businesses, in the domestic or
international economies
. Changes in the mix of revenue attributable to domestic and international
sales
. Software defects and other product quality problems
. Changes in the mix of revenue attributable to higher-margin software
license revenue as opposed to substantially lower-margin service revenue
A majority of our software license revenue in any quarter depends on orders
booked and shipped in the last month, weeks or days of that quarter. At the end
of each quarter, we typically have either minimal or no
6
<PAGE>
backlog of orders for the subsequent quarter. If a large number of orders or
any large, enterprise-wide orders are not placed or are deferred, our revenue
in that quarter could be substantially reduced. This would materially adversely
affect our operating results and financial condition.
Customer purchase patterns caused by year 2000 concerns may negatively impact
sales of our products.
Prior to the end of 1999 and continuing into 2000, there is likely to be an
increased customer focus on addressing year 2000 compliance issues. Some
customers have indicated to us that they will delay deployment of new software,
including new versions and product updates, at various times over the next six
to nine months to avoid the possibility of introducing or encountering any new
year 2000 problems. There is a risk that existing or potential customers may
also choose to defer new software product purchases as a result of year 2000
concerns. Moreover, customers may reallocate capital expenditures or personnel
in order to fix year 2000 problems of existing systems instead of purchasing
new software. If customers defer purchases or reallocate capital expenditures
and personnel, it could materially adversely affect our business, future
quarterly and annual operating results and financial condition. In addition,
year 2000 compliance issues also could cause a significant number of companies,
including our current customers, to reevaluate their current system needs and,
as a result, consider switching to other systems and suppliers.
Failure to maintain and enhance our competitive position could adversely affect
our business.
We may not be able to compete successfully against current and/or future
competitors and such inability would materially adversely affect our business,
future quarterly and annual operating results and financial condition. The
market for performance and availability management software for Windows NT-
based systems and applications is new, rapidly evolving and highly competitive,
and we expect competition in this market to persist and intensify. New products
for this market are frequently introduced and existing products are continually
enhanced. Competition may also result in changes in pricing policies by us or
our competitors which could materially adversely affect our ability to sell our
products and could lead to changes in our pricing policies which could
materially adversely affect our profit margins. Competitors vary in size and in
the depth and the breadth of the products and services that they offer. Many of
our current and potential competitors have greater financial, technical,
marketing, professional services and other resources than we do. As a result,
they may be able to respond more quickly to new or emerging technologies and
changes in customer requirements. They may also be able to devote greater
resources to the development, promotion and sale of their products than we can.
Many of these companies have an extensive customer base and broad customer
relationships, including relationships with many of our current and potential
customers.
Existing Competition. We currently face competition from a number of sources,
including:
. Providers of network and systems management framework products such as
IBM, Computer Associates and Hewlett-Packard
. Providers of performance and availability management solutions such as
BMC Software
. Customers' internal IT departments that develop or integrate system and
application monitoring tools for their particular needs
Future Competition. We may face competition in the future from established
companies who have not previously entered the market for performance and
availability management software for Windows NT-based systems and applications
as well as from emerging companies. Barriers to entry in the software market
are relatively low. Established companies may not only develop their own
Windows NT-based system and application management solutions, but they may also
acquire or establish cooperative relationships with our current competitors,
including cooperative relationships between large, established companies and
smaller private companies. These larger companies may be able to acquire the
technology and expertise of smaller companies to penetrate our market quickly.
It is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share.
To date, Microsoft has not competed against us in the market for performance
and availability management software for Windows NT-based systems and
applications. However, Microsoft may enter this
7
<PAGE>
market in the future, and this could materially adversely affect our business,
future annual and quarterly results of operations and financial condition. As
part of its competitive strategy, Microsoft could bundle performance and
availability management software with its Windows NT operating system software
and this could discourage potential customers from purchasing our products.
Even if the functionality provided as standard features by future Microsoft
operating system software were more limited than that of our AppManager
products, a significant number of customers or potential customers might elect
to accept more limited functionality in lieu of purchasing additional software.
Moreover, competitive pressures resulting from this type of bundling could lead
to price reductions for our products which would reduce our margins and could
materially adversely affect our business, quarterly and annual operating
results and financial condition.
In addition to Microsoft, other potential competitors may bundle their
products or incorporate performance and availability management software for
Windows NT-based systems and applications into existing products, including for
promotional purposes. In addition, our ability to sell our products will
depend, in part, on the compatibility of our products with other third party
products. Certain of these third party software developers may change their
products so that they will no longer be compatible with our products. If our
competitors bundled their products in this manner or made their products
incompatible with ours, this could materially adversely affect our ability to
sell our products and could lead to price reductions for our products which
could reduce our profit margins.
We will need to expand our distribution channels in order to develop our
business.
Our ability to sell our products into new markets and to increase our product
penetration into our existing markets will be impaired if we fail to
significantly expand our distribution channels, and our business, future
quarterly and annual operating results and financial condition will be
adversely affected as a result.
Third-Party Channels. Our sales strategy requires that we establish multiple
indirect marketing channels in the United States and internationally through
value added resellers, or VARs, systems integrators and distributors and
original equipment manufacturers, or OEMs, and that we increase the number of
customers licensing our products through these channels. Moreover, our channel
partners must market our products effectively and be qualified to provide
timely and cost-effective customer support and service. If they are unable to
do so, this could materially adversely affect our business, future quarterly
and annual operating results and financial condition. Our domestic resellers
order our products through Tech Data Corporation, which is currently our sole
U.S. distributor. We intend to add additional U.S. and international
distributors, but may not be able to do so or maintain our existing
relationship with Tech Data. Sales of our AppManager products through Tech Data
accounted for approximately $575,000, or 4%, of software license revenue for
the nine months ended March 31, 1999. Our current agreement with Tech Data does
not prevent Tech Data from selling products of other companies, including those
of our our competitors, and does not require that Tech Data purchase minimum
quantities of our products. Tech Data and any of our future distributors could
give higher priority to the products of other companies than they give to our
products. As a result, any significant reduction in sales volume to any of our
current or future distribution partners could materially adversely affect our
business, future quarterly and annual operating results and financial
conditions. In addition, sales through these channels generally have lower
costs than direct sales and any significant decrease in sales through these
channels could also negatively impact our operating margins. Furthermore, our
relationships with our distribution partners may not generate enough revenue to
offset the significant resources used to develop these channels.
Field Sales and Inside Sales. We are planning to significantly expand our
field sales efforts in the U.S. and internationally and we are investing, and
plan to continue to invest, substantial resources in this expansion. Despite
these efforts, we may experience difficulty in recruiting and retaining
qualified field sales personnel. In addition to expanding our field sales
efforts, we are also expanding our efforts to sell our products through inside
sales personnel who, in addition to working with our third party channel
partners, sell our AppManager products through telephone sales efforts to
customers typically having fewer than 100 Windows NT servers and that are not
served through our field sales efforts or third party channels. Because we rely
heavily on our field
8
<PAGE>
sales and inside sales organizations, any failure to expand those organizations
could limit our ability to sell our products.
If the markets for Windows NT and performance and availability management
software for Windows NT-based systems and applications do not continue to
develop as we anticipate, our business will be adversely affected.
Windows NT. AppManager is designed to support Windows NT-based systems and
applications and we expect our products to be dependent on the Windows NT
market for the foreseeable future. If the market for Windows NT systems
declines or develops more slowly than we currently anticipate, this would
materially adversely affect our business, future quarterly and annual operating
results and financial condition. Although the market for Windows NT has grown
rapidly in recent periods, this growth may not continue at the same rate, or at
all.
Performance and Availability Management Software for Windows NT. The market
for performance and availability management software for Windows NT-based
systems and applications may not develop or may grow more slowly than we
anticipate and this could materially adversely affect our business, future
quarterly and annual operating results and financial condition. The rate of
acceptance of our AppManager products is dependent upon the increasing
complexity of organizations' Windows NT environments as these organizations
deploy additional servers and applications on this platform. Many companies
have been addressing their performance and availability management needs for
Windows NT-based systems and applications internally and only recently have
become aware of the benefits of third-party solutions, such as our AppManager
products, as their needs have become more complex. Our future financial
performance will depend in large part on the continued growth in the number of
businesses adopting third party performance and availability management
software products and their deployment of these products on an enterprise-wide
basis.
The lengthy sales cycle for our products makes our revenues susceptible to
fluctuations.
The delay or failure to complete sales, especially large, enterprise-wide
sales, in a particular quarter or calendar year could have a materially adverse
effect on our business, future quarterly and annual operating results and
financial condition. We have traditionally focused sales of our products to
workgroups and divisions of a customer, resulting in a sales cycle ranging
between 90 and 180 days. The sales cycle associated with the purchase of our
products is subject to a number of significant risks over which we have little
or no control, including:
. customers' budgetary constraints and internal acceptance procedures
. concerns about the introduction or announcement of our or our
competitors' new products, including product announcements by Microsoft
relating to Windows NT
. customer requests for product enhancements
Increasingly, we are focusing more of our selling effort on products for the
customer's entire enterprise. However, the sales cycle for these enterprise-
wide sales typically can be significantly longer than the sales cycle for
smaller-sized sales. Enterprise-wide sales of our AppManager products require
an extensive sales effort throughout a customer's organization because
decisions to license and deploy such software generally involve the evaluation
of the software by many people, in various functional and geographic areas,
each often having specific and conflicting requirements. This evaluation
process often requires significant efforts to educate information technology,
or IT, decision-makers about the benefits of our products for the Windows NT
environment.
We have experienced significant growth in our business in recent periods and
our ability to manage this growth and any future growth will affect our
business.
Our future quarterly and annual operating results will depend in part on our
ability to implement and expand operational, customer support and financial
control systems and to train and manage our employees. We
9
<PAGE>
may not be able to augment or improve existing systems and controls or
implement new systems and controls in response to future growth, if any. Any
failure to manage growth could materially adversely affect our business. Our
historical growth has placed, and any further growth is likely to continue to
place, a significant strain on our resources. We have grown from 11 employees
at June 30, 1996 to 110 employees at March 31, 1999. We have also opened 10
field sales offices and have significantly expanded our operations. We are
currently implementing new financial and accounting systems and to be
successful, we need to expand our other infrastructure programs, including
implementing additional management information systems, improving our operating
and administrative systems and controls, training new employees and maintaining
close coordination among our executive, engineering, accounting, finance,
marketing, sales, operations and customer support organizations. In addition,
our growth has resulted, and any future growth will result, in increased
responsibilities for management personnel. Managing this growth will require
substantial resources that we may not have.
We will need to recruit and retain additional qualified personnel to
successfully grow our business.
Our future success will also likely depend in large part on our ability to
attract and retain experienced sales, research and development, marketing,
technical assistance and management personnel. If we do not attract and retain
such personnel, this could materially adversely affect our business and future
quarterly and annual operating results. Competition for such personnel in the
computer software industry is intense, particularly in the Silicon Valley, and
in the past we have experienced difficulty in recruiting qualified personnel,
especially technical and sales personnel. Moreover, we intend to expand the
scope of our international operations and these plans will require us to
attract experienced management, service, marketing, sales and customer support
personnel for our international offices. We expect competition for qualified
personnel to remain intense, and we may not succeed in attracting or retaining
such personnel. In addition, new employees generally require substantial
training in the use of our products, which in turn requires significant
resources and management attention.
Any deterioration of our relationships with Microsoft could adversely affect
our business.
Any deterioration of our relationships with Microsoft could materially
adversely affect our business, future quarterly and annual operating results
and financial condition. We do not have any agreements to ensure that our
existing relationships with Microsoft will continue or expand. We rely on our
participation in Microsoft's beta testing and feedback programs to develop our
technology and enhance the features and functionality of our software.
Traditionally, Microsoft has not prohibited companies who develop software that
supports Microsoft operating systems from participating in such programs.
However, Microsoft may prohibit us from participating in such programs in the
future for competitive or other reasons. Recently, Microsoft has permitted one
of our engineers to work with its Windows NT development group at its Redmond,
Washington headquarters. Microsoft also contracts for one of our engineers to
provide support for Microsoft's use of our products. Additionally, we
participate in certain joint marketing programs with Microsoft and count
Microsoft as one of our significant customers. Microsoft is also currently
distributing our AppManager WBEM product with its Windows 2000 operating server
beta release, however, Microsoft is under no obligation to continue to
distribute this product in the future.
We intend to expand our international operations and may encounter a number of
problems in doing so.
Expansion of International Operations. We intend to expand the scope of our
international operations and currently have field offices in London, Munich,
Singapore, Sydney and Tokyo. If we are unable to expand our international
operations successfully and in a timely manner, this could materially adversely
affect our business and quarterly and annual operating results. Our continued
growth and profitability will require continued expansion of our international
operations, particularly in Europe and Asia-Pacific. We have only limited
experience in developing, marketing, selling and supporting our products
internationally and may not succeed in expanding our international operations.
Risks of International Operations. International sales represented
approximately 10% of total revenue in fiscal 1998 and approximately 22% of
total revenue for the nine months ended March 31, 1999. Our
10
<PAGE>
international revenue is attributable principally to our European operations.
Our international operations are, and any expanded international operations
will be, subject to a variety of risks associated with conducting business
internationally, many of which are beyond our control, that could materially
adversely affect our business, future quarterly and annual operating results
and financial condition including the following:
. Longer payment cycles . Fluctuations in currency
. Seasonal reductions in business exchange rates
activity during the summer . Recessionary environments in
months in Europe and certain foreign economies
other parts of the world . Problems in collecting accounts
. Increases in tariffs, duties, receivable
price controls or other . Difficulties in staffing and
restrictions on foreign managing international
currencies or trade barriers operations
imposed by foreign countries . Limited or unfavorable
. Difficulties in localizing our intellectual property protection
products for foreign markets
Our industry changes rapidly due to evolving technology standards and our
future success will depend on our ability to continue to meet the sophisticated
needs of our customers.
Our future success will depend on our ability to address the increasingly
sophisticated needs of our customers by supporting existing and emerging
technologies, including technologies related to the development of the Windows
NT operating system generally. If we do not enhance our products to meet these
evolving needs, this could materially adversely affect our business, future
quarterly and annual operating results and financial condition. We will have to
develop and introduce new products and enhancements to our existing AppManager
products on a timely basis to keep pace with technological developments,
evolving industry standards, changing customer requirements and competitive
products that may render existing products and services obsolete. In addition,
because our AppManager products are dependent upon Windows NT, we will need to
continue to respond to technology advances for this operating system, including
major revisions. Our position in the existing market for performance and
availability management software for Windows NT-based systems and applications
could be eroded rapidly by product advances. Consequently, the life cycles of
our products are difficult to estimate. We expect that our product development
efforts will continue to require substantial investments that we may not have
the resources to make.
We may experience delays in developing our products that could adversely affect
our business.
If we are unable, for technological or other reasons, to develop and
introduce new and improved products in a timely manner, this could materially
adversely affect our business, future quarterly and annual operating results
and financial condition. We have experienced product development delays in new
versions and update releases in the past and may experience similar or more
significant product delays in the future. To date, none of these delays has
materially affected our business. However, future delays may have a material
effect on our business. Difficulties in product development could delay or
prevent the successful introduction or marketing of new or improved products or
the delivery of new versions of our products to our customers.
Our executive officers and certain key personnel are critical to our business
and such officers and key personnel may not remain with NetIQ in the future.
Our success will depend to a significant extent on the continued service of
our executive officers and certain other key employees, including certain
sales, consulting, technical and marketing personnel. If we lose the services
of one or more of our executives or key employees, including if one or more of
our executives or key employees decided to join a competitor or otherwise
compete directly or indirectly with us, this could materially adversely affect
our business.
Our future revenue is partially dependent upon our installed customers
licensing additional AppManager products.
If our current customers do not purchase additional products, this could
materially adversely affect our business and future quarterly and annual
operating results. Most of our current customers initially license a
11
<PAGE>
small portion of our products for pilot programs. In order to increase software
license revenue, our sales efforts target our existing customer base to expand
these customers' use of our AppManager products. Our customers may not license
additional AppManager products and may not expand their use of our products. In
addition, as we deploy new versions of our AppManager products or introduce new
products, our current customers may not require the functionality of our new
products and may not license these products. We also depend on our installed
customer base for future revenue from maintenance renewal fees. The terms of
our standard license arrangements provide for a one-time license fee and a
prepayment of one year of software maintenance and support fees. Our
maintenance agreements are renewable annually at the option of our customers
but there are no minimum payment obligations or obligations to license
additional software.
Errors in our products or product liability claims asserted against us could
adversely affect our business.
Because our software products are complex, they may contain errors, or
"bugs," that can be detected at any point in a product's life cycle. These
errors could materially adversely affect our business and future quarterly and
annual operating results. While we continually test our products for errors and
work with customers through our customer support services to identify and
correct bugs, errors in our products may be found in the future. Testing for
errors is complicated in part because it is difficult to simulate the complex,
distributed computing environments in which our customers use our products as
well as because of the increased functionality of our product offerings. In the
past, we have discovered errors in certain of our products and have experienced
delays in the shipment of our products during the period required to correct
these errors. These delays have principally related to new versions and product
update releases. To date none of these delays has materially affected our
business. However, product errors or delays in the future could be material.
Detection of any significant errors may result in, among other things, loss of,
or delay in, market acceptance and sales of our products, diversion of
development resources, injury to our reputation, or increased service and
warranty costs. Moreover, because our products support Windows NT-based systems
and applications, any software errors or bugs in the Windows NT operating
server software or the systems and applications that our products manage may
result in errors in the performance of our software.
In addition, we may be subject to claims for damages related to product
errors in the future. A material product liability claim could materially
adversely affect our business. Our license agreements with our customers
typically contain provisions designed to limit exposure to potential product
liability claims. Certain of our licensing agreements provide that if our
products fail to perform, we will correct or issue replacement software. Our
standard license also provides that we shall not be liable for indirect or
consequential damages caused by the failure of our products. Such limitation of
liability provisions, however, may not be effective under the laws of certain
jurisdictions to the extent local laws treat certain warranty exclusions as
unenforceable. Although we have not experienced any product liability claims to
date, the sale and support of our products entails the risk of such claims. In
particular, issues relating to year 2000 compliance have increased awareness of
the potential adverse effects of software defects and malfunctions.
Potential year 2000 problems with our software, third party equipment or our
internal operating systems could adversely affect our business.
If any of our licensees experience year 2000 problems as a result of their
use of our AppManager products, they could assert claims for damages which, if
successful, could materially adversely affect our business, future operating
results and financial condition. While we currently believe that our software
products are generally year 2000 compliant, we may learn that certain of our
software products do not contain all necessary software routines and codes
necessary for the accurate calculation, display, storage and manipulation of
data involving dates. In addition, in certain cases, we have warranted that the
use or occurrence of dates on or after January 1, 2000, will not adversely
affect the performance of our products with respect to four digit date
dependent data or the ability to create, store, process and output information
related to such data. In addition, we use third-party equipment and software
that may not be year 2000 compliant. If this third-party equipment or software
does not operate properly with regard to the year 2000, we may incur unexpected
12
<PAGE>
expenses to remedy any problems that could materially adversely affect our
business. Moreover, if our key systems, or a significant number of our systems,
were to fail as a result of year 2000 problems, we could incur substantial
costs and disruption of our business. For a more detailed description of our
year 2000 preparedness assessment, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
We rely heavily on our intellectual property rights, and if we cannot protect
our intellectual property rights, this could adversely affect our business.
Our success is heavily dependent upon proprietary technology. We rely
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. These laws and procedures provide only limited protection.
We have applied for three patents relating to our engineering work. Two of
these patents have been issued or approved for issuance and the third patent
application is pending, but may never be issued. These patents may not provide
sufficiently broad protection or they may not prove to be enforceable in
actions against alleged infringers. Despite precautions that we take, it may be
possible for unauthorized third parties to copy aspects of our current or
future products or to obtain and use information that we regard as proprietary.
In particular, we may provide our licensees with access to our proprietary
information underlying our licensed applications. Additionally, our competitors
may independently develop similar or superior technology. Policing unauthorized
use of software is difficult and some foreign laws do not protect our
proprietary rights to the same extent as United States laws. Litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others. Litigation could result in substantial costs and diversion of
resources and could materially adversely affect our business, future operating
results and financial condition.
Third parties in the future could assert that our products infringe their
intellectual property rights, which could adversely affect our business.
Third parties may claim that our current or future products infringe their
proprietary rights and costs associated with these claims, whether the claims
have merit or not, could materially adversely affect our business. We
previously litigated a claim with Compuware alleging that we had infringed a
third party's intellectual property rights, and although this claim has been
settled and no other claims of this nature are currently pending, any future
claims could affect our relationships with existing customers and may prevent
future customers from licensing our products. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Any such claims,
with or without merit, could be time consuming, result in costly litigation,
including costs related to any damages we may owe resulting from such
litigation, cause product shipment delays or require us to enter into royalty
or licensing agreements. Royalty or license agreements may not be available on
acceptable terms or at all. We expect that software product developers will
increasingly be subject to infringement claims as the number of products and
competitors in the software industry segment grows and the functionality of
products in different industry segments overlaps.
Seasonal trends in sales of our software products may affect our quarterly
operating results.
We expect to experience seasonality in sales of our software products in the
future. These seasonal trends could materially affect our quarter-to-quarter
operating results. Revenue and operating results in our quarter ending December
31 are sometimes higher than in our other quarters, because many customers make
purchase decisions based on their calendar year-end budgeting requirements. In
addition, our quarter ending June 30 tends to reflect the effect of the
incentive compensation structure for our sales organization, which is based, in
part, on satisfaction of fiscal year-end quotas.
Fluctuations in the value of foreign currencies could result in currency
translation losses.
Currently, a majority of our international business is conducted in U.S.
dollars. However, as we expand our international operations, we expect that our
international business will increasingly be conducted in foreign currencies.
Fluctuations in the value of foreign currencies relative to the U.S. dollar
have caused, and we expect such fluctuation to increasingly cause, currency
translation gains and losses. We cannot predict the effect of
13
<PAGE>
exchange rate fluctuations upon future quarterly and annual operating results.
We may experience currency losses in the future. To date, we have not adopted a
hedging program to protect us from risks associated with foreign currency
fluctuations.
Because we license certain of our technology from a third party, any failure to
maintain satisfactory licensing arrangements with this party could adversely
affect our business.
We license certain technology that is incorporated in certain of our
AppManager products from Summit Software on a non-exclusive, worldwide basis.
Substantially all of our AppManager products rely on this Summit technology.
Although our agreement allows us to continue to sell products using the Summit
technology for a period of 24 months after the license terminates, our
business, operating results and financial condition could be affected if we are
not able to replace this technology on commercially reasonable terms. We
license this technology on a year-to-year basis which is automatically renewed
each August unless otherwise terminated. Our license for this technology is
terminable by Summit upon 60 days notice in the event certain conditions occur,
including our failure to pay royalty fees on a timely basis or any other
material breach by us of the license agreement. For a further description of
our license agreement with Summit, see "Business--Intellectual Property."
Provisions in our charter documents and in Delaware law may inhibit potential
acquisition bids for NetIQ and prevent changes in our management.
Certain provisions of our charter documents could discourage potential
acquisition proposals and could delay or prevent a change in control
transaction. These provisions could have the effect of discouraging others from
making tender offers for our shares, and as a result, these provisions may
prevent the market price of our common stock from reflecting the effects of
actual or rumored takeover attempts. These provisions may also prevent changes
in our management. Our charter documents do not permit stockholders to act by
written consent, do not permit stockholders to call a stockholders meeting and
provide for a classified board of directors, which means stockholders can only
elect, or remove, a limited number of our directors in any given year.
Furthermore, upon completion of the offering, our board of directors will have
the authority to issue up to 5,000,000 shares of preferred stock in one or more
series. Our board of directors can fix the price, rights, preferences,
privileges and restrictions of such preferred stock without any further vote or
action by our stockholders. The issuance of shares of preferred stock may delay
or prevent a change in control transaction without further action by our
stockholders. In addition, certain provisions of Delaware law may inhibit
potential acquisition bids for NetIQ. We are subject to the antitakeover
provisions of Delaware law, which regulates corporate acquisitions. Delaware
law prevents certain Delaware corporations, including NetIQ, from engaging,
under certain circumstances, in a "business combination" with any "interested
stockholder" for three years following the date that such stockholder became an
interested stockholder. For a further discussion of these charter provisions
and Delaware law, see "Description of Capital Stock."
The substantial number of shares that will be eligible for sale in the near
future may adversely affect the market price for our common stock.
Sales of a substantial number of shares of our common stock in the public
market following this offering could materially adversely affect the market
price for our common stock. The number of shares of common stock available for
sale in the public market is limited by restrictions under federal securities
law and under certain agreements that our stockholders have entered into with
the underwriters or with us. Those agreements restrict our stockholders from
selling, pledging or otherwise disposing of their shares for a period of 180
days after the date of this prospectus without the prior written consent of
Credit Suisse First Boston Corporation. However, Credit Suisse First Boston
Corporation may, in its sole discretion, release all or any portion of the
common stock from the restrictions of the lockup agreements. Credit Suisse
First Boston Corporation has no current plans to do so. Based on the 17,016,493
shares of our common stock outstanding as of March 31, 1999, which excludes the
shares issuable upon the presumed exercise of the warrant held by Compuware,
and the shares being sold by us in this offering, as a result of the
restrictions of federal securities law and
14
<PAGE>
the agreements our stockholders have entered into with the underwriters or with
us, no shares other than the shares offered hereby will be eligible
for sale immediately after completion of this offering. The following table
indicates approximately when the shares of our common stock that are
not being sold in the offering but which will be outstanding at the time the
offering is complete will be eligible for sale into the public market:
<TABLE>
<CAPTION>
Eligibility of
Restricted Shares
for Sale in
Public Market
-----------------
<S> <C>
At effective date........................................ 0
180 days after effective date............................
At various times after the effective date................
</TABLE>
The shares issuable upon the presumed exercise of the warrant held by
Compuware will become eligible for sales after 180 days after the effective
date. Many of the restricted shares that will become eligible for sale at the
180th date after the date of this prospectus or afterward will be subject to
certain volume limitations because they are held by affiliates of NetIQ.
Additionally, of the shares issuable upon exercise of options to purchase our
common stock outstanding as of March 31, 1999, approximately shares
will be vested and eligible for sale on the 180th date following the completion
of this offering. For a further description of the eligibility of shares for
sale into the public market following the offering see "Shares Eligible for
Future Sale."
New investors in our common stock will experience immediate and substantial
dilution.
The initial public offering price is substantially higher than the book value
per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $ in net tangible
book value per share of common stock after taking into consideration the
effects of the issuance of the shares offered hereby and the presumed exercise
of the warrant to purchase shares of common stock issued to Compuware. See
"Dilution" for a further discussion of the dilutive effects of this offering
and the assumed exercise of the Compuware warrant. This dilution figure
includes the impact of deductions of the estimated underwriting discounts and
commissions and estimated offering expenses payable from the initial public
offering price. Investors will incur additional dilution upon the exercise of
outstanding stock options.
Our stock will likely be subject to substantial price and volume fluctuations
due to a number of factors, some of which are beyond our control.
Stock prices and trading volumes for many software companies fluctuate widely
for a number of reasons, including some reasons which may be unrelated to their
businesses or results of operations. This market volatility, as well as general
domestic or international economic, market and political conditions, could
materially adversely affect the market price of our common stock without regard
to our operating performance. In addition, our operating results may be below
the expectations of public market analysts and investors. If this were to
occur, the market price of our common stock would likely significantly
decrease.
Our investment of the proceeds from this offering may not yield a significant
return.
We will have broad discretion as to the use of the proceeds from this
offering and we may not invest these proceeds to yield a significant return.
Our primary purposes for this offering are to create a public market for our
common stock and to raise working capital for general corporate purposes, the
repayment of an outstanding loan from Compuware and potential strategic
investments or acquisitions. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." Until the need arises to use the proceeds, we plan to
invest the net proceeds in investment grade, interest-bearing securities.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed
under "Risk Factors."
16
<PAGE>
USE OF PROCEEDS
We will receive net proceeds of $ from the sale of shares of
common stock at an assumed initial public offering price of $ per share
after deducting underwriting commissions and discounts of $ and
expenses of $ .
The principal purposes of this offering are to create a public market for our
common stock and to raise working capital. Additionally, we will use
approximately $5.0 million of the net proceeds to satisfy certain outstanding
loan obligations to Compuware. Moreover, we may use certain of the proceeds of
the offering for potential strategic investments or acquisitions that
complement our products, services, technologies or distribution channels.
However, we do not currently have any plans to make any such strategic
investments or acquisitions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." Pending such uses, we intend to invest the net proceeds of the
initial public offering in investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our common
stock. We intend to retain any future earnings for future growth and do not
anticipate paying any cash dividends in the foreseeable future.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization at March 31, 1999 on the
following three bases:
. actual
. on a pro forma basis to reflect the automatic conversion of all
outstanding preferred stock into common stock, the repayment of a $5.0
million promissory note and the presumed exercise of a warrant upon
completion of this offering, and to show the effects of increases in the
number of authorized shares of common stock and preferred stock upon
completion of this offering
. on a pro forma as adjusted basis to show the effect of our receipt of the
estimated net proceeds from the sale of shares of common
stock offered at an assumed initial public offering price of $ per
share and the application of the net proceeds therefrom
As indicated above, the pro forma capitalization information reflects the
repayment of a $5.0 million promissory note plus accrued interest and the
receipt of net proceeds in connection with the presumed exercise of a warrant
at a exercise price of $ per share, which promissory note and warrant were
issued to Compuware as part of the settlement agreement relating to litigation
involving Compuware. Under the terms of the warrant, the per share exercise
price is equal to 90% of the per share sales price of shares of common stock
sold in this offering. For further information regarding this warrant and for
more information regarding the repayment of the promissory note and of accrued
interest thereon which is payable upon completion of the initial public
offering contemplated by this prospectus, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Description of Capital Stock."
The outstanding share information excludes 4,270,007 shares of common stock
that were reserved for issuance upon exercise of stock options under the 1995
Stock Plan as of March 31, 1999, of which options to purchase 3,172,106 shares
were outstanding at such date at a per share weighted average exercise price of
$0.51. In addition, in connection with this offering, our board of directors
has approved an increase of 2,050,000 shares to be reserved under the 1995
Stock Plan and 750,000 shares to be reserved under the 1999 Employee Stock
Purchase Plan.
The capitalization information set forth in the table below is qualified by,
and should be read in conjunction with, the more detailed Consolidated
Financial Statements and notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Current portion of long-term obligations........ $ 5,144
Long-term obligations, less current portion..... 241
Stockholders' equity:
Preferred Stock, $0.001 par value, 11,100,000
shares authorized and outstanding, actual;
5,000,000 shares authorized, no shares
outstanding, pro forma; 5,000,000 shares
authorized, no shares outstanding, pro forma
as adjusted................................... 10,955 -- --
Common Stock, $0.001 par value, 30,000,000
shares authorized, 5,916,493 shares
outstanding, actual; 150,000,000 shares
authorized, shares outstanding, pro
forma; 150,000,000 shares authorized,
shares outstanding, pro forma as
adjusted...................................... 4,143
Deferred stock-based compensation.............. (2,325)
Accumulated deficit............................ (6,802)
------- --- ---
Total stockholders' equity................... 5,971
------- --- ---
Total capitalization....................... $11,356
======= === ===
</TABLE>
18
<PAGE>
DILUTION
The pro forma net tangible book value of NetIQ as of March 31, 1999 was
$ , or approximately $ per share. Pro forma net tangible book value
per share represents the pro forma amount of NetIQ's total assets less total
liabilities, divided by the number of shares of common stock outstanding, and
reflects the effects of the conversion of the outstanding preferred stock into
common stock, the presumed exercise of a warrant, the repayment of a $5.0
million promissory note and accrued interest thereon. After giving effect to
the sale of the shares of common stock offered at an assumed initial
public offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by NetIQ, our pro forma net tangible book value at March 31, 1999 would have
been $ , or approximately $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share
to existing stockholders and an immediate dilution in net tangible book value
of $ per share to new investors of common stock in this offering. The
following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C> <C>
Assumed public offering price per share.......................... $
Pro forma net tangible book value per share as of March 31,
1999..........................................................
Increase attributable to new investors.........................
--- ---
Pro forma net tangible book value per share after offering.......
--- ---
Dilution per share to new investors.............................. $
===
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1999,
the differences between the number of shares of common stock purchased, the
total consideration paid and the average price per share paid by existing
holders of common stock and by the new investors, before deducting underwriting
discounts and commissions and estimated offering expenses payable by NetIQ, at
an assumed public offering price of $ per share.
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
-------------- -------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... % $ % $
New investors...........................
---- ----- ----- -----
Total................................. 100.0% 100.0%
==== ===== ===== =====
</TABLE>
To the extent that any shares are issued upon exercise of options that were
outstanding at March 31, 1999 or granted after that date, or reserved for
future issuance under our stock plans, there will be further dilution to new
investors. See "Management--Incentive Stock Plans," "Description of Capital
Stock" and Notes 5 and 13 of Notes to Consolidated Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," which are included elsewhere in this prospectus. The
consolidated statements of operations data for the years ended June 30, 1996,
1997 and 1998 and the nine months ended March 31, 1999 and the consolidated
balance sheet data at June 30, 1997 and 1998 and March 31, 1999 are derived
from the audited consolidated financial statements included elsewhere in this
prospectus. The consolidated balance sheet data as of June 30, 1996 are derived
from audited financial statements not included in this prospectus. The
consolidated statements of operations data for the nine months ended March 31,
1998 are derived from unaudited consolidated financial statements included
elsewhere in this prospectus. In our opinion, these unaudited statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the information when read in conjunction with the
consolidated financial statements and notes thereto. Results for the nine
months ended March 31, 1999 are not necessarily indicative of the expected
results for the full year.
<TABLE>
<CAPTION>
Nine Months
Year Ended June 30, Ended March 31,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenue:
Software license................ $ -- $ 369 $ 6,603 $ 3,186 $13,137
Service......................... -- 19 467 234 1,972
------- ------- ------- ------- -------
Total revenue................. -- 388 7,070 3,420 15,109
------- ------- ------- ------- -------
Cost of revenue:
Software license................ -- 9 235 159 532
Service......................... -- 46 407 203 894
------- ------- ------- ------- -------
Total cost of revenue......... -- 55 642 362 1,426
------- ------- ------- ------- -------
Gross profit..................... -- 333 6,428 3,058 13,683
Operating expenses:
Sales and marketing............. 77 1,238 5,748 3,600 8,027
Research and development........ 665 1,003 2,192 1,462 2,652
General and administrative...... 264 479 1,611 994 2,239
Stock-based compensation........ -- 10 250 83 1,355
------- ------- ------- ------- -------
Total operating expenses...... 1,006 2,730 9,801 6,139 14,273
------- ------- ------- ------- -------
Loss from operations............. (1,006) (2,397) (3,373) (3,081) (590)
Interest income, net............. 97 116 262 215 89
------- ------- ------- ------- -------
Net loss......................... $ (909) $(2,281) $(3,111) $(2,866) $ (501)
======= ======= ======= ======= =======
Basic and diluted net loss per
share(1)........................ $ (1.03) $ (1.07) $ (0.89) $ (0.87) $ (0.10)
======= ======= ======= ======= =======
Shares used to compute basic and
diluted net loss per share(1)... 881 2,122 3,496 3,299 4,993
======= ======= ======= ======= =======
Pro forma basic and diluted net
loss per share(2)............... $ (0.21) $ (0.03)
======= =======
Shares used to compute pro forma
basic and diluted net loss per
share(2)........................ 14,596 16,093
======= =======
</TABLE>
<TABLE>
<CAPTION>
June 30,
------------------- March 31,
1996 1997 1998 1999
----- ------ ------ ---------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........................ $ 32 $7,748 $3,358 $11,565
Working capital.................................. 1,755 7,493 4,314 5,076
Total assets..................................... 2,255 8,202 8,205 17,613
Long-term obligations, less current portion...... -- -- -- 241
Total stockholders' equity....................... 1,880 7,787 4,939 5,971
</TABLE>
- --------
(1) See Note 6 to the Consolidated Financial Statements for the determination
of shares used in computing basic and diluted net loss per share.
(2) See Note 1 to the Consolidated Financial Statements for the determination
of shares used in computing pro forma basic and diluted net loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with our Consolidated
Financial Statements and the Notes thereto. This discussion contains forward-
looking statements based upon current expectations that involve risks and
uncertainties, such as our plans, objectives, expectations and intentions. Our
actual results and the timing of certain events could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors," "Business" and
elsewhere in this prospectus.
Overview
We develop, market and support a suite of software products, the NetIQ
AppManager Suite, that centrally manages the performance and availability of
distributed Windows NT-based systems and applications. Utilizing a centralized
console with automated monitoring, correction and reporting capabilities, our
products help optimize the performance and availability of business-critical
Windows NT systems and applications and reduce associated support costs.
From our incorporation in June 1995 until the first sales of AppManager in
February 1997, we were principally engaged in development-stage activities,
including product development, sales and marketing efforts and recruiting
qualified management and other personnel. Our total revenue has grown from
$388,000 in fiscal 1997, to $7.1 million in fiscal 1998 and to $15.1 million in
the nine months ended March 31, 1999. This rapid revenue growth reflects our
relatively early stage of development, and we do not expect revenue to increase
at the same rate in the future.
Operating expenses grew from $1.0 million in fiscal 1996, to $2.7 million in
fiscal 1997, to $9.8 million in fiscal 1998 and to $14.3 million in the nine
months ended March 31, 1999. Our operating expenses increased as we expanded
our operations, including growing our employee base from 11 at June 30, 1996,
to 110 at March 31, 1999. Our operating expenses, which include charges for
stock-based compensation, together with cost of revenue have exceeded revenue
in every quarter since inception. This was the result of our strategy to make
the investments necessary to capture market share and grow revenue as quickly
as possible, while maintaining a high level of fiscal control, product quality
and customer satisfaction. Our cumulative losses have resulted in an
accumulated deficit in retained earnings of $6.8 million at March 31, 1999.
We have derived the large majority of our revenue from software licenses. We
also derive revenue from sales of annual maintenance agreements and, to a
lesser extent, consulting and training services. Service revenue has increased
in recent periods as the size of our installed base has grown. We expect
service revenue to increase as a percentage of total revenue as our installed
license base grows and, as a consequence, our cost of service revenue to
increase in absolute dollars and as a percentage of total revenue. The pricing
of the AppManager Suite is based on the number of systems and applications
managed, although volume and enterprise pricing is also available. Our
customers typically purchase one year of product software maintenance with
their initial license of our products. Thereafter, customers are entitled to
receive software updates, maintenance releases and technical support for an
annual maintenance fee equal to a fixed percentage of the current list price of
the licensed product.
We sell our products through both our direct sales force, which includes our
field and inside sales personnel, as well as through indirect channels, such as
distributors, value-added resellers and original equipment manufacturers. To
date, the majority of our sales have resulted from the efforts of our field and
inside sales personnel. However, we expect that sales through third-party
channel partners will increase in the future. During both fiscal 1998 and the
nine months ended March 31, 1999, no single customer accounted for more than
10% of our consolidated revenue. International sales did not account for any of
our revenue in fiscal 1997, but represented 10% of total revenue in fiscal 1998
and 22% of total revenue in the nine months ended
21
<PAGE>
March 31, 1999. We anticipate that as we expand our international sales
efforts, the percentage of revenue derived from international sources will
continue to increase.
Generally, we sell perpetual licenses and recognize revenue, in accordance
with generally accepted accounting principles, upon meeting each of the
following criteria:
. execution of a written purchase order, license agreement or contract;
. delivery of software and authorization keys;
. the license fee is fixed and determinable;
. collectibility of the proceeds within six months is assessed as being
probable; and
. vendor-specific objective evidence exists to allocate the total fee to
elements of the arrangement.
Vendor-specific objective evidence is based on the price generally charged when
an element is sold separately, or if not yet sold separately, is established by
authorized management. All elements of each order are valued at the time of
revenue recognition. For sales made through our distributors, resellers and
OEMs, we recognize revenue at the time these partners report to us and after
all revenue recognition criteria have been met.
In September 1996, Compuware Corporation filed a complaint against us
alleging misappropriation of certain trade secrets, copyright infringement,
unfair competition and other claims. We reached a settlement of these claims in
January 1999 and final documentation was entered into and the claims dismissed
in March 1999. As part of the settlement in March 1999, Compuware loaned us
$5.0 million, subordinated to any bank credit facility, with interest at 6% per
year. This loan, including all accrued interest, is payable upon the closing of
this offering. Additionally, as part of the settlement in March 1999, we issued
Compuware a warrant to purchase shares of common stock. Under the terms of the
warrant, the per share exercise price of the warrant is $ , 90% of the
per share sale price of shares sold to investors in this offering. The warrant
provides that Compuware can purchase up to a maximum number of shares equal to
the lesser of 10% of the shares sold in this offering or 2% of our common stock
assuming exercise of all outstanding options as of May 26, 1999. A portion of
the net proceeds from the offering contemplated by this prospectus will be used
to repay the loan and the accrued interest thereon, which repayment we expect
will be substantially offset by the receipt of cash proceeds from Compuware
upon the presumed exercise of the warrant. Additionally, as part of our
settlement agreement, we agreed not to recruit personnel from Compuware until
after December 31, 1999, or release any systems management software for
managing UNIX systems on or before December 31, 1999.
22
<PAGE>
Historical Results of Operations
The following table sets forth our historical results of operations expressed
as a percentage of total revenue for fiscal 1997 and 1998 and for the nine
months ended March 31, 1998 and 1999. We did not have any revenue in fiscal
1996. Our historical operating results are not necessarily indicative of the
results for any future period.
<TABLE>
<CAPTION>
Percentage of Total Revenue
----------------------------------
Year Ended Nine Months
June 30, Ended March 31,
------------- ------------------
1997 1998 1998 1999
----- ----- ------- -------
<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data
Revenue:
Software license........................ 95% 93% 93% 87%
Service................................. 5 7 7 13
----- ---- ------- -------
Total revenue......................... 100 100 100 100
----- ---- ------- -------
Cost of revenue:
Software license........................ 2 3 5 3
Service................................. 12 6 6 6
----- ---- ------- -------
Total cost of revenue................. 14 9 11 9
----- ---- ------- -------
Operating expenses:
Sales and marketing..................... 319 81 105 53
Research and development................ 259 31 43 18
General and administrative.............. 123 23 29 15
Stock-based compensation................ 3 4 2 9
----- ---- ------- -------
Total operating expenses.............. 704 139 179 95
----- ---- ------- -------
Loss from operations...................... (618) (48) (90) (4)
Interest income, net...................... 30 4 6 1
----- ---- ------- -------
Net loss.................................. (588)% (44)% (84)% (3)%
===== ==== ======= =======
- --------------
Cost of software license revenue, as a
percentage of software license revenue... 2 % 4 % 5 % 4 %
Cost of service revenue, as a percentage
of service revenue....................... 242 % 87 % 87 % 45 %
</TABLE>
Comparison of Nine Months Ended March 31, 1998 and 1999
Revenue
Our total revenue increased from $3.4 million in the nine months ended March
31, 1998 to $15.1 million in the nine months ended March 31, 1999, representing
growth of 342%. During this same period, our software license revenue increased
from $3.2 million to $13.1 million, representing growth of 312%. These
increases were due primarily to increases in the number of software licenses
sold, reflecting increased acceptance of our AppManager products and expansion
of our field and inside sales organizations and our third-party channel
partners. Service revenue increased from $234,000 in the nine months ended
March 31, 1998 to $2.0 million in the nine months ended March 31, 1999,
representing growth of 743%. This increase was due primarily to maintenance
fees associated with new software licenses as well as annual maintenance
renewals. Service revenue increased as a percentage of total revenue due to the
compounding effect of our base of installed licenses.
Cost of Revenue
Cost of Software License Revenue. Our cost of software license revenue
includes the costs associated with software packaging, documentation, such as
user manuals and CDs, and production, as well as non-employee commissions and
royalties. Our cost of software license revenue has increased from $159,000, or
5%
23
<PAGE>
of software license revenue, in the nine months ended March 31, 1998 to
$532,000, or 4% of software license revenue, in the nine months ended March 31,
1999. The increase in absolute dollar amount was due principally to increases
in the number of software licenses sold, while the percentage decline was due
to increases in sales of the AppManager Suite which do not have non-employee
commissions and/or royalty obligations.
Cost of Service Revenue. Cost of service revenue consists primarily of
personnel costs and expenses incurred in providing on-site and telephonic
maintenance services and consulting services. Costs associated with training
activities consist principally of allocated labor and departmental expenses as
well as training materials. Cost of service revenue was $203,000 and $894,000
during the nine months ended March 31, 1998 and 1999, respectively,
representing 87% and 45% of related service revenue. The increase in dollar
amount of cost of service revenue is primarily attributable to the growth in
our installed customer base. Cost of service revenue as a percent of service
revenue declined due primarily to economies of scale achieved as our revenue
and installed base have grown. We expect service revenue to increase as a
percentage of total revenue as our installed license base grows and, as a
consequence, our cost of service revenue to increase in absolute dollars and as
a percentage of total revenue.
Operating Expenses
Sales and Marketing. Our sales and marketing expenses consist primarily of
personnel costs, including salaries and commissions, as well as expenses
relating to travel, advertising, public relations, seminars, marketing
programs, trade shows and lead generation activities. Sales and marketing
expenses increased from $3.6 million in the nine months ended March 31, 1998 to
$8.0 million in the nine months ended March 31, 1999. This increase in dollar
amount was due primarily to the hiring of additional field sales, inside sales
and marketing personnel and expanding our sales infrastructure and third-party
channel partners, as well as higher commissions relating the increased software
license revenue. Sales and marketing expenses represented 105% and 53% of total
revenue for the nine months ended March 31, 1998 and 1999, respectively. The
decline in sales and marketing expenses as a percentage of total revenue was
principally the result of economies of scale resulting from the increased
number of sales transactions, including follow-on sales to existing customers,
as well as the allocation of marketing expenses over a substantially increased
revenue base. We expect to continue hiring additional sales and marketing
personnel and to increase promotion, advertising and other marketing
expenditures in the future. Accordingly, we expect sales and marketing expenses
will increase in absolute dollars in future periods.
Research and Development. Our research and development expenses consist
primarily of salaries and other personnel-related costs, consulting fees and
depreciation. These expenses increased from $1.5 million, or 43% of total
revenue, in the nine months ended March 31, 1998 to $2.7 million, or 18%, of
total revenue in the nine months ended March 31, 1999. This increase in dollar
amount resulted principally from increases in engineering and technical writing
personnel. The decline in research and development expenses as a percentage of
total revenue was due to the growth in total revenue. To date, all research and
development costs have been expensed as incurred in accordance with Financial
Accounting Standards Board Statement No. 86 as our current software development
process is essentially completed concurrent with the establishment of
technological feasibility. We expect to continue to devote substantial
resources to product development such that research and development expenses
will increase in absolute dollars in future periods and may increase slightly
in the near future as a percentage of total revenue as a result of expenses
related to a third party development effort which will be incurred primarily
over the next several quarters.
General and Administrative. Our general and administrative expenses consist
primarily of personnel costs for finance and administration, information
systems and human resources, as well as professional expenses such as legal and
accounting. General and administrative expenses increased from $1.0 million in
the nine months ended March 31, 1998 to $2.2 million in the nine months ended
March 31, 1999, representing 29% and 15% of total revenues, respectively. The
increase in dollar amount was due primarily to increased staffing necessary to
manage and support our growth. Legal expenses have been a significant cost in
both
24
<PAGE>
periods, amounting to $458,000 and $897,000 for the nine months ended March 31,
1998 and 1999, respectively. These legal costs have principally been due to the
Compuware litigation, for which a settlement was reached in January 1999 and
final documentation was entered into and the claims dismissed in March 1999.
The decrease in general and administrative expense as a percentage of total
revenue was due primarily to the growth in total revenue. We believe that our
general and administrative expenses will increase in absolute dollars as we
expand our administrative staff, add new financial and accounting software
systems, and incur additional costs related to being a public company, such as
expenses related to directors' and officers' liability insurance, investor
relations and stock administration programs and increased professional fees.
Additionally we anticipate that we will incur additional general and
administrative expenses of approximately $ in the quarter ending September
30, 1999, relating to the assumed exercise of the warrant to purchase common
stock issued in connection with the Compuware litigation settlement agreement.
Stock-Based Compensation. During the nine months ended March 31, 1998 and
1999, we recorded deferred stock-based compensation of $473,000 and $2.7
million, respectively, relating to stock option grants to employees and non-
employees. These amounts are being amortized over the vesting periods of the
granted options, which is generally four years for employees. During the nine
months ended March 31, 1998 and 1999, we recognized stock-based compensation
expense of $83,000 and $1.4 million, respectively. At March 31, 1999, total
deferred stock-based compensation was $2.3 million and we expect to incur
additional deferred stock-based compensation of approximately $600,000 in the
quarter ending June 30, 1999. We expect to amortize $600,000 of deferred stock-
based compensation in the quarter ending June 30, 1999 and up to approximately
$200,000 of deferred stock-based compensation each quarter through June 30,
2003.
Interest Income, Net. Interest income, net represents interest income earned
on our cash and cash equivalent balances and interest expense on our equipment
loans and loan subordinated to our bank line of credit. For the nine months
ended March 31, 1998 and 1999, interest and other income, net, was $215,000 and
$89,000, respectively. The decline in interest income, net is the result
primarily of lower cash and cash equivalent balances in the 1999 period,
coupled with interest on the $5.0 million subordinated debt, commencing in the
quarter ended March 31, 1999. The subordinated loan is expected to be repaid
from the proceeds of the public offering. See "--Liquidity and Capital
Resources."
Income Taxes. We incurred net operating losses in the nine months ended March
31, 1998 and 1999, and consequently paid no federal, state or foreign income
taxes.
Comparison of Fiscal Years Ended June 30, 1996, 1997 and 1998
The trends discussed in the comparisons of operating results for the nine
months ending March 31, 1998 and 1999, generally apply to the comparison of
results of operation for fiscal 1996, 1997 and 1998, except for certain
differences discussed below.
Revenue
We did not recognize any revenue in fiscal 1996. We began selling software
licenses for the AppManager Suite in February 1997, and our software license
revenue increased from $369,000 in fiscal 1997 to $6.6 million in fiscal 1998.
Service revenue increased from $19,000 in fiscal 1997 to $467,000 in fiscal
1998, principally from increases in new customer licenses.
Cost of Revenue
Cost of Software License Revenue. Our cost of software license revenue
increased from $9,000, or 2% of software license revenue, in fiscal 1997 to
$235,000, or 4% of software license revenue, in fiscal 1998. The increase in
absolute dollar amount was due principally to increases in the number of
software licenses sold, while the percentage increase was due principally to an
increase in our reserve for product returns by $50,000 in fiscal 1998.
25
<PAGE>
Cost of Service Revenue. Our cost of service revenue increased from $46,000
in fiscal 1997 to $407,000 in fiscal 1998. These costs amounted to 242% and 87%
of service revenue, respectively. The decline in cost of service revenue as a
percentage of service revenue declined due primarily to economies of scale
achieved as our revenue and installed base have grown.
Operating Expenses
Sales and Marketing. Our sales and marketing expenses increased from $77,000
in fiscal 1996, to $1.2 million in fiscal 1997 and to $5.7 million in fiscal
1998. The increase reflects the hiring of additional sales and marketing
personnel in connection with the building of our direct, reseller and OEM
channels, and higher commissions associated with increased sales volume. Sales
and marketing expenses accounted for 319% of total revenue in fiscal 1997 and
81% of total revenue in fiscal 1998. The decrease as a percentage of total
revenue was due primarily to growth in our total revenue.
Research and Development. Research and development expenses increased from
$665,000 in fiscal 1996, our first year of product development, to $1.0 million
in fiscal 1997, and to $2.2 million in 1998. The increase in each of these
periods was due primarily to increases in personnel in each period. Research
and development expenses accounted for 259% of total revenue in fiscal 1997 and
31% of total revenue in fiscal 1998. The decrease as a percentage of total
revenue was due primarily to growth in our total revenue.
General and Administrative. General and administrative expenses increased
from $264,000 in fiscal 1996, to $479,000 in fiscal 1997 and to $1.6 million in
fiscal 1998. These costs, which represented 123% of total revenue in fiscal
1997 and 23% of total revenue in 1998, were the result of increases in
personnel, facility-related costs and legal expenses. Legal expenses, were
$173,000 in fiscal 1997 and $762,000 in fiscal 1998, and related principally to
the Compuware litigation that commenced in September 1996 for which a
settlement was reached in January 1999 and final documentation was entered into
and the claims dismissed in March 1999. The decrease as a percentage of total
revenue was the result of growth in our total revenue.
Stock-Based Compensation. In fiscal 1998, we recorded deferred stock-based
compensation of $1.2 million in connection with certain stock option grants and
amortized $250,000 of this amount as an expense for that year.
Interest Income, Net. We recognized interest income, net of $97,000, $116,000
and $262,000 in fiscal 1996, 1997 and 1998, respectively. These amounts are the
result of investments made out of cash balances in excess of operating
requirements, which resulted from our two preferred stock financings in
September 1995 and May 1997.
Income Taxes. We incurred net operating losses in fiscal 1996, 1997 and 1998,
and consequently paid no federal, state or foreign income taxes.
26
<PAGE>
Quarterly Results of Operations
The following table sets forth our unaudited quarterly results of operations
data for the seven most recent quarters ended March 31, 1999, as well as such
data expressed as a percentage of our total revenue for the periods presented.
The information in the table below should be read in conjunction with our
Consolidated Financial Statements and the Notes thereto included elsewhere in
this prospectus. We have prepared this information on the same basis as the
Consolidated Financial Statements and the information includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for the
quarters presented. You should not draw any conclusions about our future
results from the results of operations for any particular quarter.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31,
1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data
Revenue:
Software license....... $ 526 $1,479 $ 1,181 $3,417 $3,640 $4,519 $4,978
Service................ 23 75 136 233 450 628 894
------ ------ ------- ------ ------ ------ ------
Total revenue......... 549 1,554 1,317 3,650 4,090 5,147 5,872
Cost of revenue:
Software license....... 18 68 73 76 87 158 287
Service................ 20 65 118 204 176 384 334
------ ------ ------- ------ ------ ------ ------
Total cost of
revenue.............. 38 133 191 280 263 542 621
------ ------ ------- ------ ------ ------ ------
Gross profit........... 511 1,421 1,126 3,370 3,827 4,605 5,251
Operating expenses:
Sales and marketing.... 895 1,209 1,496 2,148 2,125 2,864 3,038
Research and
development........... 416 493 553 730 884 806 962
General and
administrative........ 261 332 401 617 523 742 974
Stock-based
compensation.......... -- -- 83 167 364 661 330
------ ------ ------- ------ ------ ------ ------
Total operating
expenses............. 1,572 2,034 2,533 3,662 3,896 5,073 5,304
------ ------ ------- ------ ------ ------ ------
Loss from operations... (1,061) (613) (1,407) (292) (69) (468) (53)
Interest income, net... 90 71 54 47 19 38 32
------ ------ ------- ------ ------ ------ ------
Net loss............... $ (971) $ (542) $(1,353) $ (245) $ (50) $ (430) $ (21)
====== ====== ======= ====== ====== ====== ======
As a Percentage of Total
Revenue:
Revenue:
Software license....... 96% 95% 90% 94% 89% 88% 85%
Service................ 4 5 10 6 11 12 15
------ ------ ------- ------ ------ ------ ------
Total revenue......... 100 100 100 100 100 100 100
Cost of revenue:
Software license....... 3 5 6 2 2 3 5
Services............... 4 4 9 6 4 7 6
------ ------ ------- ------ ------ ------ ------
Total cost of
revenue.............. 7 9 15 8 6 10 11
------ ------ ------- ------ ------ ------ ------
Gross margin........... 93 91 85 92 94 90 89
Operating expenses:
Sales and marketing.... 163 78 114 59 52 56 16
Research and
development........... 76 32 42 20 22 16 52
General and
administrative........ 47 20 30 16 13 14 16
Stock-based
compensation.......... 0 0 6 5 9 13 6
------ ------ ------- ------ ------ ------ ------
Total operating
expenses............. 286 130 192 100 96 99 90
------ ------ ------- ------ ------ ------ ------
Loss from operations... (193) (39) (107) (8) (2) (9) (1)
Interest income, net... 16 4 4 1 1 1 1
------ ------ ------- ------ ------ ------ ------
Net loss............... (177)% (35)% (103)% (7)% (1)% (8)% (0)%
====== ====== ======= ====== ====== ====== ======
- --------------
Cost of software
license revenue, as a
percentage of software
license revenue....... 3% 5% 6% 2% 2% 3% 6%
Cost of service
revenue, as a
percentage of service
revenue............... 87% 87% 87% 88% 39% 61% 37%
</TABLE>
27
<PAGE>
The trends discussed in the comparisons of operating results for the nine
months ended March 31, 1998 and 1999, and fiscal 1996, 1997 and 1998 generally
apply to the comparison of results of operations for our seven most recent
quarters ended March 31, 1999, except for certain differences as discussed
below.
Our total revenue increased in every quarter, except the quarter ended March
31, 1998, which reflected a modest decline from the prior quarter due to the
timing of initial orders, which at our early stage of development at the time
represented significant portions of revenue. Our service revenue has increased
every quarter and reflects an increasing percentage of total revenue due to the
compounding effect of our base of installed licenses.
Cost of software license revenue ranged from 2% to 6% of related software
license revenue during the seven quarters ended March 31, 1999, as a result of
the timing of the purchase of user manuals, packaging materials and CDs, which
are expensed when purchased in volume. Cost of service revenue was
approximately 87% of related service revenue in each of the four quarters ended
June 30, 1998 due to a constant estimate of effort applied to generating that
revenue. Cost of service revenue declined in fiscal 1999 as a percentage of
total revenue due primarily to economies of scale achieved as our revenue and
installed base grew. During the quarter ended December 31, 1998, we incurred a
one-time charge of $131,000 relating to a special consulting project for one
customer. Excluding this one-time charge, the cost of service revenue as a
percentage of service revenue would have been 40% for that quarter.
Total operating expenses increased in absolute dollar terms in every quarter
during the seven quarters ended March 31, 1999. Total operating expenses during
the first three quarters of fiscal 1998 ranged from 130% to 286% of total
revenue, due principally to the start-up nature of our various operating
activities, and since that time have ranged from 90% to 100% of total revenue
as an explicit strategy of investment to allow for rapid growth. In the near
future, we expect to continue to devote substantial resources to product
development and expansion of our sales and marketing efforts, and expect that
total operating expenses to increase in absolute dollars in future periods,
although the percentage of revenue will vary depending on the level of revenue.
We have experienced some seasonality of buying patterns in certain of our
markets resulting in generally higher orders in the quarters ended December 31
and June 30 and we expect these seasonal trends to continue for the foreseeable
future. See "Risk Factors--Seasonal trends in sales of our software products
may affect our quarterly operating results."
Effect of Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 130, Reporting Comprehensive Income, which requires an enterprise to
report, by major components and as a single total, the change in its net assets
during the period from nonowner sources; and SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information, which establishes annual and
interim reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
Our comprehensive loss was equal to our net loss for all periods presented. We
currently operate in one reportable segment under SFAS No. 131.
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for us in fiscal 2000.
Although we have not fully assessed the implications of SFAS No. 133, we do not
believe that adoption of this statement will have a material impact on our
financial position, results of operations or cash flows.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-9 which provides certain amendments to
SOP 97-2 Software Revenue Recognition, and is effective for our fiscal year
beginning July 1, 1999. We do not believe that adoption of this statement will
have a material impact on our financial position, results of operations or cash
flows.
28
<PAGE>
Liquidity and Capital Resources
We have funded our operations to date primarily through private sales of
preferred equity securities, totaling $11.0 million and, to a lesser extent,
through capital equipment leases and sales of common stock and option
exercises. As of March 31, 1999, we had $11.6 million in cash and cash
equivalents.
Our operating activities resulted in net cash outflows of $834,000, $2.0
million and $3.9 million in fiscal 1996, 1997 and 1998, respectively. Sources
of cash during these periods were principally from increases in deferred
revenue, accrued compensation and other liabilities. Uses of cash in these
periods were principally from net losses and increases in accounts receivable.
In the nine months ended March 31, 1999, our operating activities provided
positive cash flow of $3.4 million derived principally from increases in
deferred revenue and stock-based compensation.
Our investing activities, after excluding the purchase and maturity of
temporary cash investments in fiscal 1996 and fiscal 1997, resulted in cash
outflows, principally related to the acquisition of capital assets, of
$152,000, $238,000, $529,000 and $790,000 in the fiscal 1996, 1997 and 1998,
and the nine months ended March 31, 1999, respectively.
Financing activities provided cash of $3.1 million in fiscal 1996, $7.9
million in fiscal 1997, principally related to the proceeds of the issuance of
preferred stock. Financing activities provided cash of $5.6 million in the nine
months ended March 31, 1999, principally from the proceeds of the $5.0 million
loan from Compuware and proceeds from our bank credit facility.
As of March 31, 1999, our principal commitments consisted of the $5.0 million
loan from Compuware, $385,000 of advances under our prior bank credit facility
in equipment purchases, and $3.1 million in accounts payable, accrued
compensation and other accrued liabilities. The Compuware loan will be repaid
from the proceeds of the public offering, which will be offset by the cash
proceeds from the exercise of the warrant issued to Compuware in connection
with the settlement of litigation. We have a term loan in the principal amount
of $433,000 with a bank that will be repaid through monthly installments
through January 2002. The borrowings from Compuware and the bank are secured by
substantially all of our assets.
Deferred revenue consist principally of the unrecognized portion of revenue
received under maintenance service agreements. These amounts are recognized
ratably over the term of the service agreement. Deferred revenue was $3.2
million at March 31, 1999.
We believe that the net proceeds from this offering, together with our cash
balances and cash flow generated by operations will be sufficient to satisfy
our anticipated cash needs for working capital and capital expenditures for at
least the next 12 months. Thereafter, we may require additional funds to
support our working capital requirements, or for other purposes, and may seek
to raise such additional funds through public or private equity financings or
from other sources. We may not be able to obtain adequate or favorable
financing at that time. Any financing we obtain may dilute your ownership
interests. A portion of our cash may be used to acquire or invest in
complementary businesses or products or to obtain the right to use
complementary technologies. From time to time, in the ordinary course of
business, we may evaluate potential acquisitions of businesses, products or
technologies. We have no current plans, agreements or commitments, and are not
currently engaged in any negotiations with respect to any such transaction.
Year 2000 Compliance
Background of Year 2000 Issues
Many currently-installed computer and communications systems and software
products are unable to distinguish between twentieth century dates and twenty-
first century dates. This situation could result in system failures or
miscalculations causing disruptions, in the operations of any business,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. As a result,
many companies' software and computer and communications systems may need to be
upgraded or replaced to comply with such "year 2000" requirements.
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<PAGE>
Our Products
In the ordinary course of our business, we test and evaluate our software
products. We believe that our software products are generally year 2000
compliant, meaning that the use or occurrence of dates on or after January 1,
2000, will not materially affect the performance of such software products or
the ability of such products to correctly create, store, process and output
information of data involving dates. However, we may learn that certain of our
software products do not contain all necessary software routines and codes
necessary for the accurate calculation, display, storage and manipulation of
data involving dates. In addition, in certain cases, we have warranted that the
use or occurrence of dates on or after January 1, 2000, will not adversely
affect the performance of our products with respect to four digit date
dependent data or the ability to create, store, process and output information
related to such data. If any of our licensees experience year 2000 problems as
a result of their use of our software products, those licensees could assert
claims for damages. Certain of our licensing agreements provide that if our
products do not perform to their specifications, we will correct such problems
or issue replacement software. If these corrective measures fail, we may refund
the license fee associated with the non-performing product. To date we have not
received any year 2000 related claims on our software products.
Our State of Readiness
Our business depends on the operation of numerous systems that could
potentially be impacted by year 2000 related problems. The systems include:
computer and communications hardware and software systems used to deliver our
software enabling keys and allow our customers and employees to download
product documentation and Knowledge Scripts; communications networks such as
the Internet and private intranets; the internal systems of our customers and
suppliers; the computer and communications hardware and software systems we use
internally in the management of our business; and non-information technology
systems and services we use to manage our business, such as telephone, security
and building management systems.
Based on an analysis of all systems potentially impacted by conducting
business in the year 2000 and beyond, we are pursuing a phased approach to
making such systems, and accordingly our operations, ready for the year 2000.
Beyond awareness of the issues and scope of systems involved, the phases of
activities in progress include: an assessment of specific underlying computer
and communications systems, programs and/or hardware; remediation or
replacement of year 2000 non-compliant technology; validation and testing of
technologically-compliant year 2000 solutions; and implementation of year 2000
compliant systems.
The table below provides the status and timing of such phased activities.
<TABLE>
<CAPTION>
Impacted Systems Status Targeted Implementation
---------------- ------ -----------------------
<S> <C> <C>
Hardware and software Systems upgraded or July 31, 1999
systems used to deliver replaced as appropriate,
services conducting validation and
testing
Hardware and software Systems upgraded or July 31, 1999
systems used to manage replaced as appropriate,
our business conducting validation and
testing
Communication networks Assessment completed, September 30, 1999
used to provide services conducting validation and
testing
Operability with internal Assessment completed, September 30, 1999
systems of customers and conducting validation and
suppliers testing
Non-information technology Assessment completed, September 30, 1999
systems and services remediation underway,
conducting validation and
testing
</TABLE>
30
<PAGE>
Inoperability of such services due to year 2000 issues could harm our
business. We have completed our assessment of the underlying systems and
hardware. Certain components have been replaced, and we are conducting
validation and testing.
Costs to Address Year 2000 Issues
To date, we have not incurred any material costs directly associated with our
year 2000 compliance efforts, except for compensation expense associated with
our salaried employees who have devoted some of their time to our year 2000
assessment and remediation efforts. We do not expect the total cost of year
2000 problems to be material to our business, financial condition and operating
results. We would have incurred the replacement cost of non-information
technology systems regardless of the year 2000 issue due to technology
obsolescence and/or our growth. We have and will continue to expense all costs
arising from year 2000 issues, funding them from working capital.
We do not believe that future expenditures to upgrade internal systems and
applications will materially harm our business. In addition, although we do not
know the potential costs of redeployment of personnel and any delays in
implementing other projects, we anticipate the costs to be immaterial and we
expect minimal adverse impact to the business.
See "Risk Factors--Potential year 2000 problems with our software, third
party equipment or our internal operating systems could adversely affect our
business."
Contingency Plans
We have not yet developed a contingency plan for handling year 2000 problems
that are not detected and corrected prior to their occurrence. Upon completion
of testing and implementation activities, we will be able to assess areas
requiring contingency planning, and we expect to institute appropriate
contingency planning at that time. Any failure to address any unforeseen year
2000 issue could harm our business.
Customers' Purchasing Patterns
Prior to the end of 1999 and continuing into 2000, there is likely to be an
increased customer focus on addressing year 2000 compliance issues. Some
customers have indicated to us that they will delay deployment of new software,
including new versions and product updates, at various times over the next six
to nine months to avoid the possibility of introducing or encountering any new
year 2000 problems. There is a risk that existing or potential customers may
also choose to defer new software product purchases as a result of year 2000
concerns. Moreover, customers may reallocate capital expenditures or personnel
in order to fix year 2000 problems of existing systems instead of purchasing
new software. If customers defer purchases or reallocate capital expenditures
and personnel, it could materially adversely affect our business, future
quarterly and annual operating results and financial condition. In addition,
year 2000 compliance issues also could cause a significant number of companies,
including our current customers, to reevaluate their current system needs and,
as a result, consider switching to other systems and suppliers.
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<PAGE>
BUSINESS
The following Business section contains forward-looking statements relating
to future events or our future financial performance, which involves risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in "Risk Factors" and elsewhere in this prospectus.
NetIQ Overview
We are a leading provider of performance and availability management software
for Windows NT-based systems and applications. As use of the Windows NT
platform in distributed computing and Internet environments continues to
expand, organizations are increasingly relying on this platform to deploy
business-critical applications such as Microsoft Exchange Server, Lotus
Domino/Notes, Oracle, Citrix WinFrame, Microsoft Internet Information Server
and Microsoft SQL Server. As a result, these organizations are facing new
challenges in managing their distributed Windows NT environments in order to
maintain required service levels, ensure continuous uptime and reduce support
costs. Our NetIQ AppManager Suite enables organizations to address these
challenges by centrally managing the performance of their distributed Windows
NT environments, helping insure availability through automated monitoring,
correction and reporting features and lower the total cost of ownership. We
believe that AppManager's comprehensive functionality coupled with its ease of
use resulting from the utilization of familiar Microsoft technology and
standards offer a superior solution for managing systems and applications in
distributed Windows NT environments.
Our products are used by organizations in a wide variety of industries and
computing environments. As of March 31, 1999, we licensed our AppManager
products to more than 375 customers, including AT&T, Charles Schwab & Co.,
Countrywide Home Loans, Dell Computer, EDS, General Electric, Georgia-Pacific,
Glaxo Wellcome, MCI, Microsoft, Nasdaq, NationsBank, Nordstrom Information
Systems, Pfizer, Salomon Smith Barney, Shell Services International, Southern
Company Services, the Department of Veterans Affairs and Wells Fargo Bank, N.A.
Industry Background
The Windows NT operating system is a leading platform for distributed
computing. According to International Data Corporation, or IDC, a leading IT
research firm, the market for Windows NT-based servers will grow from 1.3
million servers in 1998, or 32% of all server operating systems shipped in that
year, to an estimated 3.3 million servers by 2003, or 51% of server operating
systems shipped in that year. The growth of Windows NT has been driven by the
use of this platform for applications that are increasingly business-critical
such as electronic messaging, Internet, group collaboration and database
applications. For example, organizations are increasingly deploying electronic
mail servers over the Windows NT platform. According to IDC, the worldwide
market for all new electronic mail server software, for example Microsoft
Exchange and Lotus Domino/Notes, will grow from 698,000 servers in 1998 to
868,000 servers in 2001. In addition, IDC also estimates that the percentage of
electronic server software deployed on Windows NT will grow from approximately
43% in 1998 to approximately 65% in 2001. Because of their business-critical
nature, Windows NT-based systems and applications require high performance and
availability standards, including around-the-clock uptime.
The growth and deployment of Windows NT-based systems and applications in
distributed computing and Internet environments have created a number of unique
performance and application management challenges. These challenges range from
basic tasks such as monitoring CPU utilization and memory and disk-space
availability to tasks as complex as monitoring Internet traffic and e-mail
response times or identifying specific database commands that are creating
bottlenecks for system performance. The consequences of failing to meet these
challenges are particularly high because of the business-critical nature of the
applications being deployed on Windows NT. Moreover, the manner in which
organizations are deploying these systems and applications can increase the
likelihood of system failure. According to the Gartner Group, an industry
research firm, in a survey of more than 100 companies, Windows NT-specific
issues created an average of 224.5 hours of
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unscheduled downtime per machine per year, as compared to UNIX system-specific
issues which averaged 23.6 hours of downtown and AS/400 system-specific issues
which averaged 5.2 hours of downtime.
A new and rapidly growing market has emerged to address the performance and
availability management challenges created by the evolution of enterprise
distributed computing on the Windows NT platform. The goal of performance and
availability management solutions is to ensure the availability of distributed
computing resources and to optimize the performance of these resources through
automated monitoring, correction and reporting procedures. According to IDC,
the Windows NT-based systems management market is expected to grow from $1.2
billion in 1997 to $2.8 billion by 2002. Furthermore, IDC estimates that the
distributed performance and availability management market, including Windows
NT and other platforms, is expected to grow from $774 million in 1997 to $2.2
billion by 2002.
We believe that traditional systems management solutions have not been able
to adequately address the unique challenges of the complex deployment of
systems and applications within the Windows NT environment. Among these
traditional systems management solutions are "framework" products that attempt
to address all aspects of system and application management problems across
multiple platforms, such as Windows NT, UNIX and AS/400, with a single product
suite. According to the Gartner Group, these framework products have generally
performed poorly, have been difficult to implement and Gartner Group estimates
that 36 months after purchase, 70% of enterprise management framework
implementations fail to be fully and successfully implemented and utilized.
UNIX-based systems management vendors have attempted to modify their UNIX-based
platforms to address specific systems and application management needs for
Windows NT. In addition, because these framework and UNIX-based systems
management solutions have not been designed specifically for the Windows NT
platform, they often are not easy to use because they do not incorporate the
"look and feel" of Windows NT. Furthermore, many of these systems management
solutions offer only limited reporting functions and utilize a two-tier
architecture that does not scale well as organizations incrementally roll out
more Windows NT servers in across their computing enterprises. Because of their
limitations, framework and UNIX-based system management solutions often require
extensive and costly customization, long deployment times and significant
ongoing support, thereby increasing organizations' total cost of ownership.
The unique challenges for managing Windows NT-based systems and applications
have created the need for best-of-breed, Windows NT-based system management
solutions. We believe a complete performance and availability management
software solution for the distributed Windows NT environment must incorporate
the following characteristics:
. Comprehensive breadth and depth of performance and availability
management capabilities optimized for the Windows NT environment
. Familiar "look and feel" of Microsoft Windows NT-based products that IT
professionals can easily adopt and use
. Advanced, scalable multi-tier architecture that supports rapid growth in
the number of servers and applications deployed on the Windows NT
platform with centralized access and control
. Rapid deployment capabilities and low maintenance costs that result in
improved return on investment
. Close integration with other systems, network and hardware management
solutions
The NetIQ Solution
Our AppManager products provide a comprehensive solution for centrally
managing the performance of organizations' Windows NT environments. Utilizing a
centralized console with automated monitoring, correction and reporting
capabilities, our products help optimize the performance and availability of
business-critical Windows NT systems and applications and reduce associated
support costs. Key features of our solution include:
Comprehensive Windows NT-Based Systems and Application Management
Functionality
AppManager consists of fully integrated product modules known as
"AppManagers" that provide comprehensive functionality for managing Windows NT-
based systems and the popular applications that run on
33
<PAGE>
this platform. AppManager has broad functionality that enables IT professionals
to rapidly detect problems, identify the underlying source, implement
corrective measures and generate focused management reports through an
automated process. AppManager also provides more than 500 pre-packaged
"Knowledge Scripts," or business rules and policies, that indicate the most
relevant statistics that need to be monitored at specified thresholds and
intervals. IT professionals can easily customize these Knowledge Scripts or
develop their own to meet organization-specific requirements.
Utilizes and Builds Upon Microsoft Technology and Standards
AppManager utilizes and builds upon leading Microsoft technologies and
standards, protocols and application programming interfaces. As a result,
AppManager looks, feels and operates in the same manner as Microsoft Windows NT
products, helping IT professionals adopt and use AppManager more easily than
system management solutions that have been ported from non-Windows platforms.
Furthermore, as new and emerging Windows NT standards and product features
develop, we will incorporate these standards and features into AppManager.
Multi-Tier, Scalable Architecture; Centralized Control
AppManager's multi-tier architecture scales easily as organizations increase
their deployment of Windows NT servers and Windows NT-based applications. Many
of our customers gradually adopt and roll-out Windows NT throughout their
enterprise on a server-by-server basis, and deploy additional Windows NT-based
applications on an application-by-application basis. As customers increase
their use of Windows NT-based systems and applications, our scalable
architecture accommodates this growth and continues to enable IT professionals
to manage their server base from a centralized console.
Rapid Deployment; Reduced Total Cost of Ownership
Because AppManager provides comprehensive, "out-of-the-box" functionality and
has the "look and feel" of Microsoft Windows NT products, it is easier for IT
professionals to deploy and maintain our products than traditional system
management solutions. AppManager requires minimal customization, maintenance
and ongoing customer support and is designed to reduce the total cost of
ownership and administration of distributed Windows NT environments, relative
to other system management solutions. Our Knowledge Scripts enable IT
professionals to quickly implement AppManager and our scalable architecture
enables organizations to efficiently roll-out AppManager from limited
departmental uses to managing multiple business-critical applications
throughout an organization.
Open Architecture that Integrates with Existing System, Network and Hardware
Management Products
Since many of our customers have made significant investments in legacy
system and network management applications, we have designed our products to
integrate closely with these solutions. We have developed "connectors" that
integrate with leading enterprise management framework products by sharing
performance and event information. In addition, because many organizations have
purchased Windows NT servers from multiple hardware vendors, AppManager
includes product modules that integrate with hardware management tools to
monitor the status and performance of the hardware underlying Windows NT
systems.
Optimized for Microsoft's Channel
Because we focus exclusively on the Windows NT market, we understand and can
address the needs of this marketplace. We target our sales efforts on the
Windows NT segments of our customer's IT departments where the need for
products and expertise such as ours is particularly acute. Moreover, because
our products have the "look and feel" of Microsoft technology and are developed
for Microsoft users, Microsoft's third party resellers and channel partners
typically find our products easy to market, sell and support.
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<PAGE>
Strategy
Our objective is to be the leading provider of performance and availability
management software for Windows NT-based systems and applications. Key elements
of our strategy include:
Enhancing Position as a Leading Provider of Windows NT Performance and
Availability Management Solutions
We intend to strengthen our technology leadership position in the Windows NT
performance and availability management software market by continuing to focus
on managing business-critical electronic messaging, Internet, group
collaboration and database applications. We intend to enhance our comprehensive
solutions by offering broader "out-of-the box" functionality and closer
integration with third party system, network and hardware management products.
We also intend to continue to introduce additional AppManager modules for
managing additional business-critical applications such as Microsoft's Commerce
Server.
Target Enterprise-wide Deployment within Existing Customer Base
As of March 31, 1999, we licensed our products to over 375 customers across a
broad range of industries. A number of our customers initially deploy
AppManager on a departmental basis or for managing particular Windows NT-based
systems or applications. We have focused and will continue to focus on
expanding existing customers' use of AppManager to an enterprise-wide
deployment managing multiple business-critical applications.
Expand Distribution Channels
We have formed relationships with VARs, system integrators, OEMs and
distributors. We intend to build upon these relationships and to pursue new
ones. In particular, we intend to continue to focus on relationships with third
party resellers of Microsoft products that constitute the most significant
distribution channel for Windows NT-based systems and applications.
Increase International Presence
We believe that international markets present a substantial growth
opportunity for us as the worldwide market for Windows NT-based systems and
applications continues to expand and as organizations increasingly recognize
the advantages of performance and availability management solutions. We intend
to expand our field and inside sales forces and establish additional field
offices in the United States and internationally. We plan to complement our
current international distribution channels by developing relationships with
additional international resellers, distributors and OEMs. Working with our
Japanese OEMs, we have developed branded Japanese versions of our AppManager
products for each of these OEMs to market, sell and support and we intend to
develop additional localized versions of our products in the future.
Expand Relationships with Microsoft
We intend to expand our relationships with Microsoft to further develop our
performance and availability management solutions for Windows NT-based systems
and applications and expand our penetration of the Windows NT market. We
participate in Microsoft's beta testing and feedback programs and intend to
support all current and future Windows NT technologies and standards. We plan
to continue to participate in joint marketing programs with Microsoft, expand
Microsoft's use of our products and continue to support new Microsoft Windows
NT-based applications.
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<PAGE>
Products and Technology
We develop, market and support the NetIQ AppManager Suite, a leading
performance and availability management software solution for distributed
Windows NT environments. AppManager's automated monitoring, correction and
reporting features help IT professionals optimize the performance and increase
the availability of their Windows NT-based systems and electronic messaging,
Internet and database applications, while reducing associated support costs.
Additionally, AppManager can monitor the status and performance of the hardware
underlying Windows NT systems. By using our AppManager connector integration
products, IT professionals can use AppManager with system and network
management framework products to share performance and event information. The
following diagram illustrates how AppManager enables IT professionals to
comprehensively manage business-critical applications, underlying operating
systems and hardware platforms in their Windows NT environment from a central
console.
NetIQ's Comprehensive Approach to Managing
Windows NT Environments
[Graphic depiction of the interface between the company's product, the
applications, the Windows NT operating system and hardware platforms.]
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Our AppManager product suite is a set of fully integrated product modules
known as "AppManagers." The following table summarizes the functionality of our
Windows NT-based AppManager products by server or product category.
<TABLE>
<C> <C> <S>
Server or NetIQ Products
Product Category (Year Introduced) Representative Functionality
- ---------------------------------------------------------------------------------------
Windows NT AppManager for . Identifies CPU bottlenecks
Operating and
Systems . Microsoft Windows NT (1996) terminates runaway
processes
. Microsoft Cluster Server (1997) . Checks if key services are
down and
. Windows NT Server, Terminal Server
Edition auto-starts
(1998) . Tracks disk space
utilization
. Citrix WinFrame (1998) . Determines if running low
on DHCP
. Microsoft Windows Load Balance
Service (1999) leases
. Resets terminal server
session
. Reboots downed Windows NT
server
- ---------------------------------------------------------------------------------------
Messaging Servers AppManager for . Monitors e-mail
connectivity and
. Microsoft Exchange Server (1996) response time
. Lotus Domino/Notes (1997) . Reports on e-mail traffic
flow
. Microsoft Message Queue Server .Identifies top senders and
(1997) receivers of e-mail
. Monitors e-mail space
usage
- ---------------------------------------------------------------------------------------
Internet/Web AppManager for . Monitors connection to
Servers URLs
. Microsoft Internet Information . Examines contents of URLs
Server (1996) and checks
. Microsoft Commercial Internet
System News Server for changes
(1997) . Monitors the availability
of a web server
. Microsoft Proxy Server (1998) . Displays HTTP connections
. Microsoft Site Server (1999) . Detects unauthorized login
attempts
. Microsoft Site Server, Commerce .Detects if an Internet port
Edition (1999) or IP address can be
accessed
- ---------------------------------------------------------------------------------------
Database Servers AppManager for . Identifies SQL statements
utilizing
. Microsoft SQL Server (1996) most amount of system
resources
. Microsoft Transaction Server . Monitors database space
(1997) usage
. Oracle (1998) . Tracks locking conditions
.Truncates transaction log
if running out of space
- ---------------------------------------------------------------------------------------
Hardware AppManager for . Monitors computer
Management temperature
Tools . Compaq Insight Manager (1997) . Detects if UPS battery is
running low
. HP TopTools for Servers (1998) .Reports error status of
network interface
. Dell OpenManage (1998) cards
. NEC ESMPro* (1998) . Monitors system voltage
. IBM NetFinity (1999) .Tracks asset information
such as serial numbers
- ---------------------------------------------------------------------------------------
Third-Party Tools AppManager for .Detects if software
distribution has
. Microsoft Systems Management
Server (1996) failed
. Microsoft SNA Server (1999) . Checks status of tool's
services and
. CA ARCServe (1999) auto-restart
. Seagate Backup Exec (1999) . Monitors SNA connections
. Determines if backup job
has failed
- ---------------------------------------------------------------------------------------
"Connector" to AppManager Connector for . Receives events from
AppManager
Management . Tivoli Enterprise (1998) . Invokes AppManager console
from
Frameworks . CA Unicenter TNG (1998) within framework
. HP OpenView Network Node Manager . Distributes AppManager
(1998) software
- ---------------------------------------------------------------------------------------
Console Products AppManager for . Views and acknowledges
events
. Operator Console (1996) . Generates service level
agreement
. Developer Console (1996) reports
. Web Access Console (1997) . Edits pre-defined
Knowledge Scripts
. Displays performance
metrics
</TABLE>
- --------------------------------------------------------------------------------
* Available only with the Japanese edition of the NetIQ AppManager Suite.
We also provide a localized version of our AppManager products for the
Japanese market.
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Native Windows NT Implementation
AppManager uses standard Microsoft technology such as Visual Basic for
Applications scripting, the Microsoft COM object model and SQL Server. As a
result, AppManager looks, feels and operates the same as Microsoft products.
Our use of widely accepted Microsoft standards also makes our AppManager
products easy to customize and implement in a customer's existing IT
environment. We intend to continue to support new Microsoft technology,
including emerging Windows 2000-based technologies such as Active Directory and
Windows Management Instrumentation, a component of Microsoft's Web-based
Enterprise Management initiative, or WBEM.
A Scaleable and Open Architecture
AppManager's advanced multi-tier architecture is scalable and includes an
exception-based communication mechanism that minimizes network traffic and
intelligent management agents that can continue to monitor systems and
applications regardless of the status of the network connection. AppManager
also offers IT professionals the flexibility to work from a robust Web-based
interface to start and stop monitoring jobs and view performance and event
data.
AppManager's architecture is comprised of the following components:
. AppManager Console. The console is an easy-to-use graphical user
interface program that displays systems and applications as resource
icons within a familiar Microsoft Explorer-type tree view. The console is
used to centrally define and control the execution of Knowledge Scripts,
business rules and policies. The Knowledge Scripts run as Visual Basic
for Applications scripts that collect performance data, monitor for
events and initiate corrective actions.
. Web Console. The Web console is an optional program that lets users
monitor their entire Windows NT environment from a Web browser.
. Repository Server. The repository server is a Microsoft SQL Server
database that stores performance and availability management data. The
repository server allows for custom reporting and provides over 165
standardized reports for users to choose from. These standardized reports
focus on summarizing inventory, performance and event data collected by
AppManager for both Windows NT-based systems and applications, and are
designed to help IT personnel determine if they are meeting their
required service levels.
. Management Server. The management server is a program that manages event-
driven communication between the repository and the agent programs.
. Agent. The agent is an easy-to-use and easy-to-deploy program that
receives requests from the management server to either run or stop a
Knowledge Script. After receiving a request, the agent program
communicates back, on an exception-basis, any relevant data or events
collected by the running Knowledge Scripts. Users can centrally "push"
the AppManager agents to remote systems for easy deployment.
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The following graphic illustrates the relationships among these components:
[Graphic depiction of the relationship between AppManager consoles, management
server, repository server and agents.]
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<PAGE>
Customers
As of March 31, 1999, we licensed our AppManager products to more than 375
customers. The following is a representative list of our customers that have
purchased at least $100,000 in software licenses and services since the
beginning of fiscal 1998:
Government
Utilities/Energy
Defense Intelligence Agency Exxon Computing Services
Department of Veterans Affairs Fina Oil and Chemical Company
Ministere Emploi et Solidarite Koch Industries
US Postal Inspection Service
Shell Services International
Financial Services Southern Company Services
Williams Information Services
Charles Schwab & Co.
Manufacturing/Distribution
Dresdner Bank AG
Great West Life & Annuity Insurance Aluminum Company of America
JC Bradford & Co. General Electric
NationsBank/Bank of America Georgia-Pacific
Northern Trust Pharmaceuticals/Health Care
Safeco Insurance Companies Baptist Memorial Hospital
Standard & Poor's Cerner Corporation
Unum Corp. Glaxo Wellcome
Wells Fargo Bank N.A.
Mayo Foundation for Medical
High Technology Education and Research
Dell Computer Merck & Co.
Interliant Pfizer
Microsoft Corporation Retail/Consumer Packaged Goods
Microstrategy London Drugs
NCR Corporation Nabisco Foods
Network Associates Nordstrom Information Systems
PeopleSoft Office Depot
Siemens Business Services Pepsi-Cola
Philip Morris Europe
Telecommunications
BellSouth Cellular Corp.
Belgacom
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Sales, Marketing and Distribution
Field and Inside Sales
We market our software and services through our field sales organization
located at our headquarters facility in Santa Clara, California, our domestic
field offices in Chicago, Dallas, Denver, New York and Fairfax, Virginia, and
our international field offices in London, Munich, Singapore, Sydney and Tokyo.
Each of our field sales offices includes a territory manager, one or more
systems engineers and a channel sales representative. The territory manager and
system engineer concentrate on Fortune 1000-sized accounts that have at least
100 Windows NT servers. The channel sales representative focuses on managing
sales activities of our regional channel partners and branch sales offices of
our national reseller partners. Typically, our sales process will include an
initial sales presentation in person or over the phone, a product
demonstration, a product evaluation period, a closing meeting and a purchase
process. In certain instances, the sales process will include licensing our
products to potential customers on a trial basis. Our sales process typically
takes 90 to 180 days, but this process can be longer for large, enterprise-wide
sales.
Our field sales organization is complemented by an inside sales organization
with offices at our Santa Clara, California headquarters and in our London and
Sydney field offices. Our inside sales organization typically handles orders
from customers who have fewer than 100 Windows NT servers that are not
processed or sold through the channel, or at times in concert with our channel
partners. Our inside sales personnel also handle sales lead qualification, help
recruit regional channel partners and distribute leads to the field sales
organization or channel partners.
VARs, System Integrators, Distributors and OEMs
We have implemented a channel partner program, our NetIQ Partner Network,
that provides training, certification, technical support, priority
communications regarding upcoming activities and products, and joint sales and
marketing activities. In North America, Tech Data is the primary distributor of
our product and, as of March 31, 1999, we had over 50 third party channel
partners who purchase our products through Tech Data. We have also established
a network of VARs and system integrators in Europe, Latin America and Asia-
Pacific who perform marketing, sales and technical support functions in their
country or region. Each VAR may distribute our products directly to the
customer, and/or through other resellers. We had 25 channel partners outside of
North America as of March 31, 1999. In addition, we have worked with NEC,
Fujitsu and Hitachi to develop branded Japanese versions of AppManager that
each of these OEMs markets, sells and supports.
Marketing
We have a number of marketing programs designed to inform customers about the
capabilities and benefits of our AppManager products. Our marketing efforts
include participation in industry trade shows, technical conferences and
technology seminars, preparation of competitive analyses, sales training,
publication of technical and educational articles in industry journals,
advertising, public relations, and analyst and press tours.
Product-Based Relationships
We have product-based relationships with Citrix, Compaq, Computer Associates,
Dell Computer, Hewlett-Packard, IBM, including both its Lotus and Tivoli
subsidiaries, Microsoft and Oracle. As part of these relationships, we often
develop joint marketing programs with these software and hardware vendors. Our
relationship with Microsoft is an example of this type of product-based
relationship. Microsoft is one of our largest customers, has standardized on
AppManager to monitor its own internal Windows NT and BackOffice deployment and
currently distributes our AppManager for WBEM Agent on its Windows 2000
operating system software. Recently, Microsoft has permitted one of our
engineers to work with its Windows NT development group at its Redmond,
Washington headquarters. Microsoft also contracts for one of our engineers to
provide support for Microsoft's use of our products. Another example of our
product-based relationship is our relationship with Compaq, whose service
organization is a worldwide reseller of AppManager.
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<PAGE>
International Sales
International sales did not account for any of our revenue in fiscal 1997,
but represented 10% of total revenue in fiscal 1998 and 22% of total revenue in
the nine months ended March 31, 1999. We anticipate that as we expand our
international sales efforts, the percentage of revenue derived from
international sources will continue to increase. Currently, a majority of our
international business is conducted in U.S. dollars. However, as we expand our
international operations, we expect that our international business will
increasingly be conducted in foreign currencies. Fluctuations in the value of
foreign currencies relative to the U.S. dollar have caused, and we expect such
fluctuation to increasingly cause, currency transaction gains and losses. We
cannot predict the effect of exchange rate fluctuations upon future quarterly
and annual operating results. We may experience currency losses in the future.
To date, we have not adopted a hedging program to protect us from risks
associated with foreign currency fluctuations.
Customer Support
Our technical support organization provides ongoing technical support for our
customers and for prospective customers during the period in which a
prospective customer evaluates our AppManager. We offer technical support
services 24 hours a day, seven days a week via our Internet site, telephone, e-
mail, a support web site and fax. Customers are notified about the availability
of regular maintenance and enhancement releases via Internet-based e-mail.
Initial product license fees include one year of product software maintenance
and support. Thereafter, customers are entitled to receive software updates,
maintenance releases and technical support for an annual maintenance fee.
We also offer training courses for the implementation and administration of
our products. Product training is provided on a periodic basis at our
headquarters in Santa Clara, California, at the offices of members of our NetIQ
Partner Network and also at customer sites throughout the United States and
Europe.
Our professional services group provides product training, consulting and
implementation services for a fee in order to assist customers in maximizing
the benefits of our products. A significant focus of our professional services
group is also to train and support partners who are members of the NetIQ
Network Partner channel program in how to provide AppManager-related services
and support to customers.
Research and Development
Our research and development organization is responsible for the design,
development and release of our products. The group is organized into
development, quality assurance, product management, documentation and
localization disciplines. Members from each discipline form separate product
teams that work closely with sales, marketing and customer support to better
understand market needs and user requirements. Additionally, we have a well
developed information feedback loop with our customers to respond to and
address their changing system and application management requirements. When
appropriate, we also utilize third parties to expand the capacity and technical
expertise of our internal research and development team. On occasion, we have
licensed third-party technology which we believe shortens time to market
without compromising competitive position or product quality.
We have made substantial investments in research and development. Our
research and development expenses were $0.7 million, $1.0 million, $2.2 million
and $2.7 million in fiscal 1996, 1997 and 1998 and the nine months ended March
31, 1999. The dollar increase in fiscal 1997 and fiscal 1998 was due primarily
to increased staffing and the purchasing of additional hardware and software
for development and testing purposes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Risk Factors--Our
industry changes rapidly due to evolving technology standards..."
Competition
The market for performance and availability management software for Windows
NT-based systems and applications is new, rapidly evolving and highly
competitive, and we expect competition in this market to
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<PAGE>
persist and intensify. New products for this market are frequently introduced
and existing products are continually enhanced. We may not be able to compete
successfully against current and/or future competitors and such inability would
materially adversely affect our business, future quarterly and annual operating
results and financial condition. See "Risk Factors--Failure to maintain and
enhance our competitive position...."
Existing Competition. We currently face competition from a number of sources,
including:
. Providers of network and systems management framework products such as
IBM, Computer Associates and Hewlett-Packard
. Providers of performance and availability management solutions such as
BMC Software
. Customers' internal IT departments that develop or integrate system and
application monitoring tools for their particular needs
Future Competition. We may face competition in the future from established
companies who have not previously entered the market for performance and
availability management software for Windows NT-based systems and applications
as well as from emerging companies. Barriers to entry in the software market
are relatively low. Established companies may not only develop their own
Windows NT-based system and application management solutions, but they may also
acquire or establish cooperative relationships with our current competitors,
including cooperative relationships between large, established companies and
smaller private companies. These larger companies may be able to acquire the
technology and expertise of smaller companies to penetrate our market quickly.
It is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share.
To date, Microsoft has not competed against us in the market for performance
and availability management software for Windows NT-based systems and
applications. However, Microsoft may enter this market in the future, and this
could materially adversely affect our business, future annual and quarterly
results of operations and financial condition. As part of its competitive
strategy, Microsoft could bundle performance and availability management
software with its Windows NT operating system software and this could
discourage potential customers from purchasing our products. Even if the
functionality provided as standard features by future Microsoft operating
system software were more limited than that of our AppManager products, a
significant number of customers or potential customers might elect to accept
more limited functionality in lieu of purchasing additional software. Moreover,
competitive pressures resulting from this type of bundling could lead to price
reductions for our products which would reduce our margins and could materially
adversely affect our business, quarterly and annual operating results and
financial condition.
In addition to Microsoft, other potential competitors may bundle their
products or incorporate performance and availability management software for
Windows NT-based systems and applications into existing products including for
promotional purposes. In addition, our ability to sell our products will
depend, in part, on the compatibility of our products with other third party
products. Certain of these third party software developers may change their
products so that they will no longer be compatible with our products. If our
competitors were to bundle their products in this manner or make their products
non-compatible with ours, this could materially adversely affect our ability to
sell our products and could lead to price reductions for our products which
could reduce our profit margins.
Intellectual Property
Our success is heavily dependent upon proprietary technology. We rely
primarily on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. These laws and procedures provide only limited protection.
We have applied for three patents relating to our engineering work. Two of
these patents have been issued or approved for issuance. The third patent
application is pending.
We license certain technology that is incorporated in certain of our
AppManager products from Summit Software on a non-exclusive, worldwide basis.
Substantially all of our AppManager products rely on this
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<PAGE>
Summit technology. Under the terms of our license agreement, we pay certain
limited royalties to Summit. We license this technology on a year-to-year basis
which is automatically renewed each August and, in the event our license
agreement for this technology is terminated, we may continue to sell our
AppManager products that incorporate the Summit technology for a period of 24
months following such termination. Our license for this technology is
terminable upon 60 days notice in the event certain conditions occur, including
our failure to pay royalty fees on a timely basis or any other material breach
by us of the license agreement.
Employees
As of March 31, 1999, we had 110 full-time employees, 35 of whom were engaged
in research and development, 37 in sales and marketing, 26 in customer support
and 12 in finance and administration. None of our employees is represented by a
collective bargaining agreement. We have not experienced any work stoppages and
consider our relations with our employees to be good. See "Risk Factors--We
will need to recruit and retain additional qualified personnel..."
Facilities
Our principal administrative, sales, marketing, customer support and research
and development facility is located at our headquarters facility in Santa
Clara, California. We currently occupy an aggregate of approximately 23,000
square feet of office space in the Santa Clara facility under the terms of a
lease expiring in July 2003. We believe our current facility will be adequate
to meet our needs for at least the next twelve months. We believe that suitable
additional facilities will be available in the future as needed on commercially
reasonable terms.
We also lease space for sales and marketing offices in Denver, Colorado, New
York, New York, Dallas, Texas, and Fairfax, Virginia, and have international
field offices in Singapore, Sydney, Australia, London, England, Munich,
Germany, and Tokyo, Japan.
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<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to our
executive officers and directors as of the date of this prospectus.
Executive Officers And Directors
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
President, Chief Executive Officer and
Ching-Fa Hwang.............. 50 Director
Vice President, Finance, Chief Financial
James A. Barth.............. 56 Officer and Secretary
Her-Daw Che................. 50 Vice President, Engineering and Director
Thomas R. Kemp.............. 33 Vice President, Marketing
Stephen M. Kendall.......... 43 Vice President, Asia Pacific
Glenn S. Winokur............ 40 Vice President, Sales
Herbert Chang(1)(2)......... 37 Director
Louis C. Cole(2)............ 55 Director
Alan W. Kaufman(1)(2)....... 61 Director
Ying-Hon Wong............... 41 Director
</TABLE>
- ---------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Ching-Fa Hwang co-founded NetIQ in June 1995 and has served as our President
and Chief Executive Officer and as a director since our inception. From June
1995 to March 1999, Mr. Hwang also served as our Chief Financial Officer. From
September 1994 to June 1995, Mr. Hwang served as the Vice President of Research
at Compuware, a developer of information systems software. From August 1993 to
September 1994, Mr. Hwang served as the Vice President of Technical Services
and General Manager at the EcoSystems Business Group of Compuware. In May 1991,
Mr. Hwang co-founded EcoSystems Software, a client/server management software
provider, and served as its Vice President of Engineering from its inception
until its sale to Compuware in August 1993. Mr. Hwang holds a B.S. in
electrical engineering from National Taiwan University and a M.S. in computer
science from the University of Utah.
James A. Barth has served as our Vice President, Finance, Chief Financial
Officer and Secretary since March 1999. From November 1997 until March 1999,
Mr. Barth served as the Vice President, Chief Financial Officer and Secretary
of Interlink Computer Sciences, a developer of enterprise networking software
designed for the IBM mainframe platform. From October 1994 to August 1997, Mr.
Barth served as Executive Vice President, Chief Financial Officer and Secretary
at MagiNet, a provider of interactive entertainment and information systems for
hotels. From March 1994 to October 1994, he served as Vice President and Chief
Financial Officer at ACC Microelectronics, a semiconductor company. From 1982
to March 1994, Mr. Barth served as Vice President, Chief Financial Officer and
Secretary at Rational Software, a developer of object-oriented software
engineering tools. Mr. Barth holds a B.S. in business administration from the
University of California at Los Angeles and is a certified public accountant.
Her-Daw Che co-founded NetIQ and has served as our Vice President,
Engineering and as a director since November 1995. From September 1993 to July
1995, Mr. Che served as the Director of Engineering of the EcoSystems Business
Group at Compuware. Mr. Che co-founded EcoSystems with Mr. Hwang and served as
its Director of Engineering from its inception until its sale to Compuware. Mr.
Che holds a B.S. in electrical engineering from National Taiwan University and
an M.S. in computer science and a Ph.D. in computer science from the University
of Pennsylvania.
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<PAGE>
Thomas R. Kemp has served as our Vice President, Marketing since May 1997.
From January 1996 to April 1997, Mr. Kemp served as our Director of Products.
From April 1995 to November 1995, Mr. Kemp served as a Director of Product
Management at Compuware and from August 1993 to March 1995, he served as a
Manager of Systems Engineers at Compuware. From July 1992 to July 1993, Mr.
Kemp served as a Manager of System Engineers at EcoSystems until its sale to
Compuware. Prior to July 1992, Mr. Kemp held various consulting and marketing
positions at Oracle Corporation, a database management company. Mr. Kemp holds
a B.S. in computer science and history from the University of Michigan.
Glenn S. Winokur has served as our Vice President, Sales since May 1997. From
May 1996 to April 1997, Mr. Winokur served as our Director of Sales. From March
1994 to May 1996, Mr. Winokur served as a Regional Sales Manager at Compuware.
Mr. Winokur has a B.S. in business administration and marketing from the
University of Illinois.
Stephen M. Kendall has served as our Vice President, Asia Pacific since
September 1997. From March 1997 to August 1997, Mr. Kendall served as a Vice
President at Commerce Direct International. From December 1993 to January 1997,
Mr. Kendall served as the Vice President of Sales, Asia Pacific at Cheyenne
Software, a provider of storage management, security and communications
software products. Mr. Kendall has a B.A. in Asian studies from Cornell
University and a M.B.A. from the Institut Europeen d'Administration des
Affaires in Fontainebleau, France.
Kuo-Wei ("Herbert") Chang has been a director since May 1997. Since April
1996, Mr. Chang has been the president of InveStar Capital, Inc., a technology
venture capital management firm based in Taiwan. From July 1994 to March 1996,
Mr. Chang was a Senior Vice President at the WK Technology Fund, a technology
venture capital management firm based in Taiwan. From July 1992 to June 1994,
Mr. Chang served as the Vice President of Sales and Marketing at DynaLab, a
developer of electronic document solutions. Mr. Chang holds a B.S. in geology
from National Taiwan University and a M.B.A. from National Chiao-Tung
University in Taiwan.
Louis C. Cole has been a director since September 1998. Since June 1989, Mr.
Cole has been President, Chief Executive Officer and a director of Legato
Systems, which develops, markets and supports network storage management
software products. Since April 1995, Mr. Cole has also served as Chairman of
the Board of Legato. Mr. Cole also serves as a director of Inference, a
provider of enterprise customer relationship management software, and Rogue
Wave Software, a provider of object-oriented software parts and related tools
software. Mr. Cole holds a B.S. in mathematics and education from Pennsylvania
State University at Edinboro.
Alan W. Kaufman has been a director since August 1997. Since August 1997, Mr.
Kaufman has served as a director of QueryObject Systems, which develops and
markets proprietary business intelligence software, and he has served as
Chairman of the Board of QueryObject since March 1998. Mr. Kaufman was
President and Chief Executive Officer of QueryObject from October 1997 to
December 1998. From December 1996 to October 1997, Mr. Kaufman was an
independent consultant. From April 1985 to December 1996, Mr. Kaufman held
various positions at Cheyenne Software, including most recently as Executive
Vice President of Worldwide Sales. Mr. Kaufman is also a director of Global
Telecommunication Solutions, a provider of prepaid phone cards. Mr. Kaufman
holds a B.S. in electrical engineering from Tufts University.
Ying-Hon Wong co-founded NetIQ in June 1995 and has served as a director
since our inception. Since January 1991, Mr. Wong has been a General Partner of
Wongfratris Investment Company, a venture investment firm. Mr. Wong holds a
B.S. in electrical engineering and industrial engineering from Northwestern
University and a M.B.A. from the Wharton School of Business at the University
of Pennsylvania.
Classified Board
Our certificate of incorporation and bylaws provide for a board of directors
of six members consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the
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<PAGE>
offering, two of the nominees to the board will be elected to a one-year term,
two will be elected to two-year term and two will be elected to a three-year
term. Thereafter, directors will be elected for three-year terms. Herbert Chang
and Ying-Hon Wong have been designated Class I directors whose terms expire at
the 1999 annual meeting of stockholders. Alan Kaufman and Her-Daw Che have been
designated Class II directors whose terms expire at the 2000 annual meeting of
stockholders. Louis Cole and Ching-Fa Hwang have been designated Class III
directors whose terms expire at the 2001 annual meeting of stockholders. See
"Description of Capital Stock--Antitakeover Effects of Some Provisions of Our
Certificate of Incorporation and Bylaws."
Executive officers are appointed by the board of directors on an annual basis
and serve until their successors have been duly elected and qualified. There
are no family relationship among any of our directors, officers or key
employees.
Audit Committee
We have established an audit committee, which consists of Mr. Chang and Mr.
Kaufman. The audit committee reviews our internal accounting procedures and
consults with and reviews the services provided by our independent auditors.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Mr. Chang, Mr. Cole and Mr. Kaufman.
The Compensation Committee is responsible for determining salaries, incentives
and other forms of compensation for our directors, officers and other employees
and administering various incentive compensation and benefit plans. Ching-Fa
Hwang, our President, Chief Executive Officer and a member of our board of
directors, participates in all discussions and decisions regarding salaries and
incentive compensation for all of our employees and consultants, except that he
is excluded from discussions regarding his own salary and incentive
compensation. No interlocking relationship exists between any member of our
Compensation Committee and any member of any other company's board of directors
or compensation committee.
Director Compensation
We reimburse each member of our board of directors for out-of-pocket expenses
incurred in connection with attending board meetings. No member of our board of
directors currently receives any additional cash compensation for serving as a
member of the Board.
In May 1997, we granted an option to Herbert Chang in his capacity as a
director to purchase up to 275,000 shares of common stock with an exercise
price of $0.20 per share which vests in annual installments over three years.
Pursuant to Mr. Chang's contractual obligations with Investar Burgeon Venture
Capital, the option was issued in the name of Investar Burgeon Venture Capital.
The vesting of this option terminates if Mr. Chang ceases to be a member of the
board of directors.
In August 1997, we granted options to Alan Kaufman as a director to purchase
up to an aggregate of 100,000 shares of common stock at an exercise price of
$0.20 per share. This option vests in annual installments over four years.
In November 1998, we granted an option to Louis Cole as a director to
purchase up to an aggregate of 75,000 shares of common stock at an exercise
price of $1.00 per share. 25% of the option shares vest on the first
anniversary of the grant date and the remaining shares vest ratably on a
quarterly basis over the next three years.
In November 1998, the board of directors granted non-statutory options to
purchase up to 100,000 and 120,000 shares of common stock to Her-Daw Che and
Ching-Fa Hwang, respectively, each with an exercise price of $1.00 per share.
37.5% of the shares subject to these options were vested at the time of grant,
and 6.25% of the remaining shares subject to these options vest on a quarterly
basis through April 2001.
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<PAGE>
In November 1998, we granted an option to Ying-Hon Wong in his capacity as a
director to purchase up to 80,000 shares of common stock with an exercise price
of $1.00 per share. Pursuant to Mr. Wong's contractual obligations with
Wongfratris Investment Company, the option was issued in the name of
Wongfratris Investment Company. In January 1999 this option was exercised in
full subject to a right of repurchase in favor of NetIQ with respect to 63.5%
of the shares acquired if Mr. Wong ceases to be a member of the board of
directors. This repurchase right lapses as to 6.25% of the shares purchased
each quarter through April 2001.
See "Certain Transactions" for additional information about a consulting
arrangement we have with one of our directors.
Our Stock Plan includes an automatic nondiscretionary grant mechanism that
provides that options will be granted to non-employee directors who on the date
of grant do not beneficially hold 1% or more of our total voting power. Our
Stock Plan specifically provides for an initial automatic grant of an option to
purchase 12,500 shares of common stock to a non-employee director who first
becomes a director after our initial public offering. After our initial public
offering, each non-employee director who has served on the board for at least
six months will be granted an option to purchase 12,500 shares of common stock
on that date of the annual meeting of our stockholders. However, if the first
annual meeting following our initial public offering falls within six months of
the effective date of the initial public offering no grants will be made until
the following annual meeting. Each option granted to a non-employee director
under this program will have a term of 10 years and the shares subject to these
options shall be fully vested on the date of grant. The exercise price of these
options will be 100% of the fair market value per share of common stock on the
date of grant. See "Incentive Stock Plans--1995 Stock Plan."
Executive Compensation
The table below sets forth information concerning the compensation awarded
to, earned by, or paid for services rendered to NetIQ in all capacities during
the fiscal year ended June 30, 1998 by our President and Chief Executive
Officer and our next most highly compensated executive officers whose salary
and bonus for fiscal 1998 exceeded $100,000. These executives are referred to
as the Named Executive Officers here and elsewhere in this prospectus. Other
than the salary and bonus described in the table below, we did not pay any
Named Executive Officer any fringe benefits, perquisites or other compensation
in excess of 10% of such executive officer's salary and bonus during fiscal
1998. Bonus and commission figures for fiscal 1998 include bonuses and
commissions earned and paid in fiscal 1998 as well as bonuses and commissions
earned in fiscal 1998 but paid in fiscal 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Other Annual Long Term All Other
Compensation Compensation Compensation Compensation
---------------- ------------ ------------ ------------
Securities Life
Name and Principal Underlying Insurance
Position Salary Bonus Commissions Options Premiums
- ------------------ -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Ching-Fa Hwang
President and Chief
Executive Officer..... $ 91,947 $ -- $ -- -- $108
Thomas R. Kemp
Vice President,
Marketing............. 101,919 320 -- 35,000 108
Glenn S. Winokur
Vice President, Sales.. 85,212 17,858 219,029 25,000 108
</TABLE>
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<PAGE>
Option Grants During Fiscal Year 1998
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers during fiscal 1998,
including the potential realizable value over the 10 year term of the options
based on assumed rates of stock appreciation of 5% and 10%, compounded annually
and subtracting from that result the aggregate option exercise price. These
assumed rates of appreciation comply with the rules of the SEC and do not
represent our estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of our common
stock. In fiscal 1998, we granted options to acquire up to an aggregate of
1,508,500 shares to employees and directors, all under our Stock Plan and all
at an exercise price equal to not less than the fair market value of our common
stock on the date of grant as determined in good faith by the board of
directors. Optionees may pay the exercise price by cash, check, promissory
note, delivery of already-owned shares of our common stock which have been
owned by the optionee for more than six months or the date of surrender or
pursuant to a cashless exercise procedure, to the extent authorized by the
board. Options under the Stock Plan generally vest over four years with 25% of
the shares subject to option vesting on the first anniversary of the grant
date, and the remaining option shares vesting ratably quarterly thereafter.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------
Potential
Realizable Value
Percent of at Assumed
Total Annual Rates of
Number of Options Stock Price
Securities Granted to Appreciations for
Underlying Employees Exercise Options Terms
Options in Price Expiration ------------------
Name Granted Fiscal 1998 Per Share Date 5% 10%
- ---- ---------- ----------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ching-Fa Hwang... -- -- -- -- -- --
Thomas R. Kemp... 25,000 1.66% $0.20 05/07/08 $ 3,144 $ 7,969
10,000 0.66% 0.20 06/22/08 1,258 3,187
Glenn S.
Winokur......... 25,000 1.66% 0.20 06/22/08 3,144 7,969
</TABLE>
Aggregate Option Exercises During the Last Fiscal Year and Fiscal Year-End
Option Values
The following table sets forth the number of shares acquired and the value
realized upon exercise of stock options during fiscal 1998, and the number of
shares of common stock subject to exercisable stock options held as of June 30,
1998, by the Named Executive Officers. The "Value of Unexercised In-the-Money
Options at June 30, 1998" is based upon a value of $ per share, the assumed
initial public offering price, minus the per share exercise price, multiplied
by the number of shares underlying the option.
<TABLE>
<CAPTION>
Number of Shares Number of Securities Value of Unexercised
Acquired on Underlying Unexercised In-the-Money Options at
Exercise Options at June 30, 1998 June 30, 1998
------------------ ------------------------- -------------------------
Value
Date Exercised Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ching-Fa Hwang.......... -- -- -- -- -- --
Thomas R. Kemp.......... 128,000 $20,480 25,000 170,000 $ $
Glenn S. Winokur........ -- -- 126,250 103,750
</TABLE>
Incentive Stock Plans
1995 Stock Plan
The board of directors adopted the Stock Plan in November 1995 and our
stockholders approved the Stock Plan in April 1996. In connection with this
offering, the board of directors approved the amendment and restatement of the
Stock Plan in May 1999 and we anticipate that our stockholders will approve the
amendment and restatement prior to the completion of this offering. The Stock
Plan provides for the grant to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code, or the Code, and for the
grant to employees, directors and consultants of nonstatutory stock options and
stock purchase rights, or SPRs.
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<PAGE>
Number of Shares of Common Stock Available under the Stock Plan
As of March 31, 1999, a total of 5,950,000 shares of common stock were
authorized for issuance under the Stock Plan, of which options to acquire
3,172,106 shares were issued and outstanding as of that date. As part of the
1999 amendment and restatement of the Stock Plan, the board of directors
approved an increase of 2,050,000 shares reserved for issuance under the Stock
Plan to a total of 8,000,000. The Stock Plan provides for annual increases in
the number of shares available for issuance thereunder, on the first day of
each new fiscal year, effective beginning with fiscal 2001, equal to the lesser
of 4% of the outstanding shares of common stock on the first day of the fiscal
year, 2,000,000 shares or an amount as the board may determine.
Administration of the Stock Plan
The stock plan administrator, which is the board of directors or a committee
of the board, administers the Stock Plan. In the case of options intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code, the committee will consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The administrator
has the power to determine the terms of the options or SPRs granted, including
the exercise price, the number of shares subject to each option or SPR, the
exercisability of the options and the form of consideration payable upon
exercise.
Options
The administrator determines the exercise price of nonstatutory stock options
granted under the Stock Plan, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the exercise price must at least be equal to the
fair market value of the common stock on the date of grant. The exercise price
of all incentive stock options granted under the Stock Plan must be at least
equal to the fair market value of the common stock on the date of grant. With
respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of our outstanding capital stock, the exercise
price of any incentive stock option granted must equal at least 110% of the
fair market value on the grant date and the term of such incentive stock option
must not exceed five years. The term of all other options granted under the
Stock Plan may not exceed 10 years.
An optionee generally must exercise an option granted under the Stock Plan at
the time set forth in the optionee's option agreement after the end of
optionee's status as an employee, director or consultant of NetIQ, or within 12
months after the optionee's termination by death or disability, but in no event
later than the expiration of the option's term.
SPRs
The administrator determines the exercise price of SPRs granted under the
Stock Plan. In the case of SPRs, unless the administrator determines otherwise,
the restricted stock purchase agreement entered into in connection with the
exercise of the SPR shall grant NetIQ a repurchase option that we may exercise
upon the voluntary or involuntary termination of the purchaser's service with
us for any reason, including death or disability. The purchase price for shares
we repurchase pursuant to restricted stock purchase agreements shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to NetIQ. The repurchase option shall lapse at a
rate that the administrator determines.
Outside Director Options
The Stock Plan also provides for an initial automatic grant of an option to
purchase 12,500 shares of common stock to a director who first becomes a non-
employee director after our initial public offering, and who does not
beneficially hold 1% or more of the total voting power of our voting securities
on the date of grant. After our initial public offering, each non-employee
director who has served on the board for at least the six previous months will
be granted an option to purchase 12,500 shares of common stock on the date of
the annual meeting of our stockholders. However, if the first annual meeting
following our initial public offering
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<PAGE>
falls within six months of the effective date of the initial public offering no
grants will be made until the following annual meeting. Each option granted to
a non-employee director under this program will have a term of 10 years and the
shares subject to these options shall be fully vested on the date of grant. The
exercise price of these options will be 100% of the fair market value per share
of common stock on the date of grant.
Transferability of Options and SPRs
An optionee generally may not transfer options and SPRs granted under the
Stock Plan and only an optionee may exercise an option and SPR during his or
her lifetime.
Adjustments upon Merger or Asset Sale
The Stock Plan provides that in the event of our merger with or into another
corporation or a sale of substantially all of our assets, the successor
corporation shall assume or substitute each option or SPR. If the outstanding
options or SPRs are not assumed or substituted, the administrator shall provide
notice to the optionee that he or she has the right to exercise the option or
SPR as to all of the shares subject to the option or SPR, including shares
which would not otherwise be exercisable, for a period of 15 days from the date
of the notice. The option or SPR will terminate upon the expiration of the 15-
day period. If an optionee's employment with the successor corporation is
terminated other than for cause or if a director's service with the successor
corporation is terminated other than for voluntary resignation, which shall not
be deemed voluntary if requested by the acquiring company, within twelve months
after a change of control, the optionee shall fully vest in the right to
exercise all of the shares subject to the option or SPR, including shares which
would not otherwise be exercisable.
Amendment and Termination of the Stock Plan
Unless terminated sooner, the Stock Plan will terminate automatically in
2005. In addition, the administrator has the authority to amend, suspend or
terminate the Stock Plan, provided that no such action may affect any share of
common stock previously issued and sold or any option previously granted under
the Stock Plan.
1999 Employee Stock Purchase Plan
The board of directors adopted our Purchase Plan in May 1999 and we
anticipate our stockholders will approve the Purchase Plan prior to completion
of this offering.
Number of Shares of Common Stock Available under the Purchase Plan
A total of 750,000 shares of common stock has been reserved for issuance
under the Purchase Plan. In addition, the Purchase Plan provides for annual
increases in the number of shares available for issuance under the Purchase
Plan on the first day of each fiscal year, beginning on July 1, 2000, equal to
the lesser of 2% of the outstanding shares of common stock on the first day of
the fiscal year, 1,000,000 shares or an amount as the board may determine.
Administration of the Purchase Plan
The board of directors or a committee appointed by the board administers the
Purchase Plan. The board or its committee has full and exclusive authority to
interpret the terms of the Purchase Plan and determine eligibility.
Eligibility to Participate
Employees are eligible to participate if they are customarily employed by
NetIQ or any participating subsidiary for at least 20 hours per week and more
than five months in any calendar year. However, an employee may not be granted
an option to purchase stock under the Purchase Plan if such an employee:
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
51
<PAGE>
. whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate which exceeds $25,000 worth of stock for each
calendar year.
Offering Periods and Contributions
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, contains consecutive, overlapping 24 month offering periods. Each
offering period includes four six-month purchase periods. The offering periods
generally start on the first trading day on or after May 1 and November 1 of
each year, except for the first such offering period which will commence on the
first trading day on or after the effective date of this offering and will end
on the last trading day on or before October 30, 2001.
The Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 15% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings
and commissions but excludes payments for overtime, shift premium payments,
incentive compensation, incentive payments, bonuses and other compensation. The
maximum number of shares a participant may purchase during a single purchase
period is 5,000 shares.
Purchase of Shares
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the Purchase Plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period or end of the
purchase period. In the event the fair market value at the end of a purchase
period is less than the fair market value at the beginning of the offering
period, participants will withdraw from the current offering period following
the exercise and will automatically re-enroll in a new offering period.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with NetIQ.
Transferability of Rights
A participant may not transfer rights granted under the Purchase Plan other
than by will, the laws of descent and distribution or as otherwise provided
under the Purchase Plan.
Adjustments upon Merger or Asset Sale
The Purchase Plan provides that, in the event of our merger with or into
another corporation or a sale of substantially all of our assets, a successor
corporation may assume or substitute for each outstanding option. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened, and a new
exercise date will be set.
Amendment and Termination of the Purchase Plan
The 1999 Purchase Plan will terminate in 2009. However, the board of
directors has the authority to amend or terminate the Purchase Plan at any
time, except that, subject to certain exceptions described in the Purchase
Plan, no such action may adversely affect any outstanding rights to purchase
stock under the Purchase Plan.
401(k) Plan
We have adopted a tax-qualified employee savings and retirement plan, the
401(k) Plan, for all eligible employees. Eligible employees may elect to defer
a percentage of their eligible compensation in the 401(k) Plan, subject to the
statutorily prescribed annual limit. We may make matching contributions on
behalf of all participants in the 401(k) Plan in an amount determined by our
board of directors. We may also make
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<PAGE>
additional discretionary profit sharing contributions in such amounts as
determined by the board of directors, subject to statutory limitations.
Matching and profit-sharing contributions, if any, are subject to a vesting
schedule; all other contributions are at all times fully vested. The 401(k)
Plan, and the accompanying trust, is intended to qualify under Sections 401(a)
and 501(a) of the Code so that contributions by employees or by NetIQ to the
401(k) Plan, and income earned (if any) on plan contributions, are not taxable
to employees until distributed from the 401(k) Plan, and so that contributions
by NetIQ, if any, will be deductible by NetIQ when made. The trustee under the
401(k) Plan, at the direction of each participant, invests the assets of the
401(k) Plan in any of a number of investment options.
Change in Control Agreements
We have entered into Change of Control Severance Agreements with each of our
executive officers, including the Named Executive Officers. The Agreements
provide that in the event of the executive's involuntary termination without
cause within 12 months after a change of control, the executive is entitled to
six months of severance pay, six months of continued coverage under group
health, life and other insurance arrangements, and full acceleration of all
outstanding options granted to the executive. For purposes of these agreements,
a "change of control" occurs if
. our stockholders approve a merger or consolidation of NetIQ with any
other corporation, other than a merger or consolidation which would
result in our voting securities outstanding immediately prior thereto
continuing to represent more than 50% of the total voting power of the
surviving entity in the merger;
. our stockholders approve a plan of complete liquidation or an agreement
for the sale or disposition by us of all or substantially all of our
assets;
. any person becomes the "beneficial owner," directly or indirectly, of
our securities representing 50% or more of the total voting power
represented our then outstanding voting securities; or
. a change in the composition of the board that results in fewer than a
majority of the directors being incumbent directors, meaning directors
who either are directors as of the date of the change of control
severance agreements, or are elected, or nominated for election, to the
board with the affirmative votes of at least a majority of those
directors whose election or nomination was not in connection with any
transaction described above or in connection with an actual or
threatened proxy contest relating to the election of directors.
Limitations on Directors' Liability and Indemnification
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following acts:
. any breach of their duty of loyalty to the corporation or its
stockholders
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
. unlawful payments of dividends or unlawful stock repurchases or
redemptions
. any transaction from which the director derived an improper personal
benefit
Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our Certificate of Incorporation and Bylaws provide that we will indemnify
our directors and executive officers and other corporate agents to the fullest
extent permitted by law. We believe that indemnification under our Bylaws
covers at least negligence and gross negligence on the part of indemnified
parties. Our Bylaws also permit us to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in such capacity, regardless of whether the Bylaws would permit
indemnification.
53
<PAGE>
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our Certificate of
Incorporation and Bylaws. These agreements, among other things, provide for
indemnification of our directors and executive officers for certain expenses,
including attorneys' fees, judgments, fines and settlement amounts incurred by
any such person in any action or proceeding, including any action by or in the
right of NetIQ, arising out of such person's services as a director or
executive officer of ours, any subsidiary of ours or any other company or
enterprise to which the person provided services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
54
<PAGE>
CERTAIN TRANSACTIONS
September 1995 Series A Preferred Stock Financing. In September 1995, we sold
7,000,000 shares of Series A Preferred Stock at a per share purchase price of
$0.40. Purchasers of the Series A Preferred Stock included Sen-Tien Lee, who
holds more than 5% of the outstanding common stock; Wongfratris Investment
Company, which holds more than 5% of the outstanding common stock and whose
representative, Ying-Hon Wong, is a member of the board of directors; Direct
International Limited, which holds more than 5% of the outstanding common
stock; Ching-Fa Hwang, who is our President and Chief Executive Officer and a
member of the board of directors; and Her-Daw Che, who is our Vice President,
Engineering and a member of the board of directors. The following table
summarizes purchases of Series A Preferred Stock by the these individuals and
entities:
<TABLE>
<CAPTION>
Number of
Name of Stockholder Series A Shares
------------------- ---------------
<S> <C>
Sen-Tien Lee................................................. 1,250,000
Direct International Limited................................. 750,000
Wongfratris Investment Company............................... 750,000
Ching-Fa Hwang (1)........................................... 500,000
Her-Daw Che (2).............................................. 250,000
</TABLE>
- ---------------------
(1) Shares held by Mr. Hwang and his wife in joint tenancy.
(2) Represents shares purchased by the Che Family Trust.
May 1997 Series B Preferred Stock Financing. In May 1997, we sold 4,100,000
shares of Series B Preferred Stock at a per share purchase price of $2.00.
Purchasers of the Series B Preferred Stock include InveStar Burgeon Venture
Capital Inc., which holds more than 5% of the outstanding common stock and
whose representative, Herbert Chang, is a member of the board of directors;
Sen-Tien Lee; Direct International Limited; Ching-Fa Hwang; Wongfratris
Investment Company; Her-Daw Che; and Thomas R. Kemp, who is our Vice President,
Marketing. The following table summarizes purchases of Series B Preferred Stock
by these individuals and entities:
<TABLE>
<CAPTION>
Number of
Name of Stockholder Series B Shares
------------------- ---------------
<S> <C>
InveStar Burgeon Venture Capital............................ 1,000,000
Sen-Tien Lee................................................ 250,000
Direct International Limited................................ 150,000
Ching-Fa Hwang (1).......................................... 150,000
Wongfratris Investment Company.............................. 145,000
Her-Daw Che (2)............................................. 100,000
Thomas R. Kemp.............................................. 40,000
</TABLE>
- ---------------------
(1) Includes shares purchased by Jerry Hwang and Andrew Hwang, Mr. Hwang's
children and by Mr. Hwang and his wife in joint tenancy.
(2) Represents shares purchased by the Che Family Trust, Austin Che and Joyce
Che, Mr. Che's children.
Consulting Arrangement. Ying-Hon Wong, one of our directors and a general
partner of Wongfratris Investment Company, earned $55,000, $60,000, $60,000 and
$45,000 in consulting fees in fiscal 1996, 1997, and 1998 and the nine months
ended March 31, 1999, respectively pursuant to a consulting arrangement under
which Mr. Wong is paid $5,000 per month that is terminable at any time.
Change of Control Severance Agreement. We have entered into Change of Control
Severance Agreements with each of our executive officers. See "Management--
Change in Control Agreements."
Option Grants to Directors and Certain Affiliates. In November 1995 we
granted an option exercisable for 200,000 shares of common stock to C. S. Ho,
the director of Direct International Limited, with an exercise price of $0.04
per share which vests in annual installments over four years. In May 1999 we
accelerated the vesting on this option so that Mr. Ho could purchase all of the
shares subject to this option.
We also have issued options to purchase common stock to Messrs. Chang,
Kaufman, Cole, Che, Hwang and Wong under our Stock Plan. Pursuant to
contractual obligations involving Messrs. Chang and Wong and their affiliated
investment entities, the option grant to Mr. Chang was issued in the name of
InveStar Burgeon Venture Capital and the option grant to Mr. Wong was issued in
the name of Wongfratris Investment Company. "See "Director Compensation."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership
of our common stock as of March 31, 1999 by the following individuals or
groups:
. each of our directors
. each person or entity who
beneficially owns more
than 5% of our outstanding
common stock
. all directors and executive
officers as a group
. each of the Named
Executive Officers
Except as otherwise noted the address for each holder of more than 5% of our
common stock is c/o NetIQ Corporation, 5410 Betsy Ross Drive, Santa Clara,
California 95054. Except as otherwise indicated, and subject 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 held by them.
Percentage ownership is based on 17,016,493 shares of common stock outstanding
as of March 31, 1999 as adjusted to reflect the conversion of all outstanding
shares of preferred stock upon the closing of this offering, and
shares immediately following the completion of this offering. The figure for
shares outstanding after completion of this offering also includes
shares issuable in connection with the assumed exercise of a warrant held by
Compuware. See "Capitalization" and "Description of Capital Stock." Shares of
common stock subject to options that are currently exercisable or exercisable
within 60 days of March 31, 1999 are treated as outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person and are listed below under
the "Number of Shares Underlying Options" column below, but these options are
not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
<TABLE>
<CAPTION>
Percentage of
Shares
Number Outstanding
of Shares -----------------
Number Underlying Before After
Name and Address of Shares Options Offering Offering
- ---------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C>
5% Stockholders:
Wongfratris Investment Company......... 1,625,000 -- 9.5%
51 Jordan Place
Palo Alto, CA 94303
Sen-Tien Lee........................... 1,500,000 -- 8.8%
29 Alley 18, Lane 325
Chien Kung Road
Taipei, Taiwan
R.O.C
InveStar Burgeon Venture Capital....... 1,000,000 183,333 6.9%
Leeware One Building
Safe Haven Corporate Center
Seven Mile Beach, Grand Canyon
Cayman Islands
British West Indies
Direct International Limited(1)........ 900,000 200,000 6.4%
Charlotte House, Charlotte St.
P.O. Box N-341
Nassau, Bahamas
Current Named Executive Officers and
Directors:
Ching-Fa Hwang (2)..................... 2,850,000 60,000 17.0%
Thomas R. Kemp......................... 245,500 23,750 1.6%
Glenn S. Winokur....................... 135,312 19,688 *
Her-Daw Che (3)........................ 1,610,000 50,000 9.5%
Ying-Hon Wong (4)...................... 1,625,000 -- 9.6%
Herbert Chang (5)...................... 1,000,000 183,333 6.9%
Alan W. Kaufman........................ -- 25,000 *
Louis C. Cole.......................... -- -- --
All directors and executive officers as
a group (10 persons).................. 7,512,687 361,771 45.3%
</TABLE>
- ---------------------
* less than 1%
56
<PAGE>
(1) Includes 200,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1999 held by C.S. Ho, a Director
of Direct International Limited and one of our consultants.
(2) Includes 50,000 shares held by Mr. Hwang's children and 600,000 shares
held by Mr. Hwang and his wife in joint tenancy.
(3) Includes 20,000 shares held by Austin Che, Mr. Che's son, 20,000 shares
held by Joyce Che, Mr. Che's daughter, and 310,000 shares held by the Che
Family Trust.
(4) Includes shares held by Wongfratris Company of which Mr. Wong is a general
partner. Mr. Wong disclaims beneficial ownership of the shares held by
Wongfratris Company, except to the extent of this pecuniary interest as a
general partner. Certain of these shares are subject to a repurchase
option in favor of NetIQ should Mr. Wong's membership on the board of
directors terminate. See "Management--Director Compensation."
(5) Includes shares and options held by InveStar Burgeon Venture Capital. Mr.
Chang is the president of InveStar Capital, Inc., the investment manager
of InveStar Burgeon Venture Capital, Inc. Mr. Chang disclaims beneficial
ownership of the shares held by InveStar Burgeon Venture Capital.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
After this offering, we will be authorized to issue 150,000,000 shares of
common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred
stock, $0.001 par value. Immediately after this offering, we estimate there
will be an aggregate of shares of common stock outstanding,
shares of common stock will be issuable upon exercise of outstanding options
and no shares of Preferred Stock will be issued and outstanding.
The figure for outstanding shares of common stock upon completion of this
offering reflects the issuance of shares of common stock in connection
with presumed exercise of a warrant to purchase shares of common stock issued
to Compuware as part of the settlement arrangement relating to litigation
involving Compuware. Under the terms of the warrant, the per share exercise
price of the warrant is $ , 90% of the per share sale price of shares
sold to investors in this offering. The warrant provides that Compuware can
purchase up to a maximum number of shares equal to the lesser of 10% of the
shares sold in this offering or 2% of our common stock assuming exercise of all
outstanding options as of May 26, 1999. The purchase price for the shares of
common stock Compuware can purchase under its warrant is payable in cash or by
the cancellation of indebtedness. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
for a discussion of our outstanding indebtedness to Compuware.
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our amended and
restated certificate of incorporation and bylaws and by the provisions of
applicable Delaware law.
Our certificate of incorporation and bylaws contain certain provisions that
are intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and which may have the effect of
delaying, deferring, or preventing a future takeover or change in control of
NetIQ unless such takeover or change in control is approved by the board of
directors.
Common Stock
Holders of common stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of common stock do not have
cumulative voting rights, and, therefore, holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the common stock are entitled to receive such dividends as may be
declared from time to time by the board of directors out of funds legally
available therefor, subject to the terms of any existing or future agreements
between NetIQ and our debtholders. We have never declared or paid cash
dividends on our capital stock, expect to retain future earnings, if any, for
use in the operation and expansion of its business, and do not anticipate
paying any cash dividends in the foreseeable future. In the event of
liquidation, dissolution or winding up of NetIQ, the holders of common stock
are entitled to share ratably in all assets legally available for distribution
after payment of all debts and other liabilities and subject to the prior
rights of any holders of preferred stock then outstanding. Holders of common
stock have no preemptive or other subscription or conversion rights. There are
no redemption or sinking fund provisions applicable to the common stock.
Preferred Stock
Effective upon the closing of this offering, we will be authorized to issue
5,000,000 shares of undesignated preferred stock. The board of directors has
the authority to issue the preferred stock in one or more series and to fix the
price, rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the
58
<PAGE>
number of shares constituting a series or the designation of such series,
without any further vote or action by our stockholders. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of NetIQ without further
action by the stockholders and may adversely affect the market price of, and
the voting and other rights of, the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. We have no current plans to issue any shares of preferred
stock.
Registration Rights
The holders of 11,100,000 shares of common stock are entitled to certain
rights with respect to registration of such shares under the Securities Act.
These rights are provided under the terms of an agreement between NetIQ and the
holders of registrable securities. Beginning six months following the
consummation of this offering, holders of then outstanding registrable
securities may require on up to two occasions that we register their shares for
public resale. We are obligated to register these shares only if the
outstanding registrable securities have an anticipated public offering price of
at least $5,000,000. Also, holders of registrable securities who hold more than
two percent of our outstanding common stock on a fully diluted basis, may
require on two separate occasions in any 12 month period that shares for public
resale on Form S-3 or similar short-form registration if the value of the
securities to be registered is at least $1,000,000. Furthermore, in the event
we determine to register any of our securities under the Securities Act, either
of our own account or for the account of other security holders exercising
their registration rights, the holders of registrable securities are entitled
to include their shares of common stock in the registration. The registration
rights are subject to certain conditions and limitations, among them the right
of the underwriter to limit the number of shares included in the registration
which may reduce the number of shares proposed to be registered in view of
market conditions. These registration rights are not triggered by this
offering. All expenses in connection with any registration, other than
underwriting discounts and commissions, will be borne by us. All registration
rights will terminate five years following the consummation of this offering.
Antitakeover Effects of Some Provisions of Certificate of Incorporation and
Bylaws
Some of the provisions of our certificate of incorporation and bylaws could
make the following more difficult:
. acquisition of NetIQ by means of a tender offer;
. acquisition of NetIQ by means of a proxy contest or otherwise; or
. the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of NetIQ to
first negotiate with our board. We believe that the benefits of increased
protection resulting from our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure NetIQ
outweigh the disadvantages of discouraging such proposals because we believe
that the negotiation of such proposals could result in an improvement of their
terms. See "Risk Factors--Provisions in our charter documents... "
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
one class being elected each year by our stockholders. See "Management--
Executive Officers and Directors--Classified Board." This system of electing
and removing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of NetIQ because it
generally makes it more difficult for stockholders to replace a majority of the
directors.
Stockholder Meetings. Under our bylaws, only the board of directors, the
chairman of the board, the president and the chief executive officer may call
special meetings of stockholders.
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<PAGE>
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation and bylaws eliminate the right of stockholders to act by written
consent without a meeting.
Elimination of Cumulative Voting. Our certificate of incorporation and bylaws
do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of any
attempt to change control of NetIQ. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of NetIQ.
Amendment of Charter Provisions. The amendment of the above provisions
relating to the election and removal of directors, stockholder meetings and the
elimination of stockholder action by written consent requires approval by
holder of at least 66 2/3% of the outstanding common stock.
See "Risk Factors--Provisions in our charter documents ..."
Effect of Delaware Antitakeover Statute
We are subject to Section 203 of the Delaware General Corporation Law, or the
Antitakeover Law, which regulates corporate acquisitions. The Antitakeover Law
prevents certain Delaware corporations, including those whose securities are
listed for trading on the Nasdaq National Market, from engaging, under certain
circumstances in a "business combination" with any "interested stockholder" for
three years following the date that such stockholder became an interested
stockholder. For purposes of the Antitakeover Law, a "business combination"
includes, among other things, a merger or consolidation involving NetIQ and the
interested stockholder and the sale of more than 10% of our assets. In general,
the Antitakeover Law defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of our outstanding voting stock and any
entity or person affiliated with or controlling or controlled by such entity or
person. A Delaware corporation may "opt out" of the Antitakeover Law with an
express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from
amendments approved by the holders of at least a majority of the corporation's
outstanding voting shares. We have not "opted out" of the provisions of the
Antitakeover Law. See "Risk Factors--Provisions in our charter documents and in
Delaware law."
Nasdaq National Market Listing
We have applied for listing our shares on the Nasdaq Stock Market's National
Market under the symbol "NTIQ."
Transfer Agent
The transfer agent and registrar for the common stock is BankBoston, N.A. and
can be contacted by phone at (781) 575-3120.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have outstanding shares of common stock
based upon shares outstanding at March 31, 1999, assuming no exercise of the
underwriters' over-allotment option. Excluding the shares of common
stock offered hereby and assuming no exercise of the underwriters' over-
allotment option, as of the effective date of the registration statement, there
will be 17,016,493 shares of common stock outstanding, all of which are
"restricted" shares under the Securities Act, excluding shares issuable
upon the presumed exercise of the warrant held by Compuware. For more detail on
the Compuware warrant see "Capitalization," "Description of Capital Stock."
All restricted shares are subject to lock-up agreements with the underwriters
pursuant to which the holders of the restricted shares have agreed not to sell,
pledge or otherwise dispose of such shares for a period of 180 days after the
date of this prospectus. Credit Suisse First Boston Corporation may release the
shares subject to the lock-up agreements in whole or in part at any time with
or without notice. However, Credit Suisse First Boston Corporation has no
current plans to do so. The following table indicates approximately when the
17,016,493 shares of our common stock that are not being sold in the offering
but which will be outstanding at the time the offering is complete will be
eligible for sale into the public market:
<TABLE>
<CAPTION>
Eligibility of Restricted Shares for Sale in Public Market
----------------------------------------------------------
------------------------------------------------------------------------------
<S> <C>
At effective date...................................................... 0
------------------------------------------------------------------------------
180 days after effective date..........................................
------------------------------------------------------------------------------
At various times after the effective date..............................
</TABLE>
All shares issuable upon exercise of the Compuware warrant will be
"restricted" shares under the Securities Act and will become eligible after 180
days after the effective date. Many of the restricted shares that will become
available for sale in the public market beginning 180 days after the effective
date will be subject to certain volume and other resale restrictions pursuant
to Rule 144 rbecause the holders are affiliates of NetIQ. In general, under
Rule 144, an affiliate of NetIQ, or person who has beneficially owned
restricted shares for at least one year, will be entitled to sell in any three-
month period a number of shares that does not exceed the greater of 1% of the
then outstanding shares of the common stock, approximately shares
immediately after this offering, or the average weekly trading volume during
the four calendar weeks preceding the date on which notice of the sale is filed
with the SEC. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about NetIQ. A person who is not deemed to have been an affiliate
of ours at any time during the 90 days immediately preceding the sale and who
has beneficially owned his or her shares for at least two years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above.
As of March 31, 1999, 5,950,000 shares were reserved for issuance under the
Stock Plan, of which options to purchase 3,172,106 shares were then
outstanding. Beginning 180 days after the effective date, approximately
shares issuable upon the exercise of vested options will become
eligible for sale and shares issued pursuant to restricted stock
agreements under the Stock Plan will no longer be subject to a repurchase
option and will be eligible for resale. In addition, an aggregate of
restricted shares have been issued to certain of our executive officers and
directors under the Stock Plan pursuant to the restricted stock agreements
described above. Additionally, in May 1999, our board of directors approved an
increase of 2,050,000 shares in the number of shares reserved under the Stock
Plan and a reserve of 750,000 shares for options under the Purchase Plan.
We intend to file, within 180 days after the date of this prospectus, a Form
S-8/S-3 registration statement under the Securities Act to register shares
issued pursuant to restricted stock purchase agreements under the Stock Plan,
shares issued in connection with option exercises and shares reserved for
issuance under all stock
61
<PAGE>
plans. Shares of common stock issued pursuant to the restricted stock
agreements under the Stock Plan or upon exercise of options after the effective
date of the Form S-8/S-3 will be available for sale in the public market,
subject to Rule 144 volume limitations applicable to affiliates and lock-up
agreements.
Lock-Up Agreements
All officers and directors and certain holders of common stock and options to
purchase common stock have agreed pursuant to certain "lock-up" agreements that
they will not offer, sell, contract to sell, pledge, grant any option to sell,
or otherwise dispose of, directly or indirectly, any shares of common stock or
securities convertible or exchangeable for common stock, or warrants or other
rights to purchase common stock for a period of 180 days after the transfer or
date of this prospectus without the prior written consent of Credit Suisse
First Boston Corporation.
62
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, BancBoston Robertson
Stephens, Inc. and Hambrecht & Quist LLC are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
BancBoston Robertson Stephens, Inc.................................
Hambrecht & Quist LLC..............................................
Total............................................................
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the shares of common stock offered in this offering if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults the purchase commitments of non-defaulting underwriters
may be increased or the offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro rata
basis up to additional shares of common stock at the initial public
offering price less the underwriting discounts and commissions. This option may
be exercised only to cover over-allotments of common stock.
The underwriters propose to offer the common stock initially at the public
offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters
and the selling group members may allow a discount of $ per share on sales
to other broker/dealers. After the initial public offering, the public offering
price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the discounts and commissions and estimated
expenses that we will pay.
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
share over-allotment over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by us........................... $ $ $
Expenses payable by us................ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary sales
to exceed 5% of the shares of common stock being offered.
Subject to certain limitations, we, our executive officers, directors and our
existing stockholders have agreed not to offer, sell, contract to sell,
announce their intention to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the SEC a registration statement under the Securities
Act relating to, any additional shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
in our case for grants of employee stock options pursuant to the terms of a
plan in effect on the date hereof, issuances of securities pursuant to the
exercise of employee stock options outstanding on the date hereof or the
exercise of any other stock options outstanding on the date hereof.
63
<PAGE>
The underwriters have reserved for sale, at the initial offering price, up to
shares of common stock for employees and other persons associated with
NetIQ who have expressed an interest in purchasing common stock in this
offering. The number of shares of common stock available for sale to the
general public in this offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities or to
contribute to payments which the underwriters may be required to make in
respect thereof.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "NTIQ."
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives, and does not reflect the market
price for the common stock following the offering. Among the principal factors
considered in determining the initial public offering price will be: the
information in this prospectus and otherwise available to the representatives;
market conditions for initial public offerings; the history of and prospects
for the industry in which we will compete; our past and present operations; our
past and present earnings and current financial position; the ability of our
management; our prospects for future earnings; the present state of our
development and our current financial condition; the recent market prices of,
and the demand for, publicly traded common stock of generally comparable
companies; the general condition of the securities markets at the time of this
offering; and other relevant factors.
We can offer no assurances that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to the offering or that an active trading market for the
common stock will develop and continue after the offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit
bids to purchase shares of the common stock so long as the stabilizing
bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.
64
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to us and the dealer from whom the purchase
confirmation is received that (i) the purchaser is entitled under applicable
provincial securities laws to purchase common stock without the benefit of a
prospectus qualified under the securities laws, (ii) where required by law,
that the purchaser is purchasing as principal and not as agent, and (iii) the
purchaser has reviewed the text above the text under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer and these persons. All or a substantial portion of the assets
of the issuer and these persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the issuer or
these persons in Canada or to enforce a judgment obtained in Canadian courts
against the issuer or these persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. This report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in our
common stock in their particular circumstances and with respect to the
eligibility of our common stock for investment by the purchaser under relevant
Canadian legislation.
65
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for NetIQ
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters will be passed upon for the underwriters by
Morrison & Forester, LLP, Palo Alto, California. As of the date of this
prospectus, WS Investment Company 95B, an investment partnership composed of
certain current and former members of and persons associated with Wilson
Sonsini Goodrich & Rosati, Professional Corporation, as well as certain
individual attorneys of such firm, beneficially own an aggregate of 62,500
shares of NetIQ's common stock.
EXPERTS
The consolidated financial statements as of June 30, 1998 and 1997 and March
31, 1999 and for each of the years in the three year period ended June 30, 1998
and for the nine months ended March 31, 1999 included in this prospectus and
the related financial statement schedule included elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in auditing and accounting.
WHERE TO FIND OTHER NETIQ DOCUMENTS
We have filed a registration statement on Form S-1 with the SEC with respect
to the common stock offered hereby. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
NetIQ and the common stock, reference is hereby made to the registration
statement and the exhibits and schedules thereto. You may read and copy any
document we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. Such periodic reports, proxy
statements and other information will be available for inspection and copying
at the SEC's public reference rooms, our Web site and the Web site of the SEC
referred to above.
66
<PAGE>
NetIQ CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... 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>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of NetIQ Corporation:
We have audited the accompanying consolidated balance sheets of NetIQ
Corporation and subsidiaries (the Company) as of June 30, 1997 and 1998 and
March 31, 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended June 30, 1996, 1997 and
1998 and the nine months ended March 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of NetIQ Corporation and subsidiaries
as of June 30, 1997 and 1998 and March 31, 1999, and the results of their
operations and their cash flows for the years ended June 30, 1996, 1997 and
1998 and the nine months ended March 31, 1999 in conformity with generally
accepted accounting principles.
San Jose, California
May 19, 1999
( , 1999 as to the thirteenth paragraph of Note 1)
----------------
To the Board of Directors and Stockholders of NetIQ Corporation:
The accompanying consolidated financial statements are required to disclose,
pursuant to rules of the Securities and Exchange Commission, an unaudited
proforma balance sheet reflecting the exercise of certain warrants to acquire
shares of Common Stock at an exercise price of 90% of the planned initial
public offering price whose proceeds are to be used to substantially repay a
$5,000,000 loan under a subordinated secured promissory note (See Note 3). The
above opinion is in the form that will be signed by Deloitte & Touche LLP upon
inclusion of such disclosure in the accompanying consolidated financial
statements and assuming that from May 19, 1999 to the date such information has
been included, no other events shall have occurred that would affect the
accompanying consolidated financial statements or notes thereto.
Deloitte & Touche LLP
San Jose, California
May 26, 1999
F-2
<PAGE>
NetIQ CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, Pro Forma
---------------- March 31, March 31,
1997 1998 1999 1999
------- ------- --------- -----------
(Note 1)
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 7,748 $ 3,358 $11,565 $
Accounts receivable, net of allowance
for uncollectible accounts of $307
and $505 in 1998 and 1999 (none in
1997)............................... 159 4,055 4,766
Prepaid expenses..................... 1 167 146
------- ------- ------- ----
Total current assets............... 7,908 7,580 16,477
Property and equipment, net............ 272 527 1,036
Other assets........................... 22 98 100
------- ------- ------- ----
Total assets....................... $ 8,202 $ 8,205 $17,613 $
======= ======= ======= ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt...................... $ -- $ -- $ 5,144 $
Accounts payable..................... 227 535 1,331
Accrued compensation and related
benefits............................ 78 809 820
Other liabilities.................... 38 375 917
Deferred revenue..................... 72 1,547 3,189
------- ------- ------- ----
Total current liabilities.......... 415 3,266 11,401
Long-term debt......................... -- -- 241
------- ------- ------- ----
Total liabilities.................. 415 3,266 11,642
------- ------- ------- ----
Commitments and contingencies (Note 8)
Stockholders' equity:
Convertible preferred stock--$0.001
(aggregate liquidation preference of
$11,000,000); 11,100,000 shares
authorized and outstanding, actual;
5,000,000 shares authorized, none
outstanding, pro forma.............. 10,955 10,955 10,955
Common stock--$0.001; 30,000,000
shares authorized; shares
outstanding: 1997, 4,541,375; 1998,
4,826,750; 1999, 5,916,493, actual;
150,000,000 shares authorized,
shares outstanding, pro forma....... 48 1,302 4,143
Note receivable from stockholder..... (6) (6) --
Deferred stock-based compensation.... (20) (1,011) (2,325)
Accumulated deficit.................. (3,190) (6,301) (6,802)
------- ------- ------- ----
Total stockholders' equity......... 7,787 4,939 5,971
------- ------- ------- ----
Total liabilities and
stockholders' equity............ $ 8,202 $ 8,205 $17,613 $
======= ======= ======= ====
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NetIQ CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months
Years Ended June 30, Ended March 31,
------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license............. $ -- $ 369 $ 6,603 $ 3,186 $13,137
Service...................... -- 19 467 234 1,972
------- ------- ------- ------- -------
Total revenue.............. -- 388 7,070 3,420 15,109
------- ------- ------- ------- -------
Cost of revenue:
Software license............. -- 9 235 159 532
Service...................... -- 46 407 203 894
------- ------- ------- ------- -------
Total cost of revenue...... -- 55 642 362 1,426
------- ------- ------- ------- -------
Gross profit................... -- 333 6,428 3,058 13,683
Operating expenses:
Sales and marketing.......... 77 1,238 5,748 3,600 8,027
Research and development..... 665 1,003 2,192 1,462 2,652
General and administrative... 264 479 1,611 994 2,239
Stock-based compensation..... -- 10 250 83 1,355
------- ------- ------- ------- -------
Total operating expenses... 1,006 2,730 9,801 6,139 14,273
------- ------- ------- ------- -------
Loss from operations........... (1,006) (2,397) (3,373) (3,081) (590)
Interest income (expense):
Interest income.............. 98 119 262 215 119
Interest expense............. (1) (3) -- -- (30)
------- ------- ------- ------- -------
Interest income, net....... 97 116 262 215 89
------- ------- ------- ------- -------
Net loss....................... $ (909) $(2,281) $(3,111) $(2,866) $ (501)
======= ======= ======= ======= =======
Basic and diluted net loss per
share......................... $ (1.03) $ (1.07) $ (0.89) $ (0.87) $ (0.10)
======= ======= ======= ======= =======
Shares used to compute basic
and diluted net loss per
share......................... 881 2,122 3,496 3,299 4,993
======= ======= ======= ======= =======
Pro forma basic and diluted net
loss per share (Note 1)....... $ (0.21) $ (0.03)
======= =======
Shares used to compute pro
forma basic and diluted net
loss per share (Note 1)....... 14,596 16,093
======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NetIQ CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Note
Preferred Stock Common Stock Receivable Deferred
------------------ ----------------- from Stock-based Accumulated
Shares Amount Shares Amount Stockholder Compensation Deficit
---------- ------- --------- ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
July 1995--Issuance of common stock to
founders at $0.0005 per share......... -- $ -- 4,150,000 $ 2 $-- $ -- $ --
September 1995--Issuance of Series A
preferred stock at $0.40 per share,
net of issuance costs of $14.......... 7,000,000 2,786 -- -- -- -- --
December 1995 and April 1996--issuance
of common stock at $0.04 per share.... -- -- 174,000 7 (6) -- --
Net loss............................... -- -- -- -- -- -- (909)
---------- ------- --------- ------ --- ------- -------
Balances, June 30, 1996................. 7,000,000 2,786 4,324,000 9 (6) -- (909)
May 1997--Issuance of Series B
preferred stock at $2.00 per share,
net of issuance costs of $31.......... 4,100,000 8,169 -- -- -- -- --
Exercise of stock options.............. -- -- 217,375 9 -- -- --
Deferred stock-based compensation...... -- -- -- 30 -- (30) --
Amortization of deferred stock
compensation.......................... -- -- -- -- -- 10 --
Net loss............................... -- -- -- -- -- -- (2,281)
---------- ------- --------- ------ --- ------- -------
Balances, June 30, 1997................. 11,100,000 10,955 4,541,375 48 (6) (20) (3,190)
Exercise of stock options.............. -- -- 285,375 13 -- -- --
Deferred stock-based compensation...... -- -- -- 1,241 -- (1,241) --
Amortization of deferred stock
compensation.......................... -- -- -- -- -- 250 --
Net loss............................... -- -- -- -- -- -- (3,111)
---------- ------- --------- ------ --- ------- -------
Balances, June 30, 1998................. 11,100,000 10,955 4,826,750 1,302 (6) (1,011) (6,301)
Exercise of stock options.............. -- -- 1,177,243 178 -- -- --
Repurchase of common stock............. -- -- (87,500) (4) 6 -- --
Deferred stock-based compensation...... -- -- -- 2,667 -- (2,667) --
Amortization of deferred stock
compensation.......................... -- -- -- -- -- 1,353 --
Net loss............................... -- -- -- -- -- -- (501)
---------- ------- --------- ------ --- ------- -------
Balances, March 31, 1999................ 11,100,000 $10,955 5,916,493 $4,143 $-- $(2,325) $(6,802)
- --------------------------------------------------
========== ======= ========= ====== === ======= =======
<CAPTION>
Total
-------
<S> <C>
July 1995--Issuance of common stock to
founders at $0.0005 per share......... $ 2
September 1995--Issuance of Series A
preferred stock at $0.40 per share,
net of issuance costs of $14.......... 2,786
December 1995 and April 1996--issuance
of common stock at $0.04 per share.... 1
Net loss............................... (909)
-------
Balances, June 30, 1996................. 1,880
May 1997--Issuance of Series B
preferred stock at $2.00 per share,
net of issuance costs of $31.......... 8,169
Exercise of stock options.............. 9
Deferred stock-based compensation...... --
Amortization of deferred stock
compensation.......................... 10
Net loss............................... (2,281)
-------
Balances, June 30, 1997................. 7,787
Exercise of stock options.............. 13
Deferred stock-based compensation...... --
Amortization of deferred stock
compensation.......................... 250
Net loss............................... (3,111)
-------
Balances, June 30, 1998................. 4,939
Exercise of stock options.............. 178
Repurchase of common stock............. 2
Deferred stock-based compensation...... --
Amortization of deferred stock
compensation.......................... 1,353
Net loss............................... (501)
-------
Balances, March 31, 1999................ $5,971
- --------------------------------------------------
=======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NetIQ CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended June 30, March 31,
------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $ (909) $(2,281) $(3,111) $(2,866) $ (501)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities:
Depreciation................ 26 70 198 138 271
Stock-based compensation.... -- 10 250 83 1,355
Gain on the sale of
property and equipment..... -- -- -- -- 8
Changes in:
Accounts receivable....... -- (159) (3,896) (1,257) (711)
Prepaid expenses.......... (12) 10 (166) (29) 21
Accounts payable.......... 29 199 308 235 796
Accrued compensation and
related benefits......... 32 46 731 238 11
Other liabilities......... -- 38 337 131 542
Deferred revenue.......... -- 72 1,475 516 1,642
------- ------- ------- ------- -------
Net cash provided by
(used in) operating
activities............. (834) (1,995) (3,874) (2,811) 3,434
------- ------- ------- ------- -------
Cash flows from investing
activities:
Purchases of property and
equipment, net.............. (149) (220) (453) (322) (799)
Purchase/maturity of short-
term investments............ (2,085) 2,085 -- -- --
Other........................ (3) (18) (76) 4 (2)
Proceeds from the sale of
property and equipment...... -- -- -- -- 11
------- ------- ------- ------- -------
Net cash provided by (used
in) investing activities... (2,237) 1,847 (529) (318) (790)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Borrowings on line of credit
facility.................... 314 133 -- --
Payments on line of credit
facility.................... -- (447) -- -- --
Proceeds from borrowings..... -- -- -- -- 5,433
Payments on borrowings....... -- -- -- -- (48)
Proceeds from sale of common
stock....................... 3 9 13 9 178
Proceeds from issuance of
preferred stock............. 2,786 8,169 -- -- --
------- ------- ------- ------- -------
Net cash provided by
financing activities....... 3,103 7,864 13 9 5,563
------- ------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents.......... 32 7,716 (4,390) (3,120) 8,207
Cash and cash equivalents,
beginning of year............. -- 32 7,748 7,748 3,358
------- ------- ------- ------- -------
Cash and cash equivalents, end
of year....................... $ 32 $ 7,748 $ 3,358 $ 4,628 $11,565
======= ======= ======= ======= =======
Noncash investing and financing
activities:
Issuance (receipt) of common
stock for stockholder's note
receivable.................. $ 6 $ -- $ -- $ -- $ (6)
Supplemental disclosure of cash
flow information--cash paid
for:
Interest..................... $ 1 $ 3 $ -- $ -- $ 12
Income taxes................. $ 2 $ 1 $ 3 $ 3 $ 45
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
1. Organization and Summary of Significant Accounting Policies
Organization--NetIQ Corporation (the Company) was incorporated in California
in June 1995 to develop, market and support performance and availability
management software for the Microsoft Windows NT environment. The Company
markets its products through its field and inside sales organization and
reseller channel partners, which are focused on customers primarily located in
the United States, Europe and Asia.
Basis of Presentation--The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-owned.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates--The preparation of the 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 the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents--The Company considers all highly liquid debt instruments
purchased with a remaining maturity of three months or less to be cash
equivalents.
Property and Equipment--Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives, generally three to five years.
Software Development Costs--Costs for the development of new software
products and substantial enhancements to existing software products are
expensed as incurred until technological feasibility has been established, at
which time any additional costs would be capitalized in accordance with
Statement of Financial Accounting Standards(SFAS) No. 86, Computer Software To
Be Sold, Leased or Otherwise Marketed. The costs to develop such software have
not been capitalized as the Company believes its current software development
process is essentially completed concurrent with the establishment of
technological feasibility.
Revenue Recognition--Statement of Position 97-2, Software Revenue Recognition
("SOP 97-2"), was issued in October 1997 by the American Institute of Certified
Public Accountants ("AICPA") and was amended by Statement of Position 98-4
("SOP 98-4"). The Company adopted SOP 97-2 effective July 1, 1997 and SOP 98-4
effective March 31, 1998. The Company believes its current revenue recognition
policies and practices are consistent with SOP 97-2 and SOP 98-4. Additionally,
the AICPA issued SOP 98-9 in December 1998, which provides certain amendments
to SOP 97-2, and is effective for transactions entered into by the Company
beginning July 1, 1999. The Company does not believe that adoption of these
amendments will have a material impact on its financial position, results of
operations or cash flows.
Software license revenue is recognized upon meeting each of the following
criteria: execution of a written purchase order, license agreement or contract;
delivery of software and authorization keys; the license fee is fixed and
determinable; collectibility of the proceeds within six months is assessed as
being probable; and vendor specific objective evidence exists to allocate the
total fee to elements of the arrangement. Vendor-specific objective evidence is
based on the price generally charged when an element is sold separately, or if
not yet sold separately, is established by authorized management. All elements
of each order are valued at the time of revenue recognition. For sales made
through distributors, resellers and original equipment manufacturers the
F-7
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
Company recognizes revenue at the time these partners report to the Company and
all revenue recognition criteria have been met. Service revenue includes
maintenance revenue, which is deferred and recognized ratably over the
maintenance period, and revenue from consulting and training services, which is
recognized as services are performed.
Income Taxes--Deferred tax assets and liabilities are recorded for the
expected future tax consequences of temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities. A
valuation allowance is recorded to reduce net deferred tax assets to amounts
that are more likely than not to be realized.
Stock-Based Compensation--The Company accounts for its employees stock option
plan in accordance with provisions of Accounting Principles Board (APB) Opinion
No. 25 Accounting for Stock Issued to Employees.
Net Loss per Share--Basic loss per share excludes dilution and is computed by
dividing net loss by the weighted average number of common shares outstanding,
less shares subject to repurchase by the Company. Diluted net loss per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (convertible preferred stock, warrants and
common stock options) were exercised or converted into common stock. Common
share equivalents are excluded from the computation in loss periods as their
effect would be antidilutive.
Pro Forma Net Loss per Share--Pro forma basic and diluted net loss per share
is computed by dividing net loss attributable to common stockholders by the
weighted average number of common shares outstanding for the period (excluding
shares subject to repurchase) and the weighted average number of common shares
resulting from the assumed conversion of all outstanding shares of convertible
preferred stock and the weighted average number of shares resulting from the
exercise of warrants to purchase common stock upon the closing of the initial
public offering contemplated by this Prospectus.
Unaudited Pro Forma Information--The unaudited pro forma balance sheet
presents the Company's balance sheet as if the following had occurred at March
31, 1999:
(i) the exercise of warrants to acquire shares of common stock at an
exercise price of 90% of an assumed initial public offering price of $ ,
which warrants must be exercised or expire upon the closing of the initial
public offering contemplated by the Company (see Note 3); (ii) the
repayment of a $5 million promissory note and accrued interest thereon
which is payable upon the initial public offering contemplated by the
Company (see Note 3); and (iii) the conversion of each share of preferred
stock to one share of common stock upon closing of the initial public
offering . Estimated proceeds from the common stock to be issued as a
result of such initial public offering are excluded.
Unaudited Interim Financial Information--The interim financial information
for the nine months ended March 31, 1998 is unaudited and has been prepared on
the same basis as the audited financial statements. In the opinion of
management, such unaudited financial information includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the interim information.
Foreign Currency Transactions--The functional currency of the Company's
foreign subsidiaries is the U.S. dollar. Accordingly, all monetary assets and
liabilities are translated at the current exchange rate at the end of each
period reported, nonmonetary assets and liabilities are translated at
historical rates and revenues and expenses are translated at average exchange
rates in effect during the period. Transaction gains and losses, which are
included in other income (expense) in the accompanying consolidated statements
of operations, have not been significant.
F-8
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
Concentration of Credit Risk--Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of trade
receivables. The Company sells its products to companies in diverse industries
and generally does not require its customers to provide collateral to support
accounts receivable. To reduce credit risk, management performs ongoing credit
evaluations of its customers' financial condition. The Company maintains
allowances for potential credit losses.
Certain Significant Risks and Uncertainties--The Company operates in the
software industry, and accordingly, can be affected by a variety of factors.
For example, management of the Company believes that changes in any of the
following areas could have a significant negative effect on the Company's
future financial position, results of operations and cash flows; demand for
performance availability and management software solutions, including any
adverse purchasing patterns caused by Year 2000 related concerns; new product
introductions by competitors; development of distribution channels; demand for
Windows NT-based systems and applications; ability to implement and expand
operational customer support and financial control systems to manage rapid
growth, both domestically and internationally; the hiring, training and
retention of key employees; relationship with Microsoft; fundamental changes in
technology underlying software products; litigation or other claims against the
Company.
Recently Issued Accounting Standards--In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income,
which requires an enterprise to report, by major components and as a single
total, the change in its net assets during the period from nonowner sources;
and SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, which establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas and major customers. The Company's comprehensive
loss was equal to its net loss for all periods presented. The Company currently
operates in one reportable segment under SFAS No. 131.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedge accounting
when certain conditions are met. SFAS No. 133 is effective for the Company in
fiscal 2000. Although the Company has not fully assessed the implications of
SFAS No. 133, the Company does not believe that adoption of this statement will
have a material impact on the Company's financial position or results of
operations.
2. Property and Equipment
Property and equipment consist of (in thousands):
<TABLE>
<CAPTION>
June 30,
----------- March 31,
1997 1998 1999
---- ----- ---------
<S> <C> <C> <C>
Computer equipment and software....................... $317 $ 760 $1,173
Furniture and fixtures................................ 51 55 336
Construction in progress.............................. -- 6 72
---- ----- ------
368 821 1,581
Less accumulated depreciation......................... (96) (294) (545)
---- ----- ------
Property and equipment, net........................... $272 $ 527 $1,036
==== ===== ======
</TABLE>
F-9
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
3. Settlement of Litigation
In September 1996, Compuware Corporation filed a complaint against the
Company alleging misappropriation of certain trade secrets, copyright
infringement, unfair competition and other claims. A settlement of these claims
was reached in January 1999 and final documentation ("Settlement Agreement")
was entered into and the charges dismissed in March 1999.
In March 1999, as a part of the Settlement Agreement, the Company received a
loan of $5,000,000 under a subordinated secured promissory note. The loan bears
interest at 6% per year and principal and accrued interest are payable on the
earliest of (i) an initial public offering of the Company's securities raising
in excess of $10,000,000, (ii) a change in control meeting certain criteria,
(iii) in the event of the Company filing for bankruptcy or insolvency or other
specified events of default or (iv) January 1, 2002. The note is secured by
security agreements covering all of the Company's assets and is subordinated to
any bank credit facility.
Also in March 1999, as a part of the Settlement Agreement, the Company issued
a warrant to purchase up to 2% of the total of the outstanding common stock and
common stock equivalents of the Company, calculated immediately prior to the
events described in (i) or (ii) as follows, contingent upon (i) the filing of a
registration statement relating to the public offering of Company's common
stock or (ii) the signing of a definitive agreement regarding a change in
control occurring prior to the initial public offering of the Company's common
stock. The total number of shares subject to the contingent warrant outstanding
based on the number of outstanding common stock and common stock equivalents at
March 31, 1999 was 403,772. The exercise price, in the case of (i), is 90% of
the price to the public or, in the case of (ii), is 80% of the cash value of a
share of common stock if the event takes place before December 31, 1999 or 90%
of the cash value of a share of common stock if the event takes place on or
after January 1, 2000. In the event of an exercise of the warrants pursuant to
the filing of a registration statement, the maximum number of shares of common
stock purchased at that point shall not exceed 10% of the number of shares
registered for sale in the public offering and any residual unexpired warrants
shall become exercisable at the next public offering of the Company's common
stock. The value of such warrants will be charged to operating results in the
period they become exercisable.
4. Debt
The Company has a Loan and Security Agreement (the "Agreement") with a
financial institution, which provides for a maximum credit facility of
$2,000,000. The credit facility is limited to the Company's eligible
receivables, as defined, plus outstanding letters of credit with the bank.
Borrowings bear interest at the bank's prime rate (7.75% at March 31, 1999)
plus 0.25%. The Company may request a maximum of $400,000 in letters of credit
to be issued against the credit facility. At March 31, 1999, there were no
obligations outstanding under this facility. This facility expired in May 1999.
Additionally, the Agreement provides for equipment advances of $500,000
through November 15, 1998. During the nine months ended March 31, 1999, the
Company obtained advances of $433,000 for capital acquisitions. Advances bear
interest at the bank's prime rate plus 0.75% which is payable monthly.
Commencing December 1998, payments of principal and interest are due in equal
monthly installments over a 36-month period. At March 31, 1999, the outstanding
obligation was $385,000. Borrowings on the facility are due as follows:
remainder of fiscal 1999, $36,000; fiscal 2000, $144,000; fiscal 2001,
$144,000; and fiscal 2002, $61,000. Borrowings under the Agreement are
collateralized by a lien on all of the Company's assets.
F-10
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
5. Stockholders' Equity
At March 31, 1999, convertible preferred stock (no par value) consists of:
<TABLE>
<CAPTION>
Aggregate
Shares Shares Price Per Amount (Net of Liquidation
Designated Outstanding Share Issuance Costs) Preference
---------- ----------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Series A....... 7,000,000 7,000,000 $0.40 $ 2,786,304 $ 2,800,000
Series B....... 4,100,000 4,100,000 $2.00 8,169,049 8,200,000
---------- ---------- ----------- -----------
11,100,000 11,100,000 $10,955,353 $11,000,000
========== ========== =========== ===========
</TABLE>
Significant terms of the convertible preferred stock are as follows:
. Each share is convertible, at the option of the holder, into one share of
common stock (subject to adjustments for events of dilution). Shares of
Series A and B will be automatically converted into common stock upon the
closing of a public offering yielding proceeds in excess of $7,500,000
and at a price of not less than $1.60 and $4.00 per share, respectively,
or upon the approval (by vote or written consent) of at least 66 2/3% of
the then outstanding shares of Series A or at least a majority of the
then outstanding shares of Series B.
. Each share has the same voting rights as the number of shares of common
stock into which it is convertible.
. In the event of liquidation, dissolution or winding up of the Company,
the preferred shareholders of Series A and Series B shall receive an
amount equal to $0.40 and $2.00 per share, respectively, plus an amount
equal to all declared but unpaid dividends on each share. Any remaining
assets will be distributed among the holders of Series A and Series B
preferred stock and common stock, pro rata, based on the number of shares
of common stock held by each shareholder on an as-converted basis. In
total, the holders of Series A and Series B preferred stock shall not be
entitled to receive more than $1.00 and $5.00 per share, respectively.
. Holders of preferred stock are entitled to annual noncumulative dividends
of $0.04 and $0.16 per share for Series A and Series B, respectively,
when and if declared by the Board of Directors, prior to any dividends
declared on common stock. No such dividends have been declared.
Restricted Stock--During fiscal year 1996 and the nine months ended March 31,
1999, the Company issued 4,324,000 and 80,000 shares of common stock at a total
price of $9,035 and $80,000, respectively, to officers and employees of the
Company. The shares are subject to repurchase by the Company at the original
purchase price per share upon termination of employment prior to vesting of
such shares. The restricted shares vest over periods ranging from one to four
years in accordance with the terms of the original stock purchase agreement. At
March 31, 1999, approximately 136,250 outstanding shares of such stock were
subject to repurchase.
Stock-Based Compensation--In connection with options granted to purchase
common stock, the Company recorded deferred stock compensation of $30,000,
$1,241,000 and $2,667,000 in fiscal years 1997 and 1998 and the nine months
ended March 31, 1999, respectively. Such amounts represent, for employee stock
options, the difference between the exercise price and the fair value of the
Company's common stock at the date of grant, and, for non-employee options, the
deemed fair value of the option at the date of vesting. At March 31, 1999,
unvested options granted to non-employees totaled 44,427. The deferred charges
for employee options are being amortized to expense through fiscal year 2003
and the deferred charges for non employee options are
F-11
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
being amortized to expense through the end of fiscal year 1999. Stock-based
compensation expense of $10,000, $250,000 and $1,355,000 was recognized during
fiscal years 1997 and 1998 and the nine months ended March 31, 1999,
respectively.
Common Shares Reserved for Issuance--At March 31, 1999, the Company had
reserved shares of common stock for issuance as follows:
<TABLE>
<S> <C>
Conversion of convertible preferred stock....................... 11,100,000
Issuance under stock option plan................................ 4,270,007
Contingent common stock warrants outstanding.................... 403,772
----------
Total......................................................... 15,773,779
==========
</TABLE>
Stock Option Plan--Under the Company's 1995 Stock Option Plan (the "Plan")
5,950,000 shares are reserved for issuance to employees, consultants and
directors. Incentive stock options are granted at fair market value (as
determined by the Board of Directors) at the date of grant; nonstatutory
options and stock sales may be offered at not less than 85% of fair market
value. Generally, options become exercisable over four years and expire ten
years after the date of grant.
A summary of stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
---------- ----------------
<S> <C> <C>
Outstanding, July 1, 1995...................... -- --
Granted (weighted-average fair value of
$0.00)........................................ 1,151,000 $0.04
---------- -----
Outstanding, June 30, 1996 (80,000 shares
exercisable at $0.04)......................... 1,151,000 0.04
Granted (weighted-average fair value of
$0.02)........................................ 1,426,750 0.07
Exercised...................................... (217,375) 0.04
Canceled....................................... (225,000) 0.04
---------- -----
Outstanding, June 30, 1997 (412,062 shares
exercisable at $0.04)......................... 2,135,375 0.06
Granted (weighted-average fair value of
$0.84)........................................ 1,508,500 0.20
Exercised...................................... (285,375) 0.05
Canceled....................................... (4,000) 0.20
---------- -----
Outstanding, June 30, 1998 (1,035,321 shares
exercisable at a weighted average price of
$0.09)........................................ 3,354,500 0.13
Granted (weighted-average fair value of
$2.04)........................................ 1,028,599 1.33
Exercised...................................... (1,177,243) 0.15
Canceled....................................... (33,750) 0.20
---------- -----
Outstanding, March 31, 1999.................... 3,172,106 $0.51
========== =====
</TABLE>
At March 31, 1999, 1,097,901 shares were available under the Plan for future
grant.
F-12
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
The following table summarizes information concerning options outstanding as
of March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
------------------------------------- ------------------
Weighted Average Weighted Weighted
Number of Remaining Average Vested at Average
Range of Options Contractual Life Exercise March 31, Exercise
Exercise Prices Outstanding (Years) Price 1999 Price
--------------- ----------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.04-$0.20........ 2,374,943 8.30 $0.15 601,447 $0.12
$1.00-$2.00........ 730,163 9.69 1.17 259,750 1.00
$6.00.............. 67,000 9.97 6.00 3,000 6.00
--------- ---- ----- ------- -----
$0.04-$6.00........ 3,172,106 8.65 $0.51 864,197 $0.41
========= ==== ===== ======= =====
</TABLE>
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS 123), requires the disclosure of pro forma net income
or loss had the Company adopted the fair value method since the Company's
inception. Under SFAS 123, the fair value of stock-based awards to employees is
calculated through the use of the Black-Scholes option pricing model, even
though such model was developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. The Black-Scholes model also
requires subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values.
The weighted-average fair value of the Company's stock-based awards to
employees was estimated assuming no dividends will be declared and the
following additional assumptions:
<TABLE>
<CAPTION>
Year Ended Nine Months
June 30, Ended March
---------------- 31,
1996 1997 1998 1999
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Estimated life (in years)......................... 3.97 3.67 4.0 4.0
Expected volatility............................... 0 0 0 0
Risk-free interest rate........................... 6.0% 6.0% 5.6% 6.0%
</TABLE>
For pro forma purposes, the estimated fair value of the Company's stock-based
awards to employees is amortized, using the straight-line method over the
options' vesting periods. The Company's pro forma results are as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended June 30, Ended March
------------------------ 31,
1996 1997 1998 1999
------ ------- ------- -----------
<S> <C> <C> <C> <C>
Net Loss:
As reported............................ $(909) $(2,281) $(3,111) $ (501)
Pro forma.............................. (909) (2,281) (3,395) (1,336)
Basic and diluted net loss per share:
As reported............................ $(1.03) $ (1.07) $ (0.89) $(0.10)
Pro forma.............................. (1.03) (1.07) (0.97) (0.27)
</TABLE>
F-13
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
6. Net Loss per Share
The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net loss per share (in thousands).
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss (numerator), basic
and diluted................ $ (909) $(2,281) $(3,111) $(2,866) $ (501)
------- ------- ------- ------- ------
Shares (denominator):
Weighted average common
shares outstanding....... 3,962 4,416 4,649 4,619 5,255
Weighted average common
shares outstanding
subject to repurchase.... (3,081) (2,294) (1,153) (1,320) (262)
------- ------- ------- ------- ------
Shares used in computation,
basic and diluted.......... 881 2,122 3,496 3,299 4,993
======= ======= ======= ======= ======
Net loss per share, basic
and diluted................ $ (1.03) $ (1.07) $ (0.89) $ (0.87) $(0.10)
======= ======= ======= ======= ======
</TABLE>
For the above mentioned periods, the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended June 30, March 31,
-------------------- ------------------
1996 1997 1998 1998 1999
------ ------ ------ ----------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Convertible preferred stock........ 7,000 11,100 11,100 11,100 11,100
Shares of common stock subject to
repurchase........................ 2,729 1,573 440 714 136
Outstanding options................ 1,151 2,135 3,355 2,740 3,172
Warrants........................... -- -- -- -- 404
------ ------ ------ ------ ------
Total.............................. 10,880 14,808 14,895 14,554 14,812
====== ====== ====== ====== ======
</TABLE>
7. Income Taxes
The Company's deferred income tax assets are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
June 30,
---------------- March 31,
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Net deferred tax assets:
Net operating loss carryforwards............. $ 1,212 $ 2,897 $ 861
Accruals deductible in different periods..... (7) (373) 783
Research and development and alternative
minimum tax credit.......................... -- 140 508
Other........................................ -- (173) (75)
------- ------- -------
1,205 2,491 2,077
Valuation allowance............................ (1,205) (2,491) (2,077)
------- ------- -------
Total.......................................... $ -- $ -- $ --
======= ======= =======
</TABLE>
F-14
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, as well as net operating
loss and tax credit carryforwards. Due to the uncertainty surrounding the
realization of the benefits of its favorable tax attributes in future tax
returns, the Company has fully reserved its net deferred tax assets.
For all years presented, the Company's effective tax rate differs from the
federal statutory tax rate primarily due to changes in the valuation allowance
against net deferred tax assets.
Due to the Company's net losses, no provision for income taxes was recorded
for fiscal years 1996, 1997 and 1998 and the nine months ended March 31, 1999.
At March 31, 1999, the Company had net operating loss ("NOL") carryforwards
of approximately $2,251,000 for federal and $1,050,000 for state income tax
purposes. The federal NOL carryforwards expire through 2011 and the state NOL
carryforwards expire through 2003. In addition, at March 31, 1999, the Company
had $249,000 of research and development tax credit carryforwards for federal
and $172,000 for state income tax purposes and 87,000 of alternative minimum
tax carryforwards. The extent to which the loss carryforwards can be used to
offset future taxable income may be limited, depending on the extent of
ownership changes within any three-year period as provided in the Tax Reform
Act of 1986 and the California Conformity Act of 1987. Additionally, loss
carryforwards generated in fiscal 1997 may expire within six years, as the
Company elected to change their tax fiscal year end to June 30.
8. Commitments and Contingencies
Operating Leases--The Company leases its facility under a noncancelable
operating lease which expires in July 2003, and certain equipment under an
operating lease. Under the terms of the facility lease, the Company is
responsible for its proportionate share of maintenance, property tax and
insurance expenses. The agreement provides an option to extend the lease for
two years and a second option to extend for an additional 28 months. Future
minimum annual lease commitments are as follows: remainder of fiscal 1999,
$186,000; fiscal 2000, $781,000; fiscal 2001, $707,000; fiscal 2002, $730,000;
fiscal 2003, $759,000; fiscal 2004, $63,000.
Facilities rent expense was approximately $48,000, $79,000, $224,000 and
$671,000 for fiscal years 1996, 1997 and 1998 and the nine months ended March
31, 1999, respectively.
Royalty Agreement--In August 1996, the Company entered into a Software
License and Distribution Agreement which provides the Company a non-exclusive
worldwide license to certain third-party technology. The Company is required to
pay specified royalties based on a percentage of revenue from products
incorporating the technology. Total royalty expense under the Agreement for
fiscal year 1998 and the nine months ended March 31, 1999 was $103,000 and
$191,000, respectively. No royalties were payable in fiscal 1997.
9. Employee Benefit Plan
The Company sponsors a 401(k) Savings and Retirement Plan (the Plan) for all
eligible employees who meet certain eligibility requirements. Participants may
contribute, on a pre-tax basis, between 1% and 15% of their annual
compensation, but not to exceed a maximum contribution amount pursuant to
Section 401(k) of the Internal Revenue Code. The Company is not required to
contribute, nor has it contributed, to the Plan for any of the periods
presented.
F-15
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
10. Major Customers
Five customers accounted for 33%, 28%, 15%, 14% and 10% of accounts
receivable at June 30, 1997. One customer accounted for 10% of accounts
receivable at June 30, 1998. No single customer accounted for 10% of accounts
receivable at March 31, 1999. Two customers accounted for 45% and 12% of total
revenue in fiscal 1997. No single customer accounted for greater than 10% of
total revenue in fiscal 1998 or for the nine months ended March 31, 1999.
11. Segment and Geographic Information
As discussed in Note 1, the Company follows the requirements of SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. As defined
in SFAS No. 131, the Company operates in one reportable segment: the design,
development, marketing, support and sales of performance and availability
management software for the Microsoft Windows NT environment. No individual
foreign country accounted for greater than 10% of total revenue or long-lived
assets in any of the periods presented. The following table summarizes total
net revenue and long-lived assets attributed to significant countries (in
thousands).
<TABLE>
<CAPTION>
Year Ended June
30, Nine Months
---------------- Ended March
1996 1997 1998 31, 1999
---- ---- ------ -----------
<S> <C> <C> <C> <C>
Total net revenue:
United States................................. $ -- $388 $6,342 $11,775
Foreign....................................... -- -- 728 3,334
---- ---- ------ -------
Total net revenue*.......................... $ -- $388 $7,070 $15,109
==== ==== ====== =======
Long-lived assets:
United States................................. $126 $294 $ 528 $ 1,000
Foreign....................................... -- -- 97 136
---- ---- ------ -------
Total long-lived assets..................... $126 $294 $ 625 $ 1,136
==== ==== ====== =======
</TABLE>
- --------
* Net revenue are attributed to countries based on location of customer
invoiced.
12. Related Party Transaction
During fiscal years 1996, 1997 and 1998 and the nine months ended March 31,
1999, a member of the Company's board of directors earned $55,000, $60,000,
$60,000 and $45,000, respectively, in consulting fees.
13. Subsequent Events
On May 19, 1999, the Board of Directors approved, subject to stockholders
approval, the following:
. adoption of the 1999 Employee Stock Purchase Plan (the "Purchase Plan").
Under the Purchase Plan, eligible employees are allowed to have salary
withholdings of up to 15% of their base compensation to purchase shares
of common stock at a price equal to 85% of the lower of the market value
of the stock at the beginning or end of defined purchase periods. The
initial purchase period commences upon the effective date for the
initial public offering of the Company's common stock. The Company has
initially reserved 750,000 shares of common stock under this plan, plus
an annual increase to be added on the first day of the Company's fiscal
year beginning July 1, 2000 equal to the lesser of (i) 1,000,000 shares,
(ii) 2% of the shares of common stock outstanding on the last day of the
preceding fiscal year or (iii) an amount determined by the Board.
F-16
<PAGE>
NetIQ CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended June 30, 1996, 1997 and 1998 and the Nine Months Ended March 31,
1999
. amendment of the 1995 Stock Option Plan ("Stock Plan"). The number of shares
of common stock of the Company available for issuance under the Stock Plan
was increased by 2,050,000 shares from 5,950,000 to 8,000,000 shares, plus
an annual increase, effective on the first day of each fiscal year,
beginning July 1, 2000, equal to the lesser of (i) 4% of the shares of
common stock outstanding on the last day of the preceding fiscal year, (ii)
2,000,000 shares or (iii) an amount determined by the Company's Board of
Directors. Additionally, the Stock Plan includes an automatic
nondiscretionary grant mechanism that provides that options will be granted
to non-employee directors who on the date of grant do not beneficially own
1% or more of the total voting power of the Company's voting securities. The
Stock Plan specifically provides for an initial automatic grant of an option
to purchase 12,500 shares of common stock to a non-employee director who
first becomes a director after the Company's initial public offering. Each
non-employee director who has served on the board for at least six months
will subsequently be granted an option to purchase 12,500 shares of common
stock on the date of the annual meeting of stockholders. However, if the
first annual meeting following the Company's initial public offering falls
within six months of the effective date of the initial public offering no
grants will be made until the following annual meeting. Each option granted
to an outside director under this program will have a term of five years and
the shares subject to these options will be fully vested on the date of
grant. The exercise price of these options will be 100% of the fair market
value per share of common stock on the date of grant.
. reincorporation of the Company in the State of Delaware and the associated
exchange of one share of common stock or preferred stock of the Company for
every share of Common Stock or preferred stock, as the case may be, of the
Company's California predecessor. Such reincorporation and stock exchange
will become effective prior to the effective date of the initial public
offering contemplated by the Company, and
. an increase of authorized shares of common stock to 150,000,000 shares and
creation of newly undesignated preferred stock totaling 5,000,000 shares,
contingent upon the reincorporation of the Company in Delaware and the
closing of the initial public offering contemplated by the Company.
F-17
<PAGE>
[Descriptive text accompanying NetIQ logo and awards logo]
NetIQ is a leading provider of performance and availability management solutions
for Windows NT-based systems and business-critical applications. The NetIQ
AppManager Suite enables organizations to centrally manage the performance of
their distributed Windows NT environment, help ensure availability through
automated monitoring, correction and reporting features and help lower the total
cost of ownership.
NetIQ's technological innovation and customer acceptance has led to numerous
industry awards, including:
. Named Industry's Fastest Growing Windows ISV - Microsoft and CMP Media
(1999)
. Codie Award Finalist for Best Enterprise Management Tool (1999)
. Well-Connected Award for Best Messaging Management Solution -
Networld+Interop 98 Las Vegas (1998)
. CrossRoads98 A-List Award - Open Systems Advisor (1998)
. One of the 100 Hottest Emerging Technology Companies - Computerworld (1997)
. PC Week "Best of Comdex" Finalist (1997)
<PAGE>
[NetIQ LOGO APPEARS HERE]
<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 NetIQ in connection with the
sale of Common Stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 12,778
NASD filing fee................................................... 5,100
Nasdaq National Market listing fee................................ 95,000
Printing and engraving costs...................................... 200,000
Legal fees and expenses........................................... 400,000
Accounting fees and expenses...................................... 400,000
Blue Sky fees and expenses........................................ 5,000
Transfer Agent and Registrar fees................................. 10,000
Miscellaneous expenses............................................ 7,122
---------
Total........................................................... 1,135,000
=========
</TABLE>
ITEM 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article X of our Restated Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
Article VI of our Bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of NetIQ if such person acted in
good faith and in a manner reasonably believed to be in and not opposed to the
best interest of NetIQ, and, with respect to any criminal action or proceeding,
the indemnified party had no reason to believe his or her conduct was unlawful.
We have entered into indemnification agreements with its directors and
executive officers, in addition to indemnification provided for in our Bylaws,
and intends to enter into indemnification agreements with any new directors and
executive officers in the future.
ITEM 15. Recent Sales of Unregistered Securities
Since incorporation in June 1995, we have issued unregistered securities to a
limited number of persons, as described below. None of these transactions
involved any underwriters, underwriting discounts or commissions, or any public
offering, and we believe that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof,
Regulation D promulgated thereunder or Rule 701 pursuant to compensatory
benefit plans and contracts relating to compensation as provided under such
Rule 701. The recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationships with NetIQ, to information about NetIQ.
1. In July 1995, NetIQ issued and sold 4,150,000 shares of common stock to
founders and directors at a purchase price per share of $0.0005.
II-1
<PAGE>
2. In December 1995 and April 1996, NetIQ issued and sold a total of
174,000 shares of common stock to two directors at a purchase price of
$0.04.
3. Pursuant to NetIQ's 1995 Stock Option Plan, from inception to March 31,
1999, we issued and sold an aggregate of 1,679,993 shares of common
stock to certain of its employees, officers, directors and consultants.
4. On September 14, 1995, we issued and sold 7,000,000 shares of Series A
Preferred Stock to a total of 28 investors for an aggregate purchase
price of $2,800,000.
5. On May 14, 1997 we issued and sold 4,100,000 shares of Series B
Preferred Stock to a total of 32 investors for an aggregate purchase
price of $8,200,000.
6. On March 10, 1999, we issued to one party a warrant to purchase that
number of shares of Common Stock equal to 2% of the outstanding voting
stock of the company on a fully diluted basis as of the date of exercise
at an exercise price of 90% of the price to public in an initial public
offering undertaken by us.
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1A Certificate of Incorporation of NetIQ currently in effect
3.1B Form of Restated Certificate of Incorporation of NetIQ to be in effect
after the closing of the offering made under this Registration
Statement
3.2A Bylaws of NetIQ currently in effect
3.2B Bylaws of NetIQ to be in effect after the closing of the offering made
under this Registration Statement
4.1 Specimen Common Stock Certificate
4.2 Registration Rights Agreement, dated May 14, 1997, by and among NetIQ
and certain NetIQ stockholders identified therein
5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between NetIQ and each of its
directors and executive officers
10.2 Form of Change of Control Severance Agreements between NetIQ and each
of its executive officers
10.3A Amended and Restated 1995 Stock Plan
10.3B Form of Stock Option Agreement under the Amended and Restated 1995
Stock Plan
10.3C Form of Director Option Agreement under 1995 the Amended and Restated
Stock Plan
10.4A 1999 Employee Stock Purchase Plan
10.4B Form of Subscription Agreement under the 1999 Employee Stock Purchase
Plan
10.5A+ BasicScript License Agreement, dated August 27, 1996, between NetIQ and
Henneberry Hill Technologies Corporation doing business as Summit
Software Company
10.5B Amendment, dated May 21, 1999, to the BasicScript License Agreement
between NetIQ and Henneberry Hill Technologies Corporation doing
business as Summit Software Company
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
10.6+ Software Distribution Agreement, dated June 23, 1998, between NetIQ and
Tech Data Product Management, Inc.
10.7 Agreement of Sublease, dated July 31, 1998, between NetIQ and AMP
Incorporated
10.8 Confidential Settlement Agreement, dated March 10, 1999, by and between
Compuware Corporation, NetIQ Corporation and the individuals named
therein
21.1 List of subsidiaries
23.1* Independent Auditors' Consent
23.3 Form of Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see Page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment
+ Confidential treatment requested for portions of these agreements.
(b) Financial Statement Schedules
(1) Schedule II - Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. Undertakings
The undersigned 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 by NetIQ for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of NetIQ pursuant to the provisions referenced in Item 14 of this registration
statement or otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by NetIQ of
expenses incurred or paid by a director, officer, or controlling person of
NetIQ in the successful defense of any action, suit or proceeding) is asserted
by a director, officer or controlling person in connection with the securities
being registered hereunder, we will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, NetIQ Corporation has
duly caused this Registration Statement on Form S-1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Santa Clara,
State of California, on the 26th day of May, 1999.
NETIQ CORPORATION
/s/ Ching-Fa Hwang
By: _____________________________________
Ching-Fa Hwang
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ching-Fa Hwang and James A. Barth and each of
them, his attorneys-in-fact, each with the power of substitution, for him and
in his 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 upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, 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 might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Ching-Fa Hwang President, Chief Executive May 26, 1999
______________________________________ Officer and Director
(Ching-Fa Hwang) (Principal Executive
Officer)
/s/ James A. Barth Vice President, Finance May 26, 1999
______________________________________ and Chief Financial
(James A. Barth) Officer (Principal
Financial and Accounting
Officer)
/s/ Kuo-Wei Chang Director May 26, 1999
______________________________________
(Kuo-Wei Chang)
/s/ Her-Daw Che Vice President, May 26, 1999
______________________________________ Engineering and Director
(Her-Daw Che)
/s/ Louis Cole Director May 26, 1999
______________________________________
(Louis Cole)
/s/ Alan W. Kaufman Director May 26, 1999
______________________________________
(Alan W. Kaufman)
/s/ Ying-Hon Wong Director May 26, 1999
______________________________________
(Ying-Hon Wong))
</TABLE>
II-4
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and Stockholders of NetIQ Corporation:
Our audits of the consolidated financial statements of NetIQ Corporation (the
Company) for the years ended June 30, 1996, 1997, 1998, and the nine months
ended March 31, 1999 also included the financial statement schedule of the
Company, listed in Item 16(b). The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
San Jose, California
May 19, 1999
To the Board of Directors and Stockholders of NetIQ Corporation:
The accompanying consolidated financial statements/schedule are required to
disclose, pursuant to rules of the Securities and Exchange Commission, an
unaudited proforma balance sheet reflecting the exercise of certain warrants to
acquire shares of Common Stock at an exercise price of 90% of the planned
initial public offering price whose proceeds are to be used to substantially
repay a $5,000,000 loan under a subordinated secured promissory note (See Note
3). The above opinion is in the form that will be signed by Deloitte & Touche
LLP upon inclusion of such disclosure in the accompanying consolidated
financial statements and assuming that from May 19, 1999 to the date such
information has been included, no other events shall have occurred that would
affect the accompanying consolidated financial statements/schedule or notes
thereto.
Deloitte & Touche LLP
San Jose, California
May 26, 1999
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance Charged Balance
at to cost at end
Beginning and Deductions/end of
of Period expenses of period period
--------- -------- -------------- -------
<S> <C> <C> <C> <C>
Year ended June 30, 1996
Allowance for doubtful accounts..... $ -- $ -- $-- $ --
==== ==== === ====
Year ended June 30, 1997
Allowance for doubtful accounts..... $ -- $ -- $-- $ --
==== ==== === ====
Year ended June 30, 1998
Allowance for doubtful accounts..... $ -- $307 $-- $307
==== ==== === ====
Nine months ended March 31, 1999...... $307 $198 $-- $505
==== ==== === ====
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Exhibit Title
------ -------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1A Certificate of Incorporation of NetIQ currently in effect
3.1B Form of Restated Certificate of Incorporation of NetIQ to be in effect
after the closing of the offering made under this Registration
Statement
3.2A Bylaws of NetIQ currently in effect
3.2B Bylaws of NetIQ to be in effect after the closing of the offering made
under this Registration Statement
4.1 Specimen Common Stock Certificate
4.2 Registration Rights Agreement, dated May 14, 1997, by and among NetIQ
and certain NetIQ stockholders identified therein
5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between NetIQ and each of its
directors and executive officers
10.2 Form of Change of Control Severance Agreements between NetIQ and each
of its executive officers
10.3A Amended and Restated 1995 Stock Plan
10.3B Form of Stock Option Agreement under the Amended and Restated 1995
Stock Plan
10.3C Form of Director Option Agreement under 1995 the Amended and Restated
Stock Plan
10.4A 1999 Employee Stock Purchase Plan
10.4B Form of Subscription Agreement under the 1999 Employee Stock Purchase
Plan
10.5A+ BasicScript License Agreement, dated August 27, 1996, between NetIQ and
Henneberry Hill Technologies Corporation doing business as Summit
Software Company
10.5B Amendment, dated May 21, 1999, to the BasicScript License Agreement
between NetIQ and Henneberry Hill Technologies Corporation doing
business as Summit Software Company
10.6+ Software Distribution Agreement, dated June 23, 1998, between NetIQ and
Tech Data Product Management, Inc.
10.7 Agreement of Sublease, dated July 31, 1998, between NetIQ and AMP
Incorporated
10.8 Confidential Settlement Agreement, dated March 10, 1999, by and between
Compuware Corporation, NetIQ Corporation and the individuals named
therein
21.1 List of subsidiaries
23.1* Independent Auditors' Consent
23.3 Form of Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see Page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment
+ Confidential treatment requested for portions of these agreements.
<PAGE>
EXHIBIT 1.1
______________ Shares
NetIQ Corporation
Common Stock, par value $0.001 per share
UNDERWRITING AGREEMENT
----------------------
August___, 1999
Credit Suisse First Boston Corporation,
BancBoston Robertson Stephens, Inc.
Hambrecht & Quist, LLC
As Representative of the Several Underwriters,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. NetIQ Corporation, a Delaware corporation ("Company"),
proposes to issue and sell shares ("Firm Securities") of its
Common Stock, $0.001 par value, ("Securities") and also proposes to issue and
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than additional shares ("Optional Securities") of its
Securities as set forth below. The Firm Securities and the Optional Securities
are herein collectively called the "Offered Securities". The Company hereby
agrees with the several Underwriters named in Schedule A hereto ("Underwriters")
as follows:
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333- ) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has been
declared effective under the Securities Act of 1933 ("Act") and is not
proposed to be amended or (ii) is proposed to be amended by amendment or
post-effective amendment. If such registration statement ("initial
registration statement") has been declared effective, either (i) an
additional registration statement ("additional registration statement")
relating to the Offered Securities may have been filed with the Commission
pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has
become effective upon filing pursuant to such Rule and the Offered
Securities all have been duly registered under the Act pursuant to the
initial registration statement and, if applicable, the additional
registration statement or (ii) such an additional registration statement is
proposed to be filed with the Commission pursuant to Rule 462(b) and will
become effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has
1
<PAGE>
been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act
or, in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery of
this Agreement, the additional registration statement means (i) if the
Company has advised the Representatives that it does not propose to amend
such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment thereto
(if any) filed prior to the execution and delivery of this Agreement, was
declared effective by the Commission or has become effective upon filing
pursuant to Rule 462(c), or (ii) if the Company has advised the
Representatives that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the Commission. If
an additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of
which such registration statement is filed and becomes effective pursuant
to Rule 462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the date
of the Effective Time thereof. The initial registration statement, as
amended at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of the
initial registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a
part of the initial registration statement as of its Effective Time
pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter
referred to as the "Initial Registration Statement". The additional
registration statement, as amended at its Effective Time, including the
contents of the initial registration statement incorporated by reference
therein and including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration Statement".
The form of prospectus relating to the Offered Securities, as first filed
with the Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included in a
Registration Statement, is hereinafter referred to as the "Prospectus". No
document has been or will be prepared or distributed in reliance on Rule
434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement: (i) on the Effective Date
of the Initial Registration Statement, the Initial Registration Statement
conformed in all respects to the requirements of the Act and the rules and
regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) on the Effective Date of the Additional Registration
Statement (if any), each Registration Statement conformed, or will conform,
in all respects to the requirements of the Act and the Rules and
Regulations and did not include, or will not include, any untrue statement
of a material fact and did not omit, or will not omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) on the date of this Agreement,
the Initial Registration Statement and, if the Effective Time of the
Additional Registration Statement is prior to the execution and delivery of
this Agreement, the Additional Registration Statement each conforms, and at
the time
2
<PAGE>
of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing
is required) at the Effective Date of the Additional Registration Statement
in which the Prospectus is included, each Registration Statement and the
Prospectus will conform, in all respects to the requirements of the Act and
the Rules and Regulations, and neither of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit, to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement: on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement and the Prospectus will conform in all
respects to the requirements of the Act and the Rules and Regulations,
neither of such documents will include any untrue statement of a material
fact or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only
such information is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification.
(d) Each subsidiary of the Company has been duly incorporated and is an
existing corporation in good standing under the laws of the jurisdiction of
its incorporation, with power and authority (corporate and other) to own
its properties and conduct its business as described in the Prospectus; and
each subsidiary of the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification; all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and
is fully paid and nonassessable; and the capital stock of each subsidiary
owned by the Company, directly or through subsidiaries, is owned free from
liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with this Agreement on each
Closing Date (as defined below), such Offered Securities will have been,
validly issued, fully paid and nonassessable and will conform to the
description thereof contained in the Prospectus; and the stockholders of
the Company have no preemptive rights with respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would
give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with
this offering.
(g) 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 Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Act.
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(h) The Offered Securities have been approved for listing on The Nasdaq
Stock Market's National Market, subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and such
as may be required under state securities laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
the Company or any subsidiary of the Company or any of their properties, or
any agreement or instrument to which the Company or any such subsidiary is
a party or by which the Company or any such subsidiary is bound or to which
any of the properties of the Company or any such subsidiary is subject, or
the charter or by-laws of the Company or any such subsidiary, and the
Company has full power and authority to authorize, issue and sell the
Offered Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them, in each case free from liens,
encumbrances and defects that would materially affect the value thereof or
materially interfere with the use made or to be made thereof by them; and
except as disclosed in the Prospectus, the Company and its subsidiaries
hold any leased real or personal property under valid and enforceable
leases with no exceptions that would materially interfere with the use made
or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or
bodies necessary to conduct the business now operated by them and have not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole ("Material
Adverse Effect").
(n) No labor dispute with the employees of the Company or any subsidiary
exists or, to the knowledge of the Company, is imminent that might have a
Material Adverse Effect.
(o) The Company and its subsidiaries own, possess or can acquire on
reasonable terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information and
other intellectual property (collectively, "intellectual property rights")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of or
conflict with asserted rights of others with respect to any intellectual
property rights that, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.
(p) Except as disclosed in the Prospectus, neither the Company nor any of
its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or
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body or any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any real
property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating to
any environmental laws, which violation, contamination, liability or claim
would individually or in the aggregate have a Material Adverse Effect; and
the Company is not aware of any pending investigation which might lead to
such a claim.
(q) Except as disclosed in the Prospectus, there are no pending actions,
suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or
in the aggregate have a Material Adverse Effect, or would materially and
adversely affect the ability of the Company to perform its obligations
under this Agreement, or which are otherwise material in the context of the
sale of the Offered Securities; and no such actions, suits or proceedings
are threatened or, to the Company's knowledge, contemplated.
(r) The financial statements included in each Registration Statement and
the Prospectus present fairly the financial position of the Company and its
consolidated subsidiaries as of the dates shown and their results of
operations and cash flows for the periods shown, and such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis,
and the schedules included in each Registration Statement present fairly
the information required to be stated therein.
(s) Except as disclosed in the Prospectus, since the date of the latest
audited financial statements included in the Prospectus there has been no
material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and, except as disclosed in or contemplated
by the Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering and sale
of the Offered Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined
in the Investment Company Act of 1940.
(u) The execution and delivery of the Agreement and Plan of Merger dated
as of __________, 1999 (the "Merger Agreement") between NetIQ Corporation,
a California corporation (the "California Corporation"), and the Company,
effecting the reincorporation of the California Corporation under the laws
of the State of Delaware, was duly authorized by all necessary corporate
action on the part of each of the California Corporation and the Company.
Each of the California Corporation and the Company had all corporate power
and authority to execute and deliver the Merger Agreement, to file the
Merger Agreement with the Secretary of State of California and the
Secretary of the State of Delaware and to consummate the reincorporation
contemplated by the Merger Agreement, and the Merger Agreement at the time
of execution and filing constituted a valid and binding obligation to each
of the California Corporation and the Company.
(v) The Company has notified all holders of its securities, including any
outstanding options, warrants or debt securities, that none of such
securities and any Company shares underlying such securities may be sold or
otherwise transferred or disposed of for a period of 180 days after the
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date of the initial public offering of the Offered Securities and has
imposed a stop-transfer instruction with the Company's transfer agent in
order to enforce the foregoing lock-up provision.
(w) All outstanding Securities, and all securities convertible into or
exercisable or exchangeable for Securities, are subject to valid and
binding agreements (collectively, "Lock-up Agreements") that restrict the
holders thereof from selling, making any short sale of, granting option for
the purchase of, or otherwise transferring or disposing of, any of such
Securities, or any such securities convertible into or exercisable or
exchangeable for Securities, for a period of 180 days after the date of the
Prospectus without the prior written consent of Credit Suisse First Boston
Corporation ("CSFBC").
(x) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes and the Company agrees to
comply with such Section if prior to the completion of the distribution of
the Offered Securities it commences doing such business.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for the
accounts of the Underwriters, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to CSFBC drawn to the order of the Company at the office of
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, at 10:00 A.M., New
York time, on , or at such other time not later than
seven full business days thereafter as CSFBC and the Company determine, such
time being herein referred to as the "First Closing Date". For purposes of Rule
15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if
later than the otherwise applicable settlement date) shall be the settlement
date for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the offering. The certificates for the Firm
Securities so to be delivered will be in definitive form, in such denominations
and registered in such names as CSFBC requests and will be made available for
checking and packaging at the office of Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation at least 24 hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from time
to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional
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Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be
determined by CSFBC but shall be not later than five full business days after
written notice of election to purchase Optional Securities is given. The Company
will deliver the Optional Securities being purchased on each Optional Closing
Date to the Representatives for the accounts of the several Underwriters,
against payment of the purchase price therefor in Federal (same day) funds by
official bank check or checks or wire transfer to an account at a bank
acceptable to CSFBC drawn to the order of the Company, at the office of Wilson,
Sonsini, Goodrich & Rosati, Professional Corporation. The certificates for the
Optional Securities being purchased on each Optional Closing Date will be in
definitive form, in such denominations and registered in such names as CSFBC
requests upon reasonable notice prior to such Optional Closing Date and will be
made available for checking and packaging at the office of Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation at a reasonable time in advance of
such Optional Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is prior
to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with
subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this Agreement
or (B) the fifteenth business day after the Effective Date of the Initial
Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as
of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later date
as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or
the related prospectus or the Initial Registration Statement, the
Additional Registration Statement (if any) or the Prospectus and will not
effect such amendment or supplementation without CSFBC's consent; and the
Company will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its best efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its
lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered Securities
is required to be delivered under the Act in connection with sales by any
Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will
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promptly notify CSFBC of such event and will promptly prepare and file with
the Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date (as
defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional Registration
Statement) which will satisfy the provisions of Section 11(a) of the Act.
For the purpose of the preceding sentence, "Availability Date" means the
45th day after the end of the fourth fiscal quarter following the fiscal
quarter that includes such Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the 90th day after the end of such fourth fiscal
quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be delivered
under the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFBC requests. The Prospectus shall be so
furnished on or prior to 3:00 P.M., New York time, on the business day
following the later of the execution and delivery of this Agreement or the
Effective Time of the Initial Registration Statement. All other documents
shall be so furnished as soon as available. The Company will pay the
expenses of printing and distributing to the Underwriters all such
documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five years hereafter, the Company will furnish
to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the Company
will furnish to the Representatives (i) as soon as available, a copy of
each report and any definitive proxy statement of the Company filed with
the Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance of its
obligations under this Agreement, for any filing fees and other expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review
by the National Association of Securities Dealers, Inc. of the Offered
Securities, for any travel expenses of the Company's officers and employees
and any other expenses of the Company in connection with attending or
hosting meetings with prospective purchasers of the Offered Securities and
for expenses incurred in distributing preliminary prospectuses and the
Prospectus (including any amendments and supplements thereto) to the
Underwriters.
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(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or indirectly,
or file with the Commission a registration statement under the Act relating
to, any additional shares of its Securities or securities convertible into
or exchangeable or exercisable for any shares of its Securities, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of CSFBC, except
issuances of Securities pursuant to the conversion or exchange of
convertible or exchangeable securities or the exercise of warrants or
options, in each case outstanding on the date hereof, grants of employee
stock options or sales of shares pursuant to the terms of a stock option or
employee stock purchase plan in effect on the date hereof, and issuances of
Securities pursuant to the exercise of such options.
(j) The Company will (i) enforce the terms of each Lock-up Agreement,
and (ii) to the extent it has not already done so, issue stop-transfer
instructions to the transfer agent for the Securities with respect to any
transaction or contemplated transaction that would constitute a breach of
or default under the applicable Lock-up Agreement. In addition, except
with the prior written consent of CSFBC, the Company agrees (i) not to
amend or terminate, or waive any right under, any 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 Securities, or any
securities convertible into, or exercisable or exchangeable for Securities,
to make any short sale of, grant any option for the purpose of, or
otherwise transfer or dispose of, any such Securities or other securities,
prior to the expiration of the 180 days after the date of the Prospectus
and (ii) not to consent to any sale, short sale, grant of an option for the
purchase of, or other disposition or transfer of shares of Securities or
securities convertible into or exercisable or exchangeable for Securities,
subject to a Lock-up Agreement.
(k) The Company shall use the net proceeds from the sale of the
Securities in the manner set forth in the "Use of Proceeds" section of the
Prospectus, and the Company further agrees it shall on the Closing Date
transmit via wire transfer to Compuware Corporation ("Compuware") the
entire unpaid and outstanding principal amount of $5,000,000 due, plus all
accrued and unpaid interest thereon, pursuant to the terms of the
Subordinated Secured Promissory Note dated March 10, 1999 issued to by the
Company to Compuware.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, shall
be on or prior to the date of this Agreement or, if the Effective Time of
the Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, shall be prior to the filing of the amendment
or post-effective amendment to the registration statement to be filed
shortly prior to such Effective Time), of Deloitte & Touche, LLP confirming
that they are independent public accountants within the meaning of the Act
and the applicable published Rules and Regulations thereunder and stating
to the effect that:
(i) in their opinion the financial statements and schedules examined
by them and included in the Registration Statements comply as to form
in all material respects with the
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applicable accounting requirements of the Act and the related
published Rules and Regulations;
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards
No. 71, Interim Financial Information, on the unaudited financial
statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above, a
reading of the latest available interim financial statements of the
Company, inquiries of officials of the Company who have responsibility
for financial and accounting matters and other specified procedures,
nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published Rules and Regulations or any material
modifications should be made to such unaudited financial
statements for them to be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date not
more than three business days prior to the date of such letter,
there was any change in the capital stock or any increase in
short-term indebtedness or long-term debt of the Company and its
consolidated subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any decrease in
consolidated net current assets or net assets or any increase in
stockholders' deficit, as compared with amounts shown on the
latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing date
of the latest available income statement read by such accountants
there were any decreases, as compared with the corresponding
period of the previous year and with the period of corresponding
length ended the date of the latest income statement included in
the Prospectus, in consolidated net sales, increases in loss from
operations, consolidated net operating income, or in the total or
per share amounts of consolidated net loss.
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company and its
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
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For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration is subsequent to such execution and delivery,
"Registration Statements" shall mean the Initial Registration Statement and
the additional registration statement as proposed to be filed or as
proposed to be amended by the post-effective amendment to be filed shortly
prior to its Effective Time, and (iii) "Prospectus" shall mean the
prospectus included in the Registration Statements.
The Company shall have received from Deloitte & Touche, LLP (and furnished
to the Representatives) an examination report with respect to Management's
Discussion and Analysis of Financial Condition and Results of Operations of
the Company for the fiscal year ending June 30, 1999 and the nine-month
period ending March 31, 1999 and review report with respect to Management's
Discussion and Analysis of Financial Condition and Results of Operations of
the Company for the three-month period ending June 30, 1999 and the
corresponding period for the prior fiscal year, each in accordance with
Statement on Standards for Attestation Engagement No. 8 issued by the
Auditing Standards Board of the American Institute of Certified Public
Accountants, and such examination report shall be included in the
Registration Statement.
(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated by
the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as one enterprise which, in the judgment of a majority
in interest of the Underwriters including the Representatives, is material
and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under surveillance
or review its rating of any debt securities of the Company (other than an
announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); (iii) any material
suspension or material limitation of trading in securities generally on the
New York Stock Exchange or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of the
Company on any exchange or in the over-the-counter
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market; (iv) any banking moratorium declared by U.S. Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if,
in the judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities.
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, counsel for the Company, to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification;
(ii) Each subsidiary of the Company has been duly incorporated and
is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each subsidiary of the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification; all of the
issued and outstanding capital stock of each subsidiary of the Company
has been duly authorized and validly issued and is fully paid and
nonassessable, and the capital stock of each subsidiary owned by the
Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects;
(iii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have
been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Securities;
(iv) There are no contracts, agreements or understandings known to
such counsel between the Company and any person granting such person
the right to require the Company to file a registration statement
under the Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act;
(v) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(vi) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the
12
<PAGE>
transactions contemplated by this Agreement in connection with the
issuance or sale of the Offered Securities by the Company, except such
as have been obtained and made under the Act and such as may be
required under state securities laws;
(vii) The execution, delivery and performance of this Agreement and
the issuance and sale of the Offered Securities will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction
over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument to which the Company or any
such subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the Company
or any such subsidiary is subject, or the charter or by-laws of the
Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(viii) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best of the knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act, and each Registration Statement and the
Prospectus, and each amendment or supplement thereto, as of their
respective effective or issue dates, complied as to form in all
material respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its effective
date or as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; the descriptions in the Registration Statements and
Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate and fairly present the
information required to be shown; and such counsel do not know of any
legal or governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described as
required or of any contracts or documents of a character required to
be described in a Registration Statement or the Prospectus or to be
filed as exhibits to a Registration Statement which are not described
and filed as required; it being understood that such counsel need
express no opinion as to the financial statements or other financial
data contained in the Registration Statements or the Prospectus;
(ix) This Agreement has been duly authorized, executed and
delivered by the Company;
13
<PAGE>
(x) The statements set forth under the heading "Description of
Capital Stock" in the Prospectus, insofar as such statements purport
to summarize certain provisions of the capital stock of the Company,
provide a fair summary of such provisions; and
(xii) The execution and delivery of the Merger Agreement, effecting
the reincorporation of the California Corporation under the laws of
the State of Delaware, was duly authorized by all necessary corporate
action on the part of each of the California Corporation and the
Company.
(e) The Representatives shall have received from Morrison & Foerster,
LLP, counsel for the Underwriters, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; the Additional Registration Statement (if any) satisfying
the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed
pursuant to Rule 462(b), including payment of the applicable filing fee in
accordance with Rule 111(a) or (b) under the Act, prior to the time the
Prospectus was printed and distributed to any Underwriter; and, subsequent
to the date of the most recent financial statements in the Prospectus,
there has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of which meets the requirements of subsection
(a) of this Section, except that the specified date referred to in such
subsection will be a date not more than three days prior to such Closing
Date for the purposes of this subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
14
<PAGE>
therein or necessary to make the statements therein not misleading, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged omission
from any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of (i) the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the [fourth]
paragraph under the caption "Underwriting" and the information contained in the
[sixth and twelfth] paragraphs under the caption "Underwriting."
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action 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 (i) includes an unconditional release
of such indemnified party from all liability on any claims that are the subject
matter of such action and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act by or on behalf of an
indemnified party.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims,
15
<PAGE>
damages or liabilities referred to in subsection (a) or (b) above (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 from the offering of
the Securities or (ii) if the allocation provided by clause (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 (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which 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 shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault 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 the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which 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 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition to
any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities hereunder on either the First
or any Optional Closing Date and the aggregate--principal amount--number of
shares--of Offered Securities that such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed 10% of the total--principal
amount--number of shares--of Offered Securities that the Underwriters are
obligated to purchase on such Closing Date, CSFBC may make arrangements
satisfactory to the Company for the purchase of such Offered Securities by other
persons, including any of the Underwriters, but if no such arrangements are made
by such Closing Date, the non-defaulting Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Offered Securities that such defaulting Underwriters agreed but failed to
purchase on such Closing Date. If any Underwriter or Underwriters so default and
the aggregate--principal amount--number of shares--of Offered Securities with
respect to which such default or defaults occur exceeds 10% of the total--
principal amount--number of shares--of Offered Securities that the Underwriters
are obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC and the Company for the purchase of such Offered Securities by other
persons are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company, except as provided in Section 9 (provided that if such default occurs
with respect to Optional Securities after the First Closing Date, this Agreement
will not terminate as to the Firm
16
<PAGE>
Securities or any Optional Securities purchased prior to such termination). As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent to
the Underwriters, will be mailed, delivered or telegraphed and confirmed to the
Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, NY 10010-3629, Attention: Investment Banking Department--
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at 5410 Betsy Ross Drive, Santa
Clara, CA 95054, Attention: Ching-Fa Hwang; provided, however, that any notice
to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed
and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
17
<PAGE>
If the foregoing is in accordance with the Representatives' understanding of
our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Underwriters in accordance with its terms.
Very truly yours,
NetIq Corporation
By:__________________________________
Title:_______________________________
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
Credit Suisse First Boston Corporation
BancBoston Robertson Stephens, Inc.
Hambrecht & Quist, LLC
Acting on behalf of themselves and as
the Representatives of the several
Underwriters
By Credit Suisse First Boston Corporation
By___________________________________
Title:_______________________________
18
<PAGE>
SCHEDULE A
Underwriter Number of
----------- Firm Securities
---------------
Credit Suisse First Boston Corporation....................
BancBoston Robertson Stephens, Inc........................
Hambrecht & Quist, LLC....................................
---------------
Total......................................
===============
19
<PAGE>
EXHIBIT 3.1A
CERTIFICATE OF INCORPORATION
OF
NETIQ CORPORATION
Article I.
The name of the corporation is NetIQ Corporation (the "Corporation").
Article II.
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
Article III.
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
Article IV.
1. Authorized Capital. This Corporation is authorized to issue 41,100,000
------------------
shares of its capital stock, which shall be divided into two classes known as
Common Stock and Preferred Stock, respectively.
The total number of shares of Common Stock which this Corporation is
authorized to issue is 30,000,000. The total number of shares of Preferred
Stock which this Corporation is authorized to issue is 11,100,000. This
Corporation is authorized to issue two series of its Preferred Stock which shall
be known as its Series A Preferred Stock (the "Series A Preferred Stock"),
consisting of 7,000,000 shares, and its Series B Preferred Stock (the "Series B
Preferred Stock"), consisting of 4,100,000 shares. Except as specifically set
forth herein, reference hereafter to "Preferred Stock" shall mean the Series A
Preferred Stock or the Series B Preferred Stock.
2. Authorized Capital Following Automatic Conversion Event. Upon the
-------------------------------------------------------
automatic conversion of all outstanding shares of Preferred in accordance with
the provisions of Article V, Section 5.2 of this Certificate of Incorporation
(the "Automatic Conversion Event"), the Company shall immediately thereafter be
authorized to issue two classes of stock to be designated,
<PAGE>
respectively, Common Stock and Preferred Stock. Immediately following any
Automatic Conversion Event, the total number of shares of Common Stock which the
Company shall have the authority to issue shall be 150,000,000, $.001 par value,
and the total number of shares of Preferred Stock the Company shall have the
authority to issue shall be 5,000,000, $.001 par value. Immediately following
any Automatic Conversion Event, the Preferred Stock may be issued from time to
time in one or more series pursuant to a resolution or resolutions providing for
such issue duly adopted by the Board of Directors (authority to do so being
hereby expressly vested in the Board). The Board of Directors is further
authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and to fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The Board of Directors,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting any
series, may increase or decrease (but not below the number of shares in any such
series then outstanding), the number of shares of any series subsequent to the
issue of shares of that series.
3. Restatement of Certificate of Incorporation. Immediately following
-------------------------------------------
any Automatic Conversion Event, the Board of Directors of the Company is
authorized, without the further consent or approval of the stockholders of the
Company to amend and restate this Certificate of Incorporation to show the
authorized classes of capital stock as set forth in the preceding paragraph and
to eliminate all references in this Certificate of Incorporation to the rights,
preferences, privileges and restrictions of the series of Preferred Stock
including those set forth in Article IV above and Article V below (and, in
connection with any such amendment and restatement, to renumber the remaining
Articles).
Article V.
The rights, preferences, privileges and restrictions granted to or imposed
upon the respective classes of shares or the holders thereof are as follows:
1. Dividend Rights. The holders of the Series A Preferred Stock and
---------------
Series B Preferred Stock shall be entitled to receive, out of any funds legally
available therefor, when and as declared by the Board of Directors, dividends at
the rate of $.04 and $.16 per annum, respectively, on each outstanding share of
Preferred Stock held by them. Such dividends shall be paid prior and in
preference to any payment of any dividend on or any other distribution with
respect to any shares of Common Stock. The right to such dividends on the
Preferred Stock shall not be cumulative, and no right shall accrue to holders of
Preferred Stock by reason of the fact that dividends on such shares are not
declared or paid in any prior year. There shall be no preference to any payment
of dividend as between the Series A Preferred Stock and the Series B Preferred
Stock.
2. Liquidation Rights. In the event of any liquidation, dissolution or
------------------
winding up of the Corporation (a "Liquidation Event"), whether voluntary or not,
the assets of the Corporation legally available for distribution to its
shareholders shall be distributed as follows: (i) the holders of
<PAGE>
Preferred Stock shall be entitled to receive, before any amount shall be paid to
holders of Common Stock or of any other stock ranking junior to the Preferred
Stock on liquidation, an amount equal to $0.40 per share of Series A Preferred
Stock and $2.00 per share of Series B Preferred Stock (as adjusted for stock
splits, combinations or similar events) plus all declared and unpaid dividends,
if any, to which the holders of outstanding shares of Preferred Stock are
entitled; provided, however, that (A) if, upon any Liquidation Event, the
-------- -------
amounts payable with respect to the Preferred Stock and any other stock ranking
as to any such distribution on parity with the Preferred Stock are not paid in
full, the holders of the Preferred Stock and such other stock shall share any
distribution of assets at a rate proportional to the liquidation preference to
which such shares of Preferred Stock or other stock are entitled; (ii) the
remaining assets shall be distributed to the holders of Common Stock and
Preferred Stock on a pro rata, as-converted to Common Stock basis until the
Series A Preferred Stock and Series B Preferred Stock holders have received
inclusive of the amount stipulated in D.2.(i) above, $1.00 for the Series A
Preferred Stock and $5.00 for the Series B Preferred Stock; and (iii) any
remaining assets thereafter shall be distributed to the holders of Common Stock
and the Preferred Stock on a pro rata, as converted to Common Stock basis;
provided, however, that if the holders of Common Stock would receive more than
- -------- -------
holders of a series of Preferred Stock would receive under clauses (i) and (ii)
herein, then holders of such Preferred Stock shall not be entitled to any
distribution under clause (i) or (ii) herein and shall instead be entitled to
receive their ratable share of any distribution under clause (iii) above as
though the holders of such Preferred Stock were holders of shares of Common
Stock into which such shares of Preferred Stock would be convertible.
A Liquidation Event shall specifically include: (i) a consolidation or
merger of the Corporation with or into any other corporation, or any other
entity or person, or the exchange of substantially all of the outstanding stock
of the Corporation for shares of another entity or other property, in which,
after any such transaction, the prior shareholders of the Corporation hold less
than fifty percent (50%) of the voting shares of the continuing or surviving
entity; or (ii) a sale of all or substantially all of the assets of the
Corporation.
3. Voting Rights. Except as otherwise required by law, the holders of
-------------
Preferred Stock and the holders of Common Stock shall be entitled to notice of
any shareholders' meeting and to vote upon any matter submitted to the
shareholders for a vote, as follows: (i) the holders of Series A Preferred
Stock shall have one (1) vote for each full share of Common Stock into which
their respective shares of Preferred Stock are convertible on the record date
for the vote, (ii) the holders of Series B Preferred Stock shall have one (1)
vote for each full share of Common Stock into which their respective shares of
Preferred Stock are convertible on the record date for the vote, and (iii) the
holders of Common Stock shall have one (1) vote per share of Common Stock.
4. Certain Taxes. The Corporation shall pay any and all issuance and
-------------
other taxes (excluding any federal or state income taxes) that may be payable in
respect of any issuance or delivery of shares of Common Stock on conversion of
Preferred Stock. The Corporation shall not, however, be required to pay any tax
that may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Preferred Stock to which such issuance relates were registered, and no such
issuance or delivery shall be made unless and until the person requesting such
issuance has paid to the Corporation the
<PAGE>
amount of any such tax, or it is established to the satisfaction of the
Corporation that such tax has been paid.
5. Conversion. The holders of Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
5.1 Right to Convert. Each share of Series A Preferred Stock or
----------------
Series B Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing $0.40
by the Series A Conversion Price or by dividing $2.00 by the Series B Conversion
Price as applicable to such series, determined as hereinafter provided, in
effect on the date the certificate is surrendered for conversion. The price at
which shares of Common Stock shall be deliverable upon conversion (the "Series A
Conversion Price" or the "Series B Conversion Price," as applicable) shall
initially be $0.40 for the Series A Preferred Stock and $2.00 for the Series B
Preferred Stock.
5.2 Automatic Conversion. Each share of the Series A Preferred Stock
--------------------
shall automatically be converted into shares of Common Stock at the then-
effective Series A Conversion Price (i) upon the date specified by the
affirmative vote, written consent or agreement of holders of at least 66 2/3% of
the shares of the Series A Preferred Stock then outstanding, (ii) upon the
closing of the sale of the Corporation's Common Stock in an underwritten public
offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), other than a registration relating solely to a transaction
under Rule 145 under such Act (or any successor thereto) or relating to an
employee benefit plan of the Corporation, at a public offering wherein the
Common Stock is sold for not less than $1.60 per share and the aggregate
proceeds to the Corporation and/or any selling shareholders (prior to deductions
for underwriters' discounts and expenses relating to the issuance, including
without limitation fees of the Corporation's counsel) is not less than
$7,500,000, or (iii) if fewer than 1,666,667 shares of Series A Preferred Stock
are outstanding, as adjusted.
Each share of the Series B Preferred Stock shall automatically be converted
into shares of Common Stock at the then-effective Series B Conversion Price (i)
upon the date specified by an affirmative vote, written consent or agreement of
holders of at least a majority of the shares of the Series B Preferred Stock
then outstanding, (ii) upon the Closing of the sale of the Corporation's Common
Stock in an underwritten public offering registered under the Securities Act of
1933, as amended (the "Securities Act"), other than a registration relating
solely to a transaction under Rule 145 under such Act (or any successor thereto)
or to an employee benefit plan of the Corporation, where the Common Stock is
sold for not less than $4.00 per share and the aggregate proceeds to the
Corporation and/or any selling shareholders (prior to deductions for
underwriter's discounts and expenses relating to the issuance, including without
limitation fees of the Corporation's counsel) is not less than $7,500,000, or
(iii) if fewer than 900,000 shares of Series B Preferred Stock are outstanding,
as adjusted.
<PAGE>
5.3 Mechanics of Conversion.
-----------------------
5.3.1 Before any holder of Preferred Stock shall be entitled
voluntarily to convert the same into shares of Common Stock, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for such stock, and shall give written
notice to the Corporation at such office that he elects to convert the same and
shall state therein the number of shares of Preferred Stock being converted and
the name or names in which he wishes the certificate or certificates for shares
of Common Stock to be issued. The Corporation shall as soon as practicable
thereafter issue and deliver at such office to such holder of Preferred Stock a
certificate or certificate for the number of shares of Common Stock to which he
shall be entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
shares of Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
5.3.2 If the conversion is in connection with an underwritten
offering of securities pursuant to the Securities Act, the conversion may, at
the option of any holder tendering shares of 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 upon conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities.
5.4 Adjustments to Conversion Price for Certain Diluting Issues.
-----------------------------------------------------------
5.4.1 Special Definitions. For purposes of this Section 5, the
-------------------
following definitions apply:
(a) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(b) "Original Issue Date" shall mean the date on which a
share of Series B Preferred Stock was first issued.
(c) The term "Conversion Price" shall mean the Series A
Conversion Price and the Series B Conversion Price, as applicable.
(d) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(e) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 5.4.3 deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
<PAGE>
(1) upon conversion of shares of the then outstanding
Preferred Stock;
(2) up to 8,000,000 shares issued to officers,
directors or employees of, or consultants to, the Corporation pursuant to stock
option or stock purchase plans or agreements on terms approved by the Board of
Directors;
(3) as a dividend or distribution on Preferred Stock;
(4) for which adjustment of the Preferred Stock
Conversion Price is made pursuant to Section 5.5;
(5) securities issued to lending or leasing
institutions or individuals in connection with bank debt, equipment leases or
non-equity interim financing, on terms approved by the Board of Directors;
(6) securities issued or issuable in an acquisition or
merger upon terms approved by a majority of the Board of Directors; or
(7) securities issued in stock splits,
recapitalizations and similar transactions.
5.4.2 No Adjustment of Conversion Price. No adjustment in the
---------------------------------
Conversion Price of a series of Preferred Stock pursuant to this Section 5.4
shall be made in respect of the issuance of Additional Shares of Common Stock
unless the consideration per share (determined pursuant to Section 5.4.5 hereof)
for an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Conversion Price for such series of Preferred Stock
in effect on the date of, and immediately prior to, such issue.
5.4.3 Deemed Issue of Additional Shares of Common. Except as
-------------------------------------------
otherwise provided in Section 5.4 hereof, in the event the Corporation at any
time or from time to time after the Original Issue Date shall issue any Options
or Convertible Securities or shall fix a record date for the determination of
holders of any class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
designed to protect against dilution) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock, issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
<PAGE>
(a) no further adjustments in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(b) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities (provided, however, that no such adjustment of the
Conversion Price shall affect Common Stock previously issued upon conversion of
the Preferred Stock);
(c) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or Options
for Common Stock the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible Securities
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by the Corporation
for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation (determined
pursuant to Section 5.4.5 upon the issuance of the Convertible Securities with
respect to which such Options were actually exercised);
(d) no readjustment pursuant to clause (b) or (c) above
shall have the effect of increasing a Conversion Price to an amount which
exceeds the lower of (a) such Conversion Price on the original adjustment date,
or (b) such Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
<PAGE>
(e) in the case of any Options which expire by their
terms not more than sixty (60) days after the date of issue thereof, no
adjustment of a Conversion Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the same manner
provided above.
5.4.4 Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock. In the event the Corporation, at any time after the
- ----------------------
Original Issue Date, shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section 5.4.3)
without consideration or for a consideration per share less than the Conversion
Price for a series of Preferred Stock in effect on the date of and immediately
prior to such issue, then and in such event:
(1) the Conversion Price for such Preferred Stock shall be
reduced, concurrently with such issue, to a Conversion Price (calculated to the
hundredth of a cent) determined by multiplying the existing Conversion Price of
such series by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance plus the number
of shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at the Conversion Price in effect immediately prior to such
issuance, and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance plus the number of such
Additional Shares of Common Stock so issued.
(2) For the purpose of the above calculation, the number
of shares of Common Stock outstanding immediately prior to such issuance shall
be calculated as if all shares of Preferred Stock and all Convertible Securities
had been fully converted into shares of Common Stock immediately prior to such
issuance of Additional Shares of Common, but not including in such calculation
any additional shares of Common Stock issuable with respect to shares of
Preferred Stock, or Convertible Securities, solely as a result of the adjustment
of the respective Conversion Prices (or other conversion ratios) resulting from
the issuance of Additional Shares of Common Stock causing such adjustment.
5.4.5 Determination of Consideration. For purposes of this
------------------------------
Section 5.4, the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration shall:
-----------------
(1) insofar as it consists of cash, be computed at the
aggregate gross amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair market value thereof at time of such issue, as
determined in good faith by the Board of Directors; and
<PAGE>
(3) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (a)(1) and (a)(2)
above, as determined in good faith by the Board of Directors.
(b) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 5.4.3 relating to Options and
Convertible Securities shall be determined by dividing:
(1) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) issuable upon the
exercise of such Options or conversion or exchange of such Convertible
Securities.
5.5 Adjustment to Conversion Prices for Stock Dividends and for
-----------------------------------------------------------
Combinations or Subdivisions of Common Stock. In the event that the Corporation
- --------------------------------------------
at any time or from time to time after the Original Issue Date shall declare or
pay, without consideration, any dividend on the Common Stock payable in Common
Stock or in any right to acquire Common Stock for no consideration, or shall
effect a subdivision of the outstanding shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Conversion
Price for any series of Preferred Stock in effect immediately prior to such
event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the event that the
Corporation shall declare or pay, without consideration, any dividend on the
Common Stock payable in any right to acquire Common Stock for no consideration,
then the Corporation shall be deemed to have made a dividend payable in Common
Stock in an amount of shares equal to the maximum number of shares issuable upon
exercise of such rights to acquire Common Stock.
5.6 Adjustments for Reclassification and Reorganization. If the
---------------------------------------------------
Common Stock issuable upon conversion of the Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for in Section 5.5) the
Conversion Prices then in effect shall, concurrently with the effectiveness of
such reorganization or
<PAGE>
reclassification, be proportionately adjusted so that each series of Preferred
Stock shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock equivalent to the number of
shares of Common Stock that would have been subject to receipt by the holders
upon conversion of the Preferred Stock immediately before that change.
5.7 No Impairment. The Corporation will not, by amendment of this
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 5 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
Preferred Stock against impairment.
5.8 Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of any Conversion Price pursuant to this Section 5,
the 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 Preferred Stock a certificate executed by the Corporation's President
or Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price for such series of Preferred Stock at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of such series
of Preferred Stock.
5.9 Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of 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 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 Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
shareholder approval of any necessary amendment to this Certificate of
Incorporation.
5.10 Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any
<PAGE>
fractional share, pay the holder otherwise entitled to such fraction a sum in
cash equal to the fair market value of such fraction on the date of conversion
(as determined in good faith by the Board of Directors).
5.11 Notices. Any notice required by the provisions of this Section
-------
5 to be given to the holders of shares of the Preferred Stock shall be deemed
given when personally delivered to such holder (including delivery by courier
service) or five (5) business days after the same has been deposited in the
United States mail, certified or registered mail, return receipt requested,
postage prepaid, and addressed to each holder of record at its address appearing
on the books of the Corporation.
6. Covenants. In addition to any other rights provided by law the
---------
following covenants shall apply:
6.1 The Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of not less than a majority
of the outstanding shares of each class of Preferred Stock each voting as a
separate class:
(a) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or by-laws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, such class of the Preferred Stock;
(b) increase or decrease the number of shares of such class of
Preferred Stock authorized hereby;
(c) authorize or issue shares of any class or series of stock
not authorized herein having any preference or priority as to dividends or
assets superior to or on a parity with any such preference or priority of such
class of Preferred Stock; authorize or issue shares of stock of any class or
series of any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of stock of
this Corporation having any preference or priority as to dividends or assets
superior to or on a parity with any such preference or priority of such class of
Preferred Stock; or
(d) reclassify any class or series of any Common Stock into
shares having any preference or priority as to dividends or assets superior to
or on a parity with any such preference or priority of such class of Preferred
Stock;
provided, however, that this Section 6.1 shall only be effective as to
- -------- -------
the Series A Preferred Stock, while at least 1,666,667 share of Series A
Preferred are outstanding, and as to the Series B Preferred Stock while at least
900,000 share of Series B Preferred Stock are outstanding.
6.2 The Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of not less than a majority
of the outstanding shares of all of the Preferred Stock voting as one class:
<PAGE>
(a) consolidate or merge the Corporation with or into any other
corporation, or any entity or person, or exchange substantially all of the
outstanding stock of the Corporation for shares of another entity or property,
in which, after any such transaction, the prior shareholders of the Corporation
hold less than fifty percent (50%) of the voting shares of the continuing or
surviving entity;
(b) sell all or substantially all of the assets of the
Corporation; or
(c) pay or declare any dividend on or other distribution with
respect to any Common Stock (except dividends payable solely in shares of Common
stock), or apply any of its assets to the redemption, retirement, purchase or
acquisition, directly or indirectly, through subsidiaries or otherwise, of any
Common Stock, except from employees, directors, and consultants of this
corporation pursuant to the terms of restrictive stock agreements or as
otherwise approved by the Board of Directors; provided, however, that this
-------- -------
Section 6.2 shall only be effective while at least 2,566,667 share of Preferred
Stock are outstanding.
7. Election of Directors. Notwithstanding provisions other than in this
---------------------
section 7, upon the first issuance by the Company of its Series B Preferred
Stock, the following provisions shall determine the election of directors of the
Company:
7.1 Number of Directors. The authorized number of directors shall be
-------------------
six (6).
7.2 Election of Directors.
---------------------
(a) The holders of the Series B Preferred Stock, voting as a separate
class, shall be entitled to elect two (2) of the directors of the Corporation.
(b) The holders of the Series A Preferred Stock (on an as converted
to Common Stock basis) and the Common Stock, voting together as a single class,
shall be entitled to elect all other directors of the Corporation.
Article VI.
The name and mailing address of the incorporator are as follows:
Mark B. Baudler, Esq.
c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
Article VII.
The Corporation is to have perpetual existence.
<PAGE>
Article VIII.
Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins or
unless the Bylaws of the Corporation shall so provide.
Article IX.
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which constitute the whole Board of Directors of the corporation shall be
designated in the Bylaws of the corporation.
2. At such time as the Company closes an underwritten public offering of
the Company's common stock pursuant to an effective registration statement filed
under the Securities Act of 1933, as amended, the Board of Directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of stockholders following such closing of an underwritten public
offering, the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three years. At the second annual
meeting of stockholders following such closing of an underwritten public
offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following such closing of an underwritten public
offering, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
3. Notwithstanding the foregoing provisions of this Article, each director
shall serve until his or her successor is duly elected and qualified or until
his or her death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
4. Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the holders of a majority of the voting power
of the then-outstanding shares of voting stock of the corporation entitled to
vote generally in the election of directors ("Voting Stock") voting together as
a single class; or (ii) by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Newly created directorships resulting from any increase in the
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less
<PAGE>
than a quorum of the Board of Directors. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified.
5. The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of
the voting power of the then outstanding shares of Voting Stock, voting together
as a single class, shall be required for the adoption, amendment or repeal of
the following sections of the corporation's Bylaws by the stockholders of this
corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).
6. No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of the stockholders called in accordance with
the Bylaws.
7. Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of
the Voting Stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock
ARTICLE X
Notwithstanding any other provisions of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
or series of the Voting Stock required by law, this Certificate of Incorporation
or any Preferred Stock Designation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal ARTICLE IX or this ARTICLE X.
ARTICLE XI
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in ARTICLE X of this
Certificate, and all rights conferred upon the stockholders herein are granted
subject to this right.
ARTICLE XII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
<PAGE>
ARTICLE XIII
1. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, a director of the Corporation
shall be indemnified by the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
2. The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
3. Neither any amendment nor repeal of this Article XIII, nor the adoption
of any provision of this Corporation's Certificate of Incorporation inconsistent
with this Article XIII, shall eliminate or reduce the effect of this Article
XIII, in respect of any matter occurring, or any action or proceeding accruing
or arising or that, but for this Article XIII, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
ARTICLE XIV
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XV
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
ARTICLE XVI
Until the Company closes an underwritten public offering of the Company's
common stock pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, stockholders shall be entitled to cumulative
voting rights as set forth in this Article XVI and the Bylaws of the
Corporation. At all elections of directors of the Corporation, each holder of
stock or of any class or classes or of a series or series thereof shall be
entitled to as many votes as shall equal the number of votes which (except for
this provision as to cumulative voting) such stockholder would be entitled to
cast for the election of directors with respect to such stockholder's shares of
stock multiplied by the number of directors to be elected, and such stockholder
may cast all of such votes for a single director or may distribute them among
the number of directors to be voted for, or for any
<PAGE>
two or more of them as suchstockholder may see fit. As of the date the Company
closes an underwritten public offering of the Company's common stock pursuant to
an effective registration statement filed under the Securities Act of 1933, as
amended, this Article XVI shall no longer be effective and may be deleted
herefrom upon any restatement of this Certificate of Incorporation.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the Corporation Law of the State of
Delaware, do make this certificate, hereby declaring and certifying, under
penalties of perjury, that this is my act and deed and the facts herein stated
are true, and accordingly have hereunto set my hand this 26th day of May 1999.
/s/ Mark B. Baudler
---------------------------------
Mark B. Baudler, Incorporator
<PAGE>
EXHIBIT 3.1B
RESTATED CERTIFICATE OF INCORPORATION
OF
NETIQ CORPORATION
NetIQ Corporation, a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
A. The name of the corporation is NetIQ Corporation. The corporation was
originally incorporated under the same name and the original Certificate of
Incorporation of the corporation was filed with the Secretary of State of the
State of Delaware on _________________, 1999.
B. This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of the General Corporation Law of the State of
Delaware by the Board of Directors and the Stockholders of the corporation.
C. Pursuant to Section 245 of the General Corporation Law of the State of
Delaware, this Restated Certificate of Incorporation restates the provisions of
the Certificate of Incorporation of this corporation.
D. The text of the Certificate of Incorporation is hereby restated in its
entirety to read as follows:
<PAGE>
"Article I.
The name of the corporation is NetIQ Corporation (the "Corporation").
Article II.
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
Article III.
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
Article IV.
This Corporation is authorized to issue two classes of stock to be
designated, respectively, Common Stock and Preferred Stock. The total number of
shares of Common Stock which the Company is authorized to issue is 150,000,000,
$0.001 par value, and the total number of shares of Preferred Stock the Company
is authorized to issue is 5,000,000, $0.001 par value. The Preferred Stock may
be issued from time to time in one or more series pursuant to a resolution or
resolutions providing for such issue duly adopted by the Board of Directors
(authority to do so being hereby expressly vested in the Board). The Board of
Directors is further authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares of any series of
Preferred Stock and the designation of any such series of Preferred Stock. The
Board of Directors, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
shares in any such series then outstanding), the number of shares of any series
subsequent to the issue of shares of that series.
Article V.
The Corporation is to have perpetual existence.
<PAGE>
Article VI.
Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins or
unless the Bylaws of the Corporation shall so provide.
Article VII.
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which constitute the whole Board of Directors of the corporation shall be
designated in the Bylaws of the corporation.
2. The Board of Directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following the
date hereof, the term of office of the Class I directors shall expire and Class
I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the date hereof, the term of office of
the Class II directors shall expire and Class II directors shall be elected for
a full term of three years. At the third annual meeting of stockholders
following the date hereof, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.
3. Notwithstanding the foregoing provisions of this Article, each
director shall serve until his or her successor is duly elected and qualified or
until his or her death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
4. Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes shall be filled by
either (i) the affirmative vote of the holders of a majority of the voting power
of the then-outstanding shares of voting stock of the corporation entitled to
vote generally in the election of directors ("Voting Stock") voting together as
a single class; or (ii) by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Newly created directorships resulting from any increase in the
number of directors shall, unless the Board of Directors determines by
resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
<PAGE>
5. The affirmative vote of sixty-six and two-thirds percent (66-2/3%) of
the voting power of the then outstanding shares of Voting Stock, voting together
as a single class, shall be required for the adoption, amendment or repeal of
the following sections of the corporation's Bylaws by the stockholders of this
corporation: 2.2 (Annual Meeting) and 2.3 (Special Meeting).
6. No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of the stockholders called in accordance with
the Bylaws.
7. Any director, or the entire Board of Directors, may be removed from
office at any time (i) with cause by the affirmative vote of the holders of at
least a majority of the voting power of all of the then-outstanding shares of
the Voting Stock, voting together as a single class; or (ii) without cause by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
Voting Stock
ARTICLE VIII
Notwithstanding any other provisions of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
or series of the Voting Stock required by law, this Certificate of Incorporation
or any Preferred Stock Designation, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock, voting together as a single
class, shall be required to alter, amend or repeal ARTICLE VII or this ARTICLE
VIII.
ARTICLE IX
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in ARTICLE VIII of this
Certificate, and all rights conferred upon the stockholders herein are granted
subject to this right.
ARTICLE X
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
<PAGE>
ARTICLE XI
1. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, a director of the
Corporation shall be indemnified by the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
2. The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
3. Neither any amendment nor repeal of this Article XI, nor the adoption
of any provision of this Corporation's Certificate of Incorporation inconsistent
with this Article XI, shall eliminate or reduce the effect of this Article XI,
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article XI, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XIII
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation."
<PAGE>
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Certificate of Incorporation to be signed by Ching-Fa Hwang, its President and
Chief Executive Officer, effective as of _________________, 1999.
NETIQ CORPORATION
By: _________________________
Ching-Fa Hwang
President and Chief Executive Officer
<PAGE>
EXHIBIT 3.2A
BYLAWS
OF
NETIQ CORPORATION
a Delaware Corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES................................................................ 1
1.1 REGISTERED OFFICE............................................................... 1
1.2 OTHER OFFICES................................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS......................................................... 1
2.1 PLACE OF MEETINGS............................................................... 1
2.2 ANNUAL MEETING.................................................................. 1
2.3 SPECIAL MEETING................................................................. 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS................................................ 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS................. 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................................... 3
2.7 QUORUM.......................................................................... 3
2.8 ADJOURNED MEETING; NOTICE....................................................... 4
2.9 VOTING.......................................................................... 4
2.10 WAIVER OF NOTICE................................................................ 4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING......................... 4
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS..................... 5
2.13 PROXIES......................................................................... 5
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE........................................... 6
2.15 CONDUCT OF BUSINESS............................................................. 6
ARTICLE III DIRECTORS....................................................................... 6
3.1 POWERS.......................................................................... 6
3.2 NUMBER.......................................................................... 7
3.3 CLASSES OF DIRECTORS............................................................ 7
3.4 RESIGNATION AND VACANCIES....................................................... 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................................ 8
3.6 REGULAR MEETINGS................................................................ 8
3.7 SPECIAL MEETINGS; NOTICE........................................................ 9
3.8 QUORUM.......................................................................... 9
3.9 WAIVER OF NOTICE................................................................ 9
3.10 ADJOURNED MEETING; NOTICE....................................................... 9
3.11 CONDUCT OF BUSINESS............................................................. 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................... 10
3.13 FEES AND COMPENSATION OF DIRECTORS.............................................. 10
3.14 REMOVAL OF DIRECTORS............................................................ 10
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE IV COMMITTEES.............................................................. 10
4.1 COMMITTEES OF DIRECTORS................................................. 10
4.2 COMMITTEE MINUTES....................................................... 11
4.3 MEETINGS AND ACTION OF COMMITTEES....................................... 11
ARTICLE V OFFICERS................................................................. 12
5.1 OFFICERS................................................................ 12
5.2 APPOINTMENT OF OFFICERS................................................. 12
5.3 REMOVAL AND RESIGNATION OF OFFICERS..................................... 12
5.4 CHAIRMAN OF THE BOARD................................................... 12
5.5 CHIEF EXECUTIVE OFFICER................................................. 13
5.6 PRESIDENT............................................................... 13
5.7 VICE PRESIDENT.......................................................... 13
5.8 SECRETARY............................................................... 13
5.9 CHIEF FINANCIAL OFFICER................................................. 14
5.10 ASSISTANT SECRETARY..................................................... 14
5.11 AUTHORITY AND DUTIES OF OFFICERS........................................ 15
ARTICLE VI INDEMNITY............................................................... 15
6.1 THIRD PARTY ACTIONS..................................................... 15
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION........................... 15
6.3 SUCCESSFUL DEFENSE...................................................... 16
6.4 DETERMINATION OF CONDUCT................................................ 16
6.5 PAYMENT OF EXPENSES IN ADVANCE.......................................... 16
6.6 INDEMNITY NOT EXCLUSIVE................................................. 16
6.7 INSURANCE INDEMNIFICATION............................................... 16
6.8 THE CORPORATION......................................................... 17
6.9 EMPLOYEE BENEFIT PLANS.................................................. 17
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES............. 17
ARTICLE VII RECORDS AND REPORTS..................................................... 17
7.1 MAINTENANCE AND INSPECTION OF RECORDS................................... 17
7.2 INSPECTION BY DIRECTORS................................................. 18
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.......................... 18
ARTICLE VIII GENERAL MATTERS........................................................ 18
8.1 CHECKS.................................................................. 18
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS........................ 19
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
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<S> <C>
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES............................. 19
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................ 19
8.5 LOST CERTIFICATES.................................................. 20
8.6 CONSTRUCTION; DEFINITIONS.......................................... 20
8.7 DIVIDENDS.......................................................... 20
8.8 FISCAL YEAR........................................................ 20
8.9 SEAL............................................................... 21
8.10 TRANSFER OF STOCK.................................................. 21
8.11 STOCK TRANSFER AGREEMENTS.......................................... 21
8.12 REGISTERED STOCKHOLDERS............................................ 21
ARTICLE IX AMENDMENTS............................................................ 21
ARTICLE X DISSOLUTION............................................................ 22
ARTICLE XI CUSTODIAN............................................................. 22
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................ 22
11.2 DUTIES OF CUSTODIAN................................................ 23
ARTICLE XII LOANS TO OFFICERS.................................................... 23
</TABLE>
-iii-
<PAGE>
BYLAWS
OF
NETIQ CORPORATION
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the Corporation shall be 1209 Orange Street, in
the City of Wilmington, County of New Castle, State of Delaware, 19801. The
name of the registered agent of the Corporation at such location is The
Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the Corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the (i)
board of directors, (ii) the chairman of the board, (iii) the president, or (iv)
the chief executive officer.
If a special meeting is called by any person other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to
<PAGE>
be transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the chairman of the board, the
president, any vice president, or the secretary of the corporation. No business
may be transacted at such special meeting otherwise than specified in such
notice. The officer receiving the request shall cause notice to be promptly
given to the stockholders entitled to vote, in accordance with the provisions of
Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time
requested by the person or persons who called the meeting, not less than thirty-
five (35) nor more than sixty (60) days after the receipt of the request. If the
notice is not given within twenty (20) days after the receipt of the request,
the person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 2.3 shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action of
the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.6 of these Bylaws not less
than 10 nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the place, date and
hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
secretary of the Corporation not less than 90 days prior to the meeting;
provided, however, that in the event that less than 100 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. To be in
proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations, propose the business, and, as the case may be, the
name and address of the person or persons to be nominated or the
nature of the business to be proposed;
-2-
<PAGE>
(ii) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and,
if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice or introduce the business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made
by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had
the nominee been nominated, or intended to be nominated, or the
matter been proposed, or intended to be proposed by the board
of directors; and
(v) if applicable, the consent of each nominee to serve as director
of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.7 QUORUM
------
The holders of a majority 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 is not present or represented at any meeting of the
stockholders, then either (i) the chairman of the meeting, or (ii) 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 is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
-3-
<PAGE>
When a quorum is present or represented 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 provisions 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 the question.
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than 30 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.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Sections 2.12 and 2.14 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Except as otherwise provided in this Section 2.11, any action required by
this chapter to be taken at any annual or special meeting of stockholders of a
Corporation, or any action that 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, is
-4-
<PAGE>
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 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. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Notwithstanding the foregoing, at such time that the Company closes an
underwritten public offering of the Company's common stock pursuant to an
effective registration statement filed under the Securities Act of 1933, as
amended, the stockholders of the Corporation may not take action by written
consent without a meeting but must take any such actions at a duly called annual
or special meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled 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 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
If the board of directors does not so fix a record date, the fixing of such
record date shall be governed by the provisions of Section 213 of the General
Corporation Law of Delaware.
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.
2.13 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the Corporation, but no such
proxy shall be voted or acted upon after 3 years from its date, unless the proxy
provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder
-5-
<PAGE>
or the stockholder's attorney-in-fact. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Section 212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a Corporation shall
prepare and make, at least 10 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 10 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 stock ledger 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. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders and
of the number of shares held by each such stockholder.
2.15 CONDUCT OF BUSINESS
-------------------
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the president, or in his absence by a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such matters as the regulation of the manner of voting and conduct of business.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
-6-
<PAGE>
3.2 NUMBER
------
The authorized number of directors of the Corporation shall be six (6). No
reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 CLASSES OF DIRECTORS
--------------------
At such time that the Company closes an underwritten public offering of the
Company's common stock pursuant to an effective registration statement filed
under the Securities Act of 1933, as amended, the Directors shall be divided
into three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following such closing of an underwritten public offering, the term
of office of the Class I Directors shall expire and Class I Directors shall be
elected for a full term of three years. At the second annual meeting of
stockholders following such closing of an underwritten public offering, the term
of office of the Class II Directors shall expire and Class II Directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following such closing of an underwritten public offering, the term
of office of the Class III Directors shall expire and Class III Directors shall
be elected for a full term of three years. At each succeeding annual meeting of
stockholders, Directors shall be elected for a full term of three years to
succeed the Directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each Director
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the Corporation.
Subject to the requirements, if any, set forth in the certificate of
incorporation, stockholders may remove directors with or without cause. Unless
otherwise provide in the certificate of incorporation, any vacancy occurring in
the board of directors with or without cause may be filled by a majority of the
remaining members of the board of directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of stockholders, and
each director so elected shall hold office until the expiration of the term of
office of the director whom he has replaced.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of
the stockholders having the
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right to vote as a single class may be filled by a majority of
the directors then in office, although less than a quorum, or by
a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and
newly created directorships of such class or classes or series
may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation Law
of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 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 as aforesaid, which election shall be
governed by the provisions of Section 211 of the General Corporation Law of
Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the Corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
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.
3.6 REGULAR MEETINGS
----------------
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.
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<PAGE>
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least 4 days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of 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.
3.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
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3.11 CONDUCT OF BUSINESS
-------------------
Meetings of the board of directors shall be presided over by the chairman
of the board, if any, or in his absence by the chief executive officer, or in
their absence by a chairman chosen at the meeting. The secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The chairman of any
meeting shall determine the order of business and the procedures at the meeting.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
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.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
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.
3.14 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these Bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors. If at any time a class or series
of shares is entitled to elect one or more directors, the provisions of this
Article 3.14 shall apply to the vote of that class or series and not to the vote
of the outstanding shares as a whole.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with 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
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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 or in the Bylaws of the Corporation, 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 that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the
board resolution establishing the committee, the Bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), Section 3.10 (adjournment and notice of adjournment),
Section 3.11 (conduct of business) and 3.12 (action without a meeting), with
such changes in the context of those Bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these Bylaws.
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ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the Corporation shall be a chief executive officer, one or
more vice presidents, a secretary and a chief financial officer. The
Corporation may also have, at the discretion of the board of directors, a
chairman of the board, a president, a chief operating officer, one or more
executive, senior or assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.2 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS
-----------------------
Except as otherwise provided in this Section 5.2, the officers of the
Corporation shall be appointed by the board of directors, subject to the rights,
if any, of an officer under any contract of employment. The board of directors
may appoint, or empower an officer to appoint, such officers and agents of the
business as the Corporation may require (whether or not such officer or agent is
described in this Article V), each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these Bylaws or
as the board of directors may from time to time determine. Any vacancy
occurring in any office of the Corporation shall be filled by the board of
directors or may be filled by the officer, if any, who appointed such officer.
5.3 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors or, in the case of an officer appointed by
another officer, by such other officer.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.4 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these Bylaws. If there
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is no chief executive officer, then the chairman of the board shall also be the
chief executive officer of the Corporation and shall have the powers and duties
prescribed in Section 5.5 of these Bylaws.
5.5 CHIEF EXECUTIVE OFFICER
-----------------------
The Chief Executive Officer of the Corporation shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and the officers of the Corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a Chairman of the Board at all meetings of the Board of Directors. He or she
shall have the general powers and duties of management usually vested in the
chief executive officer of a Corporation, including general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority
to 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.
5.6 PRESIDENT
---------
Subject to such supervisory powers as may be given by these Bylaws or the
Board of Directors to the Chairman of the Board or the Chief Executive Officer,
if there be such officers, the president shall have general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws. In the event a Chief Executive Officer
shall not be appointed, the President shall have the duties of such office.
5.7 VICE PRESIDENT
--------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the chief executive officer and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the chief executive
officer. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these Bylaws, the chief executive officer or the chairman of
the board.
5.8 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the Corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall
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show the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the Corporation or at the office of the Corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these Bylaws.
5.9 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the Corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
Corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his transactions as treasurer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these Bylaws.
5.10 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or 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 or her 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 or the stockholders may from time to time prescribe.
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5.11 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 THIRD PARTY ACTIONS
-------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or 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
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
---------------------------------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
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6.3 SUCCESSFUL DEFENSE
------------------
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
6.4 DETERMINATION OF CONDUCT
------------------------
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made
(1) by the board of Directors or the Executive Committee by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending a civil or criminal action, suit or
proceeding 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 the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another while holding such office.
6.7 INSURANCE INDEMNIFICATION
-------------------------
The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
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6.8 THE CORPORATION
---------------
For purposes of this Article VI, references to "the Corporation" shall
include, in addition to the resulting Corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
and subject to the provisions of this Article VI (including, without limitation
the provisions of Section 6.4) with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
----------------------
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
-----------------------------------------------------------
The indemnification and advanced of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The Corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
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Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the chief executive officer, any vice president,
the chief financial officer, the secretary or assistant secretary of this
Corporation, or any other person authorized by the board of directors or the
chief executive officer or a vice president, is authorized to vote, represent,
and exercise on behalf of this Corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of this
Corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
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8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the Corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares 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 vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has 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.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the Corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the Corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the 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 shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General
-19-
<PAGE>
Corporation Law of Delaware, in lieu of the foregoing requirements there may be
set forth on the face or back of the certificate that 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, the designations, the preferences, and the 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.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a Corporation and a natural
person.
8.7 DIVIDENDS
---------
The directors of the Corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the Corporation's
capital stock.
The directors of the Corporation may set apart out of any of the funds of
the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
-20-
<PAGE>
8.9 SEAL
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
-----------------
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 in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The Corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
Corporation to restrict the transfer of shares of stock of the Corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
-----------------------
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, shall be entitled to hold liable for calls and
assessments the 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 another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The original or other Bylaws of the Corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
Corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.
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<PAGE>
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the Corporation that the Corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the Corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the Corporation shall be dissolved.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the Corporation is insolvent, to be
receivers, of and for the Corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect
successors to directors whose terms have expired or would have
expired upon qualification of their successors; or
(ii) the business of the Corporation is suffering or is threatened
with irreparable injury because the directors are so divided
respecting the management of the affairs of the Corporation
that the required vote for action by the board of directors
cannot be obtained and the stockholders are unable to terminate
this division; or
(iii) the Corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate
or distribute its assets.
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<PAGE>
11.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the Corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
ARTICLE XII
LOANS TO OFFICERS
-----------------
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiaries, including any officer or employee who is a Director of the
Corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the Corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Bylaw shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
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<PAGE>
EXHIBIT 3.2B
RESTATED BYLAWS
OF
NETIQ CORPORATION
a Delaware Corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES................................................................ 1
1.1 REGISTERED OFFICE............................................................... 1
1.2 OTHER OFFICES................................................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS......................................................... 1
2.1 PLACE OF MEETINGS............................................................... 1
2.2 ANNUAL MEETING.................................................................. 1
2.3 SPECIAL MEETING................................................................. 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS................................................ 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS................. 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................................... 3
2.7 QUORUM.......................................................................... 3
2.8 ADJOURNED MEETING; NOTICE....................................................... 4
2.9 VOTING.......................................................................... 4
2.10 WAIVER OF NOTICE................................................................ 4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING......................... 4
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS..................... 5
2.13 PROXIES......................................................................... 5
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE........................................... 6
2.15 CONDUCT OF BUSINESS............................................................. 6
ARTICLE III DIRECTORS....................................................................... 6
3.1 POWERS.......................................................................... 6
3.2 NUMBER.......................................................................... 7
3.3 CLASSES OF DIRECTORS............................................................ 7
3.4 RESIGNATION AND VACANCIES....................................................... 7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................................ 8
3.6 REGULAR MEETINGS................................................................ 8
3.7 SPECIAL MEETINGS; NOTICE........................................................ 9
3.8 QUORUM.......................................................................... 9
3.9 WAIVER OF NOTICE................................................................ 9
3.10 ADJOURNED MEETING; NOTICE....................................................... 9
3.11 CONDUCT OF BUSINESS............................................................. 10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................... 10
3.13 FEES AND COMPENSATION OF DIRECTORS.............................................. 10
3.14 REMOVAL OF DIRECTORS............................................................ 10
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV COMMITTEES.............................................................. 10
4.1 COMMITTEES OF DIRECTORS................................................. 10
4.2 COMMITTEE MINUTES....................................................... 11
4.3 MEETINGS AND ACTION OF COMMITTEES....................................... 11
ARTICLE V OFFICERS................................................................. 12
5.1 OFFICERS................................................................ 12
5.2 APPOINTMENT OF OFFICERS................................................. 12
5.3 REMOVAL AND RESIGNATION OF OFFICERS..................................... 12
5.4 CHAIRMAN OF THE BOARD................................................... 12
5.5 CHIEF EXECUTIVE OFFICER................................................. 13
5.6 PRESIDENT............................................................... 13
5.7 VICE PRESIDENT.......................................................... 13
5.8 SECRETARY............................................................... 13
5.9 CHIEF FINANCIAL OFFICER................................................. 14
5.10 ASSISTANT SECRETARY..................................................... 14
5.11 AUTHORITY AND DUTIES OF OFFICERS........................................ 15
ARTICLE VI INDEMNITY............................................................... 15
6.1 THIRD PARTY ACTIONS..................................................... 15
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION........................... 15
6.3 SUCCESSFUL DEFENSE...................................................... 16
6.4 DETERMINATION OF CONDUCT................................................ 16
6.5 PAYMENT OF EXPENSES IN ADVANCE.......................................... 16
6.6 INDEMNITY NOT EXCLUSIVE................................................. 16
6.7 INSURANCE INDEMNIFICATION............................................... 16
6.8 THE CORPORATION......................................................... 17
6.9 EMPLOYEE BENEFIT PLANS.................................................. 17
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES............. 17
ARTICLE VII RECORDS AND REPORTS..................................................... 17
7.1 MAINTENANCE AND INSPECTION OF RECORDS................................... 17
7.2 INSPECTION BY DIRECTORS................................................. 18
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.......................... 18
ARTICLE VIII GENERAL MATTERS........................................................ 18
8.1 CHECKS.................................................................. 18
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS........................ 19
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES............................. 19
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................ 19
8.5 LOST CERTIFICATES.................................................. 20
8.6 CONSTRUCTION; DEFINITIONS.......................................... 20
8.7 DIVIDENDS.......................................................... 20
8.8 FISCAL YEAR........................................................ 20
8.9 SEAL............................................................... 21
8.10 TRANSFER OF STOCK.................................................. 21
8.11 STOCK TRANSFER AGREEMENTS.......................................... 21
8.12 REGISTERED STOCKHOLDERS............................................ 21
ARTICLE IX AMENDMENTS............................................................ 21
ARTICLE X DISSOLUTION............................................................ 22
ARTICLE XI CUSTODIAN............................................................. 22
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................ 22
11.2 DUTIES OF CUSTODIAN................................................ 23
ARTICLE XII LOANS TO OFFICERS.................................................... 23
</TABLE>
-iii-
<PAGE>
RESTATED BYLAWS
OF
NETIQ CORPORATION
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the Corporation shall be 1209 Orange Street, in
the City of Wilmington, County of New Castle, State of Delaware, 19801. The
name of the registered agent of the Corporation at such location is The
Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the Corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the (i)
board of directors, (ii) the chairman of the board, (iii) the president, or (iv)
the chief executive officer.
If a special meeting is called by any person other than the board of
directors, the request shall be in writing, specifying the time of such meeting
and the general nature of the business proposed to
<PAGE>
be transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the chairman of the board, the
president, any vice president, or the secretary of the corporation. No business
may be transacted at such special meeting otherwise than specified in such
notice. The officer receiving the request shall cause notice to be promptly
given to the stockholders entitled to vote, in accordance with the provisions of
Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time
requested by the person or persons who called the meeting, not less than thirty-
five (35) nor more than sixty (60) days after the receipt of the request. If the
notice is not given within twenty (20) days after the receipt of the request,
the person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 2.3 shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action of
the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.6 of these Bylaws not less
than 10 nor more than 60 days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the place, date and
hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
secretary of the Corporation not less than 90 days prior to the meeting;
provided, however, that in the event that less than 100 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. To be in
proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations, propose the business, and, as the case may be, the
name and address of the person or persons to be nominated or the
nature of the business to be proposed;
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<PAGE>
(ii) a representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and,
if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice or introduce the business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made
by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had
the nominee been nominated, or intended to be nominated, or the
matter been proposed, or intended to be proposed by the board
of directors; and
(v) if applicable, the consent of each nominee to serve as director
of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the Corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the Corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.7 QUORUM
------
The holders of a majority 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 is not present or represented at any meeting of the
stockholders, then either (i) the chairman of the meeting, or (ii) 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 is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
-3-
<PAGE>
When a quorum is present or represented 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 provisions 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 the question.
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these Bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than 30 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.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Sections 2.12 and 2.14 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these Bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
-4-
<PAGE>
The stockholders of the Corporation may not take action by written consent
without a meeting but must take any such actions at a duly called annual or
special meeting.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled 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 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
If the board of directors does not so fix a record date, the fixing of such
record date shall be governed by the provisions of Section 213 of the General
Corporation Law of Delaware.
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.
2.13 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the Corporation, but no such
proxy shall be voted or acted upon after 3 years from its date, unless the proxy
provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder
-5-
<PAGE>
or the stockholder's attorney-in-fact. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
Section 212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a Corporation shall
prepare and make, at least 10 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 10 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 stock ledger 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. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders and
of the number of shares held by each such stockholder.
2.15 CONDUCT OF BUSINESS
-------------------
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the president, or in his absence by a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such matters as the regulation of the manner of voting and conduct of business.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
-6-
<PAGE>
3.2 NUMBER
------
The authorized number of directors of the Corporation shall be six (6). No
reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 CLASSES OF DIRECTORS
--------------------
The Directors shall be divided into three classes designated as Class I,
Class II and Class III, respectively. Directors shall be assigned to each class
in accordance with a resolution or resolutions adopted by the Board of
Directors. At the first annual meeting of stockholders following the date
hereof, the term of office of the Class I Directors shall expire and Class I
Directors shall be elected for a full term of three years. At the second annual
meeting of stockholders following the date hereof, the term of office of the
Class II Directors shall expire and Class II Directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the date hereof, the term of office of the Class III Directors shall expire and
Class III Directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, Directors shall be elected for a full
term of three years to succeed the Directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each Director
shall serve until his successor is duly elected and qualified or until his
earlier death, resignation or removal. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the Corporation.
Subject to the requirements, if any, set forth in the certificate of
incorporation, stockholders may remove directors with or without cause. Unless
otherwise provide in the certificate of incorporation, any vacancy occurring in
the board of directors with or without cause may be filled by a majority of the
remaining members of the board of directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of stockholders, and
each director so elected shall hold office until the expiration of the term of
office of the director whom he has replaced.
Unless otherwise provided in the certificate of incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of
the stockholders having the
-7-
<PAGE>
right to vote as a single class may be filled by a majority of
the directors then in office, although less than a quorum, or by
a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and
newly created directorships of such class or classes or series
may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation Law
of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 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 as aforesaid, which election shall be
governed by the provisions of Section 211 of the General Corporation Law of
Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the Corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
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.
3.6 REGULAR MEETINGS
----------------
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.
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3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least 4 days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
3.8 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of 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.
3.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these Bylaws.
3.10 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
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3.11 CONDUCT OF BUSINESS
-------------------
Meetings of the board of directors shall be presided over by the chairman
of the board, if any, or in his absence by the chief executive officer, or in
their absence by a chairman chosen at the meeting. The secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The chairman of any
meeting shall determine the order of business and the procedures at the meeting.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
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.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
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.
3.14 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these Bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors. If at any time a class or series
of shares is entitled to elect one or more directors, the provisions of this
Article 3.14 shall apply to the vote of that class or series and not to the vote
of the outstanding shares as a whole.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with 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
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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 or in the Bylaws of the Corporation, 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 that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the
board resolution establishing the committee, the Bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), Section 3.10 (adjournment and notice of adjournment),
Section 3.11 (conduct of business) and 3.12 (action without a meeting), with
such changes in the context of those Bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may also be called by
resolution of the board of directors and that notice of special meetings of
committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these Bylaws.
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ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the Corporation shall be a chief executive officer, one or
more vice presidents, a secretary and a chief financial officer. The
Corporation may also have, at the discretion of the board of directors, a
chairman of the board, a president, a chief operating officer, one or more
executive, senior or assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.2 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS
-----------------------
Except as otherwise provided in this Section 5.2, the officers of the
Corporation shall be appointed by the board of directors, subject to the rights,
if any, of an officer under any contract of employment. The board of directors
may appoint, or empower an officer to appoint, such officers and agents of the
business as the Corporation may require (whether or not such officer or agent is
described in this Article V), each of whom shall hold office for such period,
have such authority, and perform such duties as are provided in these Bylaws or
as the board of directors may from time to time determine. Any vacancy
occurring in any office of the Corporation shall be filled by the board of
directors or may be filled by the officer, if any, who appointed such officer.
5.3 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors or, in the case of an officer appointed by
another officer, by such other officer.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.4 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these Bylaws. If there
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is no chief executive officer, then the chairman of the board shall also be the
chief executive officer of the Corporation and shall have the powers and duties
prescribed in Section 5.5 of these Bylaws.
5.5 CHIEF EXECUTIVE OFFICER
-----------------------
The Chief Executive Officer of the Corporation shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and the officers of the Corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a Chairman of the Board at all meetings of the Board of Directors. He or she
shall have the general powers and duties of management usually vested in the
chief executive officer of a Corporation, including general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the authority
to 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.
5.6 PRESIDENT
---------
Subject to such supervisory powers as may be given by these Bylaws or the
Board of Directors to the Chairman of the Board or the Chief Executive Officer,
if there be such officers, the president shall have general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws. In the event a Chief Executive Officer
shall not be appointed, the President shall have the duties of such office.
5.7 VICE PRESIDENT
--------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the chief executive officer and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the chief executive
officer. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these Bylaws, the chief executive officer or the chairman of
the board.
5.8 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the Corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall
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show the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the Corporation or at the office of the Corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these Bylaws.
5.9 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the Corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
Corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his transactions as treasurer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these Bylaws.
5.10 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or 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 or her 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 or the stockholders may from time to time prescribe.
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5.11 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 THIRD PARTY ACTIONS
-------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or 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
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
---------------------------------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
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6.3 SUCCESSFUL DEFENSE
------------------
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
6.4 DETERMINATION OF CONDUCT
------------------------
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the Corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made
(1) by the board of Directors or the Executive Committee by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
6.5 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending a civil or criminal action, suit or
proceeding 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 the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification and advancement of expenses provided or granted
pursuant to the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another while holding such office.
6.7 INSURANCE INDEMNIFICATION
-------------------------
The Corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation, as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
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6.8 THE CORPORATION
---------------
For purposes of this Article VI, references to "the Corporation" shall
include, in addition to the resulting Corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
and subject to the provisions of this Article VI (including, without limitation
the provisions of Section 6.4) with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS
----------------------
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably deemed to have acted in a manner "not opposed to the best interests
of the Corporation" as referred to in this Article VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
-----------------------------------------------------------
The indemnification and advanced of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The Corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records.
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Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
Corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The Court of Chancery is
hereby vested with the exclusive jurisdiction to determine whether a director is
entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the chief executive officer, any vice president,
the chief financial officer, the secretary or assistant secretary of this
Corporation, or any other person authorized by the board of directors or the
chief executive officer or a vice president, is authorized to vote, represent,
and exercise on behalf of this Corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of this
Corporation. The authority granted herein may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
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8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the Corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
Corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares 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 vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has 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.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the Corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the Corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the 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 shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General
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<PAGE>
Corporation Law of Delaware, in lieu of the foregoing requirements there may be
set forth on the face or back of the certificate that 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, the designations, the preferences, and the 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.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and cancelled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a Corporation and a natural
person.
8.7 DIVIDENDS
---------
The directors of the Corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the Corporation's
capital stock.
The directors of the Corporation may set apart out of any of the funds of
the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
-20-
<PAGE>
8.9 SEAL
----
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
-----------------
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 in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The Corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
Corporation to restrict the transfer of shares of stock of the Corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
-----------------------
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, shall be entitled to hold liable for calls and
assessments the 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 another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The original or other Bylaws of the Corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
Corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal Bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Bylaws.
-21-
<PAGE>
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the Corporation that the Corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the Corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the Corporation shall be dissolved.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the Corporation is insolvent, to be
receivers, of and for the Corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect
successors to directors whose terms have expired or would have
expired upon qualification of their successors; or
(ii) the business of the Corporation is suffering or is threatened
with irreparable injury because the directors are so divided
respecting the management of the affairs of the Corporation
that the required vote for action by the board of directors
cannot be obtained and the stockholders are unable to terminate
this division; or
(iii) the Corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate
or distribute its assets.
-22-
<PAGE>
11.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the Corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
ARTICLE XII
LOANS TO OFFICERS
-----------------
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiaries, including any officer or employee who is a Director of the
Corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the Corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Bylaw shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the Corporation at common law
or under any statute.
-23-
<PAGE>
EXHIBIT 4.1
===============================================================================
COMMON STOCK [LOGO OF NETIQ] COMMON STOCK
NUMBER SHARES
NET
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN
IN BOSTON, MA OR NEW YORK, NY DEFINITIONS AND A STATEMENT
AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
CUSIP 64115P 10 2
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE OF $0.001 PER SHARE, OF
NETIQ CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ JAMES A. BARTH [CORPORATE SEAL /s/ CHING-FA HWANG
OF NETIQ CORPORATION]
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ AUTHORIZED SIGNATURE
AUTHORIZED SIGNATURE
SECURITY-COLUMBIAN UNITED STATES BANKNOTE COMPANY 1960
================================================================================
<PAGE>
================================================================================
NetIQ Corporation
A statement of 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 as established, from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of designation,
the number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-.........Custodian.........
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JT TEN - as joint tenants with Minors Act..................
right of survivorship (State)
and not as tenants UNIF TRF MIN ACT- .....Custodian (until age..)
in common (Cust)
.....under Uniform Transfers
(Minor)
to Minors Act...............
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
_____________________________
_____________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated ____________________________
X -----------------------------------
X -----------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By_________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 4.2
NETIQ CORPORATION
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 14th day of May, 1997, by and among NetiQ Corporation, a California
corporation (the "Company"), the purchasers of Founder's Common Stock listed on
the schedule attached hereto as Exhibit A, (the "Founders") and the Purchasers
---------
of Series A Preferred Stock and Series B Preferred Stock listed on the schedule
attached hereto as Exhibit B (the "Purchasers").
---------
SECTION 1.
1.1 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Holder" shall mean any holder of outstanding Registrable Securities;
provided, however, that for all purposes under this Section 1, the holder of any
Shares shall be deemed to be the Holder of the Registrable Securities into which
such Shares are then convertible.
"Initiating Holders" shall mean any Holders of not less than thirty
percent (30%) of the Registrable Securities.
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 1.3 hereof.
The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
required to be filed), and the declaration or ordering of the effectiveness of
such registration statement.
"Registrable Securities" means (i) shares of the Company's Common
Stock issued or issuable upon conversion of the Shares, and (ii) any of the
Company's Common Stock or other securities issued or issuable pursuant to the
conversion of the Shares upon any stock split, stock dividend, recapitalization,
or similar event, or any Common Stock otherwise issued or issuable with respect
to the Shares; provided, however, that Registrable Securities shall not include
any shares of
<PAGE>
Common Stock which have previously been sold or hereafter registered and sold to
the public or any shares sold to the public pursuant to Rule 144.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 1.2, 1.3, and 1.4 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, the expense of any special audits incident to or required by any
such registration, (but excluding (i) underwriters' fees, discounts or
commissions relating to registrable securities sold by any Holder and (ii) the
compensation of regular employees of the Company which shall be paid in any
event by the Company), and all reasonable fees and disbursements of a single
counsel designated by the Holders of a majority of the Registrable Securities to
be registered for any Holder.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, as shall be in effect at the time.
"Shares" shall mean shares of the Company's Series A Preferred Stock
and Series B Preferred Stock issued to the Holders listed on Exhibit B hereto.
---------
1.2 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
the Initiating Holders, at any time after the earlier of December 31, 2000 or
six (6) months after the effective date of the Company's initial public
offering, a written request that the Company effect any underwritten
registration, qualification, or compliance with respect to Registrable
Securities having an aggregate offering price, net of discounts and commissions,
of at least $5,000,000, the Company shall:
(i) promptly give written notice of the proposed registration,
qualification, or compliance to all other Holders; and
(ii) as soon as practicable, use its most diligent efforts to
effect all such registration, qualification, or compliance (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws, and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within fifteen (15) days after receipt of such written notice
from the Company;
Provided, however, that the Company shall not be obligated to
file any such registration, qualification, or compliance pursuant to this
Section 1.2:
(A) In any jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification, or compli-
-2-
<PAGE>
ance unless the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act;
(B) Within one hundred eighty (180) days immediately
following the effective date of any registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan);
(C) After the Company has effected two such registrations
pursuant to this Section 1.2(a), such registrations have been declared or
ordered effective, and the securities offered pursuant to such registration have
been sold; or
Subject to the foregoing clauses (A) through (C), the Company
shall file a registration statement covering the Registrable Securities so
requested to be registered as soon as practicable, and in any event within one
hundred twenty (120) days, after receipt of the request or requests of the
Initiating Holders; provided, however, that if the Company shall furnish to such
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company or its shareholders for such registration
statement to be filed on or before the date filing would be required and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right, exercisable one time only pursuant to each
specific request made under this Section 1.2, to defer such filing for a
reasonable period not to exceed an additional one hundred twenty (120) days.
(b) Underwriting. The right of any Holder to registration pursuant to
------------
Section 1.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested.
The Company shall (together with all Holders and holders of other
securities proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by a majority in interest of the
Initiating Holders. Notwithstanding any other provision of this Section 1.2, if
the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders and the other holders
distributing their securities through such underwriting. The Common Stock (other
than Registrable Securities) held by officers, directors, and all persons
without contractual rights to inclusion in such registration shall be excluded
from such registration to the extent required. If a limitation of the number of
shares to be included in such registration is still required, Common Stock
(other than Registrable Securities) shall be excluded from registration to the
extent required. After giving effect to the foregoing, in the event that a
limitation on the number of Registrable Securities to be included in such
underwriting is still required, the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all Holders in that proportion, as nearly as practicable, that the number
of Registrable Securities held by each Holder bears to the total number of
Registrable Securities (determined without regard to any requirement of a
request to be included in such registration) held by all such Holders at the
time of filing the registration statement. No Registrable Securities or other
securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
-3-
<PAGE>
If any Holder of Registrable Securities disapproves of the terms
of the under writing, such person may elect to withdraw therefrom by written
notice to the Company, the managing underwriter, and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration; provided, however, that, if by the withdrawal of
such Registrable Securities a greater number of Registrable Securities held by
other Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion used in
determining the underwriter limitation in this Section 1.2(b).
If the managing underwriter has not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account or for the account of others in such registration if the
underwriter so agrees and if the number of Registrable Securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited and the price at which such Registrable Securities would
otherwise have been sold will not thereby be reduced.
1.3 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time, the
----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders (other than "Holders")
exercising their respective demand registration rights ("Initiating Party")
other than (i) a registration relating solely to employee benefit plans, (ii) a
registration relating solely to a Rule 145 transaction, (iii) the Company's
first registered public offering of its securities, or (iv) a registration
effected pursuant to Section 1.4 of this Agreement, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within fifteen (15) days after receipt of such written notice
from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.3 shall be conditioned upon the participation
by such Holder in such underwriting and the inclusion of the Registrable
Securities of such Holder in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such under writing
shall (together with the Company, the Initiating Party, and the other holders
having incidental or "piggyback" registration rights ("Other Holders")
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 1.3, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the Company may
limit to the extent necessary the Registrable
-4-
<PAGE>
Securities held by Holders to be included in such registration, but in no event
shall the amount of securities of the selling Holders included in the offering
be reduced below fifteen percent (15%) of the total amount of securities
included in such offering, unless such offering is the initial public offering
of the Company's securities, in which case the selling Holders may be entirely
excluded if the underwriters make the determination described above and no other
shareholder's securities are included. The Company shall so advise all Holders
and the Other Holders distributing their securities through such underwriting,
and the number of shares of Registrable Securities and other securities that may
be included in the registration and underwriting shall be allocated in the
following priority: The Common Stock (other than shares as to which any person
holds contractual rights to inclusion) held by officers, directors, employees,
and all other persons shall first be excluded from such registration and
underwriting to the extent required. If a limitation of the number of shares to
be included in such registration and underwriting is still required, such
limitation shall be allocated among Holders and Other Holders prior to any
limitation on the number of shares so included for the account of the Initia-
ting Party or the Company, as the case may be, in proportion, as nearly as
practicable, to the respective amounts of securities contractually entitled to
inclusion (determined without regard to any requirement of a request to be
included in such registration) in such registration held by all such Holders and
Other Holders at the time of filing the registration statement. If any Holder or
Other Holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
1.4 Form S-3 Registration. In case the Company shall receive from a
---------------------
Holder or Holders of more than two percent (2%) of the Company's Common Stock
(assuming conversion of all convertible securities) a written request that the
Company effect a registration on Form S-3 and any related qualification or
compliance with respect to an amount of the Registrable Securities owned by such
Holder or Holders for which the anticipated aggregate offering price, net of
discounts and commissions, would equal or exceed $1,000,000, 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 Holders joining
in such request as are specified in a written request given within fifteen (15)
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification, or compliance pursuant to this Section 1.4: (1) if Form S-3 is
not available for such offering by the holders; (2) 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 shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than one hundred twenty (120) days after receipt of the
initiating request of the Holder or Holders under this Section 1.4; provided,
however, that the Company shall not utilize this right more than once in any
-5-
<PAGE>
twelve (12) month period; (3) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected two registrations on
Form S-3 for the Holders pursuant to this Section 1.4; or (4) in any
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification, or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act.
Subject to the foregoing, the Company shall effect such
registration, qualification, or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) covering the
Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 1.4 shall not be counted as
demands for registration or registrations effected pursuant to Sections 1.2 or
1.3, respectively.
If the registration to be effected pursuant to this Section 1.4
is to be an under written public offering, it shall be managed by an underwriter
or underwriters reasonably acceptable to Company selected by a majority in
interest of the Holders requesting registration. In such event, the right of any
Holder to registration pursuant to Section 1.4 shall be conditioned upon the
participation by such Holder in such underwriting and the inclusion of the
registrable securities of such Holder in the underwriting to the extent provided
herein. If the managing underwriter so selected determines that marketing
factors require a limitation of the number of shares to be underwritten, the
Company may limit the Registrable Securities held by such Holders to be included
in such registration to such amounts as determined by the managing underwriter
(the securities so included to be apportioned pro rata among the selling Holders
according to the total amount of securities entitled to be included therein
owned by each selling Holder or in such other proportions as shall mutually be
agreed to by such selling Holders). The Company shall so advise such Holders,
and the number of shares of Registrable Securities that may be included in the
registration shall be allocated among such Holders in proportion to the
respective amounts of Registrable Securities which would be held by each of such
Holders at the time of filing of the registration statement. Any Registrable
Securities that are so excluded from the underwriting shall be excluded from the
registration. As used throughout this Section 1 the term "Form S-3" shall be
deemed to include any equivalent successor form for registration pursuant to the
Act.
The Company shall not be required to maintain and keep any such
registration on Form S-3 effective for a period exceeding ninety (90) days from
the effective date thereof.
1.5 Expenses of Registration. The Company shall bear the Registration
------------------------
Expenses of two (2) registration pursuant to Section 1.2. However, the Company
shall not be required to pay for expenses of any registration proceeding begun
pursuant to Section 1.2, the request of which has been subsequently withdrawn by
the Initiating Holders, in which case such expenses shall be borne by the
Initiating Holders of securities pro rata in accordance with the number of
shares initially sought to be registered requesting or causing such withdrawal,
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2; provided
-6-
<PAGE>
further, however, that if at the time of such withdrawal, the Initiating Holders
have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Initiating Holders at the time
of their request, then the Initiating Holders shall not be required to pay any
of such expenses and shall retain their rights pursuant to Section 1.2. The
Company shall bear the Registration Expenses of all registrations pursuant to
Section 1.3. The Company shall also bear the Registration Expenses of all
registrations pursuant to Section 1.4. All other Registration Expenses shall be
paid by the selling shareholders on a pro rata basis.
1.6 Letter or Opinion of Counsel in Lieu of Registration. If, at any time
----------------------------------------------------
after the Company's Common Stock is publicly traded, in the opinion of counsel
for the Company, concurred in by counsel for Holders, no registration under the
Act is required in connection with the disposition of the Registrable Securities
covered by any request made under Sections 1.2, 1.3 and 1.4 hereof in the manner
in which they propose to dispose of the Registrable Securities included in such
request because the Holder is able to dispose of all of its Registrable
Securities in one three-month period pursuant to the provisions of Rule 144, the
Company need not comply with such request or requests; provided, however, that
the Company shall not be so relieved of its obligations under Sections 1.2, 1.3
and 1.4 hereof unless the aforementioned opinion of counsel for the Company
shall have been mailed by the Company to such Holders within fifteen (15) days
after the Company's receipt of their request or requests; and provided, further,
that if counsel for the Company has opined that no registra tion is required in
connection with any such disposition, such counsel shall further opine as to
whether the removal of any legend from certificates representing all shares to
which such opinion refers is permissible, and, if so, the Company shall remove
from such certificates all legends no longer required thereon and shall rescind
any stop-transfer instructions previously communicated to its transfer agent
relating to such shares.
1.7 Lock-up. Each Holder hereby agrees that it shall not, to the extent
-------
requested by the Company and the managing underwriter for the initial offering
of the Company's securities to the general public, sell or otherwise transfer
any Shares (and any Common Stock issued upon conversion of the Shares), other
than securities registered in such offering, for a period of one hundred eighty
(180) days from the effective date of such offering; provided, however, that all
officers and directors of the Company and all other persons with registration
rights (whether or not pursuant to this Agreement) shall have entered into
similar agreements or be similarly obligated.
1.8 Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Section 1 to use its most diligent efforts to effect
promptly the registration of Registrable Securities, the Company shall:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its most diligent efforts to
cause such registration statement to become and remain effective as provided
herein;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registra-
-7-
<PAGE>
tion statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition of the prospective
seller or sellers of such Registrable Securities, but for no longer than one
hundred twenty (120) days subsequent to the effective date of such registration
in the case of a registration statement on Form S-1 (or any similar form of
registration statement required to set forth substantially identical
information) and for no longer than ninety (90) days in the case of a
registration statement on Form S-3;
(c) furnish to each prospective seller of Registrable Securities such
number of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities of such seller;
(d) 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 under writer of such offering; each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(e) 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; and
(f) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, on the date that the registration statement with
respect to such securities become effective, (i) an opinion, dated such date, of
counsel representing the Company for the purposes of such registration, in form
and substance as is then customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated such
date, from the independent certified public accountants of the Company, in form
and substance as is then customarily given by independent certified public
accountants of the Company, in form and substance as is then customarily given
by independent certified public accounts to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.9 Indemnification. In the event any of the Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify each
Holder, each of its officers and directors and partners, and such Holder's
separate legal counsel and independent accountants, and each person controlling
such Holder within the meaning of Section 15 of the Securities Act or Section 20
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and each
underwriter, if any, and each person who controls any underwriter within the
meaning of
-8-
<PAGE>
Section 15 of the Securities Act or Section 20 of the 1934 Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settle ment of any
litigation, commenced or threatened, to which they may become subject under the
Securities Act, the 1934 Act, or other federal or state law, in so far as such
expenses, claims, losses, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon the following state ments, omissions, or
violations (collectively, "Violations"): (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any registration statement,
prospectus, offering circular, or other document, or any amendment or supplement
thereto, incident to any such registration, qualification, or compliance, (ii)
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or (iii) any violation or
alleged violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act, or any state securities law, applicable to the Company in con
nection with any such registration, qualification, or compliance, and the
Company will reimburse each such Holder, each of its officers and directors and
partners, and such Holders' separate legal counsel and independent accountants,
and each person controlling such Holder, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing, or defending
any such claim, loss, damage, liabi lity, or action; provided that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability, or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder or underwriter and stated to be specifically for
use in connection with the offering of Securities of the Company.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification, or compliance is being effected, indemnify the
Company, each of its directors and officers and its legal counsel and
independent accountants, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the 1934 Act, and each other such Holder, each of its officers and
directors and each person controlling such Holder within the meaning of Section
15 of the Securities Act or Section 20 of the 1934 Act, against all expenses,
claims, losses, damages, and liabilities (or actions in respect thereof) to
which any of the foregoing persons may be subject, under the Securities Act, or
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 the following statements or omissions: (i) any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or (ii) any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company, such Holders, such directors, officers, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular, or other document in reliance upon and in conformity with
-9-
<PAGE>
written information furnished to the Company by an instrument duly executed by
such Holder and stated to be specifically for use in connection with the
offering of securities of the Company; provided, however, that the obligations
any such Holder hereunder shall be limited to an amount equal to the proceeds to
such Holder of Registrable Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 1.9 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section 1.9 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying the Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party with
respect to such loss, liability, claim, damage, or expense in the proportion
that is appropriate to reflect the relative fault of the Indemnifying Party and
the Indemnified Party in connection with the state ments 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 the Indem nified Party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of 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.
1.10 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification, or
compliance referred to in this Section 1.
1.11 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, beginning ninety
(90) days after (i) the effective date of the first registration statement filed
by the Company for an offering of its securities to the general
-10-
<PAGE>
public, (ii) the Company registers a class of securities under Section 12 of the
1934 Act, or (iii) the Company issues an offering circular meeting the
requirements of Regulation A under the Securities Act;
(b) Then file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the 1934
Act, (at any time after it has become subject to such reporting requirements);
and
(c) Furnish to any Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
1.12 Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities granted Holders under Sections 1.2, 1.3, and 1.4 may be
assigned to a transferee or assignee of the Shares in connection with the
transfer or assignment to a person who thereafter holds 50,000 Shares, if the
Company is given written notice of the transfer of the registration rights under
this Agreement at the time of transfer of the Registerable Securities; provided,
however, that the minimum share restriction imposed by this Section 1.12 on the
transfer of registration rights shall not apply to a transfer of Registrable
Securities by a Holder to a partner (limited or general) or affiliates of such
Holder.
1.13 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder to include such
securities in any registration filed under Section 1.2 hereof, unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which is included.
1.14 Amendment of Outstanding Registration Rights. Any amendments hereto
--------------------------------------------
shall be effected only by an amendment to this Agreement by vote of the holders
of a majority of the Registrable Securities then outstanding.
1.15 Termination of Registration Rights. All rights under this Agreement
----------------------------------
shall terminate on the fifth anniversary of the effective date of the Company's
initial public offering.
-11-
<PAGE>
SECTION 2.
MISCELLANEOUS
-------------
2.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California.
2.2 Successors and Assigns. Except as otherwise expressly limited herein,
----------------------
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto.
2.3 Entire Agreement; Amendment, and Waiver. This Agreement and the other
---------------------------------------
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof, and supersedes any prior agreements between the parties to this
Agreement, including the Registration Rights Agreement entered February 14,
1995 between the Company, the Founders and the Series A Preferred Stock
Purchasers. Any term of this Agreement may be amended and the observance of any
term hereof may be waived (either prospectively or retroactively and either
generally or in a particular instance) only with the written consent of the
holders of at least a majority of the Registrable Securities at the time
outstanding (and, in the case of an amendment, the Company). Any amendment or
waiver effected in accordance with this Section 2.3 shall be binding upon each
Holder of the Registrable Securities and the Company. In addition, the Company
may waive performance of any obligation owing to it, as to some or all of the
Holders of the Registrable Securities or agree to accept alternatives to such
performance, without obtaining the consent of any Holder of the Registrable
Securities.
2.4 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Holder, at such Holder's address as such Holder shall have
furnished to the Company in writing, or (b) if to any Other Holder of any of the
Registrable Securities, at such address as such Holder shall have furnished the
Company in writing, or, until any such Holder so furnishes an address to the
Company, then to and at the address of the last Holder of such Registrable
Securities who has so furnished an address to the Company, or (c) if to the
Company, to the Company's then current principal offices and addressed to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Holders, and another copy should be sent to the
Company's legal counsel to the attention of Thomas C. DeFilipps, Esq. of Wilson
Sonsini Goodrich & Rosati at 650 Page Mill Road, Palo Alto, California 94304.
2.5 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power, or remedy accruing to any Holder of any of the Registrable Securities,
upon any breach or default of the Company under this Agreement, shall be deemed
a waiver of any other breach or default theretofore or thereafter occurring.
Any waiver, permit, consent, or approval of any kind or character on the part of
any Holder of any breach or default under this Agreement, or any waiver on the
part of any Holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to
-12-
<PAGE>
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.
2.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which may be executed by less than all of the Holders,
each of which shall be enforceable against the parties actually executing such
counterparts or otherwise bound by this Agreement, and all of which together
shall constitute one instrument.
2.7 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.
2.8 Aggregation of Stock. All 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.
-13-
<PAGE>
Executed effective as of the date first set forth above.
THE COMPANY: NETIQ CORPORATION
a California corporation
By: /s/ CHING-FA HWANG
--------------------------------------
Title: PRESIDENT
------------------------------------
THE FOUNDERS:
/s/ CHING-FA HWANG
------------------------------------------
Ching-Fa Hwang
/s/ HER-DAW CHE
------------------------------------------
Her-Daw Che
Wongfratris Company
By: /s/ YING-HON WONG
--------------------------------------
Title: PARTNER
-----------------------------------
-14-
<PAGE>
[Signature Page to NetiQ Corporation Registration Rights Agreement]
THE SERIES A PREFERRED SHAREHOLDERS:
Wongfratris Company Direct International, Inc.
By:_____________________________ By:_________________________________
Title:__________________________ Title:______________________________
F&B Limited Liability Company WS Investment Company '95B
By:_____________________________ By:_________________________________
Title:__________________________ Title:______________________________
________________________________ ____________________________________
Che Family Trust, dated 1/18/95 Ms. Ping-Daw Che
/s/ CHII-JAU-YEH
________________________________ ------------------------------------
Ching-Fa Hwang & Chi-Wei Hwang, Mr. Chii-Jau Yeh
Joint Tenancy
________________________________ ____________________________________
Mr. James Yao Chen-Fu Hung
________________________________ ____________________________________
Mr. Sen-Tien Lee Ching-Shon Ho & Hui-Fan Chen Ho
-15-
<PAGE>
[Signature Page to NetiQ Corporation Registration Rights Agreement]
THE SERIES A PREFERRED SHAREHOLDERS:
/s/ TEH-LING SUNG /s/ TZI-TSAI SUNG
________________________________ -------------------------------------
Chiueh Chin Chu Hsu Teh-Ling Sung & Tzi-Tsai Sung, Joint
Tenancy
/s/ CHING-CHOU LIN /s/ YUN LEO TAO
- -------------------------------- -------------------------------------
Ching-Chou Lin Yun Leo Tao
________________________________ _____________________________________
Yi-Jang Yang & Ru-Wen Lin Yang, Kuo-Liang Wu & Sheau-Hue Shieh,
Joint Tenancy Joint Tenancy
________________________________ _____________________________________
Chen-Yung Chou & Shao-Hua Y. Chou, George & Teresa Kuo, Joint Tenancy
Joint Tenancy
________________________________ _____________________________________
Mon Yen Tsai Chen Family Trust, dated 1/15/93
/s/ JEN CHIN CHEN /s/ DAVID TSANG
- -------------------------------- -------------------------------------
Jen Chin Chen David Tsang
/s/ KAI CHIH-KAI SUN &
/s/ YING-TSAI LEE /s/ LINDA SHOW-LAN SUN
- -------------------------------- -------------------------------------
Ying-Tsai Lee Kai Chih-Kai Sun & Linda Show-Lan Sun
/s/ YU T. WANG /s/ CINDY WANG /s/ PRAYON PHATHAYAKORN
- -------------------------------- -------------------------------------
Yu T. Wang & Cindy Wang Prayoon Phathayakorn
-16-
<PAGE>
[Signature Page to NetiQ Corporation Registration Rights Agreement]
EACH OF THE SERIES B PREFERRED STOCK PURCHASES:
Wongfratris Company InveStar Burgeon Venture Capital, Inc.
By:/s/ YING-HON WONG By:/s/ KANDIE HSEIH
----------------------------- -----------------------------------
Title: Partner Title: Controller
-------------------------- --------------------------------
CSK Venture Capital Co. Ltd. as
Investment Manager for CSK-2
Investment Fund Concord Venture Capital Co., Ltd.
By:/s/ MASAHIRO AOZONO By:/s/ YU-LON CHIAO
----------------------------- -----------------------------------
Title: President Title: President
-------------------------- --------------------------------
Concord II Venture Capital Co., Ltd. Golden Venture Capital Investment Corp.
By:/s/ YU-LON CHIAO By:/s/ LO-HOU CHEW
----------------------------- -----------------------------------
Title: President Title: President
-------------------------- --------------------------------
Cosmos Venture Capital Investment Legend Venture Capital Investment Corp.
Corp.
By:/s/ LO-HOU CHEW By:/s/ LO-HOU CHEW
----------------------------- -----------------------------------
Title: President Title: Director
-------------------------- --------------------------------
-17-
<PAGE>
[Signature Page to NetiQ Corporation Registration Rights Agreement]
EACH OF THE SERIES B PREFERRED STOCK PURCHASERS:
Direct International Limited CMC Magnetics Corporation
By:/s/ C. S. HO By:/s/ MING SEN WONG
----------------------------- ------------------------------------
Title: Director Title: Chairman
-------------------------- ---------------------------------
Sunsino International Development
Associate, Inc. F&B LLC
By:/s/ CHENG SANG HUANG By:/s/ FRANK CHENG
----------------------------- ----------------------------------
Title: General Manager Title: President
-------------------------- -------------------------------
/s/CHING-FA HWANG &
/s/ CHI WEI HWANG /s/ JERRY HWANG
- -------------------------------- -------------------------------------
Ching-Fa Hwang & Chi Wei Hwang Jerry Hwang
/s/ ANDREW HWANG /s/ AUSTIN J. CHE
- -------------------------------- --------------------------------------
Andrew Hwang Austin J. Che
/s/ JOYCE J. CHE /s/ HER-DAW CHE, Trustee
- -------------------------------- --------------------------------------
Joyce J. Che Che Family Trust, Dated Jan. 18, 1995
/s/ SEN-TIEN LEE /s/ WANG CHAO-YING LIN
- -------------------------------- --------------------------------------
Sen-Tien Lee Wang Chao-Ying Lin
-18-
<PAGE>
/s/ CHEN-YUNG CHOU &
/s/ CHAO-HUA Y. CHOU /s/ KUO-LIANG WU
- --------------------------------- --------------------------------------
Chen-Yung Chou & Chao-Hua Y. Chou Kuo-Liang Wu
/s/ THOMAS R. KEMP /s/ CHIUH CHIN-CHU HSU
- --------------------------------- --------------------------------------
Thomas R. Kemp Chiuh Chin-Chu Hsu
/s/ LIANG-TSAI LEE /s/ CHEN-FU HUNG
- --------------------------------- --------------------------------------
Liang-Tsai Lee Chen-Fu Hung
/s/ GEORGE KUO /s/ TERESA KUO /s/ HON-JANE CHIU
- -------------------------------- --------------------------------------
George & Teresa Kuo Hon-Jane Chiu
/s/ PETER J.H. CHEN /s/ HANG-CHIEN HSU
- -------------------------------- --------------------------------------
Peter J.H. Chen Hang-Chien Hsu
/s/ CHENG-CHU FAN /s/ TUNG-JEEN CHANG
- -------------------------------- --------------------------------------
Cheng-Chu Fan Tung-Jeen Chang
-19-
<PAGE>
EXHIBIT A
---------
HOLDERS OF FOUNDER'S COMMON STOCK
NETIQ CORPORATION
Founder's Name and Address
- --------------------------
Ching-Fa Hwang
7667 Berland Court
Cupertino, California 95014
Her-Daw Che
19976 Price Avenue
Cupertino, California 95014
Wongfratris Company
51 Jordan Place
Palo Alto, California 94303
Attn: Ying-Hon Wong
<PAGE>
EXHIBIT B
---------
HOLDERS OF SERIES A PREFERRED STOCK
NETIQ CORPORATION
Holder's Name and Address
- -------------------------
Wongfratris Company
51 Jordan Place
Palo Alto, CA 94303
Attn: Mr. Ying-Hon Wong
Che Family Trust, dated 1/18/95
19976 Price Avenue
Cupertino, CA 95014
Attn: Mr. Her-Daw Che
Ms. Ping-Daw Che
19976 Price Avenue
Cupertino, CA 95014
Ching-Fa Hwang & Chi-Wei Hwang,
Joint Tenancy
7667 Berland Court
Cupertino, CA 95014
Mr. Chii-Jau Yeh
c/o Chung Ho Spinning
370 Nanking W. Road
Taipei, Taiwan, R.O.C.
Mr. James Yao
3301 Arbolado Drive
Walnut Creek, CA 94598
Attn: Mr. Fan-Chi Yao
Chen-Fu Hung
P.O. Box 30661
Walnut Creek, CA 94598
Attn: Mr. Fan-Chi Yao
<PAGE>
Holder's Name and Address
- -------------------------
Mr. Sen-Tien Lee
29, Alley 18, Lane 325
Chien Kang Road
Taipei, Taiwan, R.O.C.
F&B Limited Liability Company
10620 Guilford Road
Jessup, MD 20794
Attn: Mr. Frank Cheng
Chiueh Chin Chu Hsu
5th Floor
348-1, Fu Jin Street
Taipei, Taiwan, R.O.C.
Teh-Ling Sung & Tzi-Tsai Sung,
Joint Tenancy
8 Wandering Rill
Irvine, CA 92715
Ying-Tsai Lee
8 Wandering Rill
Irvine, CA 92715
Attn: Mr. Teh-Ling Sung
Ching-chou Lin
2509 Reata Place
Diamond Bar, CA 91765
Attn: Jim Chen
Yun Leo Tao
1520 Wright Avenue
Sunnyvale, CA 94087
Jen Chin Chen
1420 Almanor Court
San Jose, CA 95132
Yi-Jang Yang & Ru-Wen Lin Yang,
Joint Tenancy
12305 Beauchamps Lane
Saratoga, CA 95070
Attn: Mr. Steven Yang
-2-
<PAGE>
Holder's Name and Address
- -------------------------
Kuo-Liang Wu
12305 Beauchamps Lane
Saratoga, CA 95070
Attn: Mr. Steven Yang
Chen-Yung Chou & Shao-Hua Y. Chou,
Joint Tenancy
12305 Beauchamps Lane
Saratoga, CA 95070
Attn: Mr. Steven Yang
George & Teresa Kuo, Joint Tenancy
1591 Niblick Avenue
Los Altos, CA 94024
Mon Yen Tsai
752 Talisman Court
Palo Alto, CA 94303
Chen Family Trust, dated 1/15/93
93 Ridgeview Drive
Atherton, CA 94027
Attn: Mr. Pehong Chen
David Tsang
21677 Rainbow Drive
Cupertino, CA 95014
Kai Chih-Kai Sun & Linda Show-Lan Sun
12502 Parker Ranch Court
Saratoga, CA 95070
Yu T. Wang & Cindy Wang
12502 Parker Ranch Court
Saratoga, CA 95070
Prayoon Phathayakorn
1646 Tupolo Drive
San Jose, CA 95124
-3-
<PAGE>
Holder's Name and Address
- -------------------------
WS Investment Company '95B
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Thomas C. DeFilipps, Esq.
-4-
<PAGE>
EXHIBIT B
---------
HOLDERS OF SERIES B PREFERRED STOCK
NETIQ CORPORATION
Holder's Name and Address
- -------------------------
Ching-Fa Hwang & Chi Wei Hwang
Joint Tenancy
7667 Berland Court
Cupertino, CA 95014
Jerry Hwang
7667 Berland Court
Cupertino, CA 95014
Andrew Hwang
7667 Berland Court
Cupertino, CA 95014
Wongfratris Company
Attn. Y. Hon Wong, Partner
51 Jordan Place
Palo Alto, CA 94303
Austin J. Che
19976 Price Avenue
Cupertino, CA 95014
Joyce J. Che
19976 Price Avenue
Cupertino, CA 95014
Che Family Trust, Dated Jan. 18, 1995
19976 Price Ave.
Cupertino, CA 95014
InveStar Burgeon Venture Capital, Inc.
Attn. Herbert Chang
Leeware One Building
Safe Haven Corporate Centre, West Bay Rd.
Seven Mile Beach, Grand Cayman
Cayman Islands, British West Indies
<PAGE>
Holder's Name and Address
- -------------------------
CSK Venture Capital Co., Ltd. as
Investment Manager for CSK-2 Investment Fund
Attn. Kenji Suzuki
CSK Venture Capital Co., Ltd.
Kenchiku Kaikan 7th Floor
5-26-20 Shiba, Minatoku
Tokyo 108, Japan
Concord Venture Capital Co., Ltd.
Attn. Cain Lin, Vice President
14F, #117 Min Sheng East Road, Sec. 3
Taipei 105, Taiwan, R.O.C.
Concord II Venture Capital Co., Ltd.
Attn. Cain Lin, Vice President
14 Fl., #117 Min Sheng East Road, Sec. 3
Taipei 105, Taiwan, R.O.C.
Golden Venture Capital Investment Corp.
Attn. Sean Peng, Vice President
11 Fl. No. 73 Fushing N. Road
Taipei, Taiwan, R.O.C.
Cosmos Venture Capital Investment Corp.
Attn. Sean Peng, Vice President
11 Fl. No. 73 Fushing N. Road
Taipei, Taiwan, R.O.C.
Legend Venture Capital Investment Corp.
Attn. Sean Peng, Vice President
11 Fl. No. 73 Fushing N. Road
Taipei, Taiwan, R.O.C.
Direct International Limited
Attn. C.S. Ho
Charlotte House, Charlotte Street
P.O. Box N-341
Nassau, Bahamas
Sen-Tien Lee
29, Alley 18, Lane 325, Chien Kang Rd.
Taipei, Taiwan, R.O.C.
Wang Chao-Ying Lin
12305 Beauchamps Lane
Saratoga, CA 95070
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<PAGE>
Holder's Name and Address
- -------------------------
Chen-Yung Chou & Chao-Hua Y. Chou
Joint Tenancy
12305 Beauchamps Lane
Saratoga, CA 95070
Kuo-Liang Wu
12305 Beauchamps Lane
Saratoga, CA 95070
Thomas R. Kemp
1052 Berkeley
Menlo Park, CA 94025
Chiuh Chin-Chu Hsu
5th Floor, No. 348-1 Fujin Street
Taiper, Taiwan, R.O.C.
F&B LLC
Attn. Frank Cheng
10320 Kingsbridge Road
Ellicott City, MD 21042
Liang-Tsai Lee
8 Wandering Rill
Irvine, CA 92612
Chen-Fu Hung
P.O. Box 30661
Walnut Creek, CA 94598
George & Teresa Kuo
Joint Tenancy
1591 Niblick Ave.
Los Altos, CA 94024
CMC Magnetics Corporation
Attn. Annie Yang
104, Ming Chuan W. Road, 4th Fl.
Min-Der Building
Taipei, Taiwan, R.O.C.
Hon-Jane Chiu
14F/2, 88 Min-Chuan E. Rd., Sec. 3
Taipei, Taiwan, R.O.C.
-3-
<PAGE>
Holder's Name and Address
- -------------------------
Sunsino International Development
Associate, Inc.
Attn. Peter J.H. Chen
7F, No. 184 Hsin-Yi Road, Sec. 4
Taipei, Taiwan, R.O.C.
Peter J.H. Chen
7F, No. 184 Hsin-Yi Road, Sec. 4
Taipei, Taiwan, R.O.C.
Hang-Chien Hsu
15, Lane 62, Hsing-Te Road
Taipei, Taiwan, R.O.C.
Cheng-Chu Fan
4-1, 2nd Fl., Lane 220
Chung-Shang North Road, Sec. 7
Taipei, Taiwan, R.O.C.
Tung-Jeen Chang
Room 706, Num. 207 Tun-Hwa North Road
Taipei, Taiwan, R.O.C.
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<PAGE>
EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone (650) 493-9300 Facsimile (650) 493-6811
_______ __, 1999
NetIQ Corporation
5410 Betsy Ross Drive
Santa Clara, CA 94054
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined Amendment No. __ to the Registration Statement on Form S-1
(File No. 333-__________) to be filed by you with the Securities and Exchange
Commission on _______ __, 1999 (the "Registration Statement") in connection with
the registration under the Securities Act of 1933, as amended, of _____________
shares (including shares issuable upon exercise of the underwriters' over-
allotment option)of Common Stock of NetIQ Corporation (the "Shares"). As your
counsel in connection with this transaction, we have examined the proceedings
proposed to be taken in connection with said sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
various states, where required, the Shares when issued and sold in the manner
referred to in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 10.1
NETIQ CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of May ___,
1999 by and between NetIQ Corporation (the "Company"), a California corporation,
and _____________ (the "Indemnitee"), and shall become effective as of the date
the Company's reincorporation in the State of Delaware is declared effective by
the Office of the Delaware Secretary of State.
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not be
willing to continue to serve in such capacities without additional protection;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in view of the considerations set forth above, the Company desires
that Indemnitee shall be indemnified by the Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth below.
1. Certain Definitions.
-- -------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting
<PAGE>
Securities, (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of related
transactions) all or substantially all of the Company's assets.
(b) "Claim" shall mean any threatened, pending or completed action,
suit, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that Indemnitee in good faith believes might lead to
the institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other.
(c) References to the "Company" shall include, in addition to NetIQ
Corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which NetIQ Corporation
(or any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of any Claim regarding any
Indemnifiable Event and any federal, state, local or foreign taxes imposed on
the Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.
(e) "Expense Advance" shall mean an advance payment of Expenses to
Indemnitee pursuant to Section 3(a).
-2-
<PAGE>
(f) "Indemnifiable Event" shall mean any event or occurrence related to
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action or inaction on the part of Indemnitee
while serving in such capacity.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(c) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean any appropriate person or body
consisting of a member or members of the Company's Board of Directors or any
other person or body appointed by the Board of Directors who is not a party to
the particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
(j) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify Indemnitee
---------------------------
to the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, any Claim by reason of (or arising in
part out of) any Indemnifiable Event against Expenses, including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than five (5) business days after
written demand by Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the obligations
---------------
of the Company under Section 2(a) shall be subject to the condition that the
Reviewing Party shall not have determined (in a written opinion, in any case in
which the Independent Legal Counsel referred to in Section 2(c) hereof is
involved) that Indemnitee would not be permitted to be indemnified under
-3-
<PAGE>
applicable law, and (ii) the obligation of the Company to make an Expense
Advance shall be subject to the condition that, if, when and to the extent that
the Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
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 Reviewing Party 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 Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expense Advance shall
be unsecured and no interest shall be charged thereon. If there has not been a
Change in Control, the Reviewing Party shall be selected by the Boar d of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by the Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change in
-----------------
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control), then with respect to all matters thereafter
arising concerning the rights of Indemnitee to payments of Expenses and Expense
Advances under this Agreement or any other agreement or under the Company's
Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel, if desired by Indemnitee, shall be selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion to
the Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law and the Company agrees to abide
by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall not be required to pay Expenses of more than one Independent Legal
Counsel in connection with all matters concerning a single Indemnitee, and such
Independent Legal Counsel shall be the Independent Legal Counsel for any or all
other Indemnitees unless (i) the Company otherwise determines or (ii) any
Indemnitee shall provide a written statement setting forth in detail a
reasonable objection to such Independent Legal Counsel representing other
Indemnitees.
-4-
<PAGE>
(d) Mandatory Payment of Expenses. Notwithstanding any other provision
-----------------------------
of this Agreement other than Section 10 hereof, to the extent that Indemnitee
has been successful on the merits or otherwise, including, without limitation,
the dismissal of an action without prejudice, in defense of any Claim regarding
any Indemnifiable Event, Indemnitee shall be indemnified against all Expenses
incurred by Indemnitee in connection therewith.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
(5) business days after written demand by Indemnitee therefor to the Company.
Expenses incurred in defending any proceeding may be advanced by the Company
prior to the final disposition of the proceeding upon receipt of an undertaking
by or on behalf of Indemnitee to repay the Expenses incurred, if it shall be
determined ultimately that Indemnitee is not entitled to be indemnified.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
--------------------------------
precedent to Indemnitee's right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
--------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
---------------
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In addition,
neither the failure of the Reviewing Party to have made a determination as to
whether Indemnitee has met any particular standard of conduct or had any
particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief,
prior to the commencement of legal proceedings by Indemnitee to secure a
judicial determination that Indemnitee should be indemnified under applicable
law, shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief.
(d) Notice to Insurers. If, at the time of the receipt by the Company
------------------
of a notice of a Claim pursuant to Section 3(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
-5-
<PAGE>
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to pay the Expenses of any Claim the Company, if appropriate, shall be
entitled to assume the defense of such Claim with counsel approved by Indemnitee
(not to be unreasonably withheld) upon the delivery to Indemnitee of written
notice of the Company's election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the same
Claim; provided that, (i) Indemnitee shall have the right to employ Indemnitee's
separate counsel in any such Claim at Indemnitee's expense and (ii) if (A) the
employment of separate counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee's separate counsel
shall be at the expense of the Company.
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to the
-----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 9(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any other agreement, any
vote of stockholders or disinterested directors, the General Corporation Law of
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though Indemnitee may have ceased
to serve in such capacity.
5. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, bylaw or otherwise) of the amounts otherwise indemnifiable
hereunder.
6. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
-6-
<PAGE>
7. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that
---------------------
in certain instances, federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
8. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
9. Exceptions. Notwithstanding any other provision of this Agreement, the
----------
Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for acts,
----------------------------
omissions or transactions from which Indemnitee may not be indemnified under
applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses to
------------------------------
Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee
and not by way of defense, except (i) with respect to actions or proceedings
brought to establish or enforce a right to indemnification under this Agreement
or any other agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Indemnifiable Events, (ii) in specific cases if the Board of Directors has
approved the initiation or bringing of such Claim, or (iii) as otherwise
required under Section 145 of the Delaware General Corporation Law, regardless
of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses and
--------------------------
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Period of Limitations. No legal action shall be brought and no cause of
---------------------
action shall be asserted by or in the right of the Company against Indemnitee,
Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
-7-
<PAGE>
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding
--------------------------------------
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors, assigns (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), spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect, and whether by purchase, merger, consolidation or otherwise)
to all, substantially all, or a substantial part, of the business or assets of
the Company, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary (as applicable) of the Company or of any other
enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part of such action a court
of competent jurisdiction over such action determines that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless as a part of such action a court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action were made
in bad faith or were frivolous.
14. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
-8-
<PAGE>
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in the
------------
event that any of the provisions hereof (including any provision within a single
section, paragraph or sentence) are held by a court of competent jurisdiction to
be invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including, without
limitations, each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the State of Delaware as
applied to contracts between Delaware residents entered into and to be performed
entirely within the State of Delaware.
18. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the entire
--------------------------------
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
"COMPANY" NETIQ CORPORATION
By:__________________________________
Name:________________________________
Title:_______________________________
Address: 5410 Betsy Ross Drive
Santa Clara, California 95054
"INDEMNITEE"
_______________________________
Address:_____________________________
_____________________________
_____________________________
[SIGNATURE PAGE TO NETIQ CORPORATION INDEMNIFICATION AGREEMENT]
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<PAGE>
EXHIBIT 10.2
NetIQ CORPORATION
CHANGE OF CONTROL SEVERANCE AGREEMENT
This Change of Control Severance Agreement (the "Agreement") is made and
entered into effective as of ___________________, (the "Effective Date"), by and
between ___________________________ (the "Employee") and NetIQ Corporation, a
Delaware corporation (the "Company"). Certain capitalized terms used in this
Agreement are defined in Section 1 below.
R E C I T A L S
---------------
A. It is expected that the Company from time to time will consider the
possibility of a Change of Control. The Board of Directors of the Company (the
"Board") recognizes that such consideration can be a distraction to the Employee
and can cause the Employee to consider alternative employment opportunities.
B. The Board believes that it is in the best interests of the Company and
its shareholders to provide the Employee with an incentive to continue his
employment and to maximize the value of the Company upon a Change of Control for
the benefit of its shareholders.
C. In order to provide the Employee with enhanced financial security and
sufficient encouragement to remain with the Company notwithstanding the
possibility of a Change of Control, the Board believes that it is imperative to
provide the Employee with certain severance benefits upon the Employee's
termination of employment following a Change of Control.
AGREEMENT
---------
In consideration of the mutual covenants herein contained and the continued
employment of Employee by the Company, the parties agree as follows:
1. Definition of Terms. The following terms referred to in this Agreement
-------------------
shall have the following meanings:
(a) Cause. "Cause" shall mean (i) any act of personal dishonesty taken
-----
by the Employee in connection with his responsibilities as an employee which is
intended to result in substantial personal enrichment of the Employee, (ii)
Employee's conviction of a felony which the Board reasonably believes has had or
will have a material detrimental effect on the Company's reputation or business,
(iii) a willful act by the Employee which constitutes misconduct and is
injurious to the Company, and (iv) continued willful violations by the Employee
of the Employee's obligations to the Company after there has been delivered to
the Employee a written demand for performance from the Company which describes
the basis for the Company's belief that the Employee has not substantially
performed his duties.
(b) Change of Control. "Change of Control" shall mean the occurrence
-----------------
of any of the following events:
<PAGE>
(i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
(ii) any approval by the shareholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets; or
(iii) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities.
(iv) a change in the composition of the Board, as a result of
which fewer than a majority of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of those directors whose
election or nomination was not in connection with any transaction described in
subsections (i), (ii) or (iii) or in connection with an actual or threatened
proxy contest relating to the election of directors of the Company.
(c) Compensation Continuation Period. "Compensation Continuation Period"
--------------------------------
shall mean the period of time commencing with termination of the Employee's
employment as a result of Involuntary Termination at anytime within six (6)
months after a Change of Control and ending with the earlier to occur of (1) the
expiration of six (6) months following the date of the Employee's termination,
or (2) the date the Employee obtains full-time employment in a senior management
position with a subsequent employer.
(d) Involuntary Termination. "Involuntary Termination" shall mean (i)
-----------------------
without the Employee's express written consent, a significant reduction of the
Employee's duties, position or responsibilities relative to the Employee's
duties, position or responsibilities in effect immediately prior to such
reduction, or the removal of the Employee from such position, duties and
responsibilities, unless the Employee is provided with comparable duties,
position and responsibilities; (ii) without the Employee's express written
consent, a substantial reduction, without good business reasons, of the
facilities and perquisites (including office space and location) available to
the Employee immediately prior to such reduction; (iii) a reduction by the
Company of the Employee's base salary as in effect immediately prior to such
reduction; (iv) a material reduction by the Company in the kind or level of
employee benefits to which the Employee is entitled immediately prior to such
reduction with the result that the Employee's overall benefits package is
significantly reduced; (v) without the Employee's express written consent, the
relocation of the Employee to a facility or a location more than fifty (50)
miles from his current location; (vi) any purported termination of the Employee
by the Company which is not effected for Cause or for which
-2-
<PAGE>
the grounds relied upon are not valid; or (vii) the failure of the Company to
obtain the assumption of this Agreement by any successors contemplated in
Section 6 below.
2. Term of Agreement. This Agreement shall terminate upon the date that
-----------------
all obligations of the parties hereto under this Agreement have been satisfied.
3. At-Will Employment. The Company and the Employee acknowledge that the
------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
established under the Company's then existing employee benefit plans or policies
at the time of termination.
4. Change of Control and Severance Benefits.
----------------------------------------
(a) Termination Following A Change of Control.
-----------------------------------------
(i) Severance Payments. If the Employee's employment with the
------------------
Company terminates as a result of an Involuntary Termination at any time within
twelve (12) months after a Change of Control, then the Employee shall be
entitled to receive continuing payments of severance pay during the Compensation
Continuation Period at a rate equal to the Employee's base salary (as in effect
immediately prior to the Change of Control). Such severance payments shall be
paid bi-weekly in accordance with the Company's normal payroll practices. In
addition, during the Compensation Continuation Period, the Company shall
continue to make available to the Employee and Employee's spouse and dependents
covered under any group health plans or life insurance plans of the Company on
the date of such termination of employment, all group health, life and other
similar insurance plans in which Employee or such Covered Dependents participate
on the date of the Employee's termination.
(ii) Option Acceleration. If the Employee's employment with the
-------------------
Company terminates as a result of an Involuntary Termination at any time within
twelve (12) months after a Change of Control, then the vesting and
exercisability of each option granted to the Employee by the Company (the
"Options") shall be automatically accelerated in full.
(iii) Other Termination. If the Employee's employment with the
-----------------
Company terminates other than as a result of an Involuntary Termination at any
time within twelve (12) months after a Change of Control, then the Employee
shall not be entitled to receive severance or other benefits hereunder, but may
be eligible for those benefits (if any) as may then be established under the
Company's then existing severance and benefits plans and policies.
(b) Termination Apart from a Change of Control. If the Employee's
------------------------------------------
employment with the Company terminates for any or no reason other than within
twelve (12) months following a Change of Control, then the Employee shall not be
entitled to receive severance or other benefits hereunder, but may be eligible
for those benefits (if any) as may then be established under the Company's then
existing severance and benefits plans and policies at the time of such
Disability or death.
-3-
<PAGE>
(c) Accrued Wages and Vacation; Expenses. Without regard to the
------------------------------------
reason for, or the timing of, Employee's termination of employment: (i) the
Company shall pay the Employee any unpaid base salary due for periods prior to
the date of termination; (ii) the Company shall pay the Employee all of the
Employee's accrued and unused vacation through the date of termination; and
(iii) following submission of proper expense reports by the Employee, the
Company shall reimburse the Employee for all expenses reasonably and necessarily
incurred by the Employee in connection with the business of the Company prior to
the date of termination. These payments shall be made promptly upon termination
and within the period of time mandated by law.
5. Limitation on Payments. In the event that the severance and other
----------------------
benefits provided for in this Agreement or otherwise payable to the Employee (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code") and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the Code,
then the Employee's severance benefits under this Agreement shall be payable to
such lesser amount which would result in no portion of such severance benefits
being subject to the excise tax under Section 4999 of the Code. Unless the
Company and the Employee otherwise agree in writing, any determination required
under this Section shall be made in writing by the Company's independent public
accountants (the "Accountants"), whose determination shall be conclusive and
binding upon the Employee and the Company for all purposes. For purposes of
making the calculations required by this Section, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Section 280G and 4999 of the Code. The Company and the Employee shall furnish
to the Accountants such information and documents as the Accountants may
reasonably request in order to make a determination under this Section. The
Company shall bear all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section.
6. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the Company's obligations under this Agreement and
agree expressly to perform the Company's obligations under this Agreement in the
same manner and to the same extent as the Company would be required to perform
such obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by the terms of this
Agreement by operation of law.
(b) Employee's Successors. Without the written consent of the
---------------------
Company, Employee shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notices.
-------
-4-
<PAGE>
(a) General. Notices and all other communications contemplated by
-------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address that he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Employee as a result of a voluntary resignation or an Involuntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with this Section. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated. The failure by the Employee to
include in the notice any fact or circumstance which contributes to a showing of
Involuntary Termination shall not waive any right of the Employee hereunder or
preclude the Employee from asserting such fact or circumstance in enforcing his
rights hereunder.
8. Arbitration.
-----------
(a) Any dispute or controversy arising out of, relating to, or in
connection with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof, shall be settled by binding
arbitration to be held in San Francisco, California, in accordance with the
National Rules for the Resolution of Employment Disputes then in effect of the
American Arbitration Association (the "Rules"). The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of the
arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to conflicts of law rules. The arbitration
proceedings shall be governed by federal arbitration law and by the Rules,
without reference to state arbitration law. Employee hereby consents to the
personal jurisdiction of the state and federal courts located in California for
any action or proceeding arising from or relating to this Agreement or relating
to any arbitration in which the parties are participants.
(c) The Company and Employee shall each pay one-half of the costs and
expenses of such arbitration, and each shall separately pay its counsel fees and
expenses.
(d) Employee understands that nothing in this Section modifies
Employee's at-will employment status. Either Employee or the Company can
terminate the employment relationship at any time, with or without cause.
(e) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF,
RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION,
VALIDITY, CONSTRUCTION,
-5-
<PAGE>
PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, CONSTITUTES A
WAIVER OF EMPLOYEE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL
DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP,
INCLUDING BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
(i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH
OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND
FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR
INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND
DEFAMATION.
(ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE
SECTION 201, et seq;
(iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS
RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
9. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. The Employee shall not be required to
-------------------
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that the Employee may receive from any
other source.
(b) Waiver. No provision of this Agreement may be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Integration. This Agreement and the stock option agreements
-----------
representing the Options represent the entire agreement and understanding
between the parties as to the subject matter herein and supersede all prior or
contemporaneous agreements, whether written or oral.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the internal substantive
laws, but not the conflicts of law rules, of the State of California.
-6-
<PAGE>
(e) Severability. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(f) Employment Taxes. All payments made pursuant to this Agreement
----------------
shall be subject to withholding of applicable income and employment taxes.
(g) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
COMPANY: NetIQ CORPORATION
By:________________________________________
Title:_____________________________________
EMPLOYEE: ___________________________________________
-7-
<PAGE>
EXHIBIT 10.3A
NetIQ CORPORATION
1995 STOCK PLAN
(as amended and restated May 19, 1999)
1. Purposes of the Plan. The purposes of this 1995 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Cause" means (i) any act of personal dishonesty taken by the
-----
Optionee in connection with his responsibilities as an Employee which is
intended to result in substantial personal enrichment of the Optionee, (ii) the
Optionee's conviction of a felony which the Board reasonably believes has had or
will have a material detrimental effect on the Company's reputation or business,
(iii) a willful act by the Optionee which constitutes misconduct and is
injurious to the Company, and (iv) continued willful violations by the Optionee
of the Optionee's obligations to the Company after there has been delivered to
the Optionee a written demand for performance from the Company which describes
the basis for the Company's belief that the Optionee has not substantially
performed his duties.
<PAGE>
(e) "Change of Control" means the occurrence of any of the following
-----------------
events:
(i) the approval by shareholders of the Company of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation;
(ii) any approval by the shareholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets;
(iii) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becoming the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities; or
(iv) a change in the composition of the Board, as a result of
which fewer than a majority of the Directors are Incumbent Directors. "Incumbent
Directors" shall mean Directors who either (A) are Directors of the Company as
of the date hereof, or (B) are elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of those Directors whose
election or nomination was not in connection with any transaction described in
subsections (i), (ii) or (iii) or in connection with an actual or threatened
proxy contest relating to the election of directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
(g) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(h) "Common Stock" means the common stock of the Company.
------------
(i) "Company" means NetIQ Corporation, Inc., a Delaware corporation.
-------
(j) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(k) "Director" means a member of the Board.
--------
(l) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
<PAGE>
(m) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(o) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(p) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "Inside Director" means a Director who is an Employee.
---------------
(r) "IPO Effective Date" means the date upon which the Securities and
------------------
Exchange Commission declares the initial public offering of the Company's common
stock as effective.
(s) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
<PAGE>
(t) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain times and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(u) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "Option" means a stock option granted pursuant to the Plan.
------
(w) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(x) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(y) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(z) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(aa) "Outside Director" means a Director who is not an Employee and
----------------
who is not the "beneficial owner" (as defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended), directly or indirectly, of securities of the
Company representing 1% or more of the total voting power represented by the
Company's outstanding voting securities on the date of any grant hereunder.
(bb) "Plan" means this 1995 Stock Option Plan, as amended and
----
restated.
(cc) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(dd) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(ee) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(ff) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(gg) "Service Provider" means an Employee, Director or Consultant.
----------------
<PAGE>
(hh) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 14 of the Plan.
(ii) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(jj) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 8,000,000 Shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning July 1, 2000 equal to the
lesser of (i) 2,000,000 shares, (ii) 4% of the outstanding shares on such date
or (iii) an amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
<PAGE>
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that
<PAGE>
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000 Shares
which shall not count against the limit set forth in subsection (i) above.
<PAGE>
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 14.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 16 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
<PAGE>
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
<PAGE>
An Option shall be deemed exercised when the Company receives: (i) written
or electronic notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 14 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. Subject to
-------------------------------------------------
Section 14, if an Optionee ceases to be a Service Provider (but not in the event
of an Optionee's change of status from Employee to Consultant (in which case an
Employee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the ninety-first (91/st/) day following such change of status)
or from Consultant to Employee), such Optionee may, but only within such period
of time as is specified in the Option Agreement (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for three (3)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may, but only
within twelve (12) months from the date of such termination (and in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option the extent the Option is vested on
the date of termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
<PAGE>
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company.
<PAGE>
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 14 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Formula Option Grants to Outside Directors. Outside Directors shall
------------------------------------------
be automatically granted Options each year in accordance with the following
provisions:
(a) All Options granted pursuant to this Section shall be
Nonstatutory Stock Options and, except as otherwise provided herein, shall be
subject to the other terms and conditions of the Plan.
(b) Each person who first becomes an Outside Director on or after
the IPO Effective Date, whether through election by the stockholders of the
Company or appointment by the Board to fill a vacancy, and who did not hold
unvested Options as of the IPO Effective Date, shall be automatically granted an
Option to purchase [10,000 - 15,000] Shares (the "First Option") on the date he
or she first becomes an Outside Director; provided, however, that an Inside
Director who ceases to be an Inside Director but who remains a Director shall
not receive a First Option.
(c) Each Outside Director shall be automatically granted an Option
to purchase 12,500 Shares (a "Subsequent Option") following each annual
meeting of the stockholders of the Company, except in the case of the first
such annual meeting after the IPO Effective Date if such annual meeting is
held within six (6) months of the IPO Effective Date, if as of such date, he
or she shall continue to serve on the Board and shall have served on the Board
for at least the preceding six (6) months.
(d) Notwithstanding the provisions of subsections (b) and (c)
hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 20 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 20 hereof.
(e) The terms of each Option granted pursuant to this Section shall
be as follows:
(i) the term of the Option shall be ten (10) years.
(ii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
<PAGE>
(iii) the Option shall be fully vested and exercisable as to 100%
of the Shares subject to the Option on its date of grant.
14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, the number of shares of Common
Stock covered by First Options and Subsequent Options to be granted under the
Plan, the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options or Stock Purchase Rights have
yet been granted or which have been returned to the Plan upon cancellation or
expiration of an Option or Stock Purchase Right and the number of shares of
Common Stock which may be added to the Plan each fiscal year (pursuant to
Section 3), as well as the price per share of Common Stock covered by each such
outstanding Option or Stock Purchase Right, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. Subject to subsection (d), in the event of
--------------------
a merger of the Company with or into another corporation, or the sale of
substantially all of the assets of the Company, each outstanding Option and
Stock Purchase Right shall be assumed or an equivalent option or right
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option or Stock Purchase Right, the Optionee shall
fully vest in and have the right to exercise the
<PAGE>
Option or Stock Purchase Right as to all of the Optioned Stock, including Shares
as to which it would not otherwise be vested or exercisable. If an Option or
Stock Purchase Right becomes fully vested and exercisable in lieu of assumption
or substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option or Stock
Purchase Right shall be fully vested and exercisable for a period of fifteen
(15) days from the date of such notice, and the Option or Stock Purchase Right
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
(d) Termination Following a Change of Control. If, at any time within
-----------------------------------------
twelve (12) months after a Change of Control, an Optionee's status as Employee
is terminated for any reason other than Cause or if an Optionee's status as
Director terminates other than upon a voluntary resignation by the Optionee
(which shall not deemed voluntary if requested by the acquiring company), the
vesting and exercisability of each outstanding Option or Stock Purchase Right
shall be automatically accelerated in full. The Option or Stock Purchase Right
shall remain exercisable in accordance with Section 10 and the Option Agreement.
15. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
16. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
<PAGE>
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
17. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
18. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
19. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
20. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
<PAGE>
EXHIBIT 10.3B
NETIQ CORPORATION
1995 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _______________________________
Date of Grant _______________________________
Vesting Commencement Date _______________________________
Exercise Price per Share $______________________________
Total Number of Shares Granted _______________________________
Total Exercise Price $______________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: 7 years from the Date of Grant
Vesting Schedule:
----------------
Subject to accelerated vesting as set forth in the Plan, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/16 of the Shares subject to the Option shall
vest each three-month period thereafter, provided that on such three-month dates
the Optionee remains in Continuous status as a Service Provider on such dates.
Termination Period:
------------------
This Option may be exercised for three months after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for twelve
<PAGE>
months after Optionee ceases to be a Service Provider. In no event shall this
Option be exercised later than the Term/Expiration Date as provided above.
II. AGREEMENT
---------
A. Grant of Option.
---------------
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Stock Plan Administrator of the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice accompanied
by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE>
C. Method of Payment.
-----------------
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
4. surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
D. Non-Transferability of Option.
-----------------------------
This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
E. Term of Option.
--------------
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. Tax Consequences.
----------------
Some of the federal tax consequences relating to this Option, as of
the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
G. Exercising the Option.
---------------------
1. Nonstatutory Stock Option. The Optionee may incur regular federal
-------------------------
income tax liability upon exercise of a NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates) equal
to the excess, if any, of the Fair Market Value of the Exercised Shares on the
date of exercise over their aggregate Exercise Price. If the Optionee is an
Employee or a former Employee, the Company will be required to withhold from his
or her compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to
-3-
<PAGE>
honor the exercise and refuse to deliver Shares if such withholding amounts are
not delivered at the time of exercise.
2. Incentive Stock Option. If this Option qualifies as an ISO, the
----------------------
Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercised Shares on
the date of exercise over their aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option on the date three (3) months and one (1)
day following such change of status.
3. Disposition of Shares.
---------------------
(a) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least one
---
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
H. Entire Agreement; Governing Law.
-------------------------------
The Plan is incorporated herein by reference. The Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
-4-
<PAGE>
I. NO GUARANTEE OF CONTINUED SERVICE.
---------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: NetIQ CORPORATION
______________________________ _________________________________
Signature By
______________________________ _________________________________
Print Name Title
______________________________
Residence Address
______________________________
-5-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
______________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
NETIQ CORPORATION
1995 STOCK OPTION PLAN
EXERCISE NOTICE
NetIQ Corporation
5410 Betsy Ross Drive
Santa Clara, CA 95054
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, _____,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of NetIQ Corporation (the "Company") under
and pursuant to the NetIQ Corporation 1995 (the "Plan") and the Stock Option
Agreement dated, _____ (the "Option Agreement"). The purchase price for the
Shares shall be $_____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all
<PAGE>
prior undertakings and agreements of the Company and Purchaser with respect to
the subject matter hereof, and may not be modified adversely to the Purchaser's
interest except by means of a writing signed by the Company and Purchaser. This
agreement is governed by the internal substantive laws, but not the choice of
law rules, of California.
Submitted by: Accepted by:
PURCHASER: NetIQ CORPORATION
______________________________ _________________________________
Signature By
______________________________ _________________________________
Print Name Its
Address: Address:
- ------- -------
______________________________ NetIQ Corporation
5410 Betsy Ross Drive
______________________________ Santa Clara, CA 95054
_________________________________
Date Received
-2-
<PAGE>
EXHIBIT 10.3C
NetIQ CORPORATION
DIRECTOR OPTION AGREEMENT
NETIQ Corporation, (the "Company"), has granted to ___________________ (the
"Optionee"), an option to purchase a total of [________ (____)] shares of the
Company's Common Stock (the "Optioned Stock"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1995 Stock Plan (the "Plan") adopted by the Company
which is incorporated herein by reference. The terms defined in the Plan shall
have the same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is not
--------------------
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
--------------
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option shall become exercisable with respect to one
hundred percent (100%) of the Optioned Stock on the date of grant; provided,
however, that in no event shall any Option be exercisable prior to the date the
stockholders of the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other termination of
service as a Director, the exercisability of the Option is governed by Section 8
of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Stock Plan
Administrator of the Company. The written notice shall be accompanied by
payment of the exercise price.
4. Method of Payment. Payment of the exercise price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check; or
(iii) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
<PAGE>
(iv) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
5. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than five (5)
--------------
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the
<PAGE>
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
DATE OF GRANT: ______________
NetIQ Corporation,
a Delaware corporation
By:___________________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: _________________
______________________________
Optionee
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
NetIQ Corporation
5410 Betsy Ross Drive
Santa Clara, CA 95054
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
------------------
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of NetIQ Corporation (the "Company") under and pursuant to the
Company's 1995 Stock Plan and the Director Option Agreement dated _____________
(the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the Shares
--------------------------------
must be held indefinitely unless they are registered under the Securities Act of
1933, as amended (the "1933 Act"), or unless an exemption from such registration
is available, and that the certificate(s) representing the Shares may bear a
legend to that effect. Optionee understands that the Company is under no
obligation to register the Shares and that an exemption may not be available or
may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by reference.
----------------
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the
<PAGE>
subject matter hereof. This Exercise Notice and the Agreement are governed by
California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: NetIQ CORPORATION
By:________________________ By:____________________________
Its:___________________________
Address:
Dated:_____________________ Dated:______________________
<PAGE>
EXHIBIT 10.4A
NetIO CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of NetIQ Corporation.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean NetIQ Corporation and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately twenty-
----------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1 and November 1
of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before October 30,
2001. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
-2-
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
October 30, 2001. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such
-3-
<PAGE>
authorization is applicable, unless sooner terminated by the participant as
provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise
-4-
<PAGE>
Date by the applicable Purchase Price; provided that in no event shall an
Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall occur
as provided in Section 8 hereof, unless the participant has withdrawn pursuant
to Section 10 hereof. The option shall expire on the last day of the Offering
Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
-5-
<PAGE>
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be seven-hundred fifty thousand (750,000) shares, plus an annual increase
to be added on the first day of the Company's fiscal year beginning July 1,
2000 equal to the lesser of (i) 1,000,000 shares, (ii) 2% of the outstanding
shares on such date or (iii) an amount determined by the Board. If, on a
given Exercise Date, the number of shares with respect to which options are to
be exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
-6-
<PAGE>
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
-7-
<PAGE>
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves and the number of shares of Common
Stock which may be added to the Plan each fiscal year (pursuant to Section 13),
the maximum number of shares each participant may purchase each Purchase Period
(pursuant to Section 7), as well as the price per share and the number of shares
of Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
-8-
<PAGE>
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
-9-
<PAGE>
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
See Exhibit 10.4B to the Registrant's Registration Statement on Form S-1
originally filed with the Securities and Exchange Commission in May 1999 for
Form of Subscription Agreement.
<PAGE>
EXHIBIT B
---------
NetIQ Corporation
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the NetIQ Corporation
1999 Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
-2-
<PAGE>
EXHIBIT 10.4B
NetIQ
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the NetIQ Corporation
1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing
---------------------------------------------
<PAGE>
within 30 days after the date of any disposition of my shares and I will
------------------------------------------------------------------------
make adequate provision for Federal, state or other tax withholding
-------------------------------------------------------------------
obligations, if any, which arise upon the disposition of the Common Stock.
-------------------------------------------------------------------------
The Company may, but will not be to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation including
any withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common
Stock by me. If I dispose of such shares at any time after the expiration
of the 2-year and 1-year holding periods, I understand that I will be
treated for federal income tax purposes as having received income only at
the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of (1)
the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2) 15%
of the fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on such disposition
will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
______________________________________ __________________________________
Relationship
__________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ________________________________________
Employee's Address: ________________________________________
________________________________________
________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT 10.5A
SUMMIT SOFTWARE COMPANY
BASICSCRIPT LICENSE AGREEMENT
This Agreement ("Agreement") is made and entered into the later of the two
dates on the signature page ("Effective Date") by and between Henneberry Hill
Technologies Corporation, a New York corporation doing business as Summit
Software Company, 4933 Jamesville Road, Jamesville, NY 13078 (hereafter
"Summit") and NetiQ Corporation, a California Corporation, with offices at 275
Saratoga Ave., Suite 260, Santa Clara, CA 95050 (hereafter "COMPANY").
For good and valuable consideration, the receipt and sufficiency of which
the parties hereby acknowledge, the parties agree as follows:
1. DEFINITIONS
-----------
For purposes of this Agreement, the following terms shall have the
following meanings:
(a) "Software" shall mean the computer software developed by Summit
described in the attached Exhibit A, regardless of Summit's attaching a
different name to such Software.
(b) "Product(s)" shall mean any of COMPANY's computer software product(s)
that incorporate the Software, as set forth on Exhibit A, as it may be amended
from time to time by Company.
(c) "Program Error" shall mean a coding defect which prevents the Software
from performing to the specifications described in Exhibit A.
(d) "End User" shall mean a customer or purchaser of the Product(s)
manufactured, distributed, and sublicensed by COMPANY pursuant to this
Agreement.
(e) "End User Documentation" shall mean the instruction manual prepared by
COMPANY for the End User describing how to use the Software.
(f) "End User Help System" shall mean the online help prepared by COMPANY
for the End User describing how to use the Software.
(g) "Technical Documentation" shall mean the English language document(s)
prepared by Summit, described in the attached Exhibit A, for use by COMPANY as
the basis for developing the End User Documentation and End User Help System.
(h) "API Documentation" shall mean the English language document(s)
prepared by Summit, described in the attached Exhibit A, for use by COMPANY in
incorporating the Software into the Product(s).
(i) "Functional Specification Documents" shall mean Technical Documentation
and API Documentation, all of which shall be attached to Exhibit A and delivered
upon execution of the Agreement.
(j) "End User License" shall be the form of binary code license agreement
which accompanies the Products when distributed to End Users.
(k) "Net Revenues" shall mean the gross selling price received by COMPANY
for the Product(s), less (i) sales channel discount, (ii) returns, and (iii)
sales taxes or equivalents, in each case applicable thereto, sold in each period
for which royalties are due.
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as *****. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commisssion.
-1-
<PAGE>
2. LICENSE
-------
In consideration of the payments to be made by COMPANY to Summit as set
forth in Section 5 and Exhibit B below:
(a) Summit grants to COMPANY a non-exclusive, worldwide, non-transferable
license, during the term of this Agreement and any renewals hereof, to
translate, modify, reproduce, distribute and sublicense the Software solely in
conjunction with the Product(s) and not as a "stand-alone" product.
(b) COMPANY shall have the right, but not the obligation, in conjunction
with COMPANY's promotion or sale of the Product(s), to make reasonable use of
the trademark(s) listed in Exhibit C for product marketing purposes.
(c) Summit grants to COMPANY a non-exclusive, worldwide, non-transferable
license, during the term of this Agreement, to translate, modify, reproduce and
distribute the Technical Documentation, as incorporated into the End User
Documentation and End User Help System, solely as part of or in connection with
the Product(s) under the terms of this Agreement, subject to the provisions
provided herein.
(d) All rights not expressly granted herein are reserved by Summit.
3. SUMMIT OBLIGATIONS
------------------
(a) If during the term of this Agreement and any extensions hereto, any
Program Error is discovered in the then current release or the previous release
of the Software, Summit will promptly correct the same in accordance with
Exhibit D hereto.
(b) During the term of this Agreement and any extensions hereto, Summit
will provide COMPANY with support by telephone and/or electronic mail to answer
COMPANY's questions about the then current release and the previous release of
the Software.
(c) Summit agrees to offer COMPANY any upgrades to the Software that it
releases commercially or offers to other publishers or vendors, during the term
of this Agreement and any renewals hereto. COMPANY is not obligated to accept
the offered upgrades, not to include any accepted upgrades in all products that
are incorporating the Software. Summit agrees, following acceptance by COMPANY
of an upgrade, to extend its support obligations to COMPANY as set forth in
Sections 3(a) and 3(b) of this Agreement to such upgrade. All provisions of this
Section 3(c) are subject to the payment provisions as set forth in Section 5 and
Exhibit B below.
4. COMPANY OBLIGATIONS
-------------------
(a) COMPANY will use commercially reasonable efforts to promote the
distribution and sales of the Product(s).
(b) COMPANY shall supply Summit at no charge two (2) copies of the
Product(s) in which the Software is integrated, for the sole purpose of allowing
Summit to evaluate COMPANY's compliance with this Agreement, within thirty (30)
days after COMPANY first offers the Product(s) for commercial release or sale.
(c) COMPANY shall be solely responsible for providing End User support for
customers of the Product(s) and the Software.
(d) COMPANY shall be solely responsible for providing updates to its End
User customers of the Product(s) and the Software, as Company may elect.
(e) COMPANY shall be responsible for the language translation and
modification of the Software necessary for the Software to perform in foreign
languages on personal computer systems designed for use in markets outside the
United States, if COMPANY elects to promote the Software as a part of the
Product(s) in such
-2-
<PAGE>
markets. Should it prove necessary to contract with outside entities to perform
said translation and modification, COMPANY shall fully bear such expense.
(f) COMPANY shall include on the credits page of the End User Documentation
and in at least one dialog box within each product in which the Software is
included the following notice "Portions (c) 1992-1996 Summit Software Company."
(g) COMPANY will use commercially reasonable efforts to collect the names
and addresses of each registered End User of the Product(s) which contain the
Software (the "Mailing List") and allow Summit to mail to the list one time for
each new version of the Software that COMPANY licenses from Summit; provided,
however, that Company may delete from such Mailing List any user which has
objected to the provision of its name to third parties. However (i) COMPANY will
have the absolute right of review and approval for mailing pieces to the list,
and shall have the right to approve the time period during which the mailing
occurs; (ii) COMPANY will have the right to reject any mailing which includes
offers for software which directly competes with COMPANY's own products; (iii)
Summit will use COMPANY's designated mailing house and will be responsible for
all costs associated with its mailing; (iv) Summit will not have physical access
to the list at any time; (v) Summit may not transfer, sublicense, or make any
other use of this list whatsoever except for mailings associated with Summit
developed products; and (vi) Summit's right to use the list shall commence at
shipment of the Product(s) which contain the Software that qualifies for access
to the list as described herein, and shall expire 12 months from the shipment
date of the same.
(h) COMPANY shall distribute and license the use of the Software to End
Users only pursuant to its End User License Agreement ("EULA") which shall
conform substantially to Exhibit E, except that (i) it shall be adapted as
commercially reasonable for any foreign jurisdiction in which LICENSEE markets
or distributes the Software; (ii) the limitations of liability and remedies in
COMPANY's EULA shall inure to the benefit of Summit; and (iii) COMPANY shall be
the "Licensor" under its EULA.
(i) COMPANY shall require its distributors, dealers and others in its
distribution channels to comply with the terms of this Agreement, to the extent
necessary for COMPANY to comply with this Agreement.
5. PRICE AND PAYMENT
-----------------
(a) During the term of this Agreement and any renewal hereof, in
consideration of the license granted to COMPANY hereunder, COMPANY agrees to pay
Summit any license fees, royalty fees, and advances against royalties set forth
in Exhibit B, in accordance with the payment schedule therein.
(b) All payments due hereunder shall be paid in United States dollars. All
royalties due Summit for each calendar quarter period computed in other
currencies shall be converted into United States dollars, pursuant to the
standard used by COMPANY to do such conversions in its normal business practice.
(c) Within thirty (30) days after the end of each calendar quarter period
during the term hereof, COMPANY shall furnish Summit with a royalty statement,
together with payment for any amount shown thereby to be due Summit. The royalty
statement shall set forth the number of units of each Product incorporating the
Software and the Net Revenues for each Product incorporating the Software, sold
anywhere in the world during the calendar quarter then ended, and shall contain
information setting forth how the royalty payment, if any, was computed.
6. ACCEPTANCE PROCEDURE AND LIMITED PRODUCT WARRANTY
-------------------------------------------------
(a) Summit shall deliver to COMPANY the Deliverables referred to in Exhibit
B according to the schedule set forth in Exhibit B, and warrants that the
Deliverables, including the Software, shall conform to the Functional
Specification Documents, as defined in Exhibit A. Delivery will occur when
COMPANY receives any such Deliverable from Summit with a written certification
that any such Deliverable conforms to the Specifications.
-3-
<PAGE>
(b) If Company does not notify Summit of its rejection of a Deliverable
within fifteen (15) working days of receipt, the Deliverable will be deemed
accepted.
(c) Neither COMPANY nor any of its employees shall have any right to make
any representation, warranty, or promise on behalf of Summit.
(d) Excepting the foregoing warranty in this Section 6 and the warranty in
Section 7, and to the maximum extent permitted by applicable law: The Software
is provided to COMPANY "as is" without any other warranty of any kind and the
entire risk as to the results and performance of the Software is assumed by
COMPANY, its distributors and the End User customers; Summit disclaims all
warranties, either express or implied, including but not limited to, implied
warranties of merchantability and fitness for a particular purpose; and, in no
event shall Summit be liable for any direct, consequential, indirect,
incidental, or special damages whatsoever, including without limitation, damages
for loss of business profits, business interruption, loss of business
information, and the like, arising out of the use of or inability to use the
Software, even if Summit has been advised of the possibility of such damages.
Because some states/jurisdictions do not allow the exclusion or limitation of
liability for consequential or incidental damages, the above limitation may not
apply. In no event shall Summit's liability for damages hereunder exceed the
amounts paid to Summit under this Agreement.
7. WARRANTIES AND REPRESENTATIONS
------------------------------
Summit represents and warrants that it owns all right, title, interest in,
or under written licenses or other documents, has the right to, the intellectual
property relating to the Deliverables including, without limitation, patents,
copyrights, mask works, trade secrets, trade marks, and other related
intellectual property, in order to grant COMPANY the rights in this Agreement.
8. INDEMNIFICATION
---------------
Summit will indemnify, hold harmless, and defend COMPANY from and against
any suit or proceeding brought against COMPANY based on a claim that the
Software, alone and not in combination with any other products, infringes any
patent, mask work, copyright, trade secrets, or other intellectual property
right of any third party, if notified promptly by COMPANY of such claim in
writing and given authority, information and assistance for the defense of same.
In no event shall Summit's liability for damages hereunder exceed the amounts
paid to Summit under this Agreement.
9. TERM OF AGREEMENT
-----------------
(a) Except as otherwise provided in any Exhibit(s) hereto, provided this
Agreement has been properly executed by COMPANY and by an officer of Summit, the
term of this Agreement shall begin on the Effective Date and shall terminate one
(1) years after the date of First Customer Shipment of the Product(s) unless
terminated earlier for breach as provided herein, subject, however, to automatic
successive renewal terms of one (1) year each, unless either party to this
Agreement gives written notice of its intent not to renew at least thirty (30)
days prior to the expiration of the initial term or any succeeding term.
(b) Notwithstanding the terms of Section 9(a), COMPANY may distribute the
Product(s) for a period of six (6) months following expiration of this Agreement
in order to liquidate COMPANY's inventory of Product(s).
10. DEFAULT AND TERMINATION
-----------------------
(a) Either party shall have the right, at its sole option and upon written
notice to the defaulting party, to terminate this Agreement if any of the
following events of default occur: (i) if either party materially fails to
perform or comply with this Agreement or any provision hereof; (ii) if either
party fails to comply with the provisions of
-4-
<PAGE>
Section 11 or makes or attempts to make an assignment in violation of Section
16(e); (iii) if either party becomes insolvent or makes an assignment for the
benefit of creditors; (iv) if a petition under any foreign, state, or United
States bankruptcy act, receivership statute, or the like, as they now exist, or
as they may be amended, is filed by either party; or (v) if such a petition is
filed by any third party, or an application for a receiver of either party is
made by anyone and such petition or application is not resolved favorably to the
party within sixty (60) days.
(b) Termination shall be effective sixty (60) days after notice of
termination to the other party if the offending party's defaults have not been
cured. The rights and remedies of the non-offending party provided in this
Section 10(b) shall not be exclusive and are in addition to any other rights and
remedies provided by law or this Agreement.
(c) If this Agreement is terminated due to a material breach by COMPANY,
COMPANY shall return to Summit or destroy all full or partial copies of the
Software and Documentation in COMPANY's possession or under its control within
ninety (90) days following the termination date.
(d) Subject to this Section 10, Sections 1, 5, 6, 7, 8, 9(b), 11, 15,
16(e), 16(f) and 16(j), shall survive termination of this Agreement.
11. NON-DISCLOSURE AGREEMENT
------------------------
(a) COMPANY and Summit expressly undertake to retain in confidence and to
require its respective distributors to retain in confidence all information and
know-how transmitted to the party receiving such information (the "Disclosee")
that the disclosing party has identified as being proprietary and/or
confidential or that, by the nature of the circumstances surrounding the
disclosure, ought in good faith to be treated as proprietary and/or confidential
(the "Confidential Information"), and will make no use of the Confidential
Information except under the terms and during the existence of this Agreement.
The Disclosee shall have no such obligation with respect to information which
(a) was rightfully in its possession before receipt from the disclosing party,
(b) is or becomes a matter of public knowledge through no fault of the
Disclosee, (c) is rightfully received by Disclosee from a third party without a
duty of confidentiality, (d) is independently developed by the Disclosee or (e)
is disclosed by the Disclosee with the prior written approval of the disclosing
party. However, Disclosee may disclose Confidential Information in accordance
with judicial or other government order, provided Disclosee shall give the
disclosing party reasonable notice prior to such disclosure and shall comply
with any applicable protective order or equivalent.
(b) The Disclosee's obligations under this Section 11 shall survive any
termination or expiration of the Agreement and shall extend to the earlier of
such time as the information protected hereby is in the public domain or four
(4) years following termination or expiration of this Agreement.
12. AUDITS
------
(a) During the term of this Agreement, COMPANY agrees to keep all usual and
proper records and books of account and all usual and proper entries therein
relating to the manufacture and sale of the Product(s) hereunder sufficient to
provide Summit with an accurate royalty statement as required in Section 5(c).
(b) Summit shall have the right to have an independent CPA of national
standing to examine the books and records of the COMPANY for the sole purpose of
verifying the accuracy of royalty payments hereunder. No more than two such
examinations shall be made within any twelve month period. Such CPA shall
disclose to Summit only such information as is necessary to determine Company's
compliance, or lack of compliance, with its royalty payment obligations.
(c) In the event an audit discloses underpayment equal to, or greater than,
ten percent (10%) of the amount shown thereby to be due to Summit from COMPANY,
COMPANY shall bear the expenses of the audit.
-5-
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13. FORCE MAJEURE
-------------
Neither party shall be liable for failure to perform due to unforeseen
circumstances or causes beyond the Parties' reasonable control, including, but
not limited to, acts of God, war, riot, embargoes, acts of civil or military
authorities, fire, flood, accidents, strikes, inability to secure
transportation, fuel, energy, labor or materials. Time for performance will be
extended by the amount of any delay.
14. CUMULATIVE REMEDIES
-------------------
Each parties' respective rights hereunder are cumulative and include,
without limitation, the right to specific performance and injunctive relief.
15. NOTICES AND REQUESTS
--------------------
All notices and requests in connection with this Agreement shall be deemed
delivered or given three (3) days following the day they are shipped, if shipped
by overnight courier, or ten (10) days following the day they are deposited in
the U.S. Mail by regular and certified mail, return receipt requested, postage
prepaid and addressed as designated below or to such other address as the party
to receive the notice or request so designates by written notice to the other.
NOTICES TO SUMMIT:
- -----------------
Summit Software Company
4933 Jamesville Road
Jamesville, NY 13078
Fax: (315) 445-9567
Attn: William P. Fisher, President
Copy to: Contract Administrator
NOTICES TO COMPANY:
- ------------------
NeitQ Corporation
275 Saratoga Ave., Suite 260
Santa Clara, CA 95050
Attn: Mr. Hon Wong, VP
Copy to: Ms. Joyce Neubert
16. GENERAL
-------
(a) This Agreement shall be construed and controlled by the laws of the
State of New York. Summit and COMPANY consent to venue in the state and federal
courts in which the defending party resides. Process may be served on either
party in the manner authorized by law.
(b) Neither this Agreement, nor any terms and conditions contained herein,
shall be construed as creating a partnership, joint venture, or agency
relationship.
(c) This Agreement, which incorporates all exhibits hereto, constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements or
-6-
<PAGE>
communications. It shall not be modified except by a written agreement dated
subsequent to the date of this Agreement and signed on behalf of COMPANY and
Summit by their respective duly authorized representatives. No waiver of any
breach of any provisions of this Agreement shall constitute a waiver of an
prior, concurrent or subsequent breach of the same or any provisions hereof, and
no waiver shall be effective unless made in writing and signed by an authorized
representative of the waiving party.
(d) If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, the remaining
provision shall remain in full force and effect.
(e) The rights and obligations hereunder shall inure to the benefit of the
successors and assigns of the parties hereto, provided that any rights or
obligations hereunder shall not be assigned or sublicensed by either party
without the prior, written consent of the other party, which consent shall not
be unreasonably withheld. Notwithstanding the foregoing, either party shall have
the right to assign any rights or obligations hereunder to a parent corporation,
wholly owned subsidiary or a holding company.
(f) Any Product(s) which COMPANY distributes to or on behalf of the United
States of America, its agencies and/or instrumentalities (the "Government"), is
provided to COMPANY with RESTRICTED RIGHTS. Use, duplication or disclosure by
the Government is subject to restriction as set forth in subparagraph (c)(1)(ii)
of the rights in Technical Data and Computer Software clause at DFAR 252.277-
7013, or as set forth in the particular department or agency regulations or
rules which provide Summit protection equivalent to or greater than the above-
cited clause. COMPANY shall comply with any requirements of the Government to
obtain such RESTRICTED RIGHTS protection, including without limitation, the
placement of any restrictive legends on the documentation for the Product(s) and
any license agreement used in connection with the distribution thereof.
Manufacturer is Henneberry Hill Technologies Corporation, 4933 Jamesville Road,
Jamesville, New York 13078. Under no circumstances shall Summit be obligated to
comply with any Governmental requirements regarding cost and pricing data and
cost accounting. For any distribution or license of the Product(s) that would
require compliance by Summit with Governmental requirements relating to cost and
pricing data or cost accounting, COMPANY must obtain an appropriate waiver or
exemption for such requirements for the benefit of Summit from the appropriate
Governmental authority before the distribution and/or license of the Product(s)
to the Government.
(g) COMPANY agrees that it will not, directly or indirectly, export or
transmit the Product(s) and technical data (or any part thereof) or any process
or service that is the direct product of the Software and Documentation, to any
group S or Z country specified in Supplement No. 1 of Section 770 of the Export
Administration Regulations or to any other country to which such export or
transmission is restricted by such regulation or statute, without the prior
written consent, if required, of the Office of Export Administration of the U.S.
Department of Commerce, or such other governmental entity as may have
jurisdiction over such export or transmission.
(h) COMPANY shall, at its own expense, obtain and arrange for the
maintenance in full force and effect of all governmental approvals, consents,
licenses, authorizations, declarations, filings, and registrations as may be
necessary for the performance of all of the terms and conditions of the
Agreement including, but not limited to, foreign exchange approvals, import and
offer agent licenses, fair trade approvals and all approvals which may be
required to realize the purposes of the Agreement.
(i) In the event taxes are required to be withheld by any foreign
government on payments required hereunder, COMPANY may deduct such taxes from
the amount owed Summit and pay them to the appropriate tax authority; provided,
however, that COMPANY shall promptly secure and deliver to Summit an official
receipt for any such taxes withheld or other documents necessary to enable
Summit to claim a U.S. Foreign Tax Credit. COMPANY will make certain that any
taxes withheld are minimized to the extent possible under applicable law. Prices
stated are exclusive of any federal, state, municipal or other governmental
taxes, duties, licenses, fees, excises or tariffs now or hereafter imposed on
COMPANY's production, storage, licensing, sale, transportation, import, export
or use of the Software. Such charges shall be paid by COMPANY, or in lieu
thereof, COMPANY shall provide an exemption certificate acceptable to Summit and
the applicable authority. Summit, however, shall be responsible for all taxes
based upon its personal property ownership and gross or net income.
(j) The prevailing party in any litigation brought under this Agreement
shall be entitled to recover its reasonable attorneys' fees and costs.
-7-
<PAGE>
(k) The parties agree to submit any dispute arising under this Agreement to
non-binding mediation before a mutually agreeable mediator. (In the event such a
mediator cannot be agreed upon, the parties will submit the dispute to the
American Arbitration Association for appointment of a mediator in accordance
with its rules.) In the event such mediation does not successfully resolve the
dispute, either party may bring suit in a court of appropriate jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above. All signed copies of this Agreement shall be deemed originals.
SUMMIT SOFTWARE COMPANY NETIQ CORPORATION
/s/ William B. Fisher /s/ Ching-Fa Hwang
- ------------------------ ------------------------
By By
William B. Fisher Ching-Fa Hwang
- ------------------------ ------------------------
Name (Print) Name (Print)
President President
- ------------------------ ------------------------
Title Title
August 27, 1996 August 14, 1996
- ------------------------ ------------------------
Date Date
-8-
<PAGE>
EXHIBIT A
SOFTWARE, NAMED PRODUCT(S),
AND FUNCTIONAL SPECIFICATION DOCUMENTS
1. SOFTWARE
--------
(a) The Software licensed under this Agreement, known as:
BASICSCRIPT 2.2 FOR WINDOWS
BASICSCRIPT 2.2 FOR WIN32
and consisting of the following executable object code files contained in
the Summit products listed immediately above, as fully described in the attached
documents, entitled "BasicScript 2.2 User's Guide", "BasicScript 2.2 Language
Reference", and "BasicScript 2.2 Programmer's Guide" (the "Functional
Specification Documents"):
BasicScript 2.2 for Windows
---------------------------
SUMWRN22.DLL Runtime
SUMWPB22.DLL Public Extension Manager
SUMWOL22.DLL OLE Automation support library
SUMWTL22.DLL Type library support library
SUMWCX22.DLL Picture control support library
SUMWDE22.DLL Dialog Editor (standalone version)
SUMWDD22.DLL Debugger Dialog
SUMWDC22.DLL Debugger Control
SUMWCM22.DLL Compiler
SUMWDG22.DLL Dialog Editor (embedded version)
BasicScript 2.2 for Win32
-------------------------
SUMNRN22.DLL Runtime
SUMNPB22.DLL Public Extension Manager
SUMNOL22.DLL OLE Automation support library
SUMNTL22.DLL Type library support library
SUMNCX22.DLL Picture control support library
SUMNDE22.DLL Dialog Editor (standalone version)
SUMNDD22.DLL Debugger Dialog
SUMNDC22.DLL Debugger Control
SUMNCM22.DLL Compiler
SUMNDG22.DLL Dialog Editor (embedded version)
Any upgraded, future or successor Summit software that performs
substantially the same functions as the Scripting Software shall likewise be
deemed Scripting Software for the purposes of this Agreement.
2. NAMED PRODUCT(S)
----------------
The Software licensed by Summit to COMPANY under the provisions of this
Agreement may be translated, modified, reproduced, distributed and sublicensed
in conjunction with the following Product(s):
[*]
[*]
[*]
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
-9-
<PAGE>
COMPANY may change the specifications of Products and may bundle the
Products with other items of software or hardware. In the event a Product is
bundled, the royalty shall be assessed on the portion (subject to prior written
approval of Summit which shall not be unreasonably withheld) of the Net Revenues
received from the bundled product which is attributable to the Product.
3. FUNCTIONAL SPECIFICATION DOCUMENTS
----------------------------------
Summit will deliver to COMPANY, on or prior to the Effective Date, the
following documents (collectively, the "Functional Specification Documents.")
(a) Technical Documentation, entitled "BasicScript 2.2 User's Guide" and
"BasicScript 2.2 Language Reference" (attached)
(b) API Documentation, entitled "BasicScript 2.2 Programmer's Guide"
(attached)
4. DELIVERABLES
------------
Unless otherwise specified in the Functional Specification Documents, the
Deliverables by Summit to COMPANY will consist of the following:
(a) The Software, in executable object code form, conforming to the
Functional Specification Documents,
(b) The Technical Documentation and API documentation, in printed form.
(c) The Technical Documentation, diskette form (FrameMaker 5.0, Microsoft
Word 6.0, and Rich Text File formats, including all files used by Summit to
generate the help system for the Software).
(d) All testing materials, including but not limited to automated test
scripts, used by Summit to test the Software, for use by COMPANY to verify that
the Software conforms to the Functional Specification Documents.
-10-
<PAGE>
EXHIBIT B
DELIVERY AND PAYMENT SCHEDULES
1. DELIVERY SCHEDULE FOR DELIVERABLES
----------------------------------
Summit agrees to deliver the Software to COMPANY according to the following
schedule:
FINAL
SOFTWARE VERSION DELIVERABLE
BasicScript 2.2 for Windows Within five (5) days of Effective Date
BasicScript 2.2 for Win32 Within five (5) days of Effective Date
2. PAYMENT SCHEDULE
----------------
(a) COMPANY will pay Summit royalties of [*] percent ([*]%) of the Net
Revenues received by COMPANY for the sale of Products, exclusive of the
[******]. Company will pay Summit royalties of $[*] for the sale of each
[******]. Company will be allowed to distribute a reasonable number of
promotional and demonstration copies without any royalty obligation.
(b) Payments and shipment reports are due thirty (30) days following the
end of each calendar quarter and shall be sent to Summit at the address listed
in Section 15.
(c) COMPANY shall not be liable for payment of earned royalties for
promotional or complementary units of the Product(s), provided that no more than
Ten Percent (10%) of all units of the Product(s) are distributed by COMPANY as
promotional or complementary units.
(d) In connection with any renewal of the Agreement in accordance with
Section 9(a), the parties will renegotiate the applicable royalty rate, taking
into account the Company's forecasted volumes, the marketability and value of
the Software and other relevant factors; provided, however that in no event
shall the royalty rates increase from that charged in the prior annual period.
The parties will use reasonable efforts to complete such renegotiation at least
thirty (30) days prior to the commencement of the renewal term.
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has
been requested with respect to the omitted portions.
-11-
<PAGE>
EXHIBIT C
TRADEMARK(S) LICENSED TO COMPANY
Registered Trademark
- --------------------
BasicScript
-12-
<PAGE>
EXHIBIT D
MAINTENANCE AND SUPPORT
1. SUMMIT MAINTENANCE AND SUPPORT
------------------------------
(a) For the term of this Agreement, for the Software and Redistributables
(Question: What is Redistributables?) developed by Summit and marketed and
distributed by COMPANY in Products, Summit will provide reasonable maintenance
and support and will resolve problem reports received from COMPANY as described
below to COMPANY at no cost.
(b) If COMPANY, in its sole judgment and discretion, determines it cannot
efficiently or effectively remedy a problem in supporting its customers, COMPANY
shall furnish Summit a problem report.
(c) Upon receiving a problem report from COMPANY and unless the parties
otherwise agree in writing, Summit shall respond and use its best efforts to
correct the problem in accordance with the following:
<TABLE>
<CAPTION>
PRIORITY WRITTEN ACKNOWLEDGMENT PATCH, WORKAROUND, OFFICIAL FIX, UPDATE,
OF PROBLEM REPORT TEMPORARY FIX, PERMANENT UPGRADE, OR ENHANCEMENT
DELIVERED TO COMPANY FIX OR UPDATE
<S> <C> <C> <C>
Fatal Following Business Day Within 3 business days Within 60 days
Severe Following Business Day Within 7 business days Within 60 days
Degradation 5 Business Days 30 days Within 60 days
Minimal Impact 5 Business Days 60 days Within 90 days
</TABLE>
Fatal: condition which precludes all useful work from being done.
-----
Severe Impact: condition which precludes one or more major functions from
-------------
being performed.
Degradation: condition which disables one or more non-essential functions.
-----------
Minimal Impact: any other condition which requires rectification.
--------------
(d) If Summit creates a bug fix other than in response to a problem
reported by COMPANY, whether to the Software or Redistributable, Summit agrees
to notify COMPANY and make the same available to COMPANY under the license grant
in Section 2 of this Agreement within seven (7) days of its initial distribution
and at no charge.
(e) Summit assumes all the same maintenance and support obligations in this
Section 1 for any Upgrades to the Software and Redistributables that are
accepted by COMPANY during the term of this Agreement and any extensions hereto.
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EXHIBIT E
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("Agreement") is made by and between NetiQ
Corporation, a California corporation with its principal place of business at
275 Saratoga Avenue, Suite 260, Santa Clara, CA 95050 ("NetiQ"), and
______________ with its principal place of business at__________________________
__________________("Licensee"), and is effective as of__________________________
_____________.
This Agreement and the terms and conditions hereof shall govern all
licenses of the computer software products identified on Exhibit A, and any
---------
upgrades, modifications or enhancements to such products which have been
developed by, or on behalf of, and provided to Licensee by NetiQ (collectively,
"Software"). All Software will be governed by the terms of this Agreement.
1. GRANT OF LICENSE. Subject to the terms and conditions hereof, NetiQ
----------------
hereby grants to Licensee, and Licensee hereby accepts from NetiQ, a personal,
nonexclusive license to install, use and execute Software in machine readable
object code form and to use related documentation provided to Licensee by NetiQ,
on a single computer or, in the case of a multi-user or networked system which
permits access by more than one user at the same time, at a single work station.
Licensee shall have the right to make one additional copy of the Software for
backup purposes.
2. LICENSE FEE. In consideration of the license granted hereunder, and the
-----------
other covenants of NetiQ hereunder, Licensee agrees to pay NetiQ the license fee
set forth on Exhibit B in the manner and at the times set forth therein.
---------
3. PROPRIETARY RIGHTS NOTICES. Licensee agrees (a) to respect all
--------------------------
confidentiality notices or legends placed upon the Software; (b) not to conceal
from view any copyright, trademark or confidentiality notices placed on the
Software media or on any output generated by the Software; and (c) to reproduce
all copyright, trademark or confidentiality notices (i) on all copies of the
Software, or any portion thereof, made by Licensee as permitted hereunder and
(ii) on all portions of the Software contained in or merged into other programs.
4. PROPRIETARY RIGHTS. Licensee acknowledges that NetiQ retains exclusive
------------------
right, title and interest in and to the Software and all copies or portions
thereof, including all intellectual property rights. By accepting this license,
Licensee does not become the owner of the Software, but has the right to use the
Software as outlined and limited in this Agreement. Licensee further
acknowledges and agrees that the Software contains confidential information and
trade secrets developed and acquired by NetiQ through the expenditure of a great
deal of time and money. Accordingly, Licensee agrees to treat the Software as
confidential and not to disclose all or any portion of the Software to any third
party or entity, except as such disclosure may be necessary to Licensee's
employees in the course of their employment. Licensee agrees not to modify,
decompile, disassemble or otherwise reverse engineer the Software. Licensee
further agrees not to lend, rent, lease, sublicense or otherwise transfer any
copies of the Software or any portion thereof in any form to any person without
prior written consent of NetiQ, as provided in Section 9. Licensee will use its
best efforts and take all reasonable steps to protect the Software and to
prevent any unauthorized reproduction, publication, disclosure, or distribution
of the Software or any portion thereof.
5. TERM AND TERMINATION. This Agreement is effective upon written
--------------------
acceptance by Licensee or upon acceptance of delivery of any Software by
Licensee, and shall continue unless and until terminated in
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<PAGE>
accordance with the provisions of this Section 5. This Agreement shall
automatically terminate and Licensee shall lose its license rights hereunder if
(a) Licensee transfers possession of the Software, any copy of the Software, or
any portion or merged portion of the Software to another party, except as
provided in Section 8, or (b) violates the provisions of Section 4,
Additionally, NetiQ shall be entitled to terminate this Agreement upon written
notice to Licensee in the event that Licensee breaches any material obligation
under this Agreement. Licensee shall be entitled to terminate this Agreement
upon written notice given by Licensee to NetiQ. Within ten (10) days after
termination of this Agreement, Licensee shall return all copies of the affected
Software and related documentation, or any portion thereof, in any form, to
NetiQ at the above address.
6. LIMITED WARRANTY AND DISCLAIMER OF WARRANTIES. The media upon which any
---------------------------------------------
Software is contained is warranted to be free from defects in material and
workmanship for a period of ninety (90) days from the date of delivery to
Licensee (the "Warranty Period"). NetiQ's entire liability and Licensee's
exclusive remedy for breach of the foregoing limited warranty shall be for NetiQ
to replace any defective media which is returned to NetiQ during the Warranty
Period. NETIQ DOES NOT WARRANT THAT ANY SOFTWARE IS FREE OF ERRORS OR "BUGS."
EXCEPT AS PROVIDED HEREIN, THE SOFTWARE IS PROVIDED "AS IS" AND NETIQ MAKES NO
WARRANTY, EXPRESS, IMPLIED, OR STATUTORY, WITH RESPECT TO THE SOFTWARE AND
SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE AND ANY WARRANTY OF NON-INFRINGEMENT.
7. INDEMNIFICATION: INFRINGEMENT OF THIRD-PARTY RIGHTS. NetiQ shall defend
---------------------------------------------------
any suit or proceeding brought against Licensee arising out of or based on any
claim, demand, or action alleging that the Software or any portion thereof, as
used within the scope of this Agreement, infringes or misappropriates any
thirdparty rights in copyrights, patents, or trade secrets in the United States.
Additionally, NetiQ shall pay any costs, damages, or awards of settlement,
including court costs, arising out of any such claim, demand, or action;
provided, that Licensee shall give prompt written notice of any such claim,
demand, or action to NetiQ and provide NetiQ with control of the defense and
settlement thereof and, further, shall reasonably consent to any settlement of
such claim, demand, or action. In the event that any Software is held in such
suit or proceeding to infringe such proprietary right, and the use of the
Software, or portion thereof, is enjoined, NetiQ shall, at its sole option and
expense (i) procure for Licensee the right to continue using the Software, or
portion thereof; (ii) replace the same with noninfringing programs of equivalent
functions; or (iii) remove the Software, or portion thereof. In the event that
NetiQ so removes the Software, or portion thereof, Licensee shall receive a
refund of that portion of the fees paid in connection with the license for such
Software.
8. LIMITATION OF LIABILITY. IN NO EVENT WILL NETIQ BE LIABLE TO LICENSEE
-----------------------
OR ANY OTHER PARTY FOR ANY CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES ARISING
OUT OF THIS AGREEMENT OR THE USE OR INABILITY TO USE THE SOFTWARE, INCLUDING,
BUT NOT LIMITED TO, ANY LOST PROFITS OR COST SAVINGS, EVEN IF NETIQ HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
IN NO EVENT SHALL NETIQ'S LIABILITY TO LICENSEE, WHETHER BASED ON AN ACTION
OR CLAIM IN CONTRACT OR TORT (INCLUDING, WITHOUT LIMITATION, NEGLIGENCE AND, TO
THE EXTENT PERMITTED BY LAW, STRICT LIABILITY) OR OTHERWISE, ARISING OUT OF OR
RELATED TO THIS AGREEMENT EXCEED THE AGGREGATE FEES PAID BY LICENSEE FOR THE
SOFTWARE AS OF THE DATE SUCH ACTION OR CLAIM WAS FILED.
9. TRANSFER AND ASSIGNMENT. Neither the license granted hereunder nor this
-----------------------
Agreement (nor any portion of the Software) may be assigned or transferred by
Licensee without the prior written consent of NetiQ.
-15-
<PAGE>
Such consent may be conditioned upon (i) transfer of the entire Software and all
copies thereof, including merged portions, along with all copies of related
documentation, to the assignee or transferee; (ii) payment of an administrative
fee at NetiQ's then prevailing rates; and (iii) entry by the assignee or
transferee into a License Agreement substantially similar to this Agreement with
respect to the Software.
10. U.S. GOVERNMENT RESTRICTED RIGHTS. The following terms shall apply
---------------------------------
where Licensee is an agency or unit of the U.S. government.
(a) Units of the DoD. Use, duplication or disclosure by the government is
subject to restrictions as set forth in paragraph (c)(1)(ii) of the Rights in
technical Data and Computer Software clause at DFARS 252.227-7013. NetiQ
Corporation, 275 Saratoga Avenue, Suite 260, Santa Clara, CA 95050.
(b) Civilian agencies. Use, reproduction or disclosure is subject to
restrictions as set forth in subparagraphs (a) through (d) of the Commercial
Computer Software-Restricted Rights clause at FARS 52.227-19 and the limitations
set forth in NetiQ's standard commercial agreement for this Software.
Unpublished-rights reserved under the copyright laws of the United States.
11. EXPORT. Licensee acknowledges that the laws and regulations of the
------
United States restrict in the export and re-export of the Software, and agree
that it will not export or re-export the Software in violation of those law sand
regulations.
12. MISCELLANEOUS. In the event that any provision of this Agreement is
-------------
found invalid or unenforceable pursuant to judicial decree or decision, the
remainder of this Agreement shall remain valid and enforceable according to its
terms. This Agreement shall be construed and enforced in accordance with the
laws of the State of California. Any action or proceeding arising out of or
related to this Agreement shall be brought in a state or federal court of
competent jurisdiction located in the County of Santa Clara, California and both
parties hereby submit to the in personam jurisdiction of such courts for
purposes of any such action or proceeding. This Agreement may not be modified,
amended or altered except by a writing signed by a duly authorized
representative of NetiQ and Licensee. No waiver of any provision of this
Agreement or any right or obligation of either party shall be effective except
pursuant to a writing signed by a duly authorized representative of NetiQ and
Licensee. This Agreement, including its Exhibits, constitutes the entire
agreement between NetiQ and Licensee with respect to the transactions
contemplated herein and supersedes any and all prior or contemporaneous oral or
written communications with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representative as of the date first set forth above.
Licensee: NetiQ Corporation
______________________ ______________________
Name:_________________ Name:_________________
Title:________________ Title:________________
-16-
<PAGE>
EXHIBIT 10.5B
Amendment A
THIS AMENDMENT ("Amendment") to AGREEMENT (the "Agreement") is entered into and
effective as of May 21, 1999 (the "Effective Date") by and between Henneberry
Hill Technologies Corporation, a New York corporation doing business as Summit
Software Company, 4933 Jamesville Road, Jamesville, NY 13078 (hereafter
"Summit") and NetIQ Corporation, a California Corporation, with offices at 5410
Betsy Ross Drive, Santa Clara, CA 95054 (hereafter "COMPANY").
Whereas Section 9 of the original agreement stated that:
(b) Notwithstanding the terms of Section 9(a), COMPANY may distribute the
Product(s) for a period of six (6) months following expiration of this
Agreement in order to liquidate COMPANY's inventory of Product(s).
We now list the following:
(b) Notwithstanding the terms of Section 9(a), COMPANY may distribute the
Product(s) for a period of twenty-four (24) months following expiration of
this Agreement.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
Effective Date written above.
Summit Software Company NetIQ Corporation
/s/ William P. Fisher /s/ Ching-Fa Hwang
- --------------------- -------------------
By (Sign) By (Sign)
William P. Fisher Ching-Fa Hwang
- ----------------- --------------
Name (Print) Name (Print)
President President
- --------- ---------
Title Title
24 May 1999 24 May `99
- ----------- ----------
Date Date
<PAGE>
EXHIBIT 10.6
SOFTWARE DISTRIBUTION
AGREEMENT
BETWEEN
TECH DATA PRODUCT MANAGEMENT, INC.
AND
NETIQ CORPORATION
Confidential treatment has been requested for portions of this exhibit. The copy
filed herewith omits the information subject to the confidentiality request.
Omissions are designated as *****. A complete version of this exhibit has been
filed separately with the Securities and Exchange Commission.
<PAGE>
SOFTWARE DISTRIBUTION AGREEMENT
THIS AGREEMENT, DATED AS OF THIS 23RD DAY OF JUNE, 1998, IS BETWEEN TECH
DATA PRODUCT MANAGEMENT, INC., a Florida corporation ("Tech Data"), with its
principal corporate address at 5350 Tech Data Drive, Clearwater, Florida 33760
and NETIQ CORPORATION, a California corporation ("NetIQ"), with its principal
corporate address at: 275 Saratoga Avenue, Santa Clara, California 95050.
RECITALS
A. Tech Data desires to purchase certain Products from NetIQ from time to
time and NetIQ desires to sell certain Products to Tech Data in accordance with
the terms and conditions set forth in this Agreement.
B. NetIQ desires to appoint Tech Data as its non-exclusive distributor to
market Products within the Territory (as hereinafter defined) and Tech Data
accepts such appointment on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the Recitals, the mutual covenants
contained in this Agreement and other good and valuable consideration, Tech Data
and NetIQ hereby agree as follows:
ARTICLE I.
----------
DEFINITIONS, APPOINTMENT AND TERM OF AGREEMENT
----------------------------------------------
1.1. Definitions. The following definitions shall apply to this Agreement.
-----------
(a) "Customers" of Tech Data shall include dealers, resellers, value added
resellers, direct resellers and other entities that acquire the Products
from Tech Data.
(b) "DOA" shall mean Product, or any portion thereof, which fails to
operate properly on initial installation, boot, or use, as applicable.
(c) "Documentation" shall mean user manuals, training materials, Product
descriptions and specifications, brochures, technical manuals, license
agreements, supporting materials and other printed information relating to
the Products, whether distributed in print, electronic, or video format.
(d) "Effective Date" shall mean the date on which this Agreement is signed
and dated by a duly authorized representative of Tech Data.
<PAGE>
(e) "End Users" shall mean the final purchasers or licensees who have
acquired Products for their own use and not for resale, remarketing or
redistribution.
(f) "Non-Saleable Products" shall mean any Product that has been returned
to Tech Data by its Customers that has had the outside shrink wrapping or
other packaging seal broken; any components of the original package are
missing, damaged or modified; or is otherwise not fit for resale.
(g) "Products" shall mean, individually or collectively, the software
licenses, electronic products, the sealed software packages comprised of
the computer programs encoded on media together with manuals, materials and
other contents of the packages associated therewith, if any, as more fully
described in Schedule 1.1(g) attached hereto.
(h) "Return Credit" shall mean a credit to Tech Data in an amount equal to
the price paid by Tech Data for Products less any price protection credits
but not including any early payment, prepayment or other discounts.
(i) "Services" means any warranty, maintenance, advertising, marketing or
technical support and any other services performed or to be performed by
NetIQ.
(j) "Territory" shall mean the United States, its territories and
possessions, Canada, Central America, South America, Mexico and the
Caribbean.
1.2 Term of Agreement. The term of this Agreement shall commence on the
-----------------
Effective Date and, unless terminated by either party as set forth in this
Agreement, shall remain in full force and effect for a term of one (1)
year, and will be automatically renewed for successive one (1) year terms
unless prior written notification of termination or non-renewal is
delivered by one of the parties in accordance with the notice provision of
this Agreement.
1.3 Appointment as Distributor. NetIQ hereby grants to Tech Data the non-
--------------------------
exclusive right and license to distribute Products during the term of this
Agreement within the Territory, together with any updates or enhancements
to the Products and any new releases related to the Products. This license
includes the right to order, possess and distribute the Products to
Customers and to provide the Products to Customers for use on demonstration
units. NetIQ and Tech Data acknowledge and agree that the license to use
the Product is solely between NetIQ and the End User and is governed by the
terms of the Vendor's standard use license enclosed with the Product. This
Agreement does not grant NetIQ or Tech Data an exclusive right to purchase
or sell Products and shall not prevent either party from developing or
acquiring other vendors or customers or competing Products. Tech Data will
use commercially reasonable efforts to promote distribution of the
<PAGE>
Products. NetIQ agrees that Tech Data may obtain Products in accordance
with this Agreement for the benefit of its parent, affiliates and
subsidiaries. Said parent, affiliates and subsidiaries of Tech Data shall
be entitled to order Products directly from NetIQ pursuant to this
Agreement.
ARTICLE II. PURCHASE ORDERS
---------------------------
2.1 Issuance and Acceptance of Purchase Order.
------------------------------------------
(a) This Agreement shall not obligate Tech Data to purchase any Products or
Services except as specifically set forth in a written purchase order.
(b) Tech Data may issue to NetIQ one or more purchase orders identifying
the Products Tech Data desires to purchase from NetIQ. The terms and
conditions of this Agreement shall govern all purchase orders, except that
purchase orders may include other terms and conditions which are consistent
with the terms and conditions of this Agreement, or which are mutually
agreed to in writing by Tech Data and NetIQ. Purchase orders will be placed
by Tech Data by fax or electronically transferred.
(c) A purchase order shall be deemed accepted by NetIQ unless NetIQ
notifies Tech Data in writing within five (5) days of the date of the
purchase order that NetIQ does not accept the purchase order.
2.2 Purchase Order Alterations or Cancellations. Prior to shipment of Products,
-------------------------------------------
NetIQ shall accept alterations or cancellation to a purchase order in order
to: (i) change a location for delivery, (ii) modify the quantity or type of
Products to be delivered or (iii) correct typographical or clerical errors.
2.3 Evaluation or Demonstration Purchase Orders. NetIQ shall provide to Tech
-------------------------------------------
Data a mutually agreed upon number of demonstration or evaluation Products
at no charge.
2.4 Product Shortages. If for any reason NetIQ's production is not on schedule,
-----------------
NetIQ may allocate available inventory to Tech Data and make shipments
based upon a fair and reasonable percentage allocation among NetIQ's
customers. Such allocations shall not impact the calculation of performance
rebates.
2.5 Proof of Delivery ("POD"). Vendor shall provide to Tech Data, at no charge,
------------------------
a hard copy Proof of Delivery for any drop shipment requested by Tech Data.
The POD shall be faxed to Tech Data within 5 business days of the initial
request. If the POD is not received within the specified time, the invoice
will be considered disputed and no payment shall be made to vendor on that
invoice.
<PAGE>
ARTICLE III. DELIVERY
---------------------
AND ACCEPTANCE OF PRODUCTS
--------------------------
3.1 Acceptance of Products. Tech Data shall, after a reasonable time to inspect
----------------------
each shipment, accept Products (the "Acceptance Date") if the Products and
all necessary documentation delivered to Tech Data are in accordance with
the purchase order. Any Products not ordered or not otherwise in accordance
with the purchase order (e.g. mis-shipments, overshipments) may be returned
to NetIQ at NetIQ's expense (including without limitation to costs of
shipment or storage). NetIQ shall refund to Tech Data within ten (10)
business days following notice thereof, all monies paid in respect to such
rejected Products. Tech Data shall not be required to accept partial
shipment unless Tech Data agrees prior to shipment.
3.2 Title and Risk of Loss. FOB Destination. Title and risk of loss or damage
---------------------------------------
to Products shall pass to Tech Data at the time the Products are delivered
to Tech Data's warehouse. NetIQ and Tech Data agree that no title or
ownership of the proprietary rights to any software code is transferred by
virtue of this Agreement notwithstanding the use of terms such as
"purchase", "sale" or the like within this Agreement. NetIQ retains all
ownership rights and title to any software code within the Products.
3.3 Transportation of Products. NetIQ shall deliver the Products clearly marked
--------------------------
on the Products' package with serial number, product description and
machine readable bar code (employing UPC or other industry standard bar
code) to Tech Data at the location shown and on the delivery date set forth
in the applicable purchase order or as otherwise agreed upon by the
parties. Charges for transportation of the Products shall be paid by NetIQ.
NetIQ shall use only those common carriers preapproved by Tech Data or
listed in Tech Data's published routing instructions, unless prior written
approval of Tech Data is received.
ARTICLE IV. RETURNS
-------------------
4.1 Inventory Adjustment. NetIQ agrees to accept return of overstocked Products
--------------------
as determined by Tech Data, in Tech Data's reasonable discretion. Shipments
of Products being returned shall be new, unused and in sealed cartons.
Vendor shall credit Tech Data's account in the amount of the Return Credit.
4.2 Defective Products/Dead on Arrival (DOA). Tech Data shall have the right to
---------------------------------------
return to NetIQ for Return Credit any DOA Product that is returned to Tech
Data within ninety (90) days after the initial delivery date to the End
User and any Product that fails to perform in accordance with NetIQ's
Product warranty. NetIQ
<PAGE>
shall bear all costs of shipping and risk of loss of DOA and in-warranty
Products to NetIQ's location and back to Tech Data or Tech Data's Customer.
4.3 Obsolete or Outdated Product. Tech Data shall have the right to return for
----------------------------
Return Credit, without limitation as to the dollar amount, all Products
that become obsolete or NetIQ discontinues, updates, revises or are removed
from NetIQ's current price list provided Tech Data returns such Products
within one hundred fifty (150) days after Tech Data receives written notice
from NetIQ that such Products are obsolete, superseded by a newer version,
discontinued or are removed from NetIQ's price list. NetIQ shall bear all
costs of shipping and risk of loss of Obsolete or Outdated Products to
NetIQ's location.
4.4 Non-Saleable. Tech Data shall have the right to return to NetIQ for Return
------------
Credit Non-Saleable Products.
4.5 Condition Precedent to Returns. As a condition precedent to returning
------------------------------
Products, Tech Data shall request and NetIQ shall issue a Return Material
Authorization Number (RMA) in accordance with and subject to Section 8.9 of
this Agreement.
ARTICLE V. PAYMENT TO VENDOR
----------------------------
5.1 Charges, Prices and Fees for Products. Charges, prices, quantities and
-------------------------------------
discounts, if any, for Products shall be determined as set forth in
Schedule 1.1(g), or as otherwise mutually agreed upon by the parties in
writing, and may be confirmed at the time of order. In no event shall
charges exceed NetIQ's then current established charges. Tech Data shall
not be bound by any of NetIQ's suggested prices.
5.2 Payment. Except as otherwise set forth in this Agreement, any undisputed
-------
sum due to NetIQ pursuant to this Agreement shall be payable as follows: 5%
prepay (upon prior written agreement of the parties). 2%-15, net forty-five
(45) days after the invoice date. NetIQ shall invoice Tech Data no earlier
than the applicable shipping date for the Products covered by such invoice.
Products which are shipped from outside the United States, shall not be
invoiced to Tech Data prior to the Products being placed on a common
carrier within the United States for final delivery to Tech Data. The due
date for payment shall be extended during any time the parties have a bona
fide dispute concerning such payment. Notwithstanding anything herein to
the contrary, for the initial order only, payment shall be made by Tech
Data upon resale of the Products and expiration of the Customer return
period and Tech Data may return any of the Products delivered under the
initial order for Return Credit.
<PAGE>
Notwithstanding anything contained in the Agreement or in any other
agreements between Tech Data and NetIQ, including NetIQ's invoices, Tech
Data has the right to delay payment for any Products ordered or received by
Tech Data until Tech Data's sale of the Products and expiration of the
Customer returns period.
5.3 Invoices. A "correct" invoice shall contain (i) Vendor's name and invoice
--------
date, (ii) a reference to the purchase order or other authorizing document,
(iii) separate descriptions, unit prices and quantities of the Products
actually delivered, (iv) credits (if applicable), (v) shipping charges (if
applicable) (vi) name (where applicable), title, phone number and complete
mailing address as to where payment is to be sent, and (vii) other
substantiating documentation or information as may reasonably be required
by Tech Data from time to time. Notwithstanding any pre-printed terms or
conditions on NetIQ's invoices, the terms and conditions of this Agreement
shall apply to and govern all invoices issued by NetIQ hereunder, except
that invoices may include other terms and conditions which are consistent
with the terms and conditions of this Agreement, or which are mutually
agreed to in writing by Tech Data and NetIQ.
5.4 Taxes. Tech Data shall be responsible for franchise taxes, sales or use
-----
taxes or shall provide NetIQ with an appropriate exemption certificate.
NetIQ shall be responsible for all other taxes, assessments, permits and
fees, however designated which are levied upon this Agreement or the
Products, except for taxes based upon Tech Data's income. No taxes of any
type shall be added to invoices without the prior written approval of Tech
Data.
5.5 Fair Pricing and Terms. NetIQ represents that the prices charged and the
----------------------
terms offered to Tech Data are and will be at least as beneficial to Tech
Data as those charged or offered by NetIQ to any of its other like
distributors, aggregators, resellers or customers. If NetIQ offers price
discounts, payment discounts, promotional discounts or other special prices
to its other like distributors, aggregators, resellers or customers, Tech
Data shall also be entitled to participate and receive notice of the same
no later than other like distributors, aggregators, resellers or customers.
5.6 Price Adjustments.
-----------------
(a) Price Increases. NetIQ shall have the right to increase prices from
---------------
time to time, upon written notice to Tech Data not less than thirty (30)
days prior to the effective date of such increase. All orders placed prior
to the effective date of the increase, for shipment within thirty (30) days
after the effective date, shall be invoiced by NetIQ at the lower price.
<PAGE>
(b) Price Decreases. NetIQ shall have the right to decrease prices from
---------------
time to time, upon written notice to Tech Data. NetIQ shall grant to Tech
Data, its parent, affiliates and subsidiaries and Tech Data's Customers a
price credit for the full amount of any NetIQ price decrease on all
Products on order, in transit and in their inventory on the effective date
of such price decrease. Tech Data and its Customers shall, after receiving
written notice of the effective date of the price decrease, provide a list
of all Products for which they claim a credit. NetIQ shall have the right
to a reasonable audit at NetIQ's expense.
5.7 Advertising.
-----------
(a) Cooperative Advertising. NetIQ offers a two percent (2%) co-op program
-----------------------
and may offer additional advertising credits, or other promotional programs
or incentives to Tech Data as it offers to its other distributors or
customers. Tech Data shall have the right, at Tech Data's option, to
participate in such programs. Attached as Schedule 5.7 is a copy of NetIQ's
co-op policy.
(b) Advertising Support. NetIQ shall provide at no charge to Tech Data and
-------------------
the Customers of Tech Data, marketing support, and advertising materials in
connection with the resale of Products as are currently offered or that may
be offered by NetIQ. Tech Data reserves the right to charge NetIQ for
advertising, marketing and training services which are preapproved by the
vendor and at NetIQ's discretion.
(c) Launch Funds. Prior to receipt of the initial purchase order, NetIQ
------------
shall pay Tech Data for all launch funds expenditures to which NetIQ and
Tech Data have agreed.
ARTICLE VI. WARRANTIES,
-----------------------
INDEMNITIES AND OTHER OBLIGATIONS OF NETIQ
------------------------------------------
6.1 Warranty. NetIQ hereby represents and warrants that NetIQ has all right,
--------
title, ownership interest and marketing rights necessary to provide the
Products to Tech Data. NetIQ further represents and warrants that it has
not entered into any agreements or commitments which are inconsistent with
or in conflict with the rights granted to Tech Data in this Agreement; the
Products are new and shall be free and clear of all liens and encumbrances;
Tech Data and its Customers and End Users shall be entitled to use the
Products without disturbance; the Products have been listed with
Underwriters' Laboratories or other nationally recognized testing
laboratory whenever such listing is required; the Products meet all FCC
requirements; the Products do and will conform to all codes, laws or
regulations; and the Products conform in all respects to the Product
warranties. NetIQ agrees that Tech Data shall be entitled to pass through
to Customers of Tech Data and
<PAGE>
End Users of the Products all Product warranties granted by NetIQ. Tech
Data shall have no authority to alter or extend any of the warranties of
NetIQ expressly contained or referred to in this Agreement without prior
approval of NetIQ. NetIQ has made express warranties in this Agreement and
in Documentation, promotional and advertising materials. EXCEPT AS SET
FORTH HEREIN OR THEREIN, NetIQ DISCLAIMS ALL WARRANTIES WITH REGARD TO THE
PRODUCTS, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THIS SECTION SHALL
SURVIVE TERMINATION OR EXPIRATION OF THIS AGREEMENT.
6.2 Proprietary Rights Indemnification. NetIQ hereby represents and warrants
----------------------------------
that the Products and the sale and use of the Products do not infringe upon
any copyright, patent, trademark, trade secret or other proprietary or
intellectual property right of any third party, and that there are no suits
or proceedings, pending or threatened alleging any such infringement that
have not been disclosed to Tech Data. Regarding any suits or proceedings
which have been disclosed to Tech Data, then NetIQ will either (a) not
supply Tech Data with any of the Products which are the subject of a
disclosed suit or proceeding, or (b) if NetIQ supplies Tech Data with said
Products, then NetIQ will be liable to Tech Data for those items in Section
6.5 below in addition to its indemnification obligations stated herein.
NetIQ shall indemnify and hold Tech Data, Tech Data's parent, affiliates
and subsidiaries and their respective, officers, directors, employees and
agents harmless from and against any and all actions, claims, losses,
damages, liabilities, awards, costs and expenses, which they or any of them
incur or become obligated to pay resulting from or arising out of any
breach or claimed breach of the foregoing warranty. Tech Data shall inform
NetIQ of any such suit or proceeding filed against Tech Data and shall have
the right, but not the obligation, to participate in the defense of any
such suit or proceeding at Tech Data's expense. NetIQ shall, at its option
and expense, either (i) procure for Tech Data, its Customers and End Users
the right to continue to use the Product as set forth in this Agreement, or
(ii) replace, to the extent Products are available, or modify the Product
to make its use non-infringing while being capable of performing the same
function without degradation of performance. If neither of the foregoing
alternatives (i) or (ii) is reasonably available, NetIQ shall accept a
return of the Products from Tech Data, at NetIQ's sole cost and expense,
and shall refund to Tech Data the full amount of the price paid by Tech
Data for said returned Products, less any price protection credits, but not
including any early payment or prepayment discounts. NetIQ shall have no
liability under this Section 6.2 for any infringement based on the use of
any Product, if the Product is used in a manner or with equipment for which
it was not reasonably intended. NetIQ's obligations under this Section 6.2
shall survive termination or expiration of this Agreement.
<PAGE>
6.3 Indemnification.
---------------
(a) Vendor. NetIQ shall be solely responsible for the design, development,
------
supply, production and performance of the Products. NetIQ agrees to
indemnify and hold Tech Data, its parent, affiliates and subsidiaries and
their officers, directors and employees harmless from and against any and
all claims, damages, costs, expenses (including, but not limited to,
reasonable attorney's fees and costs) or liabilities that may result, in
whole or in part, from any warranty or Product liability claim, or any
claim for infringement, or for claims for violation of any of the
warranties contained in this Agreement.
(b) Tech Data. Tech Data agrees to indemnify and hold NetIQ, its officers,
---------
directors and employees harmless from and against any and all claims,
damages, costs, expenses (including, but not limited to, reasonable
attorney's fees and costs) or liabilities that may result, in whole or in
part, from Tech Data's gross negligence or willful misconduct in the
distribution of the Products pursuant to this Agreement, or for
representations or warranties made by Tech Data related to the Products in
excess of the warranties of NetIQ.
6.4 Insurance.
---------
(a) The parties shall be responsible for providing Worker's Compensation
insurance in the statutory amounts required by the applicable state laws.
(b) Without in any way limiting NetIQ's indemnification obligation as set
forth in this Agreement, NetIQ shall maintain Commercial General Liability
or Comprehensive General Liability Insurance in such amounts as is
reasonable and standard for the industry. Either policy form should contain
the following coverages: Personal and Advertising Injury, Broad Form
Property Damage, Products and Completed Operations, Contractual Liability,
employees as Insured and Fire Legal Liability.
(c) NetIQ will provide evidence of the existence of insurance coverages
referred to in this Section 6.4 by certificates of insurance which should
also provide for at least thirty (30) days notice of cancellation, non-
renewal or material change of coverage to Tech Data. The certificates of
insurance shall name Tech Data Product Management, Inc., its parent,
affiliates and subsidiaries as Additional Insureds for the limited purpose
of claims arising pursuant to this Agreement.
6.5 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
-----------------------
PURSUANT TO THIS AGREEMENT FOR AMOUNTS REPRESENTING INDIRECT, SPECIAL,
INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES OF THE OTHER PARTY ARISING
FROM THE PERFORMANCE OR BREACH OF ANY TERMS OF THIS AGREEMENT.
<PAGE>
6.6 ECCN/Export. NetIQ agrees to provide Tech Data, upon signing this
-----------
Agreement and at any time thereafter that NetIQ modifies or adds Products
distributed or to be distributed by Tech Data, with the Export Control
Classification Number (ECCN) for each of NetIQ's Products, and information
as to whether or not any of such Products are classified under the U.S.
Munitions List.
6.7 This section was intentionally deleted.
6.8 Vendor Reports. NetIQ shall, if requested, render monthly reports to Tech
--------------
Data setting forth the separate Products, dollars invoiced for each
Product, and total dollars invoiced to Tech Data for the month, and such
other information as Tech Data may reasonably request.
6.9 Tech Data Reports. Tech Data shall, if requested, render monthly sales out
-----------------
reports on Tech Data's BBS system. Information provided will include:
month and year sales activity occurred, internal product number (assigned
by Tech Data), written description, state and zip-code of Customers
location, unit cost (distributor's cost at quantity 1), quantity and
extended cost (cost times quantity). NetIQ agrees that any such
information provided by Tech Data shall be received and held by NetIQ in
strict confidence and shall be used solely for sell through or
compensation reporting information and shall not be used for purposes
related to NetIQ's sales activities.
6.10 Trademark Usage. Tech Data is hereby authorized to use trademarks and
---------------
tradenames of NetIQ and third parties licensing NetIQ, if any, used in
connection with advertising, promoting or distributing the Products. Tech
Data recognizes NetIQ or other third parties may have rights or ownership
of certain trademarks, trade names and patents associated with the
Products. Tech Data will act consistent with such rights, and Tech Data
shall comply with any reasonable written guidelines when provided by NetIQ
or third parties licensing NetIQ related to such trademark or trade name
usage. Tech Data will notify NetIQ of any infringement of which Tech Data
has actual knowledge. Tech Data shall discontinue use of NetIQ's
trademarks or trade names upon termination of this Agreement, except as
may be necessary to sell or liquidate any Product remaining in Tech Data's
inventory.
ARTICLE VII. TERMINATION OR EXPIRATION
--------------------------------------
7.1 Termination.
-----------
(a) Termination With or Without Cause. Either party may terminate this
---------------------------------
Agreement, with or without cause, upon giving the other party thirty (30)
days prior written notice. In the event that either party materially or
repeatedly defaults in the performance of any of its duties or obligations
set forth in this Agreement, and
<PAGE>
such default is not substantially cured within thirty (30) days after
written notice is given to the defaulting party specifying the default,
then the party not in default may, by giving written notice thereof to the
defaulting party, terminate this Agreement or the applicable purchase order
relating to such default as of the date specified in such notice of
termination.
(b) Termination for Insolvency or Bankruptcy. Either party may immediately
----------------------------------------
terminate this Agreement and any purchase orders by giving written notice
to the other party in the event of (i) the liquidation or insolvency of the
other party, (ii) the appointment of a receiver or similar officer for the
other party, (iii) an assignment by the other party for the benefit of all
or substantially all of its creditors, (iv) entry by the other party into
an agreement for the composition, extension, or readjustment of all or
substantially all of its obligations, or (v) the filing of a petition in
bankruptcy by or against a party under any bankruptcy or debtors' law for
its relief or reorganization which is not dismissed within ninety (90)
days.
7.2 Rights Upon Termination or Expiration.
-------------------------------------
(a) Termination or expiration of this Agreement shall not affect NetIQ's
right to be paid for undisputed invoices for Products already shipped and
accepted by Tech Data or Tech Data's rights to any credits or payments owed
or accrued to the date of termination or expiration. Tech Data's rights to
credits upon termination or expiration shall include credits against which
Tech Data would, but for termination or expiration, be required under this
Agreement to apply to future purchases.
(b) NetIQ shall accept purchase orders from Tech Data for additional
Products which Tech Data is contractually obligated to furnish to its
Customers and does not have in its inventory upon the termination or
expiration of this Agreement; provided Tech Data notifies NetIQ of any and
all such transactions within sixty (60) days following the termination or
expiration date.
(c) Upon termination or expiration of this Agreement, Tech Data shall
discontinue holding itself out as a distributor of the Products.
7.3 Repurchase of Products Upon Termination or Expiration. Upon the effective
-----------------------------------------------------
date of termination or expiration of this Agreement for any reason, NetIQ
agrees to repurchase all Products in Tech Data's inventory and Products
which are returned to Tech Data by its Customers within one-hundred-eighty
(180) days following the effective date of termination or expiration. NetIQ
will repurchase such Products at the original purchase price, less any
deductions for price protection. The repurchase price shall not be reduced
by any deductions or offsets for early pay or prepay discounts. Such
returns shall not reduce or offset any co-op payments or obligations owed
to Tech Data. Within sixty (60) days following the effective date of
termination or expiration, Tech Data shall return to NetIQ for repurchase
all
<PAGE>
Product held in Tech Data's inventory as of the effective date of
termination or expiration. Additional returns shall be sent at reasonable
intervals thereafter, provided all returns of Product by Tech Data under
this Section 7.3 shall be shipped within one-hundred-eighty-five (185) days
following the effective date of termination or expiration. NetIQ will issue
an RMA to Tech Data for all such Products; provided, however, that NetIQ
shall accept returned Products in accordance with this Section absent an
RMA if NetIQ fails to issue said RMA within five (5) business days of Tech
Data's request. NetIQ shall credit any outstanding balances owed to Tech
Data. If such credit exceeds amounts due from Tech Data, NetIQ shall remit
in the form of a check to Tech Data the excess within ten (10) business
days of receipt of the Product. Customized Products shall not be eligible
for repurchase pursuant to this Section.
7.4 Survival of Terms. Termination or expiration of this Agreement for any
-----------------
reason shall not release either party from any liabilities or obligations
set forth in this Agreement which (i) the parties have expressly agreed
shall survive any such termination or expiration, or (ii) remain to be
performed or by their nature would be Intended to be applicable following
any such termination or expiration. The termination or expiration of this
Agreement shall not affect any of NetIQ's warranties, indemnification or
obligations relating to returns, co-op advertising payments, credits or any
other matters set forth in this Agreement that should survive termination
or expiration in order to carry out their intended purpose, all of which
shall survive the termination or expiration of this Agreement.
ARTICLE VIII. MISCELLANEOUS
---------------------------
8.1 Binding Nature, Assignment, and Subcontracting. This Agreement shall be
----------------------------------------------
binding on the parties and their respective successors and assigns. Neither
party shall have the power to assign this Agreement without the prior
written consent of the other party.
8.2 Counterparts. This Agreement may be executed in several counterparts, all
------------
of which taken together shall constitute one single agreement between the
parties.
8.3 Headings. The Article and Section headings used in this Agreement are for
--------
reference and convenience only and shall not affect the interpretation of
this Agreement.
8.4 Relationship of Parties. Tech Data is performing pursuant to this Agreement
-----------------------
only as an independent contractor. Nothing set forth in this Agreement
shall be construed to create the relationship of principal and agent
between Tech Data and NetIQ. Neither party shall act or represent itself,
directly or by implication, as an agent of the other party.
<PAGE>
8.5 Confidentiality. Each party acknowledges that in the course of performance
---------------
of its obligations pursuant to this Agreement, it may obtain certain
information specifically marked as confidential or proprietary. Each party
hereby agrees that all such information communicated to it by the other
party, its parent, affiliates, subsidiaries, or Customers, whether before
or after the Effective Date, shall be and was received in strict
confidence, shall be used only for purposes of this Agreement, and shall
not be disclosed without the prior written consent of the other party,
except as may be necessary by reason of legal, accounting or regulatory
requirements beyond either party's reasonable control. The provisions of
this Section shall survive termination or expiration of this Agreement for
any reason for a period of one (1) year after said termination or
expiration.
8.6 Arbitration. Any disputes arising under this Agreement shall be submitted
-----------
to arbitration in accordance with such rules as the parties jointly agree.
If the parties are unable to agree on arbitration procedures, arbitration
shall be conducted in the city and state of the respondent party, in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Any such award shall be final and binding upon
both parties.
8.7 Notices. Wherever one party is required or permitted to give notice to the
-------
other party pursuant to this Agreement, such notice shall be deemed given
when actually delivered by hand, by telecopier (if and when immediately
confirmed in writing by any of the other means provided herein ensuring
acknowledgment of receipt thereof for purposes of providing notice of
default or termination), via overnight courier, or when mailed by
registered or certified mail, return receipt requested, postage prepaid,
and addressed as follows:
In the Case of NetIQ: In the Case of Tech Data:
-------------------- ------------------------
NetIQ Corporation Tech Data Product Management, Inc.
275 Saratoga Avenue 5350 Tech Data Drive
Santa Clara, CA 95050 Clearwater, FL 33760
Attn: John Mannion, Director, Attn: Vice President-Marketing Operations
North American Channel Sales
cc: Legal Counsel cc: Contracts Administration
Either party may from time to time change its address for notification
purposes by giving the other party written notice of the new address and
the date upon which it will become effective.
8.8 Force Majeure. The term "Force Majeure" shall be defined to include fires
-------------
or other casualties or accidents, acts of God, severe weather conditions,
strikes or labor disputes, war or other violence, or any law, order,
proclamation, regulation, ordinance, demand or requirement of any
governmental agency.
<PAGE>
(a) If a Force Majeure prevents a party from performance, such
performance is excused so long as the excused party provides prompt
written notice describing the Force Majeure and immediately continues
performance once the Force Majeure condition is removed.
(b) If, due to a Force Majeure condition, the scheduled time of delivery
or performance is or will be delayed for more than ninety (90) days after
the scheduled date, the party not relying upon the Force Majeure condition
may terminate, without liability to the other party, any purchase order or
portion thereof covering the delayed Products.
8.9 Return Material Authorization Numbers. NetIQ is required to issue an RMA
-------------------------------------
to Tech Data within five (5) business days of Tech Data's request;
however, if the RMA is not received by Tech Data within five (5) business
days, NetIQ shall accept returned Products absent an RMA.
8.10 Credits to Tech Data. In the event any provision of this Agreement or any
--------------------
other agreement between Tech Data and NetIQ requires that NetIQ grant
credits to Tech Data's account, and such credits are not received within
thirty (30) days, all such credits shall become effective immediately upon
notice to NetIQ. In such event, Tech Data shall be entitled to deduct any
such credits from the next monies owed to NetIQ. In the event credits
exceed any balances owed by Tech Data to NetIQ, NetIQ shall, upon request
from Tech Data, issue a check payable to Tech Data within ten (10) days of
such notice. Credits owed to Tech Data shall not be reduced by early
payment or prepayment discounts. Tech Data shall have the right to set off
against any amounts due to NetIQ under this Agreement or any invoices
issued by NetIQ related to this Agreement any and all amounts due to Tech
Data from NetIQ, whether or not arising under this Agreement.
8.11 Severability. If, but only to the extent that, any provision of this
------------
Agreement is declared or found to be illegal, unenforceable or void, then
both parties shall be relieved of all obligations arising under such
provision, it being the intent and agreement of the parties that this
Agreement shall be deemed amended by modifying such provision to the
extent necessary to make it legal and enforceable while preserving its
intent.
8.12 Waiver. A waiver by either of the parties of any covenants, conditions or
------
agreements to be performed by the other party or any breach thereof shall
not be construed to be a waiver of any succeeding breach thereof or of any
other covenant, condition or agreement herein contained.
<PAGE>
8.13 Remedies. All remedies set forth in this Agreement shall be cumulative and
--------
in addition to and not in lieu of any other remedies available to either
party at law, in equity or otherwise, and may be enforced concurrently or
from time to time.
8.14 Entire Agreement. This Agreement, including any Exhibits and documents
----------------
referred to in this Agreement or attached hereto, constitutes the entire
and exclusive statement of Agreement between the parties with respect to
its subject matter and there are no oral or written representations,
understandings or agreements relating to this Agreement which are not
fully expressed herein. The parties agree that unless otherwise agreed to
in writing by the party intended to be bound, the terms and conditions of
this Agreement shall prevail over any contrary terms in any purchase
order, sales acknowledgment, confirmation or any other document issued by
either party affecting the purchase or sale of Products hereunder.
8.15 Governing Law. This Agreement shall have Florida as its situs and shall be
-------------
governed by and construed in accordance with the laws of the State of
Florida, without reference to choice of laws. The parties agree that this
Agreement excludes the application of the 1980 United Nations Convention
on Contracts for the International Sale of Goods, if otherwise applicable.
8.16 Time of Performance. Time is hereby expressly made of the essence with
-------------------
respect to each and every term and condition of this Agreement.
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
signed and delivered by its duly authorized officer or representative as of the
Effective Date.
NETIQ CORPORATION TECH DATA PRODUCT MANAGEMENT, INC.
By: /s/ GLENN S. WINOKUR By: /s/ PEGGY K. CALDWELL
Printed Name: GLENN S. WINOKUR Printed Name: PEGGY K. CALDWELL
Title: VP, SALES Title: Senior Vice President, Marketing
Date: June 11, 1998 Date: 6/23/98
<PAGE>
SCHEDULE 5.7
CO-OP GUIDELINES
To increase the effectiveness of advertising and sales promotions Tech Data has
developed the following advertising requirements:
HOW CO-OP IS EARNED:
- - Co-op dollars will be at least 2% of the purchases made by Tech Data, net of
returns.
- - Co-op dollars will be accrued on a monthly basis.
HOW CO-OP IS SPENT:
- - Tech Data will obtain Vendor's prior approval for all co-op expenditures.
- - Tech Data will be reimbursed for 100% of the cost for ads or promotions that
feature Vendor products.
- - Co-op dollars will be used within the 12 months immediately following the
month in which they are earned.
HOW CO-OP IS CLAIMED:
- - Claims for co-op will be submitted to vendor within 60 days of the event date.
- - Claims for co-op will be submitted with a copy of vendor prior approval and
proof of performance.
- - Payment must be remitted within 30 days of the claim date, or Tech Data
reserves the right to deduct from the next invoice.
CO-OP REPORTING:
- - Vendor will submit a monthly co-op statement outlining (i) co-op earned, (ii)
co-op used and (iii) co-op claims paid.
Accepted:
NETIQ CORPORATION
/s/ GLENN S. WINOKUR
Name: GLENN S. WINOKUR
Title: VP, SALES
Date: 6/11/98
<PAGE>
Schedule 1.1(g) Page 1 of 2
NETIQ TM APPMANAGER R SUITE VERSION 2.0
Tech Data Pricing Schedule
June 1998
APPMANAGER PRODUCTS FOR INTEL R COMPATIBLE PLATFORMS
<TABLE>
<CAPTION>
US List Price Tech Data Price
<S> <C> <C> <C>
Product Description NetIQ Part Number (USD) (USD)
MANAGEMENT CONSOLES
APPMANAGER OPERATOR CONSOLE 2.0 108-1V200-I-US [*] [*]
For use with Windows NT Workstation or Server, Per-Seat license only.
CD-ROM media, Documentation included.
APPMANAGER DEVELOPER CONSOLE 2.0 109-1V200-I-US [*] [*]
For use with Windows NT Workstation or Server, Includes Operator Console.
Per-Seat license only. CD-ROM media. Documentation included.
APPMANAGER WEB ACCESS CONSOLE 2.0 120-1V200-I-US [*] [*]
License for 5 Web clients to NetIQ Web Management Server.
Requires Operator Console or Developer Console. License only.
APPLICATION MODULES
APPMANAGER FOR MICROSOFT R WINDOWS NT R SERVER 2.0 102-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console. Can be used
alone, but is required for use with other AppManager application modules.
APPMANAGER FOR MICROSOFT EXCHANGE SERVER 2.0 103-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT SQL TM SERVER 2.0 104-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT SYSTEMS MANAGEMENT SERVER 2.0 105-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT INTERNET INFORMATION SERVER 2.0 107-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT MESSAGE QUEUE SERVER 2.0 116-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT CLUSTER SERVER 2.0 117-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console. Requires
AppManager for Microsoft Windows NT. License required for each clustered
server.
APPMANAGER FOR MICROSOFT TRANSACTION SERVER 2.0 118-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console. Requires
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT PROXY SERVER 2.0 119-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR LOTUS DOMINO SERVER 2.0 115-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR COMPAQ INSIGHT MANAGER 2.0 121-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT WINDOWS NT WORKSTATION 2.0 101-1V200-I-US [*] [*]
License only. For use with Operator Console or Developer Console.
</TABLE>
- --------------
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
Schedule 1.1(g) Page 2 of 2
APPMANAGER PRODUCTS FOR DIGITAL R ALPHA COMPATIBLE PLATFORMS
<TABLE>
<CAPTION>
US List Price Tech Data Price
<S> <C> <C> <C>
Product Description NetIQ Part Number [*] [*]
MANAGEMENT CONSOLES
See AppManager Products for Intel Compatible Platforms
APPLICATION MODULES
APPMANAGER FOR MICROSOFT WINDOWS NT SERVER 2.0 102-1V200-A-US [*] [*]
License only. For use with Operator Console or Developer Console. Can be used
alone, but is required for use with other AppManager application modules.
APPMANAGER FOR MICROSOFT EXCHANGE SERVER 2.0 103-1V200-A-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT SQL SERVER 2.0 104-1V200-A-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT SYSTEMS MANAGEMENT SERVER 2.0 105-1V200-A-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT INTERNET INFORMATION SERVER 2.0 107-1V200-A-US [*] [*]
License only. For use with Operator Console or Developer Console.
Requires AppManager for Microsoft Windows NT.
APPMANAGER FOR MICROSOFT WINDOWS NT WORKSTATION 2.0 101-1V200-A-US [*] [*]
License only. For use with Operator Console or Developer Console.
<CAPTION>
APPMANAGER ACCESSORIES
US List Price Tech Data Price
<S> <C> <C> <C>
Product Description NatIQ Part Number (USD) (USD)
APPMANAGER OPERATOR CONSOLE DOCUMENTATION SET 2.0 801-1V200-D-US [*] [*]
Consists of Installation Guide, User's Guide, and Knowledge Script Reference
Guide.
Sold to licensed AppManager users only.
APPMANAGER DEVELOPER DOCUMENTATION 2.0 802-1V200-D-US [*] [*]
AppManager Developer's Guide. Sold to licensed AppManager users only.
APPMANAGER CD-ROM 2.0 803-1V200-X-US [*] [*]
One CD-ROM. Sold to licensed AppManager users only.
</TABLE>
Prices may vary. All prices are in U.S. Dollars.
US English versions of software and documentation are listed.
All installations require at least one copy of the NetIQ AppManager Operator
Console 2.0 or Developer Console 2.0, and one copy of Microsoft SQL Serve
(purchased separately).
- ------------
****** Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
EXHIBIT 10.7
AGREEMENT OF SUBLEASE
---------------------
THIS AGREEMENT OF SUBLEASE is made as of the 31st day of July, 1998, by and
----
between AMP Incorporated, a Pennsylvania corporation ("Sublandlord"), having an
office at 470 Friendship Road, Harrisburg, PA, and NetlQ Corporation, a
California corporation ("Subtenant"), having an office at 275 Saratoga Ave.,
#260, Santa Clara, CA.
WITNESS
-------
WHEREAS, by Agreement of Lease dated March 5, 1997, as amended (the
"Lease") by and between W.F. Batton and Marie A. Batton, Trustees of the W.F.
Batton Trust UTA dated January 12, 1988, as amended ("Landlord") and
Sublandlord, Landlord leased to Sublandlord certain real property commonly
referred to as 5400 Betsy Ross Drive, Santa Clara, California, consisting of
approximately 3.5 acres of land together with the building (the "Building") and
other improvements constructed thereon, as more particularly described in the
Lease (the "Premises"). A copy of the Lease is attached hereto as Exhibit A and
made a part hereof; and
WHEREAS, Sublandlord desires to sublease to Subtenant and Subtenant desires
to sublease from Sublandlord a portion of the Premises on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the parties agree as follows:
1. SUBLEASING OF SUBPREMISES. (a) Subject to the written consent of the
-------------------------
Landlord, Sublandlord hereby subleases to Subtenant and Subtenant hereby
subleases from Sublandlord that portion of the Building containing approximately
19,557 usable square feet, as more particularly shown as the crosshatched area
on the floor plan attached hereto as Exhibit B and made a part hereof (the
"Subpremises"), upon and subject to all of the terms and conditions hereinafter
set forth. Subtenant shall have the right, in common with others, to use: (i)
the parking lot serving the Building for the parking of Subtenant's employees'
cars on a first come, first serve basis, and Common Areas 1, 2, 3 and 5 as
marked on Exhibit B. On January 1, 1999, (the "Additional Subpremises
Commencement Date"), Sublandlord shall sublease to Subtenant that portion of the
Building containing approximately 3,764 rentable square feet, as more
particularly shown on Exhibit B as the "Additional Subpremises." On the
Additional Subpremises Commencement Date, all provisions of this Sublease which
refer to the "Subpremises" shall be deemed to include the Additional
Subpremises.
(b) Sublandlord hereby grants Subtenant a right of first refusal on
the sublease of an additional approximately 4,110 usable square feet as marked
on Exhibit B (the "Right of First Refusal Space"). This right of first refusal
shall run throughout the term of this Sublease. In the event Sublandlord desires
to sublease the Right of First Refusal Space, Sublandlord shall give written
notice thereof to Subtenant. The notice shall include terms of the sublease
which shall represent the fair rental value of the Right of First Refusal Space,
as reasonably determined by Sublandlord. For a period of five (5)
1
<PAGE>
business days after receipt by Subtenant of Sublandlord's notice, Subtenant
shall have the right to give written notice to Sublandlord of Sublandlord's
exercise of Subtenant's right to sublease the Right of First Refusal Space on
the terms set forth in the notice. In the event that Sublandlord does not
receive written notice of Subtenant's exercise of the right herein granted
within said five (5) day period, there shall be a conclusive presumption that
Subtenant has elected not to exercise its right hereunder, and Sublandlord may
sublease the Right of First Refusal Space to another on the same terms set forth
in Sublandlord's notice.
2. TERM. (a) The term (the "Term") of this Sublease shall commence on the
----
completion of the Subtenant Improvement Work (as defined in the Work Letter
Agreement delivered on even date herewith), expected to be on or around August
1, 1998 (the "Commencement Date") and shall continue for a period of sixty (60)
months, unless sooner terminated as hereinafter provided. The Term as it applies
to the Additional Subpremises shall commence on the Additional Subpremises
Commencement Date and shall terminate on the same date as the Term as it applies
to the remaining Subpremises.
(b) Sublandlord hereby grants to Subtenant two (2) options to extend
the term of this Lease, the first for a two (2) year period and the second for a
twenty-eight (28) month period, commencing when the prior term expires, upon
each and all of the following terms and conditions: (i) Subtenant gives to
Sublandlord, and Sublandlord actually receives, on a date which is prior to the
date that the option period would commence (if exercised) by at least six (6)
months and not more than nine (9) months, a written notice of the exercise of
the option to extend this Sublease for said additional term, time being of the
essence. If said notification of the exercise of said option is not so given and
received, this option shall automatically expire; (ii) Subtenant is not in
default and never has been in default under this Sublease; (iii) all of the
terms and conditions of the Sublease shall apply except where specifically
modified by this option; and (iv) Base Rent and Additional Rent (as defined
below) shall be at fair market value at the time of commencement of the option
period, but in no event less than the month immediately preceding the
commencement of the option period.
(c) Subtenant may terminate this Sublease prior to the end of the
Term, provided that (i) Subtenant provides written notice to Sublandlord and
Landlord of its intent to terminate no less than six (6) months' prior to its
desired date of termination, (ii) Subtenant pays to Sublandlord the Base Rent
and Additional Rent as provided below until such time as Sublandlord finds a
suitable subtenant for the Subpremises and such subtenant begins paying Rent on
the Subpremises, and (iii) Subtenant pays to Sublandlord any commission
obligations, tenant improvement allowance or other external expense incurred by
Sublandlord in re-subletting the Subpremises, or any portion of the Subpremises.
With respect to (ii) in the preceding sentence, if any portion of the
Subpremises is not re-sublet by Sublandlord, Subtenant shall continue to pay
proportionate Rent for such portion which is not re-sublet until such time as
the entire Subpremises is re-sublet by Sublandlord. Sublandlord agrees that,
Subtenant, at its option, may control the marketing of the Subpremises and
present to Sublandlord suitable subtenant candidates. Subject to Landlord's
approval under the Lease, Sublandlord will not unreasonably withhold its consent
to sublet the Subpremises to a subtenant candidate presented by Subtenant. In
the case of the acquisition or merger of Subtenant,
2
<PAGE>
Sublandlord agrees to accept such successor entity as a subtenant for the
Subpremises, subject to Landlord's approval under the Lease.
3. BASE RENT.
---------
(a) During the Term, Subtenant shall say to Sublandlord, in lawful
money of the United States which at the time shall be legal tender in payment of
all debts and dues, public and private, an annual fixed rent (the "Base Rent")
calculated by multiplying the usable square footage of the Subtenant (as
computed in (b) below) plus Subtenant's proportionate share of Common Areas 1,
2, 3 and 5 (the "Rental Square Footage") by the following amounts per square
foot per month, payable in equal monthly installments:
MONTHLY BASE RENT RATE MONTHLY BASE RENT RATE
PER RENTAL SQUARE FOOT FOR PER RENTAL SQUARE FOOT FOR
TIME PERIOD SUBPREMISES ADDITIONAL SUBPREMISES
7/1/98-12/31/98 $ 2.15 $ 0.00
1/1/99-6/30/99 $ 2.15 $ 1.73
7/1/99-12/31/99 $2.236 $1.799
1/1/2000-6/30/2000 $2.236 $2.236
7/1/2000-6/30/2001 $2.325 $2.325
7/1/2001-6/30/2002 $2.418 $2.418
7/1/2002-6/30/2003 $2.515 $2.515
All monthly installments shall be paid in advance on the first (1st) day of each
month during the Term at the office of the Sublandlord, or such other place as
Sublandlord may designate, without any setoff or deduction of any kind
whatsoever. The first payment of Base Rent shall be due on the execution date of
this Sublease.
(b) Upon substantial completion of construction of the Subpremises,
and, if reasonably practicable, prior to construction of interior improvements
in the Premises, but in no event later than five (5) days before Subtenant is
tendered occupancy of the Subpremises or actually occupies the Subpremises,
whichever first occurs, an architect or engineer selected by Sublandlord and
Subtenant, in the presence of authorized representatives of Sublandlord and
Subtenant, shall measure the Subpremises and shall agree upon the area
calculations. The usable square footage of the Subpremises shall be computed in
accordance with the currently effective methods of measurement established as
the American National Standard and published by the Building Owners and Managers
Association International, which are hereby adopted and incorporated herein by
reference. The measurements shall be used to determine a revised annual rent,
which shall be approved by authorized representatives of Sublandlord and
Subtenant, signed or initialed, and attached to this Sublease. A copy thereof
shall be delivered to Landlord for its information.
3
<PAGE>
3A. RENT ADJUSTMENT
(a) The following terms shall have the following meanings with respect to
the provisions of this Section 3A.:
(i) "Subtenant's Pro Rata Share" shall mean that proportion of the
Operating Expenses for any calendar year that equals the Rental Square Footage
divided by the total number of rentable square feet in the Building.
(ii) "Operating Expenses" shall:
(A) Mean all operating expenses actually incurred of any kind or
nature with respect to the Building as determined in accordance with generally
accepted accounting principles and shall include, but not be limited to, all
general and special real estate or ad valorem taxes or special assessments
levied against the Building by any governmental or quasi-governmental authority
or any taxes or assessments which shall be levied on the Building in lieu of or
in addition to all or any portion of any such real estate taxes or assessments,
or which shall be levied on the rentals of the Building (other than net income
taxes), or which shall be levied on Sublandlord as a result of the use,
ownership or operation of the Building; the cost of Building supplies; costs
incurred in connection with all energy sources for the common areas of the
Building such as propane, butane, natural gas steam, electricity, solar energy
and fuel oil; the costs of water and sewer services; janitorial services;
general maintenance and normal repair of the Building, including the heating and
air conditioning systems of the Building; landscaping maintenance; maintenance,
repair, striping and replacement of all parking areas furnished by Sublandlord
for use by tenants of the Building; the cost of rubbish removal, service
contracts for the elevator, HVAC and alarm systems of the Building; the cost of
such security guard and protection services as may be deemed reasonably
necessary by Sublandlord; insurance in amounts and coverages determined by
Sublandlord, including fire and extended coverage, rental interruption,
sprinkler leakage, plate glass and public liability insurance (but Subtenant
shall have no interest in such insurance or the proceeds thereof); labor costs
incurred in the operation and maintenance of the Building, including wages and
other payments, costs to Sublandlord of Workers' Compensation and disability
insurance, payroll taxes and fringe benefits; professional building management
fees; legal, accounting, inspection and consultation fees incurred in connection
with the Building to the extent required by any governmental authority or any
other inspection or consultation fees required for the normal prudent operation
of the Building and not normally the responsibility of the managing agent; the
cost of any capital improvements to the Building or of any machinery or
equipment installed in the Building which is made or becomes operational, as the
case may be, after the Commencement Date; all other common area costs and
expenses relating to the Building and all other charges properly allocable to
the repair, operation and maintenance of the Building in accordance with
generally accepted accounting principles. If the Building is not fully occupied
during any calendar year, the Operating Expenses for such year shall be adjusted
to reflect the greater of: (a) actual occupancy; or (b) a ninety-five percent
(95%) occupancy of the Building. If Sublandlord selects an accrual accounting
basis for calculating Operating Expenses, Operating Expenses shall be deemed to
have been paid when such expenses have accrued in accordance with generally
accepted accounting principles.
4
<PAGE>
(B) Expressly exclude Sublandlord's income taxes; leasing
commissions; interest on debt or amortization payments on any mortgages or deeds
of trust and rental under any ground or underlying leases or lease; advertising
and promotional expenditures; and any other expense which under generally
accepted accounting principles would not be considered a normal maintenance or
operating expense, except as otherwise specifically provided herein.
(b) It is hereby agreed that during each calendar year of the term hereof,
Subtenant shall pay to Sublandlord Subtenant's Pro Rata Share of the amount of
any Operating Expenses. Beginning with the first calendar year in which this
Sublease commences, the monthly rent to be paid by Subtenant to Sublandlord
shall be increased by an amount equal to 1/12th of Subtenant's Pro Rata Share of
the Operating Expenses for each calendar year, with an adjustment to be made
between the parties at a later date as hereinafter provided. However, in
computing the monthly rental for Subtenant's Pro Rata Share of the Operating
Expenses for any calendar year, there shall be taken into account any prior
increases in the monthly rent attributable to Subtenant's Pro Rata Share of the
estimated increases in such Operating Expenses. As soon as practicable following
the end of each calendar year during the term of this Sublease, Landlord shall
submit to Subtenant a statement setting forth the exact amount of the increase,
if any, in Subtenant's Pro Rata Share of the Operating Expenses for the calendar
year just completed over Subtenant's Pro Rata Share of the Base Operating
Expenses, and the difference, if any, between Subtenant's actual Pro Rata Share
of the Operating Expenses for the calendar year just completed and the estimated
amount of Subtenant's Pro Rata Share of the Operating Expenses (on which its
rent was based) for such year. Prior to the end of each calendar year during the
term hereof, Sublandlord shall submit to Subtenant a statement setting forth the
amount reasonably estimated by Sublandlord as the increase, if any, in the Base
Operating Expenses for the subsequent year and the amount of the increased
monthly rent to be paid by Subtenant for such subsequent year computed in
accordance with the foregoing provisions. It is to be understood and agreed that
all estimating provisions as referenced above shall be computed on the basis of
the Operating Expenses being adjusted as if the Building were not less than
ninety-five percent (95%) occupied. To the extent that Subtenant's Pro Rata
Share of the actual Operating Expenses for the period covered by such statement
is different from the estimated increases upon which Subtenant paid rent during
the calendar year just completed, Sublandlord shall pay to Subtenant, or
Subtenant shall pay to Sublandlord, as the case may be, the difference within
thirty (30) days following receipt of said statement from Sublandlord. In
addition, with respect to the monthly rent, until Subtenant receives such
statement, Subtenant's monthly rent for the new calendar year shall continue to
be paid at the then current rate, but Subtenant shall commence payment to
Sublandlord of the monthly installments of rent on the basis of the statement
beginning on the first day of the month following the month in which Subtenant
receives such statement. Moreover, Subtenant shall pay to Sublandlord, or shall
receive a credit against the next installment due hereunder, as the case may be,
on the date required for the first payment of rent as adjusted, the difference,
if any, between the monthly installments of rent so adjusted and the monthly
installments of rent actually paid during the new calendar year. In no event
shall any adjustment hereunder result in a decrease in the Base Rent or
additional rent payable pursuant to any other provision of this Lease (except
escalation pursuant to this Section 3A), it being agreed that the payments under
this Section 3A are an obligation supplemental to Subtenant's obligation to pay
the Base Rent.
5
<PAGE>
(c) If Subtenant occupies the Subpremises for less than a full calendar
year during the first or last calendar years of the term hereof, Subtenant's Pro
Rata Share for such partial year shall be calculated by proportionately reducing
the Base Operating Expenses to reflect the number of months in such year during
which Subtenant occupied the Premises (the "Adjusted Base Operating Expenses").
The Adjusted Base Operating Expenses shall then be compared with the actual
Operating Expenses for said partial year to determine the amount, if any, of any
increases in the actual Operating Expenses for such partial year over the
Adjusted Base Operating Expenses. Subtenant shall pay its Pro Rata Share of any
such increases within thirty (30) days following receipt of notice thereof.
(d) Sublandlord's failure during the Lease term to prepare and deliver any
statement or bills, or Sublandlord's failure to make a demand under this Section
or under any other provision of this Sublease shall not in any way be deemed to
be a waiver of, or cause Sublandlord to forfeit or surrender, its rights to
collect any items of additional rent which may have become due pursuant to this
Section during the term of this Sublease, except as otherwise specifically set
forth in this Sublease. Subtenant's liability for all additional rent due under
this Section 3A shall survive the expiration or earlier termination of this
Sublease.
(e) Subtenant shall have the right to be exercised within ninety (90) days
following receipt of Sublandlord's statement, to review Sublandlord's actual
operating expenses during regular business hours upon ten (10) days written
notice.
4. ADDITIONAL RENT.
---------------
(a) All amounts payable by Subtenant to Sublandlord pursuant to this
Sublease, including, without limitation, Base Rent and any additional rent
required by the terms hereof, shall be deemed to constitute rent and, in the
event of any non-payment thereof, Sublandlord shall have all of the rights and
remedies provided herein, in the Lease, at law or in equity for non-payment of
rent.
(b) Subtenant's obligation to pay additional rent hereunder shall be
on account of the period from and after the Rent Commencement Date and shall
survive the Expiration Date or sooner termination of the Term.
(c) The items of additional rent as provided in this Agreement of
Sublease shall be billed to Subtenant by Sublandlord (whether or not such items
have been incurred by the time of billing) within thirty (30) days of incursion
by Landlord. Subtenant shall have thirty (30) days after receipt of such
statement to reimburse Sublandlord for these costs.
5. SUBORDINATION TO AND INCORPORATION OF TERMS OF LEASE
----------------------------------------------------
(a) This Sublease is in all respects subject and subordinate to the
terms and conditions of the Lease and to the matters to which the Lease is or
shall be subordinate. Except as otherwise expressly provided in this Sublease,
all terms and conditions of the Lease are incorporated in this Sublease by
reference and made a part
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hereof as if herein set forth at length, and shall, as between Sublandlord and
Subtenant (as if they were the Landlord and Tenant, respectively, under the
Lease and as if the Subpremises being sublet hereby were the Lease Premises
demised under the Lease), constitute the terms of this Sublease, except to the
extent that they do not relate to the Subpremises or are inapplicable to,
inconsistent with, or modified or eliminated by, the terms of this Sublease. The
parties agree that the following terms of the Lease do not apply to this
Sublease: Sections 1, 2a, 2b, 2d, 3, 4, 6a, 11, 12c, 15, 23, 25, 31, 34 and the
Exhibits to the Lease. Sublandlord and Subtenant acknowledge and agree that
Subtenant has reviewed and is familiar with the Lease and Sublandlord hereby
represents that the copy delivered to Subtenant for such purpose and attached
hereto as Exhibit A is a true, correct and complete copy of such Lease and that
the Lease represents the entire agreement between Sublandlord and Landlord with
respect to the lease of the Premises. Sublandlord also represents that (i) there
is no default, or any condition which with the passage of time or the giving of
notice, or both, would constitute a default, on the part of either party to the
Lease, (ii) Sublandlord has not assigned, encumbered or otherwise transferred
any interest of Tenant under the Lease, and (ii) the Commencement Date of the
Lease was September 1, 1997 and the scheduled expiration date of the Lease is
August 31, 2007.
(b) In the event of a default by Sublandlord, as Tenant under the
Lease, resulting in the termination, reentry or dispossession thereunder,
Landlord may, at its option, and Sublandlord shall use reasonable efforts to
cause Landlord to, take over all of the right, title and interest of Sublandlord
under this Sublease and Subtenant hereunder shall, at the option of the
Landlord, attorn to and recognize Landlord as Sublandlord hereunder except that
Landlord shall not (i) be liable for any previous act or omission of Sublandlord
under this Sublease, (ii) be subject to any offset, not expressly provided for
in this Sublease, which theretofore accrued to Subtenant against Sublandlord, or
(iii) be bound by any previous modification of this Sublease or by any previous
prepayment of more than one month's rent, and shall, promptly upon Landlord's
request, execute and deliver all instruments necessary or appropriate to confirm
such attornment and recognition. Subtenant hereby waives all rights under any
present or future law to elect, by reason of the termination of such Lease, to
terminate this Sublease or surrender possession of the Subpremises.
6. CARE, SURRENDER AND RESTORATION OF THE SUBPREMISES.
--------------------------------------------------
(a) Without limiting any other provision of this Sublease or the
Lease, Subtenant shall take good care of the Subpremises, suffer no waste or
injury thereto and shall comply with all those laws, orders and regulations
applicable to the Subpremises, the Building and Subtenant's use or manner of use
thereof, which are imposed on Sublandlord, as Tenant under the Lease, in
connection with the Subpremises and the Building.
(b) Sublandlord shall be responsible to maintain common areas,
building-wide systems and the roof membrane of the Building. In the event one of
the foregoing require repair, Sublandlord shall be responsible for such repair,
provided that Subtenant notifies Sublandlord as soon as practicable. Sublandlord
agrees to such repair request respond within a reasonable time. Notwithstanding
the foregoing, Subtenant
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covenants and agrees that it will repair promptly at its own expense any damage
to the Subpremises arising out of or from its occupancy of the Subpremises.
(c) Upon the Expiration Date or sooner termination of the Term,
Subtenant shall quit and surrender the Subpremises to Sublandlord, broom clean,
in good order and condition, ordinary wear and tear and damage by fire and other
casualty excepted, and Subtenant shall remove all of its property. If the
Expiration Date or sooner termination of the Term of this Sublease falls on a
Sunday, this Sublease shall expire at noon on the preceding Saturday unless it
be a legal holiday, in which case it shall expire at noon on the preceding
business day. Subtenant shall observe and perform the covenants herein stated
and Subtenant's obligations hereunder shall survive the Expiration Date or
sooner termination of the Term.
7. USE. Subtenant shall use and occupy the Subpremises for office,
---
storage and distribution purposes, other related legal uses, and for no other
purpose. Subtenant shall have access to the Subpremises seven days a week, 24
hours a day and shall comply with Sublandlord's security systems relating to the
Building.
8. SUBTENANT'S OBLIGATIONS. Except as otherwise specifically provided
-----------------------
herein, all acts to be performed and all of the terms and conditions to be
observed by and inuring to the benefit of, Sublandlord, as Tenant under the
Lease of the Premises, shall be performed, and observed by, and shall inure to
the benefit of, Subtenant, and Subtenant's obligations shall run to Sublandlord
as appropriate or required by the respective interests of Sublandlord and
Landlord. Subtenant shall indemnify Sublandlord against, and hold Sublandlord
harmless from, all liabilities, obligations, damages, penalties, claims, costs,
expenses and liabilities (including, but not limited to, reasonable attorneys'
fees and disbursements) paid, suffered or incurred by Sublandlord as a result of
the nonperformance or non-observance by Subtenant, Subtenant's agents,
contractors, employees, invitees or licensees of any such terms and conditions
contained in the Lease. In furtherance of the foregoing, Subtenant shall not (i)
do or permit to be done anything prohibited to Sublandlord, as Tenant under the
Lease, or (ii) take any action or do or permit anything which would result in
any additional cost or other liability to Sublandlord under the Lease and/or
this Sublease. In the event of any inconsistency between the Lease and this
Sublease, such inconsistency (i) if it relates to obligations of, or
restrictions on, Subtenant, shall be resolved in favor of that obligation which
is more onerous to Subtenant or that restriction which is more restrictive of
Subtenant, as the case may be, or (ii) if it relates to any other matter, the
Lease shall govern.
9. LANDLORD'S OBLIGATIONS. Anything contained in this Sublease or in the
----------------------
Lease to the contrary notwithstanding, Landlord shall have no responsibility to
Subtenant for, and shall not be required to provide, any of the services or make
any of the repairs or restorations that Landlord has agreed to make or provide,
or cause to be made or provided, under the Lease, and Subtenant shall rely upon,
and look solely to, Sublandlord for the provision or making thereof. Except as
may result from a default of Sublandlord from its obligations specified in the
preceding sentence, Subtenant shall not make any claim against Sublandlord for
any damage which may arise, nor shall Subtenant's obligations hereunder be
impaired or abated by reason of (i) the failure of Landlord to keep, observe or
perform its obligations pursuant to the Lease, or (ii) the acts or omissions of
Landlord and each of its agents, contractors, servants, employees, invitees
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or licensees. Notwithstanding the foregoing, Sublandlord shall enforce the
obligations of the Landlord under the Lease for the benefit of the Subtenant,
and shall deliver a copy of any notices received from Landlord regarding the
Subpremises.
10. COVENANTS WITH RESPECT TO THE LEASE. Subtenant covenants and agrees
-----------------------------------
that Subtenant shall not do anything that would constitute a default under the
Lease or omit to do anything that Subtenant is obligated to do under the terms
of this Sublease as to cause there to be a default under the Lease.
11. BROKER. Sublandlord and Subtenant represent and warrant to each other
------
that they have not dealt with any broker in connection with this Sublease other
than Cushman & Wakefield of California, Inc. by Sublandlord and Pacific
Commercial Ventures by Subtenant. Sublandlord shall be responsible for the
brokerage commissions of Cushman & Wakefield of California, Inc., pursuant to
the terms of a brokerage agreement, and Cushman & Wakefield shall be responsible
for any payment to Pacific Commercial Ventures. Subtenant shall indemnify
Sublandlord against, and hold Sublandlord harmless from, any claim on, or
liability to, any other broker or any other party with whom Subtenant shall have
dealt in connection with this transaction and Sublease.
12. TENANT IMPROVEMENT WORK.
------------------------
(a) Sublandlord shall enter into a contract with Devcon Construction,
Incorporated ("Devcon") for the construction of the Subtenant Improvement Work
described in the Work Letter Agreement attached hereto as Exhibit "C" pursuant
to plans and specifications prepared by Subtenant. Said construction contract
and plans and specifications shall be subject to Landlord and Sublandlord's
written approval which shall not be unreasonably withheld prior to commencement
of construction of the Subtenant Improvement Work.
(b) Subject to completion of the Subtenant Improvement Work,
Subtenant waives all right to make repairs at the expense of Sublandlord, or to
deduct the costs thereof from the rent, and Subtenant waives all rights under
Section 1941 and 1942 of the Civil Code of the State of California. At the
termination of this Lease, Subtenant shall surrender the Subpremises in a broom
clean and good condition, except for ordinary wear and tear and except for
damage caused by casualty, the elements, acts of God, a partial taking by
eminent domain, or latent defects in the Subpremises existing as of the
Commencement Date.
13. INDEMNIFICATION.
---------------
13.1 Indemnification of Sublandlord and Subtenant.
--------------------------------------------
(a) Subtenant shall indemnify, defend with competent and
experienced counsel and hold harmless Sublandlord, its subsidiaries and
affiliates and their respective officers, directors, shareholders and employees,
from and against any and all damages, liabilities, actions, causes of action,
suits, claims, demands, losses, costs and expenses (including without limitation
reasonable attorneys' fees and disbursements and court costs) to the extent
arising from or in connection with the
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<PAGE>
negligence or willful misconduct of Subtenant, its agents, employees,
representatives or contractors.
(b) Sublandlord shall indemnify, defend with competent and
experienced counsel and hold harmless Subtenant from and against any and all
damages, liabilities, actions, causes of action, suits, claims, damages, losses,
costs and expenses (including without limitation reasonable attorneys' fees and
disbursements and court costs) to the extent arising from or in connection with
the negligence or willful misconduct of Sublandlord, its agents, employees,
representatives or contractors.
(c) The party seeking indemnification under this Section (the
"Indemnified Party") shall provide prompt written notice of any third party
claim to the party from whom indemnification is sought (the "Indemnifying
Party"). The Indemnifying Party shall have the right to assume exclusive control
of the defense of such claim or, at the option of the Indemnifying Party, to
settle the same. The Indemnified Party agrees to cooperate reasonably with the
Indemnifying Party in connection with the performance of the Indemnifying
Party's obligations under this Section.
(d) Notwithstanding anything to the contrary contained in this
Sublease, neither party hereto shall be liable to the other for any indirect,
special, consequential or incidental damages (including without limitation loss
of profits, loss of use or loss of goodwill) regardless of (i) the negligence
(either sole or concurrent) of either party or (ii) whether either party has
been informed of the possibility of such damages. It is expressly understood and
agreed that damages payable by either party to Landlord shall be deemed to
constitute direct damages of such party.
13.2 Indemnification by Subtenant of Sublandlord and Landlord.
--------------------------------------------------------
Subtenant agrees to defend, save harmless and indemnify Sublandlord, its
subsidiaries and affiliates and their respective officers, directors,
shareholders and employees, and Landlord to the same extent as Sublandlord is
required to do so under the provisions of the Lease; provided, however, that all
references therein to (i) "Lessee" shall be replaced with "Subtenant" and (ii)
"Premises" shall be replaced with "Subpremises".
13.3 Survival. The provisions of this Section shall survive the
--------
expiration or earlier termination of this Sublease.
14. QUIET ENJOYMENT. As long as Subtenant pays all of the Base Rent and
---------------
Additional Rent due hereunder and otherwise performs and observes all of the
obligations, terms and conditions contained herein and in the Lease as herein
incorporated, Subtenant shall peaceably and quietly have, hold and enjoy the
Subpremises, subject to Section 15 below.
15. TERMINATION OF LEASE. If for any reason the term of the Lease is
--------------------
terminated prior to the Expiration Date of this Sublease, this Sublease shall
thereupon terminate, and neither Sublandlord nor Landlord shall be liable to
Subtenant by reason thereof, except that Sublandlord agrees that it shall not
voluntarily terminate the Lease before June 30, 2000. If Sublandlord terminates
the Lease, effective after June 30, 2000 but while this Sublease is in effect,
Sublandlord agrees to (i) give Subtenant at least three hundred sixty (360) days
prior written notice of the termination, and (ii) pay Subtenant up
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<PAGE>
to One Hundred Thousand Dollars ($100,000) for relocating expenses.
Notwithstanding the foregoing, if the termination of the Lease does not result
in the termination of this Sublease by reason of Subtenant's attornment to, and
recognition of, Landlord as landlord hereunder in accordance with the provisions
of Section 5(b) hereof, Sublandlord shall not be liable to Subtenant hereunder
for damages or otherwise, and Sublandlord's obligation to Subtenant shall be
limited to returning to Subtenant a portion of any rent paid in advance by
Subtenant, if any, prorated as of the date of such termination.
16. MODIFICATION OF LEASE. For the purposes of this Sublease, in all
---------------------
provisions of the Lease requiring the approval, consent or notification of the
Landlord, Subtenant shall be required to obtain the approval or consent of, or
give notice to both Landlord and Sublandlord.
17. CONSENTS. Sublandlord's refusal to consent to or approve any matter or
--------
thing, whenever Sublandlord's consent or approval is required under this
Sublease or under the Lease, as incorporated herein, shall be deemed reasonable
if Landlord has refused or failed to give its consent or approval to such matter
or thing.
18. CONDITION OF THE SUBPREMISES; SUBTENANT'S CHANGES.
-------------------------------------------------
(a) Subtenant represents it has made a thorough examination of the
Subpremises and it is familiar with the condition thereof. Subtenant
acknowledges that it enters into this Sublease without any representation or
warranties by Sublandlord except as set forth in this Lease, or anyone acting or
purporting to act on behalf of Sublandlord, as to the present or future
conditions of the Subpremises or the appurtenances thereto or any improvements
therein or of the Building. Sublandlord represents that upon commencement of
this Sublease, the roof, HVAC systems, electric and plumbing systems, the
parking lot and the lighting systems will be in good working conditions.
(b) Notwithstanding anything to the contrary contained in the Lease,
Subtenant shall not make any changes to the Subpremises whatsoever, including,
without limitation, structural or non-structural changes, without the prior
written consent of Sublandlord and Landlord. All permitted alterations or
additions shall be constructed in accordance with the requirements of the Lease.
19. ASSIGNMENT AND SUBLETTING. Subtenant, for itself, its successors and
assigns, expressly covenants that it shall not assign, whether by operation of
law or otherwise, or pledge or otherwise encumber this Sublease, or sublet all
or any part of the Subpremises. Any purported assignment, pledge, encumbrance or
sublease by Subtenant shall be void and of no force or effect and shall
constitute a default by Subtenant hereunder. Subject to complying with the
provisions of the Lease, Sublandlord reserves the right to transfer and assign
its interest in and to this Sublease to any entity or person who shall succeed
to Sublandlord's interest in and to the Lease.
20. INSURANCE.
---------
(a) Subtenant agrees to maintain in responsible companies qualified
to do business, and in good standing, in California (i) public liability
insurance covering the Subpremises insuring Landlord and Sublandlord as well as
Subtenant (to the extent of
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Subtenant's negligence) with limits which shall be equal to those required to be
maintained by Sublandlord under the Lease, and naming Sublandlord and Landlord
as additional insureds, (ii) Worker's Compensation Insurance with statutory
limits covering all of Subtenant's employees working in the Subpremises, and
(iii) Commercial All-Risk Property Insurance written on an all risk of loss
form, and on a replacement cost basis, covering Subtenant's personal property
and leasehold improvements. Subtenant shall deposit promptly with Sublandlord
certificates for such insurance, and all renewals thereof, bearing the
endorsement that the policies will not be canceled until after thirty (30) days
written notice to both Sublandlord and Landlord. Subtenant shall pay all
premiums and charges for such insurance, and if Subtenant shall fail to obtain
such insurance, Sublandlord may, but shall not be obligated to, obtain the same,
in which event the amount of the premium paid shall be paid by Subtenant to
Sublandlord upon Sublandlord's demand therefor, shall be deemed Additional Rent
and shall be collectible by Sublandlord in the same manner and with the same
remedies as though said sums were Additional Rent reserved hereunder.
(b) Subtenant acknowledges that Sublandlord will not carry any
insurance in favor of Subtenant, and that neither Landlord nor Sublandlord will
carry insurance on Subtenant's furniture and/or furnishings or any fixtures or
equipment, improvements or appurtenances of Subtenant in or about the
Subpremises.
21. WAIVER OF SUBROGATION.
---------------------
(a) Anything in Section 19 of this Sublease to the contrary
notwithstanding, Sublandlord and Subtenant shall each endeavor to secure an
appropriate clause in, or an endorsement upon, any fire or extended coverage
insurance policy obtained by it and covering the Subpremises or the personal
property, fixtures and equipment located therein or thereon, pursuant to which
the respective insurance companies waive subrogation or permit the insured,
prior to any loss, to agree with a third party to waive any claim it might have
against such third party. The waiver of subrogation or permission for waiver of
any claim herein before referred to shall extend to the agents of each party and
its employees. If, and to the extent that such waiver or permission can be
obtained only upon payment of an additional charge, then, except as provided
herein, the party benefiting from the waiver or permission shall pay such charge
upon demand, or shall be deemed to have agreed that the party obtaining the
insurance coverage in question shall be free of any further obligations under
the provisions hereof relating to such waiver or permission.
(b) Subject to the provisions of this Section 21, and insofar as may
be permitted by the terms of the insurance policies carried by it, each party
hereby releases the other with respect to any claim (including a claim for
negligence) which it might otherwise have against the other party for loss,
damage or destruction with respect to its property by fire or other casualty.
22. END OF TERM. If Subtenant shall remain in possession of the
-----------
Subpremises or any part thereof after the expiration or prior termination of the
Term hereof, the parties agree that no such holding over by Tenant shall operate
to extend or renew this Sublease, and that any such holding over shall be
construed as a tenancy-at-will as per Section 17 of the Lease when such holding
over shall have commenced, and such
12
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tenancy shall otherwise be subject to all the terms, conditions, covenants and
agreements of this Sublease. Subtenant further agrees to pay to Sublandlord any
additional amounts payable by Sublandlord to Landlord under the Lease by reason
of any such holding over by Subtenant.
23. DEFAULT.
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(a) In the event that Subtenant shall default in the payment of
Annual Fixed Rent, Additional Rent or any other charge payable hereunder, or
shall default in the performance or observance of any of the terms, conditions
and covenants of this Sublease, Sublandlord, in addition to and not in
limitation of any rights otherwise available to it, shall have the same rights
and remedies with respect to such default as are provided to Landlord under the
Lease with respect to defaults by Sublandlord as Tenant thereunder, with the
same force and effect as though all such provisions relating to any such default
or defaults were set forth herein in their entirety, and Subtenant shall have
all of the obligations of the Tenant under the Lease with respect to such
default or defaults.
(b) In the event of a default by Subtenant in the performance of any
of its non-monetary obligations hereunder, Sublandlord may, at its option, and
without waiving any other remedies for such default herein or at law or by
incorporation by reference of the Lease provided, at any time thereafter, give
written notice to Subtneant that if such default is not cured, or the cure not
commenced, within twenty (20) days after receipt of such notice by Subtenant,
and if so commenced is not thereafter pursued diligently to completion,
Sublandlord may cure such default for the account of Subtenant, and any amount
paid or incurred by Sublandlord in so doing shall be deemed paid or incurred for
the account of Subtenant and Subtenant agrees promptly to reimburse Sublandlord
therefor and save Sublandlord harmless therefrom; provided, however, that
Sublandlord may cure any such default as aforesaid prior to the expiration of
any waiting period if reasonably necessary to protect Sublandlord's interest
under the Lease or to prevent injury or damage to persons or property.
24. DESTRUCTION, FIRE AND OTHER CASUALTY. If the whole or any part of the
------------------------------------
Subpremises or the Building shall be damaged by fire or other casualty and the
Lease is not terminated on account thereof by either Sublandlord or Landlord in
accordance with the terms thereof, this Sublease shall remain in full force and
effect and Base Rent and Additional Rent shall not abate except to the extent
Base Rent and Additional Rent for the Subpremises shall abate under the terms of
the Lease.
25. NOTICES.
-------
(a) Whenever, by the terms of this Sublease, notice demand or other
communication shall or may be given to either party, the same shall be in
writing and address as follows:
If to Sublandlord: Real Estate Manager
Building 81-06
AMP Incorporated
P.O. Box 3608
Harrisburg, PA 17105-3608
13
<PAGE>
Legal Department
AMP Incorporated
Building #176-41
P.O. Box 3608
Harrisburg, PA 17105-3608
If to Landlord: Marie A. Batton, Trustee
1190 East Meadow Drive
Palo Alto, CA 94303
Copy to: David L. Fletcher
Attorney at Law
6262 N. Swan Road, Suite 185
Tucson, AZ 85718
If to Subtenant: Mr. Ching-Fa Hwang
President
NetlQ Corporation
5400 Betsy Ross Drive
Santa Clara, CA
or to such other address or addresses as shall from time to time be designated
by written notice by either party to the other as herein provided. All notices
shall be sent by registered or certified mail, postage prepaid and return
receipt requested, or by Federal Express or other comparable courier providing
proof of delivery, and shall be deemed duly given and received (i) if mailed, on
the third business day following the mailing thereof, or (ii) if sent by
courier, the date of its receipt (or, if such day is not a business day, the
next succeeding business day.
(b) Each party hereunder shall promptly furnish the other with copies
of all notices, requests, demands or other communications which relate to the
Subpremises or the use or occupancy thereof after receipt of the same from
Landlord or others.
25. SUBLEASE CONDITIONAL UPON CERTAIN CONSENTS. Sublandlord and Subtenant
------------------------------------------
each acknowledge and agree that this Sublease is subject Sublandlord's obtaining
the unconditional consent of Landlord in accordance with the terms of the Lease,
and that if such consent shall not be obtained, or condition waived, within
fifteen (15) days of the date hereof, then this Sublease shall be deemed
canceled and terminated and neither of the parties hereto shall have any
liability to the other.
26. SECURITY DEPOSIT. Subtenant shall deposit with Sublandlord, upon the
----------------
completion, execution and delivery of this Sublease, the sum of Forty Five
Thousand Five Hundred Seventy Five Dollars and seventy cents ($45,575.70) to be
held by Sublandlord, without obligation to pay interest thereon, as security for
Subtenant's covenants to pay the rental herein reserved and for the keeping and
performance of all other covenants and obligations required to be kept or
performed by Subtenant under the terms and provisions of the Sublease. In the
event of any default on the part of Subtenant in the payment of
14
<PAGE>
said rental, or in the keeping of performance of any of the other covenants
required to be kept or performed by Subtenant, Sublandlord shall have the right,
but not the obligation, to apply said security deposit, or any portion thereof,
to cure such default. In the event the security is reduced by reason of such
application, then within five (5) days after written notice thereof from
Sublandlord, Subtenant shall deposit with Sublandlord such sum as may be
necessary to restore the security deposit to the original amount. In the absence
of any default on the part of the Subtenant, Sublandlord shall repay the said
security deposit without deduction, to Subtenant promptly upon the termination
of this Lease, but if the security deposit has been reduced to cure any default
on the part of Subtenant, and has not been restored to its original amount, the
remainder of the security deposit if any, shall be promptly paid to Subtenant
upon termination of this Lease.
27. LETTER OF CREDIT.
----------------
(a) Upon execution of the Sublease, Subtenant, at Subtenant's sole
cost and expense, shall provide to Sublandlord an irrevocable letter of credit,
in a form reasonably acceptable to Sublandlord, in the amount of Three Hundred
Fifty-Three Thousand Dollars ($353,000) (the "Letter of Credit"). The Letter of
Credit shall be renewed each year throughout the Term except that the amount
secured by the Letter of Credit shall be reduced by Seventy Seven Thousand One
Hundred Twenty-Three and 75/100 Dollars ($77,123.75) for each year of the Term
that Subtenant has complied with all terms and conditions of this Sublease
without default.
(b) Issuer. The Letter of Credit shall be issued by a national bank
------
(the "Issuer") reasonably acceptable to Sublandlord.
(c) Draws. Sublandlord shall hold the Letter of Credit as security
-----
for the performance of Subtenant's covenants and obligations under this
Sublease, it being expressly understood and agreed that the Letter of Credit is
not an advance rental deposit or a measure of Sublandlord's damages in case of
Subtenant's default. Notwithstanding any contrary provision herein, upon the
occurrence of any default by Subtenant in the performance of its obligations
under this Sublease (including the Work Letter Agreement), Sublandlord may, from
time to time, without prejudice to any other remedy provided herein, under the
Lease or by law, draw upon the Letter of Credit in an amount equal to the amount
payable by Subtenant as a consequence of such default and any other damage,
injury, expense or liability caused by such default, and Subtenant shall, upon
demand, restore the Letter of Credit to its full amount. In the event a Letter
of Credit is not maintained, renewed, extended, replaced or restored as required
by this Section, Sublandlord shall be entitled to draw one hundred percent
(100%) of the Letter of Credit and hold such amount as security for the
performance of Subtenant's covenants and obligations under this Lease.
(d) No Waiver. No draw under the Letter of Credit shall be deemed a
---------
waiver of, or be deemed to have cured, any default by Subtenant under any
provision of the Sublease and Sublandlord shall be entitled to any other remedy
available to it under this Sublease, the Lease or by law. The funds drawn by
Sublandlord under the Letter of Credit shall be nonrefundable and, once applied
to Subtenant's obligations under the Sublease, shall remain the property of
Sublandlord.
15
<PAGE>
(e) Authorization for Draws. To obtain a partial or full draw under
-----------------------
the Letter of Credit, Sublandlord shall deliver to the Issuer (with a copy to
Subtenant) an original statement signed by a person who purports to be an
authorized representative of Sublandlord stating that Sublandlord is entitled to
draw on the Letter of Credit in the amount of the requested draw in accordance
with the terms of this Sublease and the Letter of Credit. The Issuer shall not
be entitled to delay the honor of any such draw by reason of the alleged non-
occurrence of any such event.
28. SUBTENANT AUTHORITY. Subtenant is a duly organized and validly
-------------------
existing corporation in good standing under the laws of the California and is
duly and legally qualified to do business as a corporation and has powers
adequate for the execution, delivery and performance of its obligations under
the Sublease and for carrying on the business now conducted or proposed to be
conducted by it. Subtenant has taken all necessary corporate action required to
make the Sublease the legal, valid and binding obligations they purport to be.
The Sublease is in full force and effect and is a legal, valid and binding
obligation of the Subtenant and, subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting the enforcement
of creditors' rights generally, and general equitable principles, is enforceable
in accordance with its terms.
29. MISCELLANEOUS.
-------------
(a) This Sublease may not be extended, renewed, terminated, or
otherwise modified except by an instrument in writing signed by the party
against whom enforcement of any such modification is sought.
(b) It is understood and agreed that all understandings and
agreements heretofore had between the parties hereto are merged in this
Sublease, which alone fully and completely expresses their agreement, and that
the same is entered into after full investigation, neither party relying upon
any statement, representation or warranty made by the other not embodied in this
Sublease.
(c) The paragraph headings appearing herein are for purposes of
convenience only and are not deemed to be a part of this Sublease.
(d) The provisions of this Sublease shall be governed by and
construed in accordance with the laws of the California.
(e) No delay or omission on the part of either party to this Sublease
in requiring performance by the other party or in exercising any right hereunder
shall operate as a waiver of any provision hereof or of any right hereunder, and
the waiver, omission or delay in requiring performance or exercising any right
hereunder on any one occasion shall not be construed as a bar to or waiver of
such performance or right on any future occasion.
(f) Any and all rights and remedies which either party may have under
this Sublease, at law or in equity, shall be cumulative and shall not be deemed
inconsistent with each other, and any two or more of all such rights and
remedies may be exercised at the same time insofar as permitted by law.
16
<PAGE>
(g) If any term or provision of this Sublease or the application
thereof to any person or circumstance shall to any extent be held invalid or
unenforceable, the remainder of this Sublease or the application of such term or
provision to other persons or circumstances shall not be affected thereby, and
each term and provision of this Sublease shall be valid and enforceable to the
fullest extent permitted by law. Section headings and the organization of this
Sublease are for descriptive purposes only and shall not control or alter the
meaning of this Sublease.
(h) This Sublease shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
IN WITNESS WHEREOF, this Agreement of Sublease has been duly executed as of the
day and year first above written.
SUBLANDLORD:
AMP Incorporated
By: /s/ J.E. Marley
Name: J.E. Marley
Title: Chairman
SUBTENANT:
Net IQ Corporation
By: /s/ Ching-Fa Hwang
Name: Ching-Fa Hwang
Title: President
17
<PAGE>
WORK LETTER AGREEMENT
---------------------
5400 BETSY ROSS DRIVE
SANTA CLARA, CALIFORNIA
THIS WORK LETTER AGREEMENT ("this Agreement") is made and entered into as
of July 31, 1998, between AMP Incorporated, a Pennsylvania corporation,
-------
hereafter referred to as "Sublandlord," and Net IQ Corporation, a California
corporation, hereafter referred to as "Subtenant". This Agreement is made and
entered into concurrently with the execution and delivery of that certain
Sublease of even date (the "Sublease") between Sublandlord and Subtenant
covering approximately 21, 198 square feet of the building commonly referred to
as 5400 Betsy Ross Drive, Santa Clara, California (the "Subpremises"). All
capitalized terms not defined herein shall have the meaning ascribed to them in
the Sublease.
The parties agree as follows:
1. Subtenant Improvement Work. Sublandlord shall cause to be constructed
--------------------------
by Devcon Construction, Incorporated ("Devcon") the Subtenant Improvement Work
to the Subpremises required for Subtenant's use and occupancy of the Subpremises
(the "Subtenant Improvement Work") in accordance with this Agreement.
Sublandlord agrees that after final plan approval, Subtenant may enter the
Subpremises for the purpose of installing Subtenant's fixtures and equipment,
provided that neither Subtenant nor any of Subtenant's vendors or contractors
shall interfere with the construction by Devcon of the Subtenant Improvement
Work.
2. Working Drawings.
----------------
(a) Subtenant shall cause to be prepared and shall deliver to
Sublandlord preliminary plans and specifications for the Subtenant Improvement
Work within fifteen (15) days following the execution and delivery of this
Agreement by the parties. Said preliminary plans and specifications shall
include the minimum improvements described in Exhibit A to Amendment Number One
to the Lease and shall be subject to Landlord's and Sublandlord's approval,
which shall not be unreasonably withheld or delayed.
(b) On or before_____________, 1998, Subtenant shall cause to be
prepared final plans, specifications, and working drawings ("Working Drawings")
for the Subtenant Improvement Work which shall substantially conform to the
preliminary plans and specifications previously delivered by Subtenant, and a
preliminary construction budget approved by Subtenant. Within three (3) days
after receipt thereof, Subtenant and Sublandlord shall approve such Working
Drawings and preliminary construction budget, or Sublandlord shall deliver to
Subtenant, Sublandlord's specific written changes or objections to such Working
Drawings or budget. Sublandlord shall not unreasonably withhold or delay its
approval of the Working Drawings or preliminary budget. The parties
2
<PAGE>
shall negotiate in good faith to reach agreement on any aspect of the Working
Drawings or preliminary budget disapproved by Sublandlord, with each party using
its best efforts to complete and to approve the Working Drawings and preliminary
budget on or before __________________, 1998. Subtenant shall proceed with
reasonable diligence in the preparation and completion of the Working Drawings.
(c) Upon approval, Sublandlord and Subtenant shall each initial and
date the Working Drawings and Sublandlord shall submit the Working Drawings to
all appropriate governmental agencies for approval. Immediately after all
necessary governmental approvals have been obtained, four (4) copies of the
Working Drawings shall be initialed and dated by Sublandlord and Subtenant if
any changes thereto have been made by the governmental agencies. The Working
Drawings as approved and all change orders permitted pursuant to Paragraph 5
hereof are referred to herein as the "Approved Plans." Sublandlord and Subtenant
shall deliver a copy of the Approved Plans to Landlord.
3. Contractor.
----------
(a) Devcon shall be the general contractor for the construction of
the Subtenant Improvement Work.
(b) Devcon shall have the following obligations during the
performance of the Subtenant Improvement Work and, where appropriate, following
the completion of the Subtenant Improvement Work, in addition to all other
conditions and obligations set forth in the Construction Contract or otherwise
applicable to Devcon as general contractor:
(1) Devcon shall obtain at least three (3) competitive bids for
all subcontractors unless Sublandlord and Subtenant approve a single
subcontractor or unless Sublandlord and Subtenant approve in writing a fewer
number of competitive bids;
(2) Devcon shall expressly assume responsibility for all work
done by all persons working under its supervision and control; and
(3) Devcon shall use its best efforts to ensure that all persons
working under its supervision and control are, during the entire course of their
duties, properly licensed and qualified to do the particular jobs for which they
were hired.
4. Construction Contract.
---------------------
(a) The Subtenant Improvement Work shall be performed by Devcon
pursuant to a fixed price construction contract (the "Construction Contract")
between Sublandlord and Devcon which shall describe the scope of work and costs
for the Subtenant Improvement Work and Devcon's overhead and profit, which shall
not exceed seven percent (7%) (not including field general conditions). Such
Construction Contract shall be subject to approval by Landlord, which shall not
be unreasonably withheld. Both Sublandlord and Subtenant shall participate in
the negotiation of the general conditions to the Subtenant Improvement Work, but
in the event of any disagreement between Sublandlord and Subtenant with respect
thereto, Sublandlord's determination shall be
3
<PAGE>
final. Sublandlord shall supervise Devcon and the performance of the Subtenant
Improvement Work. Subtenant may also retain at Subtenant's sole expense a
construction supervisor who shall act as Subtenant's representative during
construction of the Subtenant Improvement Work. The Construction Contract shall
provide that Devcon shall provide a warranty of one year with respect to the
Subtenant Improvement Work plus applicable warranties on equipment installed.
(b) Sublandlord shall obtain Devcon's bid to perform the Subtenant
Improvement Work, which bid shall be itemized to show the amount to be charged
by each subcontractor for its part of the Subtenant Improvement Work.
Subcontractors shall be chosen on the basis of competitive bids, as set forth in
Paragraph 3(b)(1) above. Sublandlord shall promptly submit Devcon's bid to
Subtenant for Subtenant's review and approval, which approval shall not be
unreasonably withheld.
(c) Either Sublandlord or Subtenant's representative shall have the
right to disapprove any bid for any item of the Subtenant Improvement Work, and
if Sublandlord or Subtenant's representative does so, Sublandlord, Subtenant's
representative, and Devcon shall immediately confer and attempt in good faith to
reach agreement upon an alternative bid acceptable to Sublandlord and
Subtenant's representative and Devcon. If the parties are unable to reach
agreement within five (5) business days after Sublandlord or Subtenant's
representative has disapproved a subcontractor, then the part of the Subtenant
Improvement Work that is the subject of the disapproval bid shall re rebid to
one subcontractor, and such work shall be awarded to such subcontractor if its
bid is lower than the disapproved bid. In selecting alternative subcontractors,
Sublandlord and Subtenant's representative shall act reasonably and in good
faith, acknowledging that a subcontractor's ability to do quality work completed
on time is as important as the price charged, and acknowledging further that the
approval of Devcon of any Subcontractor must be obtained. Any rebidding process
undertaken pursuant to the subparagraph shall be completed within ten (10)
business days after Sublandlord or Subtenant's representative first disapproves
the subcontractor bid in question.
(d) In consideration for the payment of the Monthly Base Rent provided
for in the Lease, Sublandlord shall pay the sum of Six Hundred Twenty Thousand
Dollars ($620,000) (20,000 square feet x $31.00) on account of the cost of
performance of the Subtenant Improvement Work. The entire balance of the total
cost of the Tenant Improvement Work, including any construction cost overruns,
shall be paid by Subtenant. Once the bid of Devcon and its subcontractors has
been obtained, Sublandlord shall deliver to Subtenant a final estimate of the
Total Cost of the Subtenant Improvement Work (as defined below). If the Total
Cost of the Subtenant Improvement Work exceeds said sum of Six Hundred Twenty
Thousand Dollars ($620,000), Subtenant shall have the right to approve any
engineers, subcontractors, or other professionals whose fees are not included in
Sublandlord's contribution to the cost of the Subtenant Improvement Work.
5. Change Orders. After the Working Drawings have been approved by
-------------
Sublandlord and Subtenant in final form as provided above, Subtenant shall have
the right to request change orders to the Subtenant Improvement Work. Any change
order shall be subject to the prior written approval of Sublandlord, Landlord
and Subtenant's representative, which approval shall not be unreasonably
withheld or delayed, provided that Subtenant shall pay any increase in the Total
Cost of the Subtenant Improvement
4
<PAGE>
Work resulting from any change order and any change order requested by Subtenant
which is approved by Sublandlord which results in a delay in completion of the
Subtenant Improvement Work shall not delay the Commencement Date of the Sublease
specified in Paragraph 2(a) of the Sublease.
6. Payment. Sublandlord and Subtenant shall pay their respective pro rata
-------
share of each construction progress payment for the Subtenant Improvement Work
at the time and in the manner specified in the Construction Contract based upon
their respective percentage share of the Total Cost of the Subtenant Improvement
Work.
7. Commencement and Construction. As soon as (i) the Working Drawings
-----------------------------
have been prepared and approved as provided above, (ii) all necessary building
permits and governmental approvals have been obtained, and (iii) Sublandlord has
entered into the Construction Contract, then Sublandlord shall thereafter cause
performance of the Subtenant Improvement Work to be commenced and diligently
prosecuted to completion, so that the Subtenant Improvement Work is completed as
soon as practicable, subject to force majeure delays beyond Sublandlord's
reasonable control and unexpected conditions at the Subpremises, as provided in
Paragraph 17 hereof.
8. Total Cost of the Subtenant Improvement WorK. "Total Cost of the
--------------------------------------------
Subtenant Improvement Work" shall mean the sum of the following "Included
Costs", but not the following "Excluded Costs: for the Subtenant Improvement
Work:
(a) Included Costs. "Included Costs" shall mean the following: (i) the
--------------
total amount due pursuant to the fixed price Construction Contract entered into
pursuant to this Agreement and any change orders approved pursuant to this
Agreement; (ii) all costs paid to governmental authorities for governmental
applications, approvals, plan check fees, and building permit fees required to
perform the Subtenant Improvement Work; (iii) the reasonable fees of Subtenant's
architect who prepares the plans and specifications for the Subtenant
Improvement Work in an amount by Sublandlord, and the reasonable fees of
engineers, contractors, subcontractors, or other professionals retained by
Sublandlord, Subtenant, or Devcon for services rendered in connection with the
design and performance of the Subtenant Improvement Work; (iv) any costs paid to
governmental authorities to inspect and obtain approval of the Subtenant
Improvement Work; (v) the premium for course of construction insurance insuring
the Subtenant Improvement Work; and (vi) any other costs of performing and
obtaining governmental approvals for the Subtenant Improvement Work shown on the
Working Drawings, other than the "Excluded Costs" described below.
(b) Excluded Costs. "Excluded Costs" shall mean and the Total Cost of
--------------
the Subtenant Improvement Work shall not include; (i) the cost of Subtenant's
furniture, fixtures, or equipment; (ii) costs incurred as a consequence of a
contractor's or subcontractor's default; (iii) interest, principal and other
charges with respect to any construction or permanent loan for the Subtenant
Improvement Work; (iv) compensation paid or expenses reimbursed by Subtenant to
Subtenant's consultants or construction representative; (v) costs of management
and other services provided by employees or affiliates of Sublandlord and the
cost of any administration, profit and overhead for Sublandlord or Subtenant or
any of their respective employees and affiliates; (vi) all costs and expenses
incurred with respect to work not required by the Approved Plans, as the
5
<PAGE>
same may be amended by change orders; (vii) attorneys' fees incurred in
connection with negotiation of construction contracts, and attorneys' fees,
experts' fees and other costs of legal and arbitration proceedings to resolve
construction disputes; (viii) premiums for payments, performance, mechanics'
liens, completion, and other bonds; or (ix) costs covered by warranties and
insurance.
9. Final Accounting. Subtenant shall receive a copy of the monthly
----------------
running total of the cost of the Subtenant Improvement Work prepared by Devcon.
When the Subtenant Improvement Work is completed pursuant to Paragraph 11,
Sublandlord shall submit to Subtenant a final and detailed accounting of the
Total Cost of the Subtenant Improvement Work actually incurred to complete the
Subtenant Improvement Work, certified as true and correct by Sublandlord.
Subtenant shall have the right, during normal business hours after giving
Sublandlord at least two (2) business days prior written notice, to audit the
books, records and supporting documents of Sublandlord at Sublandlord's premises
to the extent such audit discloses a discrepancy of more than five percent (5%),
in which event Subtenant shall pay the cost thereof. Any such audit must be
conducted, if at all, within ninety (90) days after Sublandlord delivers such
accounting to Subtenant.
10. Course of Construction Insurance. Sublandlord shall obtain as a cost
--------------------------------
of the Subtenant Improvement Work course of construction insurance coverage
insuring the Subtenant Improvement Work in an amount equal to the estimated
Total Cost of the Subtenant Improvement. If the Subtenant Improvement Work is
damaged or destroyed by a casualty covered by said insurance, Sublandlord shall
promptly and diligently complete performance of the Subtenant Improvement Work
in accordance with this Agreement.
11. Completion. The Subtenant Improvement Work shall be deemed
----------
substantially complete when the Subtenant Improvement Work has been
substantially completed in accordance with requirements of applicable law and in
accordance with the Working Drawings, as amended by change orders approved
pursuant to Paragraph 5 of this Agreement, all utilities and services necessary
for the use and occupancy have been obtained, and any certificate of occupancy
required by the City of Santa Clara for occupancy of the Subpremises by
Subtenant has been obtained. Substantial completion of the Subtenant Improvement
Work shall be deemed to have occurred pursuant to the foregoing even though
Subtenant's fit up work has not be completed.
12. Inspection.
----------
(a) As soon as the Subtenant Improvement Work is substantially
completed, Sublandlord and Subtenant shall conduct a joint "walk through" of the
Subpremises and shall inspect the Subtenant Improvement Work so completed using
their best efforts to discover any incomplete or defective work. After such
inspection has been completed, Sublandlord and Subtenant shall sign a "punch
list" setting forth any incomplete or defective items.
(b) Sublandlord shall use its best efforts to cause Devcon to complete
and/or repair such "punch list" items within thirty (30) days after the "walk
through". Nothing contained herein shall impair any of Subtenant's other rights
under the Sublease.
6
<PAGE>
(c) Notwithstanding any provision in the Sublease or this Agreement to
the contrary, for purposes of determining the completion of the Subtenant
Improvement Work pursuant to Paragraph 2(a) of the Sublease, the Subtenant
Improvement Work shall not be deemed to have been completed until all incomplete
or defective items referred to in the "punch list" referred to above that have a
material adverse effect on Subtenant's use and enjoyment of the Subpremises have
been completed or repaired to Subtenant's reasonable satisfaction.
13. Warranty. Devcon shall warrant for a period of one year after the date
--------
the Subtenant Improvement Work is completed that the Subtenant Improvement Work
has been performed in a good and workmanlike manner, using new materials and
equipment of good quality, and in accordance with the Approved Plans (as
modified by any change orders approved pursuant to the terms of Paragraph 5 of
this Agreement). There shall be a guarantee of one (1) year, or such other
period as Sublandlord shall approve in writing, on replaced equipment installed
as part of the Subtenant Improvement Work. Sublandlord shall assign to Subtenant
any manufacturers' warranties for equipment which is installed in the
Subpremises as part of the Subtenant Improvement Work.
14. Allocation of Deductions. The Subtenant Improvement Work and resulting
------------------------
improvements constructed pursuant to this Agreement shall be the property of
Landlord upon the expiration or sooner termination of the Sublease. All tax
deductions and accelerated or component depreciation for tax purposes and any
investment tax credit shall be taken by Sublandlord and Subtenant in proportion
to their respective contributions to the Total Cost of the Subtenant Improvement
Work.
15. Headings. The description headings used and inserted in this Agreement
--------
are for convenience only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.
16. Effect of Agreement. In the event of any inconsistency between this
-------------------
Agreement and the Sublease, the terms of the Sublease shall prevail.
17. Delays. Sublandlord shall not be responsible for any delay in
------
completion of the Subtenant Improvement Work to the extent any such delay is
attributable to Subtenant or to Subtenant's representative, Subtenant's
employees or contractors, change orders requested by Subtenant, inclement
weather, shortage of materials or labor, acts of God, casualty, unanticipated
site conditions, or other events or circumstances beyond the reasonable control
of Sublandlord, Devcon, or any subcontractor. To the extent Subtenant reserves
the right to approve the Construction Contract, the scope of work, change
orders, drawings, plans, specifications or other matters relating to the
Subtenant Improvement Work, Subtenant shall not unreasonably withhold, delay or
condition its approval thereof.
7
<PAGE>
IN WITNESS WHEREOF, the Sublandlord and Subtenant have duly executed this
Work Letter Agreement to be effective as set forth above.
"Subtenant"
Net IQ Corporation
Date: July 23, 1998 By: /s/ Ching-Fa Hwang
Its: President
"Sublandlord"
AMP Incorporated
Date: 7/29/98, 1998 By: /s/ J.E. Marley
Its: J.E. Marley, Chairman
8
<PAGE>
EXHIBIT 10.8
CONFIDENTIAL SETTLEMENT AGREEMENT
---------------------------------
This Confidential Settlement Agreement, including Exhibits, ("Agreement")
is made and entered into as of the date of the last party's signature hereon
(the "Effective Date") by and between COMPUWARE CORPORATION, a Michigan
corporation ("Compuware"), NETIQ CORPORATION, a California corporation
("NetIQ"), CHING-FA HWANG, an individual ("Hwang"), HER-DAW CHE, Ph.D. an
individual ("Che"), THOMAS R. KEMP, an individual ("Kemp"), GLENN S. WINOKUR, an
individual ("Winokur"), SARAH J. CARDELLA, an individual ("Cardella"), SCOTT J.
DOWD, an individual ("Dowd"), and SHEAU YUEN YU, an individual ("Yu"). Hwang,
Che, Kemp, Winokur, Cardella, Dowd, and Yu are sometimes collectively referred
to herein as the "Individual Defendants." NetIQ and the Individual Defendants
are sometimes collectively referred to herein as the "Defendants." When the
terms "party" or "parties" are used herein, they shall refer to Compuware,
NetIQ, Hwang, Che, Kemp, Winokur, Cardella, Dowd, and/or Yu.
R E C I T A L S
---------------
A. Compuware filed a lawsuit for misappropriation of trade secrets,
copyright infringement, unfair competition and other claims for relief,
Defendants filed an Answer, Affirmative Defenses and Counterclaims, and
Compuware filed an Answer and Affirmative Defenses to the Counterclaims, which
pleadings collectively framed the issues for the case of Compuware Corp. v.
------------------
NetIQ Corp., et al., Case No. C 96-20783 JF (EAI), United States District Court,
- -------------------
Northern District of California (the "Action").
B. Compuware and the Defendants engaged in mediation on January 6, 1999
before the Honorable Eugene F. Lynch, United States District Judge, Retired
("Judge Lynch") and entered into a written agreement on that date a copy of
which agreement is attached as Exhibit A ("January 6, 1999 Document") and fully
incorporated herein.
C. The parties are desirous of implementing the terms of the January 6,
1999 Document, of confirming the termination and dismissal of the Action, of
resolving all other disputes and disagreements between Compuware, on the one
hand, and one or more of the Defendants, on the other hand, and of forever
discharging all such claims, demands, liabilities, causes of action and claims
for relief that Compuware may have against one or more of the Defendants and
that one or more of the Defendants may have against Compuware, irrespective of
any knowledge or notice thereof or lack of knowledge or lack of notice thereof
on the part of any party, arising out of or relating to the subject matter of
the Action, any other action or case involving Compuware, on the one hand, and
one or more of the Defendants, on the other hand, and any other action, case,
and/or relationship between (a) Compuware and/or one or more of the Compuware
General Releasees (as that phrase is defined in Paragraph 8, infra), on the one
-----
hand, and (b) one or more of the Defendants and/or one or more of the Defendants
General Releasees (as that phrase is defined in Paragraph 8, infra), on the
-----
other hand, accruing up to and including the Effective Date (all such claims,
demands, liabilities, causes of action, and claims for relief sometimes
collectively referred to herein as the "Disputes").
D. Each party is the owner of all claims asserted, released, or in any
way affected
Page 1 of 11
<PAGE>
hereby, and no other person or entity has any interest therein, nor has any
party sold, assigned, transferred, conveyed, or otherwise disposed of any claim
or demand involving any matter in any way related to the Action or the Disputes.
NOW, THEREFORE, for good and valuable consideration, including, but not
limited to, the promises, acknowledgments and covenants contained herein, the
parties hereby agree as follows:
1. Restriction on Hiring by NetIQ. NetIQ shall not hire at any time before
------------------------------
January 1, 2000 any person who (a) was an employee of Compuware on January
6, 1999, or (b) becomes an employee of Compuware between January 6, 1999
and December 31, 1999.
2. Restriction on Release by NetIQ. NetIQ shall not release any systems
-------------------------------
management software for managing UNIX systems on or before December 31,
1999. If at any time Compuware asserts a breach of this Agreement based on
this restriction, it shall not be a defense for NetIQ or any of the
Individual Defendants that the software in question had been released prior
to January 6, 1999.
3. Waiver of Asserted Claims of Malicious Prosecution. Defendants and each of
--------------------------------------------------
them hereby waive any and all claims which they have and/or which they may
have for malicious prosecution, abuse of process, or similar claim or
action against Compuware or any other entities or persons relating to the
filing or prosecution of the Action. Compuware hereby waives any and all
claims which it has and/or which it may have for malicious prosecution,
abuse of process, or similar claim or action against any of the Defendants
or any other entities or persons relating to the filing or prosecution of
the Action.
4. Delivery of Letter. Simultaneous with the execution of this Agreement by
------------------
authorized representatives of Compuware and NetIQ, Hwang or his counsel
shall deliver to Compuware or its counsel a letter addressed to Peter
Karmanos, Jr. and Joseph Nathan, and signed by Hwang ("Letter"), the form
of which has previously been delivered to counsel for Compuware and Judge
Lynch. The Letter is subject to all of the confidentiality provisions of
this Agreement.
5. Loan Agreement. Simultaneous with the execution of this Agreement,
--------------
authorized representatives of Compuware and NetIQ shall execute two (2)
counterparts of a loan agreement ("Loan Agreement"), attached Exhibit B,
fully incorporated herein. One fully executed counterpart of the Loan
Agreement shall be delivered to counsel for Compuware, and one to counsel
for NetIQ.
6. Warrant Agreement. Simultaneous with the execution of the Agreement,
-----------------
authorized representatives of Compuware and NetIQ shall execute two (2)
counterparts of a warrant agreement regarding NetIQ stock ("Warrant
Agreement"), attached Exhibit C, fully incorporated herein. One fully
executed counterpart of the Warrant Agreement shall be delivered to counsel
for Compuware, and one to counsel for NetIQ. Corporate counsel for NetIQ
Page 2 of 11
<PAGE>
regarding the form of the Loan Agreement, the Warrant Agreement, and all
related documents shall be Wilson Sonsini Goodrich & Rosati, P.C. Corporate
counsel for Compuware regarding the form of the Loan Agreement, the Warrant
Agreement, and all related documents shall be Fenwick & West LLP.
7. Waiver of Rights and Dismissal of Action.
----------------------------------------
a. Compuware waives all rights and claims against Defendants arising from
the Action. Defendants waive all rights and claims against Compuware
arising from the Action. Compuware waives any right to bring any
further motion or to seek any appeal or writ against Defendants in the
Action, whether by means of a motion for reconsideration, post-
judgment remedy, or other manner or style of motion, appeal, or writ.
Defendants waive any right to bring any further motion or to seek any
appeal or writ against Compuware in the Action, whether by means of a
motion for reconsideration, post-judgment remedy, or other manner or
style of motion, appeal, or writ. Compuware and its counsel release
Defendants and/or their attorneys from any and all claims for
attorneys' fees, costs, interest, or other sanction arising from the
Action. Defendants and their counsel release Compuware and/or its
attorneys from any and all claims for attorneys' fees, costs,
interest, or other sanction arising from the Action. Each party hereby
withdraws and/or waives all pending and all other motions, notices,
subpoenas, document requests and discovery demands of all types
including but not limited to all motions for sanctions and/or motions
for review, reconsideration, or appeal of such motions in the Action.
b. Simultaneous with the execution of this Agreement, the parties and
their respective counsel shall execute the "Notice and Joint Request
for Entry of Order of Dismissal with Prejudice" ("Dismissal"),
attached Exhibit D, fully incorporated herein. The Dismissal, after
having been executed by each party and each party's respective
counsel, shall then be returned to counsel for plaintiff. The parties
hereby authorize counsel for plaintiff to cause the executed Dismissal
to be filed with the United States District Court for the Northern
District of California, after the counterparts of the Loan Agreement
and the Warrant Agreement have been executed as provided for in
Paragraphs 5 and 6, supra. Within three (3) business days after the
-----
execution of this Agreement, plaintiff's counsel shall provide
Defendants' counsel with a copy of the file-endorsed Dismissal.
8. Mutual General Release. The parties agree on behalf of themselves, their
----------------------
decedents, ancestors, dependents, heirs, executors, agents, attorneys,
servants, employees, representatives, directors, officers, subsidiaries,
affiliates, predecessors in interest, assigns and successors, and each of
them, to fully release and discharge all other parties and their decedents,
ancestors, dependents, heirs, executors, agents, attorneys, servants,
employees, representatives, directors,
Page 3 of 11
<PAGE>
officers, subsidiaries, affiliates, predecessors in interest, assigns and
successors, and each of them, from all rights, claims or actions of any
kind or nature whatever accruing up to and including the Effective Date
arising from or relating to the Action or the Disputes. (Compuware and all
of its decedents, ancestors, dependents, heirs, executors, agents,
attorneys, servants, employees, representatives, directors, officers,
subsidiaries, affiliates, predecessors in interest, assigns and successors,
and each of them are sometimes collectively referred to herein as the
"Compuware General Releasees." Defendants and all of their decedents,
ancestors, dependents, heirs, executors, agents, attorneys, servants,
employees, representatives, directors, officers, subsidiaries, affiliates,
predecessors in interest, assigns and successors, and each of them are
sometimes collectively referred to herein as the "Defendants General
Releasees.") In addition, (a) Defendants agree to fully release and
discharge those entities or individuals that were sales or marketing
partners, OEMs, integrators, distributors, resellers, dealers, or customers
of Compuware as of January 6, 1999, and each of them, if they are or would
have been vicariously or contributorily liable for any claims that do or
might arise from, or are related to, the Action or the facts or claims
alleged therein, and (b) Compuware agrees to fully release and discharge
those entities or individuals that were sales or marketing partners, OEMs,
integrators, distributors, resellers, dealers, or customers of NetIQ as of
January 6, 1999, and each of them, if they are or would have been
vicariously or contributorily liable for any claims that do or might arise
from, or are related to, the Action or the facts or claims alleged therein.
(All of the sales or marketing partners, OEMs, integrators, distributors,
resellers, dealers, and/or customers of Compuware, and all of the sales or
marketing partners, OEMs, integrators, distributors, resellers, dealers,
and/or customers of NetIQ, and each of them are sometimes collectively
referred to herein as the "Limited Releasees.") Notwithstanding the
foregoing, nothing in this Paragraph or in this Agreement shall be
construed to limit Compuware's or NetIQ's respective rights to enforce any
of their respective licenses, contracts or other agreements with any entity
or person for any acts or omissions that are not released pursuant to this
Paragraph and/or this Agreement.
9. Full Settlement. This Agreement, notwithstanding Section 1542 of the
---------------
California Civil Code which provides that,
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR,"
shall be a full settlement of said rights, claims and actions. This
Agreement shall act as a release of all claims brought, or that could have
been brought, arising out of or relating to the Action or the Disputes up
through and including the Effective
Page 4 of 11
<PAGE>
Date, whether such claims are currently known, unknown, foreseen, or
unforeseen. Each party understands and acknowledges the significance and
consequence of such specific waiver of Section 1542 of the California Civil
Code and hereby assumes full responsibility for any injury, damages,
losses, or liability arising therefrom. Each party further waives any
provision of any statute, common law, or other provision in any other
jurisdiction having a similar effect to that of Section 1542 of the
California Civil Code with regard to the terms of this Agreement.
10. Compromise; No Admissions. This Agreement is a compromise of the Action
-------------------------
and the Disputes, and it shall not constitute an admission of liability by
any party.
11. Confidentiality. Except for (a) disclosure to any person that is a party
---------------
or a person otherwise authorized to receive such information pursuant to
this Paragraph, (b) disclosure to Judge Lynch or personnel of
JAMS/Endispute, (c) disclosure necessary in connection with an effort to
enforce this Agreement, (d) disclosure required by law in any judicial
proceeding or pursuant to any court order, subpoena, or other lawful
process, and/or (e) disclosure to governmental regulatory officials upon
formal demand, no party or any of his, her, its, or their dependents,
heirs, executors, agents, attorneys, employees, directors, officers,
predecessors in interest, assigns or successors shall disclose this
Agreement, any of the Exhibits hereto, any of the terms hereof, or the
Letter to any other person without the prior written consent of all other
parties hereto or the prior written permission of Judge Lynch or his
replacement as selected in accordance with Paragraph 19, infra.
-----
Notwithstanding the foregoing, any party may disclose to any third-party:
(i) the fact that the parties have settled the Action; and/or (ii) any
other matters actually disclosed in the public record on file with the
United States District Court for the Northern District of California or
whose disclosure has previously been permitted pursuant to any Order of the
Court in the Action. In addition, notwithstanding the foregoing, any party
may also disclose this Agreement, any of the Exhibits hereto, and any of
the terms hereof (excluding the Letter) to:
(1) that party's current or future spouse for any purpose directly
related to community property issues;
(2) that party's dependents, heirs, executors, agents, attorneys,
directors, officers, predecessors in interest, assigns, successors,
accountants, auditors, investment bankers, bankers, financial advisors,
insurers and/or no more than ten (10) employees (in addition to any
employees that are parties) if, and only if, (A) required in good faith for
legitimate business or tax reasons, (B) such disclosure is made only to the
extent necessary, and (C) any persons to whom any such disclosure is made
are first advised that such information is confidential and shall not
Page 5 of 11
<PAGE>
be disclosed; and/or
(3) that party's investors, any third parties interested in acquiring
NetIQ in connection with any Change of Control Transaction (as that phrase
is defined in the Warrant Agreement), and/or any of such investors' or
third parties' attorneys, investment bankers, bankers, and/or financial
advisors, if, and only if, (A) required in good faith for legitimate
business or tax reasons in connection with existing securities in NetIQ or
Compuware or the sale of any security by NetIQ or Compuware, (B) such
disclosure is made only to the extent necessary, and (C) any persons to
whom any such disclosure is made are first advised that such information is
confidential and shall not be disclosed.
In addition, notwithstanding the foregoing, NetIQ and persons acting on its
behalf may also (A) disclose any of the material terms of this Agreement
and/or the Exhibits hereto, and/or, with the prior written consent of
Hwang, the Letter to any person in connection with any public offering for
the common stock of NetIQ, as required under the Securities Act of 1933, as
amended, or any other applicable laws and/or (B) upon the advice of counsel
for NetIQ in connection with any public offering for the common stock of
NetIQ, lodge or file a copy of this Agreement and/or any of the Exhibits
hereto with the Securities Exchange Commission and/or any other relevant
governmental agency.
12. Governing Law. This Agreement (including but not limited to its Exhibits)
-------------
shall be governed by and interpreted in accordance with the internal laws
of the State of California, excluding the body of law related to choice of
laws.
13. Severability. If for any reason any provision hereof is determined to be
------------
invalid or unenforceable, the remaining provisions nevertheless shall be
construed, performed, and enforced as if the invalidated or unenforceable
provision had not been included.
14. Binding on Heirs. The provisions hereof shall be binding on and shall
----------------
inure to the benefit of the parties hereto, their respective heirs, legal
representatives, successors, and assigns, provided that no benefit shall
inure to assignees acquiring any interest in violation of the provisions
hereof.
15. Notice of Breach. In the event of any claim of breach of this Agreement or
----------------
any of the Exhibits hereto, the party or parties asserting the breach shall
give written notice thereof and allow the other party or parties ten (10)
business days to cure. Cure of breach within the ten (10) day period shall
not necessarily absolve a party from liability or damages therefor.
16. No Waiver. Waiver of strict performance of any part of this Agreement
---------
shall not be deemed a waiver of, nor shall it prejudice the waiving party's
right to require, strict performance of the same part or any other part in
the future.
Page 6 of 11
<PAGE>
17. Gender and Number. When required by the context, the provisions hereof
-----------------
shall be interpreted by reference to the actual appropriate party or
parties regardless of the gender or number herein used.
18. Captions. The captions appearing herein are for the purpose of
--------
identification only, and such captions and headings shall not be construed
to convey any substance or meaning to the text hereunder.
19. Binding Arbitration. Any dispute or disagreement of any type between (a)
-------------------
Compuware and/or one or more of the Compuware General Releasees, on the one
hand, and (b) one or more of the Defendants and/or one or more of the
Defendants General Releasees, on the other hand, arising out of or relating
to this Agreement, the Exhibits hereto, the Letter, the Action, the
Disputes, or the matters released pursuant to this Agreement shall be
resolved by expedited, confidential, binding arbitration before Judge Lynch
as a single arbitrator in San Francisco, California under the Federal
Arbitration Act and the rules of the Judicial Arbitration and Mediation
Services ("JAMS"), subject to all of the confidentiality provisions herein.
If Judge Lynch is unavailable to serve as an arbitrator, then a replacement
single arbitrator who is a retired judge shall be agreed to by the relevant
parties, Compuware General Releasees, and/or Defendants General Releasees,
or, failing such agreement within fifteen (15) days after any such relevant
party, Compuware General Releasee, or Defendants General Releasee first
seeks such agreement, selected by JAMS. The arbitrator's award shall be
binding, and judgment upon any such award may be entered by any court of
competent jurisdiction. Judge Lynch (or his replacement) may require such
relevant parties, Compuware General Releasees, and/or Defendants General
Releasees to mediate prior to any arbitration. The cost of the services
for Judge Lynch (or his replacement) and JAMS shall be divided equally
between (a) Compuware and/or whichever one or more of the Compuware General
Releasees are a party or parties to such proceedings, on the one hand, and
(b) whichever one or more of the Defendants and/or Defendants General
Releases are a party or parties to such proceedings, on the other hand.
20. Relief for Breach. Any claim for relief, whether in equity or at law, by
-----------------
any party, any Compuware General Releasee, or any Defendants General
Releasee arising out of breach of, or non-compliance with, the Agreement
shall be resolved pursuant to Paragraph 19, supra. To the extent allowable
-----
by law, the arbitrator may enter injunctive relief, award damages, costs
and/or attorney's fees. Should it be determined by the arbitrator or a
court of competent jurisdiction that the arbitrator is without authority to
grant injunctive relief, application may be made to a court of competent
jurisdiction for such injunctive relief.
21. Effect. Each party has been fully represented by counsel in connection
------
with the negotiation of this Agreement and understands the operation and
effect of this Agreement. Each party hereto acknowledges that the party
has had an equal opportunity to review the provisions of this Agreement
with counsel and to
Page 7 of 11
<PAGE>
negotiate the provisions of this Agreement with the other parties.
Accordingly, no party shall be deemed the draftsperson of this Agreement
and there shall be no presumption that this Agreement is to be interpreted
for or against any party.
22. Fees and Costs. Each party hereto shall bear his, her, or its own
--------------
attorneys' fees and costs, including but not limited to all attorneys' fees
and costs associated with proceedings before the Special Master and/or
relating to any Orders of the United States District Court for the Northern
District of California, incurred in connection with the Action or the
Disputes, or in preparing and entering into this Agreement.
23. Notices. Any notice required or permitted by this Agreement shall be in
-------
writing and shall be sent by Federal Express or other overnight delivery
service of comparable speed and reliability, or by registered or certified
overnight mail, return receipt requested. Such notice shall be deemed to
have been delivered as of the date shown on the overnight delivery service
confirmation or return receipt as the date of delivery. All such notices
shall be addressed as follows (or to such other persons or addresses as a
party shall notify the others in advance of the giving of any such notice
in writing):
If to Compuware: Compuware Corporation
31440 Northwestern Highway
Farmington Hills, MI 48334
Attention: Thomas Costello, Jr., Esq.
Vice President, Secretary
and General Counsel
with a copy to: Fenwick & West LLP
Two Palo Alto Square, Suite 700
Palo Alto, California 94306
Attention: Stuart P. Meyer, Esq.
If to NetIQ: NetIQ Corporation
5410 Betsy Ross Drive
Santa Clara, California 95054
Attention: Ching-Fa Hwang
President and CEO
with a copy to: Russo & Hale LLP
401 Florence Street
Palo Alto, California 94301
Page 8 of 11
<PAGE>
Attention: Jack Russo, Esq.
with an additional copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94306
Attention: Thomas C. DeFilipps, Esq.
If to any of the
Individual Defendants to: any such Individual Defendant
Care of NetIQ Corporation
5410 Betsy Ross Drive
Santa Clara, California 95054
Attention: such Individual Defendant
with a copy to: Russo & Hale LLP
401 Florence Street
Palo Alto, California 94301
Attention: Jack Russo, Esq.
24. Counterparts. This Agreement, the Warrant Agreement and the Loan Agreement
------------
may be signed in counterparts by telecopy delivery or otherwise and each
such counterpart shall be treated and have the evidentiary effect of an
original signed by all parties.
25. Warranty of Authority. Each party that is a corporation or other entity,
---------------------
and each person executing this Agreement, the Warrant Agreement or the Loan
Agreement on behalf of such party, represents and warrants to the other
parties that the person so executing this Agreement, the Warrant Agreement
or the Loan Agreement has actual authority to execute this Agreement, the
Warrant Agreement or the Loan Agreement on behalf of and bind such party,
that the execution of this Agreement, the Warrant Agreement or the Loan
Agreement has been validly approved by all necessary corporate or other
action, and that upon the execution of this Agreement, the Warrant
Agreement or the Loan Agreement by such person, this Agreement, the Warrant
Agreement or the Loan Agreement shall be fully binding upon and enforceable
against such party.
26. Supremacy of Terms of this Agreement. In the event of any conflict or
------------------------------------
inconsistency (a) between the terms of this Agreement and the terms of the
Loan Agreement and/or (b) between the terms of this Agreement and the terms
of the Warrant Agreement, the terms of this Agreement shall control.
Page 9 of 11
<PAGE>
<TABLE>
<C> <S> <C>
initialled
------------
27. Entire Agreement. THIS AGREEMENT, INCLUDING ITS Compuware /s/ Joseph A. Nathan
----------------
EXHIBITS, STATES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE
SUBJECT MATTER HEREOF AND SUPERSEDES ALL NetIQ /s/ Ching-Fa Hwang
PRIOR NEGOTIATIONS, UNDERSTANDINGS AND
AGREEMENTS BETWEEN THE PARTIES HERETO
CONCERNING THE SUBJECT MATTER HEREOF, Hwang /s/ Ching-Fa Hwang
INCLUDING THE JANUARY 6, 1999 DOCUMENT
ATTACHED HERETO AS EXHIBIT A. THIS
AGREEMENT SIGNED BY THE PARTIES Che /s/ Her-Daw Che
CONSTITUTES A FINAL WRITTEN EXPRESSION OF
ALL OF THE TERMS OF THIS AGREEMENT AND IS A
COMPLETE AND EXCLUSIVE STATEMENT OF THOSE Kemp /s/ Thomas R. Kemp
TERMS. BY THEIR INITIALS HERETO, SET FORTH
ALONGSIDE THIS PARAGRAPH, EACH PARTY
ACKNOWLEDGES THAT HE, SHE, OR IT HAS NOT Winokur /s/ Glenn S. Winokur
BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY ANY STATEMENTS OR REPRESENTATIONS NOT
CONTAINED HEREIN. ANY AND ALL Cardella /s/ Sarah J. Cardella
REPRESENTATIONS, PROMISES, WARRANTIES, OR
STATEMENTS BY OR ON BEHALF OF ANY PARTY
THAT DIFFER IN ANY WAY FROM THE TERMS Dowd /s/ Scott J. Dowd
HEREOF SHALL BE GIVEN NO FORCE OR EFFECT.
THIS AGREEMENT AND THE EXHIBITS TO THIS
AGREEMENT SHALL NOT BE AMENDED OR Yu /s/ Sheau Yuen Yu
MODIFIED EXCEPT BY A WRITTEN INSTRUMENT
SIGNED BY ALL THE PARTIES HERETO.
</TABLE>
IN WITNESS WHEREOF, the parties and their respective counsel have executed
this Agreement as of the date indicated therewith.
Compuware Corporation NetIQ Corporation
--------------------- -----------------
By: /s/ Joseph A. Nathan By: /s/ Ching-Fa Hwang
Name: Joseph A. Nathan Name: Ching-Fa Hwang
Title: President Title: President and CFO
Dated: Dated: 3/10/99
Individual Defendants
---------------------
Page 10 of 11
<PAGE>
/s/ Ching-Fa Hwang /s/ Her-daw Che, Ph.D.
Ching-Fa Hwang Her-daw Che, Ph.D.
-------------- ------------------
Dated: 3/8/99 Dated: 3/8/99
/s/ Thomas R. Kemp /s/ Glenn S. Winokur
Thomas R. Kemp Glenn S. Winokur
-------------- ----------------
Dated: 3/8/99 Dated: 3/8/99
/s/ Sarah J. Cardella /s/ Scott J. Dowd
Sarah J. Cardella Scott J. Dowd
----------------- -------------
Dated: 3/8/99 Dated: 3/8/99
/s/ Sheau Yuen Yu
Sheau Yuen Yu
-------------
Dated: 3/8/99
//
//
//
APPROVED AS TO FORM:
Fenwick & West LLP Russo & Hale LLP
By: /s/ Stuart P. Meyer By: /s/ Jack Russo
Stuart P. Meyer, Esq. Jack Russo, Esq.
Attorneys for Compuware Corporation Attorneys for NetIQ Corporation, Ching-Fa
Hwang, Her-daw Che, Ph.D., Thomas R.
Kemp, Glenn S. Winokur, Sarah J.
Cardella, Scott J. Dowd, and Sheau Yuen
Yu
Wilson, Sonsini, Goodrich & Rosati, P.C.
By: /s/ Thomas C. DeFilipps
Thomas C. DeFilipps, Esq.
Attorneys for NetIQ Corporation
/s/ Eugene F. Lynch
Honorable Eugene F. Lynch,
United States District Judge, Retired
Page 11 of 11
<PAGE>
Exhibit A
SETTLEMENT PROPOSAL
1. Comprehensive Settlement Agreement -- Mutual General Release -- Including
but not limited to all officers, directors, employees, attorneys, agents,
and other representatives and including but not limited to a release of all
known and unknown claims and a waiver of Section 1542 of the California
Civil Code
2. No Hiring by NQ of CWC employee on or before 12/31/1999
3. No commercial release by NQ of systems management software for managing UNIX
systems on or before 12/31/1999
4. Waiver of All Individual Malicious Prosecution and Other Claims
5. Confidentiality of All Terms of Settlement
6. Letter of Regret Signed by Mr. Hwang to Mr. Karmanos & Nathan
7. CWC Receives Warrant to Purchase NQ Common Shares at IPO
a) at CWC's option, up to 10% of Offered IPO Shares at 10% Discount on IPO
Price
b) with overall cumulative limit of up to 2% of NQ currently outstanding shares
on an "as if converted" basis (total of approximately of somewhat less than
400,000 common shares)
c) if less than full exercise or if limit reached then warrant expires; if no
expiration, warrant extends to secondary offerings with 10% of the secondary
offering at 10% Discount on Secondary Price (up to overall 2% cumulative
limit)
d) NetIQ will give Compuware written notice of S-1 filing (the "S-1 Filing
Notice") within 15 business days before filing with SEC
e) firm written commitment to exercise must occur within 10 business days of
S-1 Filing Notice
f) warrant period expires in all events on January 1, 2002 or upon exercise (or
non-exercise) by Compuware, whichever first occurs
g) lockup agreement signed by Compuware with other IPO purchases for up to 180
days following IPO
<PAGE>
8. Compuware Gets Warrant for Other Pre-IPO "Change of Control" Event
a) with overall cumulative limit of up to 2% of NetIQ currently outstanding
shares on as "as if converted" basis (total of approximately of somewhat
less than 400,000 common shares)
b) if by 12/31/99, option to purchase up to the above total number of NetIQ
common shares at 20% discount of the purchase price
c) after 1/1/2000, option to purchase up to above total number of NetIQ common
shares at 10% discount of the purchase price
d) foregoing options expires in all events on January 1, 2002 or upon any IPO
of NetIQ, whichever first occurs
9. Subject to customary banking covenants, Compuware makes subordinated secured
loan of $5 million to NetIQ repayable on 1/1/2002 or earlier upon any
earlier IPO or earlier "Change of Control" events (6% per annum interest
payable every six months [with] all principal and interest due on January 1,
2002). The foregoing loan is subordinate to the first priority UCC-1s filed
by NetIQ's bank and all information provided by NetIQ in connection with
such loan shall be provided, under NDA, to a third-party CPA or other third-
party financial advisor for Compuware who shall not disclose such
information to Compuware
10. For NQ Shares Owned by Compuware, Irrevocable Proxy to NQ Board for all
voting of all shares, expires January 1, 2002
11. Standstill Agreement (no further purchase of public or other shares of
NetIQ by Compuware once 2% ownership has occurred)
12. All Disputes of Any Types Resolved by Retired Judge Lynch (or if Judge
Lynch is not available then another retired Judge of JAMs) by expedited,
confidential, binding arbitration in San Francisco
13. Each party bears its own court costs & attorney's fees (including but not
limited to all Special Master and/or Court Orders)
14. Settlement Agreement is effective on January 8, 1999 and all disputes and
disagreements regarding final documents are resolved by Judge Lynch
15. Counsel for NetIQ on corporate documents for Settlement Agreement is agreed
to be Tom DeFilipps, Esq. and Wilson Sonsini Goodrich & Rosati and counsel
for Compuware on corporate documents for Settlement Agreement is signed to
be Fenwick & West LLP.
-2-
<PAGE>
16. This Settlement Agreement is agreed by the parties before Judge Eugene
Lynch (ret.) as to all terms and conditions except as to Paragraph 9; the
terms and conditions of Paragraph 9 have not yet been agreed by the parties
and therefore, this Settlement Agreement is not effective until such time
as the parties communicate, in writing, to Judge Lynch that Paragraph 9 is
approved and such written confirmation shall occur by January 7, 1999 at
5PM PST or this Settlement Agreement is null and void.
For Defendants: For Plaintiff:
/s/ Ching-Fa Hwang /s/ Joseph A. Nathan
- --------------------------- ----------------------------
/s/ Ying-Hon Wong
- ---------------------------
Approved as to Form: Approved as to Form:
/s/ Jack Russo /s/ Stuart P. Meyer
- --------------------------- ----------------------------
-3-
<PAGE>
Exhibit B
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
THIS NOTE IS SUBJECT TO A SUBORDINATION AGREEMENT DATED MARCH 10, 1999 BETWEEN
COMPUWARE CORPORATION AND SILICON VALLEY BANK.
NETIQ CORPORATION
SUBORDINATED SECURED PROMISSORY NOTE
------------------------------------
$5,000,000 March 10, 1999
Santa Clara,California
FOR VALUE RECEIVED NETIQ CORPORATION, a California corporation ("Company"),
promises to pay to COMPUWARE CORPORATION, a Michigan corporation ("Holder"), or
its assigns, the principal sum of Five Million Dollars ($5,000,000), or such
lesser amount as shall equal the outstanding principal amount hereunder,
together with interest from the date of this Note on the unpaid principal
balance at a rate equal to six percent (6.00%) per annum, computed on the basis
of the actual number of days elapsed and a year of 365 days. All unpaid
principal, together with any then unpaid and accrued interest payable hereunder,
shall be due and payable on the earliest of (i) January 1, 2002, (ii) the
receipt by Company of gross proceeds of at least $10,000,000 from the initial
underwritten public offering of Company's capital stock ("IPO"), (iii) upon the
closing of the occurrence of a Change in Control (as defined below), or (iv)
when, upon or after the occurrence of an Event of Default (as defined below),
such amounts are declared due and payable by Holder or made automatically due
and payable in accordance with the terms hereof.
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT AND
A PATENT MORTGAGE AND INTELLECTUAL PROPERTY SECURITY AGREEMENT (COLLECTIVELY,
THE "SECURITY AGREEMENTS") DATED AS OF THE DATE HEREOF IN THE FORMS ATTACHED
HERETO AS EXHIBIT A. ADDITIONAL RIGHTS OF HOLDER ARE SET FORTH IN THE SECURITY
---------
AGREEMENTS.
The following is a statement of the rights of Holder and the conditions to
which this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:
1. Definitions. As used in this Note, the following capitalized
-----------
terms have the following meanings:
1
<PAGE>
(a) "Change in Control" shall mean the closing of (x) a merger or
consolidation of the Company with or into another entity in which the
shareholders of the Company immediately before such merger or consolidation own
less than a majority of the surviving or resulting entity's outstanding voting
stock immediately thereafter, or (y) a sale of all or substantially all of the
Company's assets, or (z) any person or persons acting in concert shall acquire,
directly or indirectly, ownership of 51% of more of the combined voting power of
the capital stock of the Company, but only to the extent such transaction is
substantially effectuated by sales of capital stock to such person or persons by
existing holders of capital stock of Company and not by Company.
(b) "Company" shall mean NetIQ Corporation, a California corporation,
and its permitted successors and assigns.
(c) "Equipment Indebtedness" shall mean the principal of (and
premium, if any), unpaid interest on and amounts reimbursable, fees, expenses,
costs of enforcement and other amounts due in connection with, (i) indebtedness
of Company to banks, commercial finance lenders, insurance companies, leasing or
equipment financing institutions or other lending institutions regularly engaged
in the business of lending money (excluding venture capital, investment banking
or similar institutions which sometimes engage in lending activities but which
are primarily engaged in investments in equity securities), which is for the
purchase of equipment and is secured solely by such equipment and proceeds
thereof, or (ii) any indebtedness arising from the satisfaction of such
Equipment Indebtedness by a guarantor. Without limiting the foregoing,
"Equipment Indebtedness" expressly excludes Specified Senior Indebtedness.
(d) "Event of Default" has the meaning given in Section 5 hereof.
(e) "Financial Statements" shall mean, with respect to any accounting
period for any Person, statements of operations, retained earnings and cash flow
of such Person for such period, and balance sheets of such Person as of the end
of such period, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year if such period is less than a
full fiscal year or, if such period is a full fiscal year, corresponding figures
from the preceding fiscal year, all prepared in reasonable detail and in
accordance with GAAP. Unless otherwise indicated, each reference to Financial
Statements of any Person shall be deemed to refer to Financial Statements
prepared on a consolidated basis.
(f) "GAAP" shall mean generally accepted accounting principles as in
effect in the United States of America from time to time.
(g) "Holder" shall mean Compuware Corporation, a Michigan corporation,
and its permitted successors and assigns.
(h) "IPO" has the meaning given in the first paragraph of this Note.
2
<PAGE>
(i) "Lien" shall mean, with respect to any property, any security
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, capital lease
or other title retention agreement, or any agreement to provide any of the
foregoing, and the filing of any financing statement, mortgage or similar
instrument under the Uniform Commercial Code or comparable law of any
jurisdiction.
(j) "Obligations" shall mean and include all loans, advances, debts,
liabilities and obligations, howsoever arising, owed by Company to Holder of
every kind and description (whether or not evidenced by any note or instrument
and whether or not for the payment of money), now existing or hereafter arising
under or pursuant to the terms of this Note and the other Transaction Documents,
including, without limitation, all principal, interest, fees and costs
chargeable to and payable by Company hereunder and thereunder, in each case,
whether direct or indirect, absolute or contingent, due to become due, and
whether or not arising after the commencement of a proceeding under Title 11 of
the United States Code (11 U.S.C. Section 101 et seq.) as amended from time to
-------
time (including post-petition interest) and whether or not allowed or allowable
as a claim in any such proceeding.
(k) "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
(l) "Security Agreements" has the meaning given in the second
paragraph of this Note.
(m) "Senior Lender" shall mean Silicon Valley Bank and any other
successor, replacement or additional lender or lenders in respect of Specified
Senior Indebtedness.
(n) "Specified Senior Indebtedness" shall mean the principal of (and
premium, if any), unpaid interest on and amounts reimbursable, fees, expenses,
costs of enforcement and other amounts due in connection with, indebtedness of
Company under the Specified Senior Indebtedness Agreement, provided that such
--------
Specified Senior Indebtedness shall not at any time exceed the maximum principal
amount that may be borrowed by Borrower under the Specified Senior Indebtedness
Agreement as of the date hereof (which maximum principal amount is $2,500,000),
unpaid interest on such maximum principal amount and amounts reimbursable, fees,
expenses, costs of enforcement and other amounts due in connection therewith.
(o) "Specified Senior Indebtedness Agreement" shall mean that certain
Loan and Security Agreement dated May 15, 1998 between Company and Senior
Lender, as the same may be amended, modified, replaced, refunded or refinanced
from time to time.
3
<PAGE>
(p) "Subordination Agreement" shall mean that certain
Subordination Agreement dated of even date herewith by Holder in favor of Senior
Lender, substantially in the form of Exhibit B hereto as amended from time to
time. ---------
(q) "Transaction Documents" shall mean this Note and the Security
Agreements executed by the parties of even date herewith.
2. Interest. Accrued interest on the outstanding balance of this
--------
Note shall be payable on each July 31 and January 31 until the outstanding
principal amount hereof shall be paid in full, with the first such payment due
on July 31, 1999.
3. Prepayment. Upon two (2) days prior written notice to Holder,
----------
Company may prepay this Note in whole or in part; provided that the amount of
such prepayment shall be first applied to interest accrued in respect of the
amount so prepaid.
4. Notice of Defaults. While any amount is outstanding under the
------------------
Note, promptly upon the occurrence thereof, the Company shall deliver written
notice to the Holder of the occurrence of any Event of Default hereunder or any
event of default with respect to any Specified Senior Indebtedness or Equipment
Indebtedness.
5. Events of Default. The occurrence of any of the following shall
-----------------
constitute an "Event of Default" under this Note and the other Transaction
Documents:
(a) Failure to Pay. Company shall fail to pay (i) when due any
principal payment on the due date hereunder or (ii) any interest or other
payment required under the terms of this Note or any other Transaction Document
within four (4) days of the date due; or
(b) Breaches of Covenants. Company shall fail to observe or perform
any other covenant, obligation, condition or agreement contained in this Note or
the other Transaction Documents (other than those specified in Section 5(a)) and
(i) such failure shall continue for thirty (30) days, or (ii) if such failure is
not curable within such thirty (30) day period, but is reasonably capable of
cure within forty-five (45) days, either (A) such failure shall continue for
forty-five (45) days or (B) Company shall not have commenced a cure in a manner
reasonably satisfactory to Holder within the initial thirty (30) day period; or
(c) Representations and Warranties. Any representation, warranty,
certificate, or other statement (financial or otherwise) made or furnished by or
on behalf of Company to Holder in writing in connection with this Note or any of
the other Transaction Documents, or as an inducement to Holder to enter into
this Note and the other Transaction Documents, shall be false, incorrect,
incomplete or misleading in any material respect when made or furnished; or
(d) Other Payment Obligations. Company shall (i) fail to make any
payment when due under the Specified Senior Indebtedness or Equipment
Indebtedness to be paid by Company and such failure shall continue beyond any
period of grace provided with respect
4
<PAGE>
thereto, or (ii) default in the observance or performance of any other
agreement, term or condition contained in the Specified Senior Indebtedness or
Equipment Indebtedness, and the effect of such failure or default is to cause,
or permit the holder or holders thereof to cause, the Specified Senior
Indebtedness or Equipment Indebtedness to become due prior to its stated date of
maturity; provided that the cure or waiver of any such failure or default with
respect to the Specified Senior Indebtedness or Equipment Indebtedness shall
constitute an automatic waiver or cure of the Event of Default under this
Section 5(d); or
(e) Voluntary Bankruptcy or Insolvency Proceedings. Company shall (i)
apply for or consent to the appointment of a receiver, trustee, liquidator or
custodian of itself or of all or a substantial part of its property, (ii) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of its or any of its
creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such term
may be defined or interpreted under any applicable statute), (vi) commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or consent to any such relief or to
the appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it, or (vii) take any
action for the purpose of effecting any of the foregoing; or
(f) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for
the appointment of a receiver, trustee, liquidator or custodian of Company or of
all or a substantial part of the property thereof, or an involuntary case or
other proceedings seeking liquidation, reorganization or other relief with
respect to Company or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced and an order for
relief entered or such proceeding shall not be dismissed or discharged within
thirty (30) days of commencement; or
(g) Transaction Documents. Any Transaction Document or any material
term thereof shall cease to be, or be asserted by Company not to be, a legal,
valid and binding obligation of Company enforceable in accordance with its terms
or if the Liens of Holder in any material portion of the assets of Company shall
cease to be or shall not be valid perfected Liens or Company shall assert that
such Liens are not valid and perfected Liens.
6. Rights of Holder upon Default. Upon the occurrence or existence
-----------------------------
of any Event of Default (other than an Event of Default referred to in Sections
5(a) or 5(g)) and at any time thereafter during the continuance of such Event of
Default, Holder may, by written notice to Company, declare all outstanding
Obligations payable by Company hereunder to be immediately due and payable
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the other
Transaction Documents to the contrary notwithstanding. Upon the occurrence or
existence of any Event of Default described in Sections 5(a) and 5(g),
immediately and without notice, all outstanding Obligations payable by Company
hereunder shall automatically become immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the other Transaction
Documents to the
5
<PAGE>
contrary notwithstanding. In addition to the foregoing remedies, upon the
occurrence or existence of any Event of Default, Holder may exercise any other
right, power or remedy granted to it by the Transaction Documents or otherwise
permitted to it by law, either by suit in equity or by action at law, or both.
7. Subordination to Specified Senior Indebtedness and Certain
----------------------------------------------------------
Equipment Indebtedness. The indebtedness evidenced by this Note is hereby
- ----------------------
expressly subordinated to the Specified Senior Indebtedness, to the extent and
in the manner set forth in the Subordination Agreement. In addition, the
indebtedness evidenced by this Note is hereby expressly subordinated in right of
payment to the prior payment in full of the Equipment Indebtedness, under the
following circumstances and to the extent set forth below; provided, however,
-------- -------
and subject to the condition at any time, that Company's aggregate principal
amount of Equipment Indebtedness that is subject to this Section 7 shall not at
any time exceed $500,000, and all references to "Equipment Indebtedness" in this
Section 7 shall be so qualified and conditioned.
(a) Insolvency Proceedings. If there shall occur any receivership,
----------------------
insolvency, assignment for the benefit of creditors, bankruptcy, reorganization,
or arrangements with creditors (whether or not pursuant to bankruptcy or other
insolvency laws), sale of all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and liabilities of Company,
(i) no amount shall be paid by Company in respect of the principal of, interest
on or other amounts due with respect to this Note at the time outstanding,
unless and until the principal of and interest on the Equipment Indebtedness
then outstanding shall be paid in full, and (ii) no claim or proof of claim
shall be filed with Company by or on behalf of Holder of this Note which shall
assert any right to receive any payments in respect of the principal of and
interest on this Note except subject to the payment in full of the principal of
and interest on all of the Equipment Indebtedness then outstanding.
(b) Default on Specified Senior Indebtedness. If there shall occur an
----------------------------------------
event of default which has been declared in writing with respect to any
Equipment Indebtedness, as defined therein, or in the instrument under which it
is outstanding, permitting the holder to accelerate the maturity thereof and
Holder shall have received written notice thereof from the holder of such
Equipment Indebtedness, then, unless and until such event of default shall have
been cured or waived or shall have ceased to exist, or all such Equipment
Indebtedness shall have been paid in full, no payment shall be made in respect
of the principal of or interest on this Note, unless within one hundred thirty-
five (135) days after the happening of such event of default, the maturity of
such Equipment Indebtedness shall not have been accelerated. Not more than one
notice may be given to Holder pursuant to the terms of this Section 7(b) during
any 360 day period with respect to any particular Equipment Indebtedness.
(c) Subrogation. The Company shall promptly advise Holder of any
-----------
written notification or declaration by any holder of Equipment Indebtedness of
any event of default with respect to such Equipment Indebtedness (the "Defaulted
Senior Indebtedness"). If not prohibited by the terms of the Defaulted Senior
Indebtedness, if such Defaulted Senior Indebtedness remains unpaid, on the 150th
day following the date on which the Company
6
<PAGE>
initially received such written notice or declaration, Holder may (but shall not
have the obligation to) satisfy in full the Defaulted Senior Indebtedness.
Subject to the payment in full of all Equipment Indebtedness, Holder shall be
subrogated to the rights of the holder(s) of such Equipment Indebtedness (to the
extent of the payments or distributions made to the holder(s) of such Equipment
Indebtedness pursuant to the provisions of this Section 7) to receive payments
and distributions of assets of Company applicable to the Equipment Indebtedness.
No such payments or distributions applicable to the Equipment Indebtedness
shall, as between Company and its creditors, other than the holders of Equipment
Indebtedness and Holder, be deemed to be a payment by Company to or on account
of this Note, and for purposes of such subrogation, no payments or distributions
to the holders of Equipment Indebtedness to which Holder would be entitled
except for the provisions of this Section 7 shall, as between Company and its
creditors, other than the holders of Equipment Indebtedness and Holder, be
deemed to be a payment by Company to or on account of the Equipment
Indebtedness.
(d) No Impairment. Subject to the rights, if any, of the holders of
-------------
Equipment Indebtedness under this Section 7 to receive cash, securities or other
properties otherwise payable or deliverable to Holder, nothing contained in this
Section 7 shall impair, as between Company and Holder, the obligation of
Company, subject to the terms and conditions hereof, to pay to Holder the
principal hereof and interest hereon as and when the same become due and
payable, or shall prevent Holder, upon default hereunder, from exercising all
rights, powers and remedies otherwise provided herein or by applicable law.
(e) Lien Subordination. Any Lien of Holder with respect to any
------------------
equipment or proceeds thereof that is the sole security for the Equipment
Indebtedness to which it relates shall be subordinate to the Lien granted to a
holder of such Equipment Indebtedness by Company, notwithstanding the date,
order or method of attachment or perfection of any such Lien or the provisions
of any applicable law. Any Lien of Holder on any equipment or proceeds thereof
that is not the sole security for the Equipment Indebtedness to which it relates
shall not be subordinate to the Lien granted to the holder of such Equipment
Indebtedness.
(f) Reliance of Holder of Equipment Indebtedness. Holder, by its
--------------------------------------------
acceptance hereof, shall be deemed to acknowledge and agree that the foregoing
subordination provisions are, and are intended to be, an inducement to and a
consideration of the holder of Equipment Indebtedness, whether such Equipment
Indebtedness was created or acquired before or after the creation of the
indebtedness evidenced by this Note, and such holder of Equipment Indebtedness
shall be deemed conclusively to have relied on such subordination provisions in
acquiring and holding, or in continuing to hold, such Equipment Indebtedness.
(g) Silicon Valley Bank. In the event that Silicon Valley Bank
-------------------
becomes the holder of any Equipment Indebtedness, the terms and conditions of
Holder's subordination to such Equipment Indebtedness shall be as set forth in
the Subordination Agreement and not this Section 7; provided, however, that the
-------- -------
maximum aggregate principal amount of Equipment Indebtedness shall not exceed
$500,000 regardless of whether Silicon Valley Bank holds any or all of the
Equipment Indebtedness.
7
<PAGE>
8. Financial Covenants. Company will comply with each of the
-------------------
financial covenants set forth in the Specified Senior Indebtedness Agreement, as
and when required by the terms thereof. Company will provide to Holder a
compliance certificate, certified by its Chief Executive Officer or Chief
Financial Officer, certifying whether or not Company is in compliance with such
financial covenants and including reasonable calculations as to such compliance,
at such times as the same is required to be delivered to the Senior Lender under
and when required by the Specified Senior Indebtedness Agreement (but not less
frequently than each calendar quarter). Company shall promptly provide Holder
with copies of any revisions to the financial covenants set forth in the
Specified Senior Indebtedness Agreement (including related definitions) that may
be made from time to time.
9. Successors and Assigns. Neither this Note nor any of its rights,
----------------------
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by either party hereto without the prior written
consent of the other party; provided, however this Note may be assigned by
-------- -------
Holder to an affiliate of or a successor in interest of all of the business of
the Holder without the consent of Company. Subject to such consent to transfer,
the rights and obligations of Company and Holder of this Note shall be binding
upon and benefit the successors, assigns, heirs, administrators and transferees
of the parties.
10. Waiver and Amendment. Any provision of this Note may be amended,
--------------------
waived or modified upon the written consent of Company and Holder.
11. Notices. All notices, requests, demands, consents, instructions
-------
or other communications to or upon Company or Holder under this Note shall be by
telecopy or in writing and telecopied, mailed or delivered to each party at
telecopier number or its address set forth below (or to such other telecopy
number or address as the recipient of any notice shall have notified the other
in writing). All such notices and communications shall be effective (a) when
sent by Federal Express or other overnight service of recognized standing, on
the business day following the deposit with such service; (b) when mailed, by
registered or certified mail, first class postage prepaid and addressed as
aforesaid through the United States Postal Service, upon receipt; (c) when
delivered by hand, upon delivery; and (d) when telecopied, upon confirmation of
receipt.
If to Company: NETIQ CORPORATION
5410 Betsy Ross Drive
Santa Clara, California 95054
Attn.: Ching-Fa Hwang
Telephone: 408-330-7000
Telecopy: 408-330-0959
WILSON SONSINI GOODRICH & ROSATI
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Thomas C. DeFilipps, Esq.
8
<PAGE>
Telephone: 650-493-9300
Telecopy: 650-493-6811
If to Holder: COMPUWARE CORPORATION
31440 Northwestern Highway
Farmington Hills, MI 48334
Attn: Thomas Costello
General Counsel
Telephone: 248-737-7310
Telecopy: 248-737-7690
With a copy to:Fenwick & West LLP
Two Palo Alto Square
Suite 700
Palo Alto, California 94306
Attn: Stuart P. Meyer, Esq.
Telephone: 650-494-0600
Telecopy: 650-494-1417
12. Payment. Payment shall be made in lawful tender of the United
-------
States.
13. Waivers. Company hereby waives notice of default, presentment or
-------
demand for payment, protest or notice of nonpayment or dishonor and all other
notices or demands relative to this instrument.
14. Governing Law. This Note and all actions arising out of or in
-------------
connection with this Note shall be governed by and construed in accordance with
the laws of the State of California, without regard to the conflicts of law
provisions of the State of California, or of any other state.
[Balance of page intentionally left blank.]
9
<PAGE>
IN WITNESS WHEREOF, Company has caused this Note to be issued as of
the date first written above.
NETIQ CORPORATION
a California corporation
By: /s/ Ching-Fa Hwang
-------------------------------
Title: President and CFO
----------------------------
10
<PAGE>
THIS AGREEMENT IS SUBJECT TO A SUBORDINATION AGREEMENT DATED MARCH 10, 1999
BETWEEN COMPUWARE CORPORATION AND SILICON VALLEY BANK.
SECURITY AGREEMENT
This Security Agreement (this "Agreement") is made and entered into
effective as of March 10, 1999 (the "Effective Date") by and between NetIQ
Corporation, a California corporation ("Debtor") and Compuware Corporation, a
Michigan corporation ("Secured Party").
RECITALS
A. Debtor may borrow the principal amount of up to $5,000,000 from
Secured Party pursuant to the terms of a certain Subordinated Secured Promissory
Note of Debtor to Secured Party dated of even date herewith (the "Note").
Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Note.
B. The parties have agreed that Debtor's obligations under the Note
will be secured by Debtor's grant to Secured Party of a security interest in and
to certain collateral, pursuant to the terms and conditions of this Agreement
and a Patent Mortgage and Intellectual Property Security Agreement dated of even
date herewith (the "IP Security Agreement").
NOW, THEREFORE, in consideration of loans made or to be made by
Secured Party under the Note, the parties' agreements herein, and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
1. Security. The payment and performance of Debtor's obligations
--------
under all loans, advances, debts, liabilities and obligations, howsoever
arising, owed by Debtor to Secured Party of every kind and description (whether
or not evidenced by any note or instrument and whether or not for the payment of
money), now existing or hereafter arising under or pursuant to the terms of the
Note, this Security Agreement, the IP Security Agreement and any other
Transaction Documents (as defined in the Note), including, without limitation,
all principal, interest, fees, charges, expenses, attorneys' fees and costs
chargeable to and payable by Debtor hereunder and thereunder, in each case,
whether direct or indirect, absolute or contingent, due or to become due, and
whether or not arising after the commencement of a proceeding under Title 11 of
the United States Code (11 U.S.C. Section 101 et seq.), as amended from time to
-- ---
time (including post-petition interest) and whether or not allowed or allowable
as a claim in any such proceeding (hereinafter collectively referred to as the
"Obligations") will at all times be secured as follows:
(a) Grant of Security Interest. As security for the due performance
--------------------------
and payment of the Obligations, Debtor hereby grants to Secured Party a security
interest in the "Collateral" as defined in Section 1(b).
<PAGE>
(b) Collateral Defined. As used in this Agreement, the term
------------------
"Collateral" means, collectively, the assets described in Exhibit A attached
---------
hereto that are located at the place(s) set forth in Exhibit B (the "Collateral
---------
Location(s)"), as applicable, and all proceeds thereof.
(c) Financing Statements. So long as Debtor is indebted to Secured
--------------------
Party under the Note or has any other Obligation to Secured Party, Debtor will
promptly execute and deliver to Secured Party such assignments, notices,
financing statements, or other documents and papers as Secured Party may
reasonably require in order to perfect and maintain the security interest in the
Collateral granted to Secured Party hereby and to give any third party notice of
Secured Party's interest in the Collateral. Debtor will pay to Secured Party
all expenses incurred by Secured Party in filing such assignments, notices,
financing statements or other documents or papers (and any continuation
statements or amendments thereto). Upon the full and final discharge of all of
Debtor's Obligations, Secured Party will execute and deliver such documents as
may be reasonably necessary and requested by Debtor to release the Collateral
from the security interest granted to Secured Party in this Agreement.
2. Representations and Warranties of Debtor. Debtor represents and
----------------------------------------
warrants to Secured Party that:
(a) Authority. Debtor has all right, power and authority necessary to
---------
make, enter into and perform its obligations under the Transaction Documents and
to grant Secured Party the security interest in the Collateral granted in
Section 1 above (and in the Collateral under the IP Security Agreement), without
the need for the consent or approval of any other person or entity. Debtor has
taken all necessary action to make the Transaction Documents the legal, valid,
binding and enforceable obligations of Debtor that they purport to be. Debtor's
board of directors and shareholders have taken all necessary action and given
all approvals and consents necessary for Secured Party to enter into the
Transaction Documents, and to perform all Debtor's obligations under the
Transaction Documents.
(b) No Legal Obstacle to Agreement. To the best of Debtor's
------------------------------
knowledge, neither the execution and delivery of the Transaction Documents nor
the consummation of any transaction contemplated hereby or thereby, nor the
fulfillment of the terms of the Transaction Documents or of any other agreement
or instrument referred to herein or therein, has constituted or resulted in, or
will constitute or result in, a breach of the provisions of any instrument,
contract or agreement to which Debtor is a party or by which Debtor and/or the
Collateral (or the Collateral under the IP Security Agreement) is bound, or the
violation of any law, judgment, decree or governmental or administrative order,
rule or regulation applicable to Debtor, or has resulted in or will result in
the creation of any lien or claim upon any of the Collateral (except as provided
herein and in the IP Security Agreement). No consent of any other person
(including without limitation any shareholder or creditor of Debtor) is required
in connection with the execution, delivery, performance, validity or
enforceability of the Transaction Documents.
2
<PAGE>
(c) Title; No Liens or Claims in Collateral. Debtor owns all right,
---------------------------------------
title and interest in and to the Collateral (or, in the case of after-acquired
Collateral, at the time Debtor acquires its rights in the Collateral, will own
all right, title and interest therein) and no other person or entity has (or in
the case of the after-acquired Collateral, at the time Debtor acquires rights
therein, will have) any right, title or interest in or to the Collateral, except
for any Permitted Liens. All of the Collateral is (and until the Note has been
paid in full and all the Obligations are fully satisfied will be) free and clear
of all Liens except for any Permitted Liens. Secured Party has (or in the case
of after-acquired Collateral, at the time Debtor acquires rights therein, will
have) a perfected security interest in the Collateral. "Permitted Liens" are:
(a) Liens existing on the Effective Date or arising under this Agreement or
other Transaction Documents; (b) Liens for taxes, fees, assessments or other
government charges or levies, either not delinquent or being contested in good
faith and for which Debtor maintains adequate reserves on its books, if they
have no priority over any of Secured Party's security interests; (c) purchase
money Liens as provided in Section 7 of the Note (i) on equipment acquired or
held by Debtor incurred for financing the acquisition of the equipment, or (ii)
existing on equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the equipment; (d) leases or subleases and
licenses or sublicenses granted in the ordinary course of Debtor's business and
any interest or title of a lessor, licensor or under any lease or license, if
the leases, subleases, licenses and sublicenses permit granting Secured Party a
security interest; (e) Liens securing Specified Senior Indebtedness; and (f)
Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by liens described in (a) through (e), but any extension, renewal or
---
replacement Lien must be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness may not increase.
(d) No Bankruptcy. Debtor is not subject to any bankruptcy case or
-------------
insolvency proceedings before any court in any jurisdiction. In the ninety (90)
days preceding the effective date hereof, Debtor has not received any threat
from any third party to subject Debtor to any involuntary bankruptcy,
receivership, assignment for the benefit of creditors or insolvency proceeding.
3. Covenants of Debtor. Debtor hereby covenants and agrees with
-------------------
Secured Party as follows:
(a) Taxes; Preservation of Collateral. Debtor will pay all taxes due
---------------------------------
and owing by Debtor at such time as they become due. Debtor will comply with
all material legal requirements relating to the possession, production,
operation, maintenance and control of the Collateral. Debtor will maintain,
preserve, protect and perfect the Collateral and keep the Collateral in good
condition and repair continuously for so long as Debtor has Obligations to
Secured Party.
(b) Maintenance of and Interest in Records. Debtor will keep and
--------------------------------------
maintain at its own cost and expense satisfactory and complete records of the
Collateral belonging to it. For Secured Party's further security, Secured Party
will have a security interest in all of the books and records of Debtor
pertaining to the Collateral.
3
<PAGE>
(c) Notice to Account Debtors. Upon the request of Secured Party at
-------------------------
any time after the occurrence and during the continuance of an Event of Default
(as defined below), Debtor shall notify account debtors on all Debtor's accounts
that such accounts have been assigned to Secured Party and that payments in
respect thereof shall be made directly to Secured Party.
(d) Name or Residence Change. Debtor will not change its name, or
------------------------
without ten (10) days' prior written notice to Secured Party, the location of
its principle executive offices or corporate domicile.
(e) Moving of Collateral. Debtor will not move or relocate any or
--------------------
all of the Collateral that remains owned by Debtor (except for Collateral of
immaterial value moved or relocated in the ordinary course of business) to any
location outside the State of California without giving Secured Party written
notice of the moving of such Collateral in sufficient time to enable Secured
Party to make all filings necessary to maintain without interruption the
continuous perfection of Secured Party's security interest in such moved or
relocated Collateral in the jurisdiction(s) in which such Collateral is moved or
relocated. Any notice provided by Debtor relating to the movement of Collateral
shall indicate in detail the description of the Collateral to be moved or
relocated and the location(s) and address(es) to which such Collateral is to be
moved.
(f) Sale of Collateral. Debtor will not, without Secured Party's
------------------
prior written consent, which may be withheld in Secured Party's sole discretion:
(i) sell, lease, assign, transfer or otherwise dispose of the Collateral, any
part thereof or any interest therein, or any of Debtor's rights therein, to any
person, entity or party other than Secured Party, except for (A) sales of
------
inventory in the ordinary course of business, (B) the grant of licenses in the
ordinary course of business or (C) the disposition in the ordinary course of
business of any item of equipment that has become worn-out or obsolete.
(g) Proceedings. Debtor will appear in and defend any action or
-----------
proceeding that may affect its or Secured Party's right, title or interest in
and to the Collateral.
4. Secured Party' Rights and Remedies Upon Event of Default.
--------------------------------------------------------
(a) General Remedies. In the event of an occurrence of any Event of
----------------
Default under the Note, in addition to exercising any other rights or remedies
Secured Party may have under the Note, at law or in equity, or pursuant to the
provisions of the California Uniform Commercial Code ("UCC"), Secured Party may,
at its option, and without demand first made, exercise any one or all of the
following rights and remedies: (i) collect the Collateral and its proceeds;
(ii) take possession of the Collateral wherever it may be found, using all
reasonable means to do so, or require Debtor to assemble the Collateral and make
it available to Secured Party at a place designated by Secured Party which is
reasonably convenient to Debtor; (iii) proceed with the foreclosure of the
security interest in the Collateral granted herein and the sale or endorsement
and collection of the proceeds of the Collateral in any manner permitted by law
or provided for herein; (iv) sell, lease or otherwise dispose of the Collateral
at public or private sale, with or without having the Collateral at the place of
sale; (v) institute a suit or other action
4
<PAGE>
against Debtor for recovery on the Note; (vi) exercise any rights and remedies
of a secured party under the UCC; and/or (vii) offset, against any payment due
from Debtor to Secured Party, the whole or any part of any indebtedness of
Secured Party to Debtor.
(b) No Election of Remedies. The election by Secured Party of any
-----------------------
right or remedy will not prevent Secured Party from exercising any other right
or remedy against Debtor.
(c) Proceeds. If an Event of Default occurs, all proceeds and
--------
payments with respect to the Collateral will be retained by Secured Party (or if
received by Debtor will be held in trust and will be forthwith delivered by
Debtor to Secured Party in the original form received, endorsed in blank) and
held by Secured Party as part of the Collateral or applied by Secured Party to
the payment of the Obligations.
(d) Sales of Collateral. Any item of Collateral may be sold for cash
-------------------
or other value at public or private sale or other disposition and the proceeds
thereof collected by or for Secured Party. Debtor agrees to promptly execute
and deliver, or promptly cause to be executed and delivered, such instruments,
documents, assignments, waivers, certificates and affidavits and supply or cause
to be supplied such further information and take such further action as Secured
Party may require in connection with any such sale or disposition. Secured
Party will have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption in
Debtor, which right or equity is hereby waived or released. If any notice of a
proposed sale, lease, license or other disposition of Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least ten (10) days before such sale, lease, license or other disposition.
Secured Party agrees to give Debtor ten (10) days prior written notice of any
sale, lease, license or other disposition of Collateral (or any part thereof) by
Secured Party.
(e) Application of Proceeds. The proceeds of all sales and
-----------------------
collections in respect of the Collateral, the application of which is not
otherwise specifically herein provided for, will be applied as follows: (i)
first, to the payment of the reasonable costs and expenses of such sale or sales
and collections and the attorneys' fees and out-of-pocket expenses incurred by
Secured Party relating to costs of collection; (ii) second, any surplus then
remaining will be applied first, to the payment of all unpaid interest accrued
under the Note, and then to the payment of unpaid principal under the Note; and
(iii) third, any surplus then remaining will be paid to Debtor.
5. Notices. Any notice required or permitted hereunder will be given
-------
in writing and will be deemed effectively given upon personal delivery, three
days after deposit in the United States mail by first class mail, one (1)
business day after its deposit with any express courier (prepaid), or one (1)
business day after transmission by telecopier, in each case addressed to the
other party at such party's address (or facsimile number, in the case of
transmission by telecopier) as shown below its signature to this Agreement, or
to such other address as such party may designate in writing from time to time
to the other party.
5
<PAGE>
6. Jurisdiction; Venue. Debtor, by its execution hereof, hereby
-------------------
irrevocably submits to the in personam jurisdiction of the state courts of the
-- --------
State of California and of the United States District Court for the Northern
District of California that are located in Santa Clara County, California, for
the purpose of any suit, action or other proceeding arising out of or based upon
this Agreement.
7. Termination. When all Obligations have been paid and performed in
-----------
full and discharged, this Agreement and the security interest granted to Secured
Party under this Agreement will terminate.
8. Amendments and Waivers. No amendment or modification of this
----------------------
Agreement may be made or be effective unless and until it is set forth in
writing and signed by all parties hereto. No waiver of any right under this
Agreement will be effective unless expressly set forth in a writing signed by
each party against whom such waiver is asserted. No course of dealing between
the parties will operate as a waiver of any party's rights under this Agreement.
A waiver on any one occasion will not be construed as a bar to or waiver of any
right or remedy on any future occasion. Debtor acknowledges that the giving by
Secured Party of any notice or information to Debtor, or the securing of any
consent by Debtor, not required by the express terms hereof to be given or
secured, will not by implication constitute an amendment to or waiver or
modification of any provision hereof, or impose upon Secured Party any duty to
give any such notice or information or to secure any such consent on any future
occasion.
9. Attorneys' Fees. If any party hereto commences or maintains any
---------------
action at law or in equity (including counterclaims or cross-complaints) against
the other party hereto by reason of the breach or claimed breach of any term or
provision of this Agreement, then the prevailing party in said action will be
entitled to recover its reasonable attorneys' fees and court costs incurred
therein.
10. Successors and Assigns. The provisions of this Agreement will
----------------------
inure to the benefit of, and be binding on, each party's respective heirs,
successors and assigns.
11. Miscellaneous. The invalidity or unenforceability of any term or
-------------
provision of this Agreement will not affect the validity or enforceability of
any other term or provision hereof. The headings in this Agreement are for
convenience of reference only and will not alter or otherwise affect the meaning
of this Agreement. This Agreement and the Note and the exhibits thereto,
together constitute the entire agreement and understanding of the parties
regarding the subject matter hereof and supersede any and all prior
understandings and agreements between the parties with respect to such subject
matter.
12. Governing Law. This Agreement will be governed by and construed
-------------
exclusively in accordance with the internal laws of the State of California as
applied to agreements between residents thereof and to be performed entirely
within such State, without reference to that body of law relating to conflict of
laws or choice of law.
13. Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, which together will constitute one instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the Effective Date.
DEBTOR: SECURED PARTY:
By: /s/ Ching-Fa Hwang By: /s/ Joseph A. Nathan
--------------------------- ---------------------------
Name: Ching-Fa Hwang Name: Joseph A. Nathan
------------------------- -------------------------
Title: President and CFO Title: President
------------------------ ------------------------
Address: 5410 Betsy Ross Drive Address: 31440 Northwestern Highway
Santa Clara, California 95054 Farmington Hills, MI 48334
Telephone No.: (408) 330-7000 Telephone No.: (248) 737-7310
Fax No.:(408) 330-0959 Fax No.: (248) 737-7690
[The remainder of this page has been intentionally left blank]
7
<PAGE>
EXHIBIT A
DESCRIPTION OF COLLATERAL
-------------------------
All right, title and interest of Debtor now owned or hereafter acquired in and
to the following:
(a) All equipment and fixtures (including, without limitation, furniture,
vehicles and other machinery and office equipment), together with all additions
and accessions thereto and replacements therefor;
(b) All inventory (including, without limitation, (i) raw materials, work
in process, finished goods and components and (ii) all such inventory that are
returned to or repossessed by Debtor), together with all additions and
accessions thereto, replacements therefor, products thereof and documents
therefor;
(c) All accounts, chattel paper, contract rights and rights to the payment
of money;
(d) All general intangibles, including, without limitation, customer and
supplier lists and contracts, books and records, insurance policies, tax refunds
and contracts for the purchase of real or personal property;
(e) All deposit accounts, money, certificated securities, uncertificated
securities, instruments and documents; and
(f) All proceeds of the foregoing (including, without limitation, whatever
is receivable or received when Collateral or proceeds is sold, collected,
exchanged, returned, substituted or otherwise disposed of, whether such
disposition is voluntary or involuntary, including rights to payment and return
premiums and insurance proceeds under insurance with respect to any Collateral,
and all rights to payment with respect to any cause of action affecting or
relating to the Collateral).
<PAGE>
EXHIBIT B
LOCATION(S) OF COLLATERAL
-------------------------
5410 Betsy Ross Drive 570 West Plano Pkwy Ste.1000
Santa Clara, CA 95054 Plano, TX 75093
1415 West 22nd Street 11350 Random Hills Road #800
Tower Floor Fairfax, VA 22030
Oak Brook, IL 60523
4643 South Ulster, #800 11 Penn Plaza, Fifth Floor
Denver, CO 80237 New York, NY 10001
Knyvett House
The Causeway, Staines
Middlesex TW18 3BA, UK
9
<PAGE>
THIS AGREEMENT IS SUBJECT TO A SUBORDINATION AGREEMENT DATED MARCH 10, 1999
BETWEEN COMPUWARE CORPORATION AND SILICON VALLEY BANK.
Patent Mortgage and Intellectual Property Security Agreement
This Patent Mortgage And Intellectual Property Security Agreement is
made as of March 10, 1999 ("Security Agreement"), by and between NetIQ
Corporation, a California corporation ("Debtor"), and Compuware Corporation, a
Michigan corporation ("Secured Party").
RECITALS
A. Secured Party has agreed to lend to Debtor certain funds (the
"Loan"), and Debtor desires to borrow such funds from Secured Party pursuant to
the terms of a Subordinated Secured Promissory Note dated of even date herewith
(the "Note"). Terms not defined herein shall have the meanings ascribed to them
in the Security Agreement dated of even date herewith by and between Debtor and
Secured Party (the "General Security Agreement").
B. The parties have agreed that Debtor's Obligations will be secured by
Debtor's grant to Secured Party of a security interest in and to certain
collateral, pursuant to the terms and conditions of this Security Agreement,
which provides for a security interest in certain intangible property of Secured
Party, and the General Security Agreement pertaining to other personal property
of Debtor.
Now, Therefore, the parties hereto agree as follows:
1. Patent Mortgage and Grant of Security Interest. As collateral
security for the prompt and complete payment and performance of all of Debtor's
present or future Obligations to Secured Party, including, without limitation,
such Obligations under the Note and the other Transaction Documents (as defined
in the Note) executed in connection therewith (as the same may be modified,
amended, supplemented, restated or superseded from time to time, collectively,
the "Loan Documents"), Debtor hereby grants a security interest and mortgage to
Secured Party, as security, in and to all of Debtor's entire right, title and
interest in, to and under the following, now or hereafter existing, created,
acquired or held by Debtor (the " Collateral"):
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, including, without limitation, those set forth on
Exhibit A attached hereto and incorporated herein by this reference
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products;
<PAGE>
(c) Any and all design rights that may be available to Debtor;
(d) All patents, patent applications and like protections
including, without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including, without
limitation, those set forth on Exhibit B attached hereto and incorporated herein
by this reference (collectively, the "Patents");
(e) Any trademark and service mark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Debtor connected with
and symbolized by such trademarks, including, without limitation, those set
forth on Exhibit C attached hereto and incorporated herein by this reference
(collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(h) All amendments, renewals and extensions of any of the
Copyrights, Patents or Trademarks; and
(i) All Proceeds and products of the foregoing.
As used herein, "Proceeds" shall mean "proceeds," as such term is
defined in Section 9306(1) of the California Uniform Commercial Code ("UCC")
and, in any event, shall include, without limitation, (a) any and all accounts,
chattel paper, and instruments (as such terms are defined in the UCC), cash,
income, royalties, or other proceeds payable to Debtor from time to time in
respect of the Collateral or Debtor's Intellectual Property (as defined below),
(b) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to Debtor from time to time with respect to any of the Collateral or
Debtor's Intellectual Property (as defined below), (c) any and all payments (in
any form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral or Debtor's Intellectual
Property by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), (d) any damages or settlements
received by Debtor based on any claim of Debtor against third parties (i) for
past, present or future infringement of any Patent or Patent license, (ii) for
past, present or future infringement of any Copyright or Copyright license,
(iii) for past, present or future infringement, dilution or misappropriation of
any Trademark or Trademark license or for injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
license, (c) all certificates, dividends, cash, instruments (as such term is
defined in the UCC) and other property received or distributed in respect of or
in exchange for any investment property (as such term is defined in the UCC) and
(f) any and all other amounts
<PAGE>
from time to time paid or payable under or in connection with any of the
Collateral, Debtor's Intellectual Property or any contract or license relating
to the Collateral or Debtor's Intellectual Property.
2. Authorization and Request. Debtor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this Agreement.
3. Covenants and Warranties. Debtor represents, warrants, covenants and
agrees as follows:
(a) Debtor is now the sole owner of the Collateral, except that
Debtor does not own the intellectual property rights in any portion of the
Debtor's software products that now or hereafter is licensed from a third party
("Third Party Code"). Debtor has adequate license rights to make the uses it
makes of such Third Party Code, but does not have the right to grant Secured
Party ownership, use or distribution rights to such Third Party Code;
(b) Performance of this Security Agreement does not conflict with
or result in a breach of any agreement to which Debtor is a party or by which
Debtor is bound;
(c) During the term of this Security Agreement, Debtor will not
sell, transfer, assign or otherwise encumber any interest in the Collateral,
except as currently provided in the Specified Senior Indebtedness Agreement (as
defined in the Note). Unless otherwise provided in the Loan Documents, Debtor
retains the right to sell, transfer, license and assign rights in its
Intellectual Property (as defined below) in the ordinary course of Debtor's
business or as approved by Debtor's Board of Directors;
(d) To its knowledge, as of the date of this Security Agreement
each of the Patents is valid and enforceable, and there are no Patents,
Trademarks or Copyrights (collectively, the "Intellectual Property") which have
been judged invalid or unenforceable, in whole or in part, and no claim has been
made that any part of the Intellectual Property violates the rights of any third
party other than Secured Party;
(e) Debtor shall promptly advise Secured Party of any new products
or major new releases of its software products that it makes generally available
to its customers (collectively, the "Releases") and of any patents that issue in
the name of Debtor or that are assigned to Debtor;
(f) Debtor shall use its best efforts as its Board of Directors
determines appropriate to protect, defend and maintain the validity and
enforceability of the Intellectual Property to detect infringements;
(g) Debtor shall promptly register the copyright to each new
Release with the U.S. Copyright Office;
(h) This Security Agreement creates, and in the case of after
acquired Collateral, this Security Agreement will create at the time Debtor
first has rights in such after-
<PAGE>
acquired Collateral, in favor of Secured Party a valid and properly perfected
security interest in the Collateral in the United States securing the payment
and performance of all present or future Obligations of Debtor to Secured Party,
including, without limitation, such Obligations under the Note and the other
Loan Documents, upon making the filings referred to in Section 3(i) below,
subject only to any Permitted Liens;
(i) To its knowledge as of the date of this Security Agreement,
except for, and upon, the filings with, as applicable, (1) the United States
Patent and Trademark office with respect to the Patents and Trademarks, (2) the
Register of Copyrights with respect to the Copyrights and (3) the UCC Division
of the California Secretary of State, necessary to perfect the security
interests and mortgage created hereunder, and except as has been already made or
obtained, no authorization, approval or other action by, and no notice to or
filing with, any United States governmental authority or United States
regulatory body is required either (a) for the grant by Debtor of the security
interest granted hereby or for the execution, delivery or performance of this
Security Agreement by Debtor in the United States or (b) for the perfection in
the United States or the exercise by Secured Party of its rights and remedies
hereunder;
(j) All information heretofore, herein or hereafter supplied to
Secured Party by or on behalf of Debtor with respect to the Collateral is
accurate and complete in all material respects;
(k) Debtor shall not enter into any agreement that would materially
impair or conflict with Debtor's obligations hereunder without Secured Party's
prior written consent, which consent shall not be unreasonably withheld. Debtor
shall not permit the inclusion in any material contract to which it becomes a
party of any provisions that could or might in any way prevent the creation of a
security interest in Debtor's rights and interests in any property included
within the definition of the Collateral acquired under such contracts, except
that certain contracts may contain anti-assignment provisions that could in
effect prohibit the creation of a security interest in such contracts; and
(1) Upon any executive officer of Debtor obtaining actual knowledge
thereof, Debtor will promptly notify Secured Party in writing of any event that
materially adversely affects the value of any Collateral, the ability of Debtor
to dispose of any Collateral or the rights and remedies of Secured Party in
relation thereto, including the levy of any legal process against any of the
Collateral. Debtor shall have no obligation to notify Secured Party of market
changes that could materially adversely affect the value of the Debtor's
Intellectual Property, including but not limited to the introduction of
competitive products.
4. Secured Party's Rights. Secured Party shall have the right, but not
the obligation, to take, at Debtor's sole expense, any actions that Debtor is
required under this Security Agreement to take but which Debtor fails to take,
after fifteen (15) days' notice to Debtor. Debtor shall reimburse and indemnify
Secured Party for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this Section 4.
<PAGE>
5. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Debtor will make, execute, acknowledge
and deliver, and file and record in the proper filing and recording places in
the United States, all such instruments, including appropriate financing and
continuation statements and collateral agreements and filings with the United
States Patent and Trademark Office and the Register of Copyrights, and take all
such action as may reasonably be necessary or advisable, or as reasonably
requested by Secured Party, to perfect Secured Party's security interest and
mortgage in the Collateral, and otherwise to carry out the intent and purposes
of this Security Agreement, or for assuring and confirming to Secured Party the
grant or perfection of a security interest and mortgage in all Collateral.
(b) Debtor hereby irrevocably appoints Secured Party as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor, from time to time in Secured Party's discretion, to take any
action and to execute any instrument which Secured Party may reasonably deem
necessary or advisable to accomplish the purposes of this Security Agreement,
(i) to modify, in its reasonable discretion, this Security Agreement without
first obtaining Debtor's approval of or signature to such modification by
amending Exhibit A, Exhibit B or Exhibit C hereof, as appropriate, to include
reference to any material right, title or interest in any Intellectual Property
acquired by Debtor after the execution hereof or to delete any reference to any
right, title or interest in any Intellectual Property in which Debtor no longer
has or claims any right, title or interest, (ii) to file, in its reasonable
discretion, one or more collateral agreements, financing or continuation
statements and amendments thereto, relative to any of the Collateral without the
signature of Debtor where permitted by law and (iii) after the occurrence and
during the continuance of an Event of Default, to transfer the Collateral into
the name of Secured Party or a third party to the extent permitted under the UCC
or other applicable law.
6. Events of Default. An Event of Default under the Note shall
constitute an "Event of Default" under this Security Agreement.
7. Remedies. Upon the occurrence and during the continuance of an Event
of Default, Secured Party shall have the right to exercise all the remedies of a
secured party under the UCC and other applicable law, including, without
limitation, the right to require Debtor to assemble the Collateral and any
tangible property in which Secured Party has a security interest and to make it
available to Secured Party at a place designated by Secured Party; provided,
however, that Secured Party shall not take actual possession of, use or sell (at
public or private sale) the Collateral hereunder unless it has substantially
exercised or attempted to exercise its rights and remedies under the General
Security Agreement with respect to material assets secured thereunder and
Obligations to Secured Party remain outstanding following such exercise or
attempt to exercise. Debtor will pay any reasonable expenses (including
reasonable attorneys' fees) incurred by Secured Party in connection with the
exercise of any of Secured Party's rights hereunder, including, without
limitation any expense incurred in disposing of the Collateral. All of Secured
Party's rights and remedies with respect to the Collateral shall be cumulative.
8. Reassignment. At such time as Debtor shall completely satisfy all of
the
<PAGE>
Obligations secured hereunder, Secured Party shall execute, and deliver to
Debtor all deeds, assignments and other instruments as may be necessary or
proper to invest in Debtor full title to the property assigned hereunder,
subject to any disposition thereof which may have been made by Secured Party
pursuant hereto.
9. No Failure or Delay. No failure or delay on the part of Secured
Party, in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise thereof.
10. Attorneys' Fees. If any action relating to this Security Agreement
is brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys' fees, costs and
disbursements.
11. Amendments. This Security Agreement may be amended only by a
written instrument signed by both parties hereto.
12. Counterparts. This Security Agreement may be executed in any number
of counterparts, each of which when so delivered shall be deemed an original,
but all such counterparts shall constitute but one and the same instrument. Each
such Security Agreement shall become effective upon the execution of a
counterpart hereof or thereof by each of the parties hereto and telephonic
notification that such executed counterparts has been received by Debtor and
Secured Party.
13. Governing Law; Jurisdiction. This Security Agreement shall be
governed by, and construed in accordance with the internal laws of the State of
California, without regard to principles of conflicts of law. Debtor and Secured
Party consent to the exclusive jurisdiction of any state or federal court
located in Santa Clara County, California.
14. Conflict. In the event of a conflict between any term and/or
provision contained in this Security Agreement with any term and/or provision
contained in the General Security Agreement, the term and/or provision of this
Security Agreement shall govern.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Security Agreement on
the day and year first above written.
Secured Party Debtor
Compuware Corporation NetIQ Corporation
a Michigan corporation a California corporation
By: /s/ Joseph A. Nathan By: /s/ Ching-Fa Hwang
Name: Joseph A. Nathan Name: Ching-Fu Hwang
Title: President Title: President and CFO
Address of Secured Party Address of Debtor
- ------------------------ -----------------
31440 Northwestern Highway 5410 Betsy Ross Drive
Farmington Hills, Michigan 48334 Santa Clara, California 95054
Attention: Thomas Costello, General Counsel Attention: Ching-Fa Hwang
Telephone: 248-737-7310 Telephone: 408-330-7000
Telecopy: 248-737-7690 Telecopy: 408-330-0959
with a copy to: with a copy to:
Fenwick & West LLP Wilson, Sonsini, Goodrich & Rosati
Two Palo Alto Square, Suite 700 650 Page Mill Road
Palo Alto, California 94306 Palo Alto, California 94304-1050
Attention: Stuart P. Meyer, Esq. Attention: Thomas C. DeFilipps,Esq.
Telephone: 650-494-0600 Telephone: 650-493-9300
Telecopy: 650-494-1417 Telecopy: 650-493-6811
<PAGE>
EXHIBIT A
COPYRIGHTS
1. REGISTERED: List titles below or indicate "None":
A. U.S. Copyright Registration: "NetIQ AppManager Suite Version 1.0"
----------------------------------
Registration No. Txu 776-056
Effective Date: Jan. 9, 1997
B. U.S. Copyright Registration: "NetIQ AppManager Suite Version 2.0"
----------------------------------
Registration No. TX 4-562-020
Effective Date: Dec. 11, 1997
2. Unregistered: List titles below or indicate "None":
None
3. Applications in Process: List titles, applicable dates, application
numbers, etc. below or indicate "None":
None
<PAGE>
EXHIBIT B
U.S. PATENTS AND PATENT APPLICATIONS
A. U.S. Patent Application: "Selection, Type Matching and Manipulation of
--------------------------------------------
Resource Objects by a Computer Program"
--------------------------------------
Serial No. 08/784,613
Filing Date: Jan. 21, 1997
B. U.S. Patent Application: "Event Signaling in a Foldable Object Tree"
-----------------------------------------
Serial No. 08/784,563
Filing Date: Jan. 21, 1997
C. U.S. Patent Application: "Database Updates Over a Network"
-------------------------------
Serial No. 08/784,593
Filing Date: Jan. 21, 1997
<PAGE>
EXHIBIT C
U.S. TRADEMARKS AND TRADEMARK APPLICATIONS
1. Registered Trademarks: List marks below or indicate "None":
A. U.S. Registered Trademark: "NETIQ"
-----
Registration No. 2, 137, 942
Date of Registration: Feb. 17, 1998
B. U.S. Registered Trademark: "APPMANAGER"
----------
Registration No. 2, 118, 436
Date of Registration: Dec. 2, 1997
C. U.S. Registered Trademark: "KNOWLEDGE SCRIPTS"
-----------------
Registration No. 2,182,121
Date of Registration: August 18, 1998
D. U.S. Registered Trademark : "WORK SMARTER"
------------
Registration No. 2,189,210
Date of Registration: September 15, 1998
E. U.S. Trademark Application: "NetIQ Partner Network (and Design)"
----------------------------------
Serial No. 75/477,878
Date of Filing: May 1, 1998
F. European Community Trademark Application: "NETIQ"
-----
Serial No. 684571
Date of Filing: Nov. 8, 1997
G. European Community Trademark Application: "APPMANAGER"
----------
Date of Filing: Mar. 16, 1998
2. UNREGISTERED TRADEMARKS: List marks below or indicate "None":
None
<PAGE>
SUBORDINATION AGREEMENT
This Subordination Agreement (this "Agreement") dated March 10, 1999, is
between Compuware Corporation, a Michigan corporation ("Creditor"), and Silicon
Valley Bank ("Bank").
Recitals
A. NetIQ Corporation ("Borrower") has requested and/or obtained credit
from Bank which may be secured by its assets and property.
B. Creditor is making a loan to Borrower pursuant to a Subordinated
Secured Promissory Note of even date herewith (the "Creditor Note"). The
obligations of Borrower to Creditor under the Creditor Note will be secured by
the assets and property of the Borrower pursuant to Security Agreements of even
date herewith (collectively, the "Security Agreements").
C. To induce Bank to extend credit to Borrower and make further extensions
of credit to or for Borrower, or to purchase or extend credit pursuant to any
instrument or writing on which Borrower is liable or to grant renewals or
extensions of any loan, extension of credit, purchase, or other accommodation
Creditor will subordinate on the terms and conditions set forth in this
Agreement: (i) all of Borrower's indebtedness and obligations to Creditor,
existing now or later (excluding any obligations (other than "put" or repurchase
obligations, if any) to Creditor under the Warrant for Common Stock executed by
Borrower in favor of Creditor, the "Subordinated Debt") to Borrower's
indebtedness and obligations to Bank; and (ii) all of Creditor's security
interests to all of Bank's security interests in the Borrower's property.
THE PARTIES AGREE AS FOLLOWS:
1. Creditor subordinates to Bank any security interest or lien that it has
in any property of Borrower until the Senior Debt (as defined and limited in
Section 2 below) is satisfied in full. Despite attachment or perfection dates
of Creditor's security interest and Bank's security interest, Bank's security
interest in the Collateral (as defined in the Loan and Security Agreement dated
May 15, 1998 between Borrower and Bank (as may be amended, modified or
supplemented from time to time, the "Loan Agreement")) is prior to Creditor's
security interest therein until the Senior Debt (as defined and limited in
Section 2 below) is satisfied in full. Notwithstanding the foregoing, as to any
Equipment Indebtedness included in Senior Debt pursuant to Section 2 below,
Creditor's subordination to Bank under this Section 1 shall be limited to the
specific equipment securing such Equipment Indebtedness, and if no Senior Debt
other than Equipment Indebtedness remains outstanding Creditor's subordination
to Bank under this Section 1 shall be so limited.
2. All Subordinated Debt payments are subordinated to all of Borrower's
obligations to Bank existing now or later, together with collection costs of the
obligations (including attorneys' fees), including, interest accruing after any
bankruptcy, reorganization or similar proceeding and all obligations under the
Loan Agreement or any other agreement between Bank and Borrower (the "Senior
Debt") on the terms and conditions set forth below; provided, however, that, for
-------- -------
the purpose of this Agreement, the Senior Debt shall not at any time exceed (I)
$2,500,000, which is the maximum principal amount that may be borrowed by
Borrower under the Loan Agreement as of the date of the Creditor Note, unpaid
interest on such maximum principal amount and fees, expenses, costs of
enforcement and other amounts due under the Loan Agreement in connection
therewith and (II) Equipment Indebtedness (as defined in the Creditor Note) that
may be incurred by Borrower to Bank in an aggregate principal amount of $500,000
less the aggregate principal amount of Equipment Indebtedness owed to holders
- ----
other than the Bank as to which Creditor is
<PAGE>
subordinated under Section 7 of the Creditor Note. The terms of this Agreement
(and not Section 7 of the Creditor Note) shall govern the subordination of the
Subordinated Debt to the Senior Debt.
3. Except as set forth in this Section 3 and elsewhere in this Agreement,
Creditor will not:
a) demand or receive from Borrower (and Borrower will not pay) any part
of the Subordinated Debt, by payment, prepayment, or otherwise,
b) exercise any remedy against the Collateral (excluding any act by
Creditor to take or perfect a security interest, lien or mortgage therein which
are subordinated to Bank as provided in this Agreement), or
c) provide notice to accelerate or accelerate the Subordinated Debt until
all the Senior Debt is paid. However, Creditor may demand and receive (and
Borrower may pay) regularly scheduled payments of interest that constitute
Subordinated Debt, unless an Event of Default (as defined in the Loan Agreement)
has been declared in writing with respect to the Senior Debt permitting Bank to
accelerate the maturity of the Senior Debt and Bank shall have sent written
notice thereof to Creditor, which Event of Default shall not have been cured or
waived and continues to exist, or an Event of Default would exist immediately
after such a payment. Further, unless an Event of Default (as defined in the
Loan Agreement) has been declared in writing with respect to the Senior Debt
permitting Bank to accelerate the maturity of the Senior Debt and Bank shall
have sent written notice thereof to Creditor, which Event of Default shall not
have been cured or waived and continues to exist, or an Event of Default would
exist immediately after a principal payment, Creditor may also demand and
receive from Borrower (and Borrower may pay) payments of principal that
constitute the Subordinated Debt on the earliest to occur of the following: (i)
January 1, 2002; (ii) the receipt by Borrower of gross proceeds of at least
$10,000,000 from the initial underwritten public offering of Borrower's capital
stock; (iii) the closing of the occurrence of a Change in Control (as defined in
the Creditor Note) to which Bank has specifically consented in writing under the
Loan Agreement; or (iv) at any other time provided in the Creditor Note if (as
to this clause (iv) only) the Senior Debt has been paid in full. This Agreement
does not prohibit Creditor from converting any Subordinated Debt into equity
securities of Borrower.
4. Notwithstanding anything to the contrary in Section 3 above, after the
occurrence and during the continuation of an Event of Default under the Creditor
Note, Creditor may take any action permitted under the Creditor Note or the
Security Agreements, but not earlier than one hundred eighty (180) days after
Bank has received written certification from Creditor that (1) an Event of
Default has occurred under the Creditor Note, and (2) the Creditor Note permits
an acceleration of the debt as a result of such default (the foregoing being
referred to as the "Blockage Period"). During the Blockage Period, Borrower
shall not make and Creditor shall not accept any payments on the Subordinated
Debt.
5. Bank shall promptly advise Creditor of any written notification or
declaration by Bank of any event of default with respect to the Senior Debt (the
"Defaulted Senior Debt"). If such Defaulted Senior Debt remains unpaid or any
default thereunder remains uncured, in whole or in part, on the 180th day
following the date on which Bank initially sent such written notice or
declaration, Creditor may (but shall not have the obligation to) satisfy in full
the Defaulted Senior Debt. Subject to the payment in full of all Senior Debt,
Creditor shall be subrogated to the rights of Bank to receive payments and
distributions of assets of Borrower applicable to the Senior Debt. No such
payments or distributions applicable to the Senior Debt shall, as between
Borrower and its creditors other than Bank and Creditor, be deemed to be a
payment by Borrower to and on account of the Creditor Note, and for purposes of
such subrogation, no payments or distributions to Bank to which Creditor would
be entitled except for the provisions of
2
<PAGE>
this Agreement shall, as between Borrower and its creditors other than Bank and
Creditor, be deemed to be a payment by Borrower to and on account of the Senior
Debt.
6. Subject to the rights of Bank under this Agreement to receive cash,
securities or other properties otherwise payable or deliverable to Creditor,
nothing contained in this Agreement shall impair, as between Borrower and
Creditor, the obligation of Borrower, subject to the terms and conditions
hereof, to pay to Creditor the principal, interest and other amounts due under
the Creditor Note as and when the same become due and payable, or shall prevent
Creditor, upon default under the Creditor Note or Security Agreements, from
exercising all rights, powers and remedies otherwise provided in the Creditor
Note or Security Agreements or by applicable law.
7. Creditor must deliver to Bank in the form received (except for
endorsement or assignment by Creditor) any payment, distribution, security or
proceeds it receives on the Subordinated Debt that are required to be paid to
Bank under this Agreement.
8. These provisions remain in full force and effect, despite Borrower's
insolvency, reorganization or any case or proceeding under any bankruptcy or
insolvency law, and Bank's claims for Senior Debt against Borrower and
Borrower's estate will be fully paid before any payment is made to Creditor in
any such insolvency, reorganization or other case or proceeding under any
bankruptcy or insolvency law.
9. Until the Senior Debt is paid, Creditor irrevocably appoints Bank as
its attorney-in-fact, with power of attorney with power of substitution, in
Creditor's name or in Bank's name, for Bank's use and benefit without notice to
Creditor, to file any claims in any bankruptcy, insolvency or similar proceeding
involving Borrower for the Subordinated Debt for Creditor if Creditor does not
do so at least 30 days before the time to file claims expires.
10. Creditor will immediately put a legend on the Subordinated Debt
documents that such documents are subject to this Agreement. No amendment of
the Subordinated Debt documents will modify this Agreement in any way that
terminates or impairs the subordination of the Subordinated Debt or the
subordination of the security interest or lien that Bank has in Borrower's
property. For example, documents shall not be amended to (i) increase the
interest rate of the Subordinated Debt without Bank's written consent (which
shall not be unreasonably withheld), or (ii) accelerate payment of principal or
interest or any other portion of the Subordinated Debt.
11. This Agreement is effective while Borrower owes any Senior Debt to
Bank or its assignees. If after full payment of the Senior Debt Bank must
disgorge any payments made on the Senior Debt, this Agreement and the relative
rights and priorities provided in it, will be reinstated as to all disgorged
payments as though the payments had not been made, and Creditor will immediately
pay Bank all payments received under the Subordinated Debt to the extent such
payments to Creditor would have been prohibited under this Agreement. At any
time without notice to Creditor, Bank may take actions it considers appropriate
on the Senior Debt such as terminating advances, extending the time of payment,
increasing interest rates, renewing, compromising or otherwise amending any
documents affecting the Senior Debt and any collateral securing the Senior Debt,
and enforcing or failing to enforce any rights against Borrower or any other
person. No action or inaction will impair or otherwise affect Bank's rights
under this Agreement. Creditor is not a surety or guarantor as defined in
California Civil Code Section 2787 or otherwise. Creditor waives any benefits of
California Civil Code Sections 2899 and 3433.
12. Any notice, request or other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
sent by facsimile or by recognized overnight carrier or personal delivery,
addressed as follows:
3
<PAGE>
If to Bank: Silicon Valley Bank
3003 Tasman Drive, HG 180
Santa Clara, CA 95054
Attention: General Counsel
Telephone: (408) 654-7400
Facsimile: (408) 496-2495
If to Creditor: Compuware Corporation
31440 Northwestern Highway
Farmington Hills, MI 48334
Attention: Thomas Costello, Esq.
Vice President, Secretary and General Counsel
Telephone: (248) 737-7300
Facsimile: (248) 737-7690
with a copy to : Fenwick & West LLP
Two Palo Alto Square
Attention: Jackie Daunt, Esq.
Telephone: (650) 858-7232
Facsimile (650) 494-1417
13. This Agreement binds and benefits Bank's and Creditor's successors or
assigns. This Agreement is for Creditor's and Bank's benefit and not for the
benefit of Borrower or any other party. If Borrower is refinancing any of the
Senior Debt with a new lender, upon Bank's request of Creditor, Creditor will
enter into a new subordination agreement with the new lender on substantially
the terms of this Agreement.
14. This Agreement may be executed in two or more counterparts, each of
which is an original and all of which together constitute one instrument.
15. California law governs this agreement without giving effect to
conflicts of laws principles. Creditor and Bank submit to the exclusive
jurisdiction of the courts in Santa Clara County, California. CREDITOR AND BANK
EACH WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION FROM
THIS AGREEMENT.
16. This Agreement is the entire agreement about this subject matter, and
supersedes prior negotiations or agreements. Creditor is not relying on any
representations by Bank or Borrower in entering into this Agreement. Creditor
will keep itself informed of Borrower's financial and other conditions. This
Agreement may be amended only by written instrument signed by Creditor and Bank.
4
<PAGE>
17. If there is an action to enforce the rights of a party under this
Agreement, the party prevailing will be entitled, in addition to other relief,
to all reasonable costs and expenses, including reasonable attorneys' fees,
incurred in the action.
"Creditor" "Bank"
COMPUWARE CORPORATION SILICON VALLEY BANK
By: /s/ Joseph A. Nathan By: /s/ authorized signatory
-------------------- ------------------------
Title: President Title: Vice President
----------------- -----------------
The Borrower approves the terms of this Agreement.
"Borrower"
NETIQ CORPORATION
By: /s/ Ching-Fa Hwang
------------------------
Title: President and CFO
---------------------
5
<PAGE>
Exhibit C
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO, OR (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
NETIQ CORPORATION
WARRANT FOR
COMMON STOCK
Dated March 10, 1999
This certifies that for value received:
Compuware Corporation, (the "Purchaser")
or registered assigns, is entitled, subject to the terms set forth herein, to
purchase from NETIQ CORPORATION, a California corporation (the "Company"), up to
a Maximum Number of fully paid and non-assessable shares of the Company's Common
Stock, without par value, at the Exercise Price upon the occurrence of an
Exercise Event, as more fully set forth herein.
1. Definitions
-----------
"Cash Value" means:
----------
(x) in the case of sub-section (i) of an Exercise Event, for each share of
Common Stock of the Company, the price to the public for each such share, or
(y) in the case of sub-section (ii) of an Exercise Event, the cash
consideration received by for each share of Common Stock and if the
consideration received is other than cash, its value will be deemed as follows:
(1) Securities not subject to investment letter or other similar
restrictions on free marketability:
(a) If traded on a securities exchange or the Nasdaq National
Market, the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the thirty-day period ending three (3) days
prior to the closing; provided, however, if the agreement governing such Change
of Control Transaction applies a different method of measuring the value of the
securities issued thereunder to the holders of the Company's Common Stock, then
the Cash Value hereunder will use the same method as set forth in that
agreement;
<PAGE>
(b) 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-day period ending three (3) days prior to the closing; provided,
however, if the agreement governing such Change of Control Transaction applies a
different method of measuring the value of the securities issued thereunder to
the holders of the Company's Common Stock, then the Cash Value hereunder will
use the same method as set forth in that agreement; and
(c) If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Preferred Stock voting as one class; provided, however, if the agreement
governing such Change of Control Transaction applies a different method of
measuring the value of the securities issued thereunder to the holders of the
Company's Common Stock, then the Cash Value hereunder will use the same method
as set forth in that agreement.
(2) 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 shareholder's status as an affiliate or former affiliate)
shall be to make an appropriate discount from the market value determined as
above in (1) (A), (B) or (C) to reflect the approximate fair market value
thereof, as mutually determined by the Corporation and the holders of at least a
majority of the voting power of all then outstanding shares of Preferred Stock
voting as one class.
"Change of Control Transaction" means the closing of (x) a merger or
-----------------------------
consolidation of the Company with or into another entity in which the
shareholders of the Company immediately before such merger or consolidation own
less than a majority of the surviving or resulting entity's outstanding voting
stock immediately thereafter, or (y) a sale of all or substantially all of the
Company's assets, or (z) any person or persons acting in concert shall acquire,
directly or indirectly, ownership of 51% or more of the combined voting power of
the capital stock of the Company but only to the extent such transaction is
substantially effectuated by sales of capital stock to such person or persons by
existing holders of capital stock of the Company and not by the Company.
"Commission" means the Securities and Exchange Commission, or any other
----------
federal agency then administering the Securities Act and the Securities Exchange
Act of 1934.
"Common Stock" means the Company's Common Stock, any stock into which such
------------
stock shall have been changed or any stock resulting from any reclassification
of such stock, and any other capital stock of the Company of any class or series
now or hereafter authorized having the right to share in distributions either of
earnings or assets of the Company without limit as to amount or percentage.
"Common-Equivalent Stock" means shares of Common Stock issuable upon
-----------------------
conversion of any security to Common Stock and shares of Common Stock issuable
upon the exercise of any outstanding options, warrants, or similar instruments
with respect to Common Stock or securities convertible into or exercisable for
Common Stock.
"Company" means NetIQ Corporation, a California corporation, and any
-------
successor corporation.
-2-
<PAGE>
"Exercise Event" shall mean either (i) the filing of a registration
--------------
statement (whether on a Form S-1, or otherwise) relating to one or more of the
Company's public offering of its Common Stock, excluding however registrations
relating solely to (x) employee benefit arrangements or (y) a Rule 145
transaction; or (ii) the execution of a definitive agreement regarding a Change
of Control Transaction occurring prior to the Company's initial public offering.
"Exercise Price" means:
--------------
(x) in the case of sub-section (i) of an Exercise Event, ninety percent
(90%) of the price to the public of a share of the Company's Common Stock;
(y) in the case of sub-section (ii) of an Exercise Event, if occurring on
or prior to December 31, 1999, eighty percent (80%) of the Cash Value of a share
of the Company's Common Stock; or
(z) in the case of sub-section (ii) of an Exercise Event, if occurring on
or after January 1, 2000, ninety percent (90%) of the Cash Value of a share of
the Company's Common Stock.
"Expiration Date" means the earlier to occur of a Change of Control
---------------
Transaction, the effectiveness of a registration statement covering the
Company's public offering of its Common Stock where the Holder exercises his
rights hereunder with respect to less than the Maximum Number of Warrant Shares
available for exercise under such Exercise Event, or 5:00 p.m., Pacific Time on
January 1, 2002.
"Holder" means the person in whose name this Warrant is registered on the
------
books of the Company maintained for such purpose.
"Maximum Number" means:
--------------
(x) in the case of sub-section (i) of an Exercise Event, up to ten percent
(10%) of the number of shares of Common Stock being registered for sale by the
Company in such public offering and notwithstanding the above, the Maximum
Number under this item (x) shall not exceed the Warrant Share Number;
(y) in the case of sub-section (ii) of an Exercise Event, up to the Warrant
Share Number.
"Person" means and includes natural persons, corporations, limited
------
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, government entities and authorities and other organizations, whether or
not legal entities.
"Principal Executive Office" means the Company's office at 5410 Betsy Ross
--------------------------
Drive, Santa Clara, CA 95054, or such other office as designated in writing to
the Holder by the Company.
-3-
<PAGE>
"Rule 144" means Rule 144 as promulgated by the Commission under the
--------
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that the Commission may promulgate.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Shareholder" means a holder of one or more Warrant Shares or shares of
-----------
Common Stock acquired upon conversion of Warrant Shares.
"Warrant" means this Warrant and all warrants issued upon the partial
-------
exercise, transfer or division of or in substitution for this Warrant or any
such warrant.
"Warrant Shares" means the shares of Common Stock issuable upon the
--------------
exercise of this Warrant, provided that if under the terms hereof there shall be
a change such that the securities purchasable hereunder shall be issued by an
entity other than the Company or there shall be a change in the type or class of
securities purchasable hereunder, then the term shall mean the securities
issuable upon the exercise of the rights granted hereunder.
"Warrant Share Number" shall initially be equal to two percent (2%) of the
--------------------
total of the outstanding Common Stock and Common-Equivalent Stock of the
Company, calculated immediately prior to the earlier of an Exercise Event
relating to the Company's initial public offering or a Change of Control
Transaction, subject to adjustment pursuant to Sections 2 or 4 herein.
2. Exercise
--------
2.1 Exercise Right; Manner of Exercise. This Warrant shall be exercisable
----------------------------------
immediately prior to and in connection with the occurrence of an Exercise Event
(and only in accordance herewith) and shall terminate on the Expiration Date.
Prior to the Expiration Date, the Company shall notify the Holder of an Exercise
Event in writing, (x) in the case of sub-section (i) of an Exercise Event as
soon as practicable thereafter and (y) in the case of sub-section (ii) of an
Exercise Event as soon as practicable after the Company's delivery of
solicitation materials to its shareholders relating to such transaction. The
notice delivered by the Company shall contain (x) in the case of sub-section (i)
of an Exercise Event, a copy of the registration statement relating thereto and
a statement of the estimated Cash Value (which shall be the average of the
filing range and if no such range is ascertainable, shall be the Company's good
faith estimate of such Cash Value, certified by the Company's Chief Executive
Officer); and (y) in the case of sub-section (ii) of an Exercise Event, a copy
of the shareholders' solicitation materials distributed by the Company with
respect to such Exercise Event and a statement of the estimated Cash Value
(which if not ascertainable at such time, shall be the Company's good faith
estimate of such Cash Value based on the methodologies described for determining
such Cash Value as determined herein, certified by the Company's Chief Executive
Officer). Upon receipt of such notification, the Holder may give written notice
that it elects to
-4-
<PAGE>
exercise its purchase rights hereunder, in whole or in part, but shall be
required to give such notice within ten (10) business days of deemed receipt
under Section 5.4 hereof of the Company's notice in order for such election to
be effective. If the Holder notifies the Company that it elects to exercise this
Warrant, the Company will notify the Holder in writing of the proposed effective
date of the registration statement or the proposed closing date of the Change of
Control Transaction, as applicable, and any material changes to those dates as
they become known. To exercise its rights hereunder, the Holder shall surrender
this Warrant, together with an executed Notice of Exercise, substantially in the
form of Exhibit A attached hereto, at the Principal Executive Office, such
---------
notice to specify the number of shares of Common Stock to be purchased thereby,
but in no event more than the Maximum Number, and pay to the Company at the time
of exercise an amount equal to the estimated Exercise Price based on the
estimated Cash Value described in the Company's notice above multiplied by the
number of Warrant Shares being purchased, by wire transfer, certified check, or
cancellation of indebtedness of the Company to the Holder, with such exercise to
take effect immediately prior to the effectiveness of the registration statement
or the closing of the Change of Control Transaction.
To the extent this Warrant is exercised under sub-section (i) of an
Exercise Event and the Maximum Number thereunder is less than the Warrant Share
Number, then the Warrant Share Number in this Warrant and on the Company's books
and records shall be reduced by such Maximum Number.
2.2 Adjustment in Exercise Price. Upon effectiveness of a registration
----------------------------
statement relating to a sub-section (i) Exercise Event or at or prior to the
closing of a Change of Control Transaction relating to a sub-section (ii)
Exercise Event, the actual Exercise Price shall be determined by the Company or
its successor-in-interest, as applicable. To the extent such actual Exercise
Price is higher than the estimated Exercise Price delivered by the Holder in
connection with the exercise of this Warrant under sub-section 2.1 above, the
Company or its successor-in-interest, if applicable, shall deliver to the
Holder, within three (3) business days of the determination by the Company of
the actual Exercise Price a notice stating the deficiency in Exercise Price
delivered. The Holder shall then be required to deliver to the Company or its
successor-in-interest, as applicable, within two (2) business days of receipt of
such notice, the amount of such deficiency. To the extent such actual Exercise
Price is lower than the estimated Exercise Price delivered by the Holder in
connection with exercise of this Warrant under sub-section 2.1 above, the
Company, or its success-in-interest, if applicable, shall deliver to the Holder
within two (2) business days of the date of effectiveness of a registration
statement or closing of a Change of Control Transaction (i) a statement
describing the amount of such excess Exercise Price paid by the Holder, and (ii)
the amount of such excess.
2.3 Stock Certificates. The Person or Person(s) in whose name(s) any
------------------
certificate(s) representing the Warrant Shares which are issuable upon exercise
of this Warrant shall be deemed to become the holder(s) of, and shall be treated
for all purposes as the record holder(s) of such Warrant Shares, and shall be
entitled to the number of Warrant Shares as specified in Section 2.1 above.
Such Warrant Shares shall be deemed to have been issued immediately prior to the
closing of the transaction relating to the Exercise Event, notwithstanding that
the stock transfer books of the Company shall then be closed or that
certificates representing such Warrant Shares shall not then be actually
delivered to such Person or Person(s). Certificates for the Warrant Shares so
purchased, if the Company is the surviving entity under an Exercise Event, shall
be delivered to the Holder by the later of (i) payment in full of the actual
Exercise Price as described in sub-section 2.2 above or (ii) ten (10) business
days of effectiveness of an exercise of this Warrant. If this Warrant is
exercised
-5-
<PAGE>
in part only, the Company shall deliver the certificate(s) representing the
Warrant Shares in accordance with this sub-section and this Warrant evidencing
the rights of the Holder to purchase the balance of the Warrant Shares up to the
Warrant Share Number as reflected on the Company's books and records as of such
time. The issuance of Warrant Shares upon exercise of this Warrant shall be made
without charge to the Holder for any issuance tax (as opposed to any income tax
on the Holder with respect to such issuance) with respect thereto or any other
cost incurred by the Company in connection with the exercise of this Warrant and
the related issuance of Warrant Shares.
2.4 Stock Fully Paid; Reservation of Shares. All of the shares of Common
---------------------------------------
Stock issuable upon the exercise of the rights represented by this Warrant will,
upon effectiveness of the exercise of this Warrant and full payment of the
actual Exercise Price as described in Section 2.2 above, be fully paid and
nonassessable, and free from all preemptive rights, rights of first refusal or
first offer, taxes, liens and charges with respect to the issuance thereof and
will be issued in compliance with all state and federal securities laws. During
the period within which the rights represented by this Warrant may be exercised,
the Company shall at all times have authorized and reserved for issuance
sufficient shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
2.5 Fractional Shares. The Company shall not issue fractional shares of
-----------------
Common Stock upon any exercise of this Warrant. As to any fractional share of
Common Stock which the Holder would otherwise be entitled to purchase from the
Company upon such exercise, the Company shall purchase from the Holder such
fractional share at a price equal to an amount calculated by multiplying such
fractional share (calculated to the nearest 1/100th of a share) by the Cash
Value of a share of Common Stock on the date of the Exercise Event. Payment of
such amount shall be made in cash or by check payable to the order of the Holder
at the time of delivery of any certificate or certificates arising upon such
exercise.
2.6 Non-Completion of an Exercise Event. The exercise of this Warrant
-----------------------------------
shall be deemed null and void and this Warrant along with any consideration
tendered by the Holder to the Company for purposes of effectuating the exercise
of this Warrant shall be promptly returned to the Holder,
(x) to the extent this Warrant is exercised in connection with sub-
section (i) of an Exercise Event and the registration statement relating to such
Exercise Event does not become effective within 120 days of such Exercise Event;
or
(y) to the extent this Warrant is exercised in connection with sub-
section (ii) of an Exercise Event and such Change of Control Transaction has not
been consummated within 120 days of such Exercise Event;
provided, however that any such time periods described above shall be
-------- -------
extended as necessary, but only to the extent the Company intends to make such
filed registration statement effective or consummate such Change of Control
Transaction, as the case may be, and the Company shall inform the Holder by
written notice at the end of such periods and every thirty (30) days thereafter
of the Company's intent to complete such transactions.
-6-
<PAGE>
3. Warrant Records and Transfer
----------------------------
3.1 Maintenance of Record Books. The Company shall keep at the Principal
---------------------------
Executive Office a record in which, subject to such reasonable regulations as it
may prescribe, it shall provide for the registration and transfer of this
Warrant. The Company and any Company agent may treat the Person in whose name
this Warrant is registered as the owner of this Warrant for all purposes
whatsoever and neither the Company nor any Company agent shall be affected by
any notice to the contrary.
3.2 Restrictions on Transfers.
-------------------------
(a) Compliance with Securities Act. Upon exercise of this Warrant,
------------------------------
and unless a registration statement covering the issuance of the underlying
Common Stock is on file with the Commission and currently effective, the Holder
shall confirm in writing, by executing the form attached hereto as Exhibit B,
---------
that the shares of Common Stock purchased thereby are being acquired for
investment, solely for the Holder's own account and not as a nominee for any
other Person, and not with a view toward distribution or resale.
(b) Certificate Legends. This Warrant and all shares of Common Stock
-------------------
issued upon exercise of this Warrant (unless registered under the Securities
Act), shall be stamped or imprinted with a legend in substantially the following
form (in addition to any legends required by applicable state securities laws):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO, OR (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) Disposition of Warrant Shares. With respect to any offer, sale or
-----------------------------
other disposition of any shares of Common Stock issued upon exercise of this
Warrant prior to registration under the Securities Act of such shares, the
Shareholder agrees to give written notice to the Company prior thereto,
describing briefly the circumstances thereof, together with a written opinion of
the Shareholder's counsel, to the effect that such offer, sale or other
disposition may be effected without registration under the Securities Act or
qualification under any applicable state securities laws of such shares, and
indicating whether or not under the Securities Act certificates for such shares
to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to insure compliance with
the Securities Act. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify the Shareholder that it may sell or otherwise dispose of such
shares, all in accordance with the terms of the notice delivered to the Company.
If a determination has been made pursuant to this Section 3.2(c) that the
opinion of counsel for the Shareholder is not reasonably satisfactory to the
Company, the Company shall so notify the Shareholder promptly after such
determination has been made and shall specify the legal analysis supporting any
such conclusion.
-7-
<PAGE>
Notwithstanding the foregoing, this Warrant or such shares, as the case may be,
may be offered, sold or otherwise disposed of in accordance with Rule 144,
provided that the Company shall have been furnished with such information as the
Company may reasonable request to provide reasonable assurance that the
provisions of Rule 144 have been satisfied. Each certificate representing this
Warrant or the shares thus transferred (except a transfer pursuant to Rule 144)
shall bear a legend as to the applicable restrictions on transferability in
order to insure compliance with the Securities Act, unless in the aforesaid
reasonably satisfactory opinion of counsel for the Shareholder, such legend is
not necessary in order to insure compliance with the Securities Act. The Company
may issue stop transfer instructions to its transfer agent in connection with
such restrictions.
(d) Warrant Non-Transferability. This Warrant may not be transferred
---------------------------
to a third party, unless to an affiliate or a successor-in-interest of all of
the business of the Holder. The Holder will notify the Company of a transfer
permitted under this sub-section 3.1(d) as soon as practicable.
(e) Termination of Restrictions. The restrictions imposed under this
---------------------------
Section 3.2 upon the transferability of the Warrant and the shares of Common
Stock acquired upon the exercise of this Warrant shall cease (i) with respect
to the Common Shares acquired pursuant to the exercise of this Warrant only, if
a registration statement covering the shares of Common Stock to be issued
effective under the Securities Act at the time of such exercise, or (ii) if the
Company is presented with an opinion of counsel reasonably satisfactory to the
Company that such restrictions are no longer required in order to insure
compliance with the Securities Act, or (iii) if such securities may be
transferred in accordance with Rule 144(k). When such restrictions terminate,
the Company shall, or shall instruct its transfer agent to, promptly and without
expense to the Holder or the Shareholder, as the case may be, issue new
securities in the name of the Holder and/or the Shareholder, as the case may be,
not bearing the legends required under Section 3.2(b). In addition, new
securities shall be issued without such legends if such legends may be properly
removed under the terms of Rule 144(k).
4. Antidilution Provisions
-----------------------
4.1 Reorganization or Recapitalization of the Company. In case of (i) a
-------------------------------------------------
capital reorganization or recapitalization of the Company's capital stock (other
than in a Change of Control Transaction or the cases referred to in of Section
4.3 hereof), or (ii) the Company's consolidation or merger with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted, by virtue of the merger, into other property, whether in the form of
securities, cash or otherwise, then, as part of such reorganization,
recapitalization, merger, or consolidation, lawful provision shall be made so
that there shall thereafter be deliverable upon the exercise of this Warrant or
any portion thereof (in lieu of or in addition to the number of shares of Common
Stock theretofore deliverable, as appropriate), and without payment of any
additional consideration, the number of shares of stock or other securities or
property to which the holder of the number of shares of Common Stock which would
otherwise have been deliverable upon the exercise of this Warrant or any portion
thereof at the time of such reorganization, recapitalization, consolidation, or
merger would have been entitled to receive in such reorganization,
recapitalization, consolidation, or merger. This Section 4.1 shall apply to
successive reorganizations, recapitalizations, consolidations, or mergers and to
the stock or securities
-8-
<PAGE>
of any other corporation that are at the time receivable upon the exercise of
this Warrant. If the per-share consideration payable to the Holder for shares of
Common Stock in connection with any transaction described in this Section 4.1 is
in a form other than cash or marketable securities, then the value of such
consideration shall be determined in good faith by the Company's Board of
Directors consistent among all holders of Common Stock.
4.2 Splits and Combinations. If the Company at any time subdivides any of
-----------------------
its outstanding shares of Common Stock into a greater number of shares, the
Warrant Share Number in effect immediately prior to such subdivision shall be
proportionately increased, and, conversely if the outstanding shares of Common
Stock are combined into a smaller number of shares, the Warrant Share Number in
effect immediately prior to such combination shall be proportionately reduced.
4.3 Reclassifications. If the Company changes any of the securities as to
-----------------
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Warrant Share
Number therefor shall be appropriately adjusted. No adjustment shall be made
pursuant to this Section 4.3 upon any conversion described in Section 4.1
hereof.
4.4 Liquidation; Dissolution. If the Company shall dissolve, liquidate or
------------------------
wind up its affairs, the Holder shall have no rights to exercise this Warrant
with respect to such dissolution, liquidation or winding up.
5. Miscellaneous
-------------
5.1 Holder Not a Shareholder. Prior to the exercise of this Warrant as
------------------------
hereinbefore provided, the Holder shall not be entitled to any of the rights of
a shareholder of the Company including, without limitation, the right as a
shareholder (i) to vote on or consent to any proposed action of the Company or
(ii) to receive (x) dividends or any other distributions made to shareholders,
(y) notice of or attend any meetings of shareholders of the Company, or (z)
notice of any other proceedings of the Company.
5.2 Enforcement Costs. If any party to, or beneficiary of, this Warrant
-----------------
seeks to enforce its rights hereunder by legal proceedings or otherwise, then
the non-prevailing party shall pay all reasonable costs and expenses incurred by
the prevailing party, including, without limitation, all reasonable attorneys'
fees (including the allocable costs of in-house counsel).
5.3 Nonwaiver; Cumulative Remedies. No course of dealing or any delay or
------------------------------
failure to exercise any right hereunder on the part of the Holder and/or any
Shareholder shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of the Holder or such Shareholder. No single or
partial waiver by the Holder and/or any Shareholder of any provision of this
Warrant or of any breach or default hereunder or of any right or remedy shall
operate as a waiver of any other provision, breach, default right or remedy or
of the same provision, breach, default, right or remedy on a future occasion.
The rights and remedies provided in this Warrant are cumulative
-9-
<PAGE>
and are in addition to all rights and remedies which the Holder and each
Shareholder may have in law or in equity or by statute or otherwise. The
procedure for obtaining the remedies available hereunder may be subject to
limitation under the terms of that certain Settlement Agreement among the
Company and the Holder thereof, entered into of even date herein (the
"Settlement Agreement").
5.4 Notices. Any notice, request, or other communications required or
-------
permitted hereunder shall be in writing and shall deemed to have been duly given
if sent by facsimile, or by recognized overnight courier or personal delivery,
addressed as follows:
If to Holder: Compuware Corporation
31440 Northwestern Highway
Farmington Hills, MI 48334
Attn: Thomas Costello, Esq.
Vice President, Secretary, and General Counsel
Telephone: (248) 737-7300
Facsimile: (248) 737-7690
With a copy (which will not constitute notice) to:
Fenwick & West LLP
Two Palo Alto Square, Suite 700
Palo Alto, CA 94306
Attn: Jackie Daunt, Esq.
Telephone: (650) 858-7232
Facsimile: (650) 494-1417
If to Company: NetIQ Corporation
5410 Betsy Ross Drive
Santa Clara, CA 95054
Attention: Ching-Fa Hwang
President and CEO
Telephone: (650) 261-9400
Facsimile: (650) 261-9468
With a copy (which will not constitute notice) to:
Thomas C. DeFilipps, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Telephone: (650) 493-9300
Facsimile: (650) 493-6811.
-10-
<PAGE>
Any party hereto may by notice so given change its address for future notice
hereunder. All such notices will be deemed to have been received (i) upon
confirmation of delivery, if sent by facsimile, or (ii) upon delivery, if sent
by courier or personal delivery.
5.5 Successors and Assigns. This Warrant shall be binding upon, the
----------------------
Company and any Person succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of the
obligations of the Company with respect to the shares of Common Stock issuable
upon exercise of this Warrant, shall survive the exercise, expiration or
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the Holder, each Shareholder and their
respective successors and assigns.
5.6 Severability.
------------
(a) If, in any action before any court or agency legally empowered to
enforce any term, any term is found to be unenforceable, then such term shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency.
(b) If any term is not curable as set forth in subsection (a) above,
the unenforceability of such term shall not affect the other provisions of this
Warrant but this Warrant shall be construed as if such unenforceable term had
never been contained herein.
5.7 Integration. This Warrant was initially issued pursuant to the
-----------
Settlement Agreement. The Settlement Agreement and the other documents entered
into pursuant thereto, including, without limitation, this Warrant, constitute
the full and entire understanding and agreement between the parties hereto and
thereto with regard to the subject matter hereof and thereof, and supersede any
prior or contemporaneous understandings, agreements or representations between
them that relate to the subject matter hereof or thereof.
5.8 Waiver and Amendment. Any provision of this Warrant may be amended,
--------------------
waived, modified or verified, including by way of settlements or otherwise, upon
the written consent of the Company and the Holder.
5.9 Governing Law. This Warrant shall be governed by, and construed in
-------------
accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within California by California
residents.
-11-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer on March 10, 1999.
NETIQ CORPORATION
By: /s/ Ching-Fa Hwang
------------------------------------------------------
Ching-Fa Hwang, President and Chief Executive Officer
ACKNOWLEDGED AND AGREED:
COMPUWARE CORPORATION:
By: /s/ Joseph A. Nathan
-------------------------
Name: Joseph A. Nathan
-----------------------
Title: President
----------------------
-12-
<PAGE>
SCHEDULE OF EXHIBITS
--------------------
EXHIBIT A - Notice of Exercise (Section 2.1)
EXHIBIT B - Investment Representation Certificate (Section 3.2(a))
<PAGE>
EXHIBIT A
Notice of Exercise Form
-----------------------
(To be executed only upon partial or full exercise of the attached Warrant)
TO: NETIQ CORPORATION
5410 Betsy Ross Drive
Santa Clara, CA 95054
Attention: President
The undersigned registered Holder of the attached Warrant hereby
irrevocably exercises the attached Warrant for ________________ shares of Common
Stock of NetIQ Corporation on the terms and conditions specified in the attached
Warrant.
The undersigned requests that a certificate for the shares of Common Stock
of NetIQ Corporation hereby purchased be issued in the name of and delivered to
(circle one) (a) the undersigned or (b) __________________, whose address is
___________________________ and, if such shares of Common Stock shall not
include all the shares of Common Stock issuable as provided in the attached
Warrant, that a new Warrant of like tenor (with the Warrant Share Number reduced
by the number of shares of Common Stock of NetIQ Corporation specified in the
first paragraph of this Notice) be issued in the name of and delivered to the
undersigned.
Dated: __________________________________
_________________________________________
By: ____________________________________
(Signature of Registered Holder)
Title:___________________________________
<PAGE>
EXHIBIT B
Investment Representation Certificate
-------------------------------------
Purchaser: ___________________________________________________________
Company: NetIQ Corporation, a California corporation (the "Company")
Security: Common Stock
Amount: ___________________________________________________________
Date: ___________________________________________________________
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Securities
Act");
(b) The Purchaser understands that the Securities may have not been
registered under the Securities Act in reliance upon a specific exemption
therefor, which exemption depends upon, among other things, the bona fide nature
of the Purchaser's investment intent as expressed herein. In this connection,
the Purchaser understands that, in the view of the Securities and Exchange
Commission (the "Commission"), the statutory basis for such exemption may be
unavailable if the Purchaser's representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future;
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Warrant under which the Securities
are being purchased unless there exists an effective registration statement for
such securities;
(d) The Purchaser is aware of the provisions of Rule 144, promulgated under
the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: (i) the availability of certain public information about the Company;
(ii) the
-1-
<PAGE>
resale occurring not less than one (1) year after the party has purchased and
paid for the securities to be sold; (iii) the sale being made through a broker
in an unsolicited "broker's transaction" or in transactions directly with a
market maker (as said term is defined under the Securities Exchange Act of 1934)
and the amount of securities being sold during any three-month period not
exceeding the specified limitations stated therein;
(e) The Purchaser further understands that at the time it wishes to sell
the Securities there may be no public market upon which to make such a sale, and
that, even if such a public market upon which to make such a sale then exists,
the Company may not be satisfying the current public information requirements of
Rule 144, and that, in such event, the Purchaser may be precluded from selling
the Securities under Rule 144 even if the one-year minimum holding period had
been satisfied; and
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
staff of the Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Date: _______________________________, ________
PURCHASER:
----------------------------
<PAGE>
Exhibit D
PATRICIA M. LUCAS, No. 88802
STUART P. MEYER, No. 136394
DAVID W. JOHNSON, No. 171519
FENWICK & WEST LLP
Two Palo Alto Square, Suite 700
Palo Alto, CA 94306
Tel: (650) 494-0600
Attorneys for Plaintiff
COMPUWARE CORPORATION
JACK RUSSO, No. 96068
TIM C. HALE, No. 114905
JOHN KELLEY, No. 100714
RUSSO & HALE LLP
401 Florence Street
Palo Alto, CA 94301
Tel.: (650) 327-9800
Attorneys for Defendants
NETIQ CORPORATION et al.
-----
IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF CALIFORNIA -- SAN JOSE DIVISION
COMPUWARE CORPORATION, ) Case No.: C-96-20783 JF (EAI)
a Michigan corporation, )
- ---------------------------------------------- NOTICE AND JOINT REQUEST
Plaintiff, FOR ENTRY OF ORDER OF
DISMISSAL WITH PREJUDICE
vs. AND ORDER THEREON
NETIQ CORPORATION, a California
corporation; Ching-Fa Hwang, an
individual; Her-daw Che, an individual;
Thomas R. Kemp, an individual; Glenn S.
Winokur, an individual; Sarah J. Cardella, an )
individual; Scott J. Dowd, an individual; and )
//Sheau Yuen Yu, an individual, )
// Defendants. )
_____________________________________________ )
// )
AND RELATED COUNTERCLAIMS )
IT IS HEREBY STIPULATED AND AGREED by and between Plaintiff COMPUWARE
CORPORATION and Defendants NETIQ CORPORATION, CHING-FA HWANG, HER-DAW CHE,
THOMAS R. KEMP, GLENN S. WINOKUR, SARAH J. CARDELLA, SCOTT J. DOWD, and SHEAU
YUEN YU through their respective undersigned
NOTICE AND JOINT REQUEST FOR ENTRY OF ORDER
OF DISMISSAL WITH PREJUDICE AND ORDER THEREON
<PAGE>
counsel of record that the above-entitled action, including all claims presented
by the complaint, supplemental complaint, first amended complaint, and
counterclaims, shall be and is hereby dismissed with prejudice pursuant to Rule
41(a) of the Federal Rules of Civil Procedure, each party to bear his, her, or
its own attorneys' fees and costs.
AGREED TO AND ACCEPTED:
Dated: March ___, 1999 FENWICK & WEST LLP
By: _________________________
Patricia M. Lucas
Attorneys for Plaintiff
COMPUWARE CORPORATION
Dated: March ___, 1999 RUSSO & HALE LLP
By: _________________________
Jack Russo
Attorneys for Defendants NETIQ CORPORATION,
CHING-FA HWANG, HER-DAW CHE, THOMAS R. KEMP, GLENN
S. WINOKUR, SARAH J. CARDELLA, SCOTT J. DOWD, AND
SHEAU YUEN YU
IT IS SO ORDERED:
Dated: ____________________ ______________________________________
Hon. Jeremy Fogel
United States District Judge
<PAGE>
EXHIBIT 21.1
NetIQ Subsidiaries
- --------------------------------------------------------------------------------
Place ownership by
NAME Place of Incorporation NetIQ
- --------------------------------------------------------------------------------
NetIQ Limited United Kingdom 100%
January 23, 1998
- --------------------------------------------------------------------------------
NetIQ Proprietary Limited Commonwealth of Australia 100%
February 15, 1999
- --------------------------------------------------------------------------------
NetIQ KK Japan 100%
March 26, 1998
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUN-30-1998 MAR-31-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 MAR-31-1999
<CASH> 3,358 11,565
<SECURITIES> 0 0
<RECEIVABLES> 4,362 5,271
<ALLOWANCES> (307) (505)
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,580 16,477
<PP&E> 821 1,581
<DEPRECIATION> (294) (545)
<TOTAL-ASSETS> 8,205 17,613
<CURRENT-LIABILITIES> (3,266) (11,401)
<BONDS> 0 0
0 0
10,955 10,955
<COMMON> 1,302 4,143
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 8,205 17,613
<SALES> 6,603 13,137
<TOTAL-REVENUES> 7,070 15,109
<CGS> 235 532
<TOTAL-COSTS> 642 1,426
<OTHER-EXPENSES> 9,801 14,273
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,111) (501)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,111) (501)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,111) (501)
<EPS-BASIC> (0.89) (0.10)
<EPS-DILUTED> (0.89) (0.10)
</TABLE>
